SD-2020 TRADING WITH THE TIDE

[sd]

Excellent commentary Ira!
Yes, many of the past investing wonders- hit their stride and -as you noted- eventually had periods of significant underperformance- Part of that is due to the influx of millions of dollars that the investor then has to deploy strategically- and widely ; and is no longer the targeted fund. I think Peter Lynch's Magellan fund became the Worlds longest fund with outperformance
under Lynch's tenure- but it also grew from a fund with Millions under management to Billions under management as investors chased the out performance- Eventually underperforming and investors bailing out on the fund. It became a Closed fund for a while- lost 80% of it's AUM and reopened to new investments.

en.wikipedia.org/wiki/Fidelity_Magellan_Fund

Something similar could happen to Ark Funds- - Or- Catherine Woods may be smart & nimble enough - that the innovation theme will last for multiple more years -and we are in the early phases of a technological remaking of the world economy- compared to what we thought- Moore's Law applied to broad technological advances-
Note that everything she touches does not excel- The 3D printing fund PRNT may have been early- and the IZRL fund looks to be gaining now.
ark-funds.com/3d-printing-etf

I would also point out that these funds under the ARK umbrella- can also lose significantly in periods of decline-
Note the attached chart Click on it to enlarge- - Kept it simple- so it's just 2020 YTD- ARKK, QQQ, SPY...... Note that the ARK fund was up +17% in Feb, above the others, but declined over 50 % to a -30% decline-from the Jan start ..... similar to the SPY, s losses with a much lower gain and net return- (Green Line )
The QQQ's -blue line- Large cap Tech- had the lesser net decline, and a decent + 25% gain YTD
i.imgur.com/IfnCxys.png

What the chart also demonstrates is that what would seem to be "safer" is not necessarily true- The broad stock market- S&P 500 has barely made it back to the Jan 2020 open. What is more dangerous to your portfolio ? A high flying tech sector - QQQ, ARKK vs a relative +3% low performance ? If you consider inflation- Averages 2.5% annually- ideally, one is positioned to stay ahead of inflation on one's retirement assets .
Woods also has some turnover in her holdings- and I think may trade around her positions- and yes- the funds have seen a lot of investor inflows-


Is over weighting the Momentum gainers dangerous , or simply prudent?


This chart illustrates the S&P 500, the S&P Low volatility fund, And the S&P value (IVE) fund.
I mistakenly had shifted some assets in the March decline to the Low Volatility fund- anticipating they would decline less. What a mistake that was! fortunately, it was only a portion of my net port. I ended up taking the loss on the declining position and putting those $$$ into what was working and made a nice recovery.
i.imgur.com/RMuMsR8.png

I believe it is worthwhile to invest with what is in favor- and that can best be accomplished by rebalancing a portfolio based on a monthly- or- at least a quarterly basis - One should perhaps hold diversified assets across a spectrum of investments- but should underweight those in decline and overweight those in favor.
Understanding that "Momentum" may favor different investments over a period of time is worth learning :

school.stockcharts.com/doku.php?id=trading_strategies:sector_rotation_roc

Mebane Faber also wrote "The Ivy Portfolio" a good read.

Momentum may eventually see the ARK funds in decline along with a tech market sell-off , and perhaps commodities and value type funds rising to the forefront- Realizing that the concept of Momentum dictates that one shifts assets by periodic rebalancing on shifts in momentum - lets assume that one could review the allocation Monthly - and make use of the principle to adjust the allocation.

In a similar vein, I have elected that my 2020-allocations in the confines of the company IRA offerings would be outside of investments in the US - A somewhat arbitrary decision that has worked out favorably- Of the 6 or so funds available for the investments, 3 are outperforming as the others underperform- As the prior article indicates- momentum often has staying power for longer periods of outperformance. The opposite is also true- Underperformance also can have staying power- and I think it is worth while to recognize the merits of momentum as it pertains to asset allocation. There will definitely come a time when what is in favor will be sold off- and having the mindset to shift allocations as market forces dictate may seem
difficult to implement, but can be done on a periodic basis -
That said, My personal approach is not as structured as it should be- Too discretionary and likely a large element of "luck" and momentum in play over the relative short term.
I will have to add this though- When I changed my investing approach to go primarily With the uptrending momentum, I greatly improved my success ratio - and increased my net gains vs losses by that simple adjustment.

[sd]

My company's IRA offers only American Funds sponsored Mutual Funds- This spring I had put those assets into a money market account and then rolled that over into the Vanguard brokerage IRA to give me freedom of Choice in investments. I then continued contributions starting in 3-30 back into the company IRA. I elected to focus this year's investment contributions in the company IRA in some of the American funds with international & foreign markets exposure. Mutual funds do not allow stop-losses- orders execute at the end of the day, and may have added expenses vs many ETF's .Also, you are not allowed to move more than $4,999.00 out of a fund in any one day without causing a 30 day lock on contributing back into that fund- This is designed to reduce daytrading in the funds. Very restrictive.
I am maxing out my allowable retirement contributions for 2020 , and while I initially elected to select from 5 funds- I am not funding each fund equally. Chart attached includes SPY to illustrate how these funds also seem to mimic the directional performance of the US markets Notice that the SPY and 2 of these funds are under a +4% YTD gain, while 3 of the other funds
are above the +8% return YTD- and also started off the year with higher momentum.
i.imgur.com/kzXMDM3.png

The 3 funds that are outperforming YTD are New Economy, New Perspective, Small Cap world fund.
They have also been the longer term outperformers on the 1-5-10 year Note that All of the funds have expense ratios -

i.imgur.com/hcem1yh.png

Because the payroll deduction into the IRA makes purchases once a month, the account has had a +19% return-since March- capturing those lower prices after the sell-off. and subsequent return to the trend higher- Although the YTD return from Jan for a fixed investment would possibly yield only +10% for the best performer.
My present course of action is to reduce the allocations in the Euro-Pacific growth fund and the New World Fund- and to put the majority of those assets into the 3 better performing funds.

The Chart of the Small cap world fund shows what appears to be extreme momentum - and the question then becomes- how best to protect these gains- And how much further could these funds go? At this point, has price room to go yet higher?
i.imgur.com/xwxpTLc.png

[ira85]

Some additional thoughts on "passive" investing in index ETFs. I don't get the popularity of index ETFs like the S&P 500 ETFs. What's to understand you say? It's simple. Instead of picking individual stocks you buy shares of an index ETF, like Vanguard's VOO, an ETF designed to operate exactly like the S&P 500 index. Standard and Poor Global is the financial services company that selects the companies that make up both the DJIA and the S&P 500 index. S&P Global maintains the records of the two indexes and assigns the weight each company in the S&P 500 will have in the index. S&P Global bears the cost of making those company selections, maintaining records, and most of everything else required to run an index ETF. Since S&P Global bears those costs, Vanguard doesn't have to. That allows Vanguard to keep their costs very low. Those are the costs they pass on to investors who buy some of their VOO ETF. Vanguard can run the VOO ETF with lower expenses passed along to investors than they can in a non-index fund of their own creation. Passive investing they call it. Most fund managers are active managers and they can't beat the annual results of the index because the index is run so inexpensively. So by keeping your costs low you beat the returns of most active managers. Passive investing supposedly beats active investing most of the time.

I have three problems with these index ETFs. First is the illusion of passive management. The indexes are actually actively managed. The DJIA is an example. The S&P 500 could be used for this example because all of the comments that follow about the DJIA are also true for the S&P 500. A committee reviews the performance of the companies that make up the DJIA index. If a company is struggling and showing poor performance the index management committee may kick the struggling company to the curb and select a replacement company that is financially stronger. Example, in 2015 AT&T (T) was booted out of the DJIA index and was replaced by Apple (AAPL). A committee examined the performance of AT&T and a number of possible replacements and made a selection. That process is certainly not passive. To the investor who owned shares in a DJIA index ETF he may have owned the ETF for years with no purchases nor sales of his shares. The investor is passive regarding making changes in the roster of companies in the DJIA. The investor and Vanguard are passive through these events. But the index management company, S&P Global, is an active manager doing the things Vanguard would do to actively manage one of their own funds. An index ETF like VOO is still actively managed, but by way of a partnership between the S&P Global and Vanguard.

Secondly a somewhat similar issue is the illusion of buy and hold created by index ETFs. As in the illustration above an index ETF owner may hold his shares or buy more shares, and may chose to hold his shares for years. It's easy for an investor in that situation to mistakenly think he is a buy and hold investor. As in the above example, the investor sold all his holdings of AT&T stock in 2015. The actual selling of his AT&T stock was managed by S&P Global and Vanguard acting on his behalf. Since he was not involved in the trades and they aren't recorded on his brokerage statements its easy for him to not realize the extent to which he actually did buy and sell securities.

Why is the buy and hold illusion important? Investors are often told that buy and hold is the only sensible, responsible way to invest. Everyone should follow Buffet's advice to buy with an expected holding period of forever. After all we aren't day traders, we're long term investors. Financial professionals often give that advice to their retail customers, but actively trade in their own accounts. Following the buy and hold advice can easily put the investor into a very expensive conundrum. When the market sells off as markets often do, the buy and hold investor knows he has to hold and see this reversal all the way through. If the selling accelerates and turns into a rout, he's feeling the pain of a 50% or more draw down and no honorable way out. Having some understanding of portfolio management and preserving assets is important. Fund sales people do their customers a disservice by pushing buy and hold. A defense strategy needs to be developed before the bear market starts. Realizing buy and hold is not the Holy Grail is a part of that process.

The third issue is the introduction of market inefficiencies through index ETFs. This is rarely discussed and may not be a serious problem. But it is interesting. In an efficient market everything about a stock is known and reflected in the price. Purchases and sales are rational. But as index ETFs become more popular and become a bigger factor in the value of the underlying stocks in the index the ETF contributes to market inefficiency. Instead of buying or selling XYZ stock on it's merits, it gets purchased by investors who are only interested in being invested in that ETF. The investor often doesn't know or care about the individual companies in the index fund. Theoretically, you could have a weak company that would normally be subject to a falling stock price, but the fact it is in a popular index, the index sales prop up the stock's price and help to keep it's weakness hidden. How might this not be a problem? Efficient market theory would say (I think) that such inefficiencies would be valuable to investors. Knowing that weak companies get carried along by popular ETFs could open the door for researchers to find ways to identify those weak companies and exploit that weakness, restoring market efficiency. -ira

[sd]

Interesting Analysis - I had no idea about S&P Global, but your observation seems valid - how the fund does have some active management as it changes companies out that fail to perform- and then include the newer company into the group- I believe that GE was the last of the original companies- perhaps that was the DOW- but to that point- Warren does not hold forever and does trade around his shares -contrary to what he may have advised at one era- I think that a company being expelled and then replaced is much like a dividend growth investor changing his holdings as the merits of the company change-
I think it is the wrong mindset to consider that something that one Buys today will be bringing the same value in 2- 5- 10-20 years- particularly in the era of vast technological change-
Most investors have limited time and perhaps limited experience in buying the Best of all companies at the right time- Who can afford the research staff ? Who has the arrogance to think they can pick the 10 or 20 best investments of their portfolio that could remain fixed for years to come-? As we saw in the Horse Race with the Long term picks- some made great gains - for a while-

As to having the proper mindset to purchase the best quality companies- at any particular time- situations and fortunes change- let's consider a Global company like GE- and also a company like MSFT- and it's 2001 and you had to make a final selection of the 10 best investments at that time for a buy and hold position- Both tracked similarly for years- but looked what happened after 2008 took both stocks down-
i.imgur.com/ZZQTDft.png

Professional advisers actually have a low bar - when comparing their returns to the "Market"- Why cannot they outperform the average of the lowest performing and highest performing basket of 500 stocks?
I so agree with you : "Having some understanding of portfolio management and preserving assets is important. Fund sales people do their customers a disservice by pushing buy and hold. A defense strategy needs to be developed before the bear market starts. Realizing buy and hold is not the Holy Grail is a part of that process."
I like ETF's because they reduce the Risk and also Reduce the Returns- vs owning an individual stock- Would anyone be so foolish as to invest All of their assets in one stock pick?
Choose a GE, A MSFT, or a TSLA? What if I was to Buy 20 stocks - to reduce the RISK- How many would be outperformers? How many would be average? How many would be underperformers- or - possibly go bankrupt- (Think Enron) something that most of us don't focus on- are the thousands of companies that have failed to survive- and simply no longer exist on our charts- or memories.
Market wisdom is taking your Age from 100 and that is your allocation to "Risk Assets" like stocks- So, at Age 70- 30% of your portfolio should be conservatively positioned in Stocks- 70% in underperforming and value losing fixed income- (vs inflation) Unless one has a rather large account where the assets will never be needed - Let's assume a 20 bag multi-millionaire
with annual living expenses $250 K - Most of us are not that fortunate- and should protect our limited assets from large market declines- but also strive for growth.
How do you achieve both?

In a prior post I had posted a 5 year chart of a small cap world fund with several horrendous drawdowns . that took out all the gains from years of holding several times. A long time friend that periodically reads this thread e-mailed me to say it illustrated that the markets always eventually recover-and thus supported the Buy and Hold perspective- Wrong interpretation of that chart IMO!
While I define myself as a part time trader/investor and only semi-active-at best- but - the investment firm that manages a portion of my meager assets over the past 3 years saw the value of those assets decline to the starting value- but have since recovered - That conservative approach -and the fixed allocation model without any stop-losses illustrates the false security of diversification and a fixed model.

i.imgur.com/CW7btR1.png

The starting Dollar value of this account could have been just $50,000 or - similarly $500,000- the volatility of this conservative approach yielded no safety in the March decline, and
similarly has not made it back up to the prior highs- and yet I pay a 1.7% annual management fee for their oversight of these funds- I also use this firm's recommended portfolio funds as a benchmark to compare my self-performance with.
i.imgur.com/CW7btR1.png

Illustrates active management/with a stop-loss approach: using approx 60% of assets - Combined Across the IRA and Roth accounts- reduces the downside At this point- Growth focused in the Tech sector - I wish I had this down to a better science- but my present return YTD is still 2x that of the "Market" (SPY) with lower volatility- reduced downside- Growth higher.
i.imgur.com/K5Oj5Cz.png

All of this noted- it's a short term relative outperformance- but i believe it has merit for further consideration -If a semi-involved part time somewhat discretionary investor/trader can manage this relative outperformance with lesser volatility- then an individual with real focus - and a designed approach , should be able to do better.
I find it reprehensible that a professionally managed account would lose ALL of the account's gains over 3 years in a 6 week period - and where would it have gone if the sell-off continued deeper? Obviously no active management took steps to reduce the decline- and thus -'almost' saved by the return of the higher trend-


For a systematic approach to work- Investors need to backtest their strategy - across multiple market swings-Even the best approach has periods of drawdowns-
A good place to start would be with a weekly trend following approach with stops and reentry rules.

[ira85]

I find it reprehensible that a professionally managed account would lose ALL of the account's gains over 3 years in a 6 week period - and where would it have gone if the sell-off continued deeper? Obviously no active management took steps to reduce the decline- and thus -'almost' saved by the return of the higher trend-

I have very little experience or data on what capital preservation strategies professional money managers employ. But from the experience I had screening about 5 firms, re-balancing portfolio's to maintain target diversification seemed to be a common strategy. Perhaps not coincidentally, that task is usually done at fixed intervals. The managers I reviewed did not appear to employ going to cash, going to govnt bonds, stop-loss, or other dynamic strategy that would be done in the hectic environment surrounding a big sell off. I think you'd have to rely on that part-time, semi-active trader/investor. But that guy's been dong great this year and really has a handle on his strategy to sacrifice some growth for the benefit of capital preservation when the next big wave hits. Congratulations on being ahead of most pros! -ira

[sd]

I think rebalancing is largely a proven plus when employed in a diversified portfolio- Supposedly my professional does that - keeping assets within 1% of their design allocation typically- but that did not seem to prop up that account during the decline we had in March- despite having a fair amount in bond funds as well- A lack of time this am- but I want to explore some of the strategies backtested by Arthur Hill on stockcharts using timing models- as well as considering the results if one was to add back into the position at incremengtal lower prices @ % declines. Will try to get that exercise going in the future-

[sd]

added back into the ARK funds on today's pos market move higher- tech gaining.
Arthur Hill has backtested a number of approaches- This article link also briefly shows a prior study where the exit was determined by the 50 ema crossing the 200 ema and going back in long when the 50 crosses back to the upside- The value in the longer term backtesting is it covers a wider market sample of varying conditions.
For myself, I don't have the mindset to allow that size of a downturn before reacting. These articles present a starting evaluation of the merits of "timing" as a way to reduce the size of the drawdowns, reduction in Risk, and potential for higher net profitability- Not included in these studies was the results of using a faster moving average on the exit or reentry signal, or
other methods of dollar cost averaging back into a position- or out of one.

stockcharts.com/members/articles/arthurhill/2017/08/systemtrader---reworking-the-chartcon-momentum-rotation-strategy---cut-your-profits-and-dont-worry-about-stops--.html
momentum screen-
System trader- other articles:
stockcharts.com/members/articles/arthurhill/2016/06/trading-strategy---crossing-to-the-dark-side---quantifying-the-golden-cross-for-the-sp-500.html

stockcharts.com/members/articles/arthurhill/2016/06/testing-the-golden-cross-with-the-nasdaq-100-and-russell-2000---do-short-positions-add-value---pitfalls-of-optimization.html

[ira85]

SD your comments about the timing system using the 50 and 200 ema reminded me of something I read about moving average timing models. Colby found the 200 day system he tested not very effective. The following is an excerpt from All About Market Timing by Leslie Masonson, available Amazon. The book also reviews the findings of Michael McDonald's moving average timing systems research and that of Paul Merriman and John Murphy.

"Robert W. Colby tested many simple moving average lengths, using DJIA daily closing prices from 1900 through 2001. His assumptions in testing the data were that all profits were reinvested, but that dividends, transaction costs, and taxes were excluded in his calculations. A buy signal was generated when the DJIA price pierced the moving average (being tested) to the upside, and a sell signal was generated when the DJIA price declined below the moving average to the downside. All sell signals were used to short the market. Surprisingly, Colby found that all the simple moving averages between between 1 day and 385 days beat buy-and-hold. In particular, he discovered that all the moving averages between 1 day and 100 days beat buy-and-hold by more than 7:1.

His best results were with the shortest lengths, the 1-, 4-, and 5-dma, which produced outstanding results with net profits in the billions of dollars. For the intermediate-term lengths, the 66-dma was 31 times better than buy-and-hold over the 102-year test period. The price crossovers of the 66-day simple moving average generated a net profit of $639,933 on a $100 initial one-time-investment, compared to $20,105 profit for buy-and-hold. Testing the popular 200-dma, Colby determined that the net profit was only $121,257, about 19 percent of the 66-dma's profit, but still six times better than buy-and-hold.
Of the long-term period lengths, Colby determined that the 126-dma was the most profitable strategy, with a net profit of $426,746. This was 2022.54 percent more profitable than buy-and-hold. Colby also noted that since the crash of 1987 the short selling strategy on the sell signals has not been profitable. Interestingly, only 185 trades out of 886 (21 percent) were profitable over this 102-year time frame. But the average winning trade amount of $6886.30 compares very well to the average trade's loss of -$1238.08. That is why overall, this strategy is profitable. The average number of days for each trade's length is 42.

You may be wondering why Colby's test results for the short-term moving averages had much higher returns than the returns for the intermediate and longer-term moving averages. Clearly, the faster moving averages (fewer days) react more quickly to changes in direction than the longer-term moving averages, therefore overall the profits keep mounting and the losses are cut short more quickly. One downside of using short-term moving averages is the large number of trades during the year. For the average investor an intermediate to long-term moving average approach is much easier to implement and track."

It seems there is some consistency in these back tests, i.e. shorter periods for the moving average to generate buy and sell signals are generally more profitable than long moving average periods. -ira

[sd]

Colby's research is impressive IRA! It affirms what I already believe - and also recognized - That the faster the signal used, the more profits captured, and the losses minimized- at the expense of more numerous whipsaws when a fast signal line is used- Testing up through 2001 validated the results with less benefit seen in the past 20 years attributed to more computer generated trading perhaps the major factor in diluting the results-
www.robertwcolby.com/EMAreport.html

Despite Colby citing the potentially lesser results in the recent 20 years of that long term outperformance, it confirms to me that the application of using an exit/entry strategy around price/ moving average signal line still has solid merits. Note that the study applied to the Dow Jones and not the S&P nor the Nasdaq 100.
I would be particularly interested to see the results if applied to the other indexes-
Note that the Tech wreck of 2000 saw the tech sector severely decline following 2000 for years of underperformance- With the Dow the beneficiary of higher gains if one only invested in 2000 and never changed the investment since-

i.imgur.com/QR1ktVv.png

However, I think it is worth noting that the 3 indexes 2005-2009 were highly correlated- moving similarly for that period-- but note the upsurge of Tech -QQQ following 2009.

i.imgur.com/aE1DzVk.png

And Finally the performance of the indexes from 2009 shows the Dow and S&P in lockstep with the tech sector the growth engine

i.imgur.com/09bOZgI.png

And- more recently-
i.imgur.com/bqczdgr.png

What is noticed is that all the indexes move similarly during periods of decline- so the qqq's outperformance does not protect it -
In 2020- Q's were initially outperforming, had a lesser decline relative in March- Note the Dow has failed to recover to the Jan 2020 level- Spy about breakeven with it's Feb Highs.
Q's made the best recovery - exceeding it's Feb high significantly.
Which Index is more dangerous to your financial health-? Supports the momentum concept- QQQ's a good candidate to test the different ma entry/exits .

[sd]

Masonsons book looks interesting-
www.amazon.com/All-About-Market-Timing-Second/dp/007175377X

Googling market timing models:Major indexes: As noted -Timing Models outperform in periods of market's declining and will underperform during Bull markets with low volatility-
This past March 2020 certainly shows how quickly such a decline can occur- and how severe it can be. It would be beneficial to see how some of the following models compared to the
historic decline we had this year-

Portfolio backtesting :https://www.portfoliovisualizer.com/test-market-timing-model "Free limited Model" as well as Fee based Basic account- Possibly a good place to start to compare one's portfolio- Not sure how to alter the parameters. Viewed the site briefly

www.mojena.com/model.htm#:~:text=The%20timing%20strategies%20determines%20what,Bills)%20during%20a%20sell%20signal.
www.mojena.com/live.htm

A SA comparisom of a few timing models finds that most looked at underperform over the long term, yet can also reduce the extent of the Risk-
seekingalpha.com/article/4079476-10-market-timing-strategies-compared

This site looks interesting- was cautious in Feb pre-Corona here : Also has some timing model info.using the simple 200 ma price cross as the exit/entry signal


frugalinvestors.com/

frugalinvestors.com/2020-stock-market-crash-market-timing-model-for-frugal-investors/

LOOKING AT ONE CHART: SPY 2020- This chart illustrates the 200 ma as the signal to exit once price Closes below it. Note that there is a 1 day follow lower, but then price whipsaws back higher above the 200 sma-but if one applies a trend following guideline, the fast ema is inverted and below the other emas and in decline- and so a reentry would not be permitted until the fast ema n made the upturn above the slower ema-s - and that trigger could be the 10, 20, 30 etc. Noticing that the price moved higher in late March, pulling the fast ema upwards with a 5/10 ema crossover. That sees a multi-day retest-reaction lower- The 1st rally following a price decline may often be followed by a retest- and a decline lower yet.
The 200 sma reentry signal talked about in some of the articles linked above really doesn't gain much on the reentry compared to the exit- And since 2 months of price above the lows occurred, waiting to invest until the 200 is reached again seems to give up potential profits that could be gotten by those entering positions at earlier levels. And-difficult to wait to see price reach the 200 ma for a reentry only to have it again decline below- potentially triggering a new sell-
Chart is just for illustrations- I think it's a starting point to perhaps be fully Out @ the 200 ma, but to determine methods to scale back in based on price recovery-
My personal preference is to be in cash well before the price pulls back to the 50-

i.imgur.com/Kuk9ilF.png

[ira85]

SD commented, "I would be particularly interested to see the results if applied to the other indexes."

From the Masonson book . . .Michael McDonald's Moving Average S&P 500 Index Tests.

"Michael McDonald in his book Predict Market Swings with Technical Analysis (Wiley, 2002), back-tested numerous moving-average lengths to determine which ones provided the best performance compared to buy-and-hold against the S&P 500 Index including re-invested dividends. He found that superior results were obtained using the 72-dma and 132-dma. Remember that Colby, who did his back testing with the DJIA, found that the 66-dma and the 126-dma were high-profitability strategies. Results this similar on two different indexes for different time periods provide confirmation that these moving-average lengths are valid timing tools.

In 1983, McDonald back-tested all daily moving averages using the S&P 500 Index between 5 days to 200 days, in one-day increments, to determine the most profitable time frame. McDonald used the next day's closing price, after the signal was given, as the buy or sell price. This approach is a more conservative one than using the same-day price when the moving average crossovers occurred because acting on the same-day price usually provided increased profits for the investor. McDonald replicated his research in 1992 and in 1999, to confirm the results of his original study. To do this he divided the data into four distinct periods: the Great Depression, the 20-year post-World War II bull market, the 1966-82 sideways market, and the 1982 - 1999 bull market. According to McDonald, the original results were confirmed by the later studies. Over the 71-year total test period the buy-and-hold strategy produced an average return of 10.3 percent a year, including reinvested dividends, where as the shorter moving averages of 50 days or less produced average returns of 9.5 percent a year not keeping up with buy-and-hold. One of the best returns was obtained with the 130-dma that provided an annual return of 12.5 percent. Remember that Colby's short-term moving average results did not include reinvested dividends and used the DJIA instead of the S&P 500 index; therefore, his results were different."

It looks like using the next day closing price instead of the same day price and leaving out dividends instead of re-investing them makes a significant difference. - ira

[sd]

I just received today's UPS delivery of 2 books-Blitz & "All About Market Timing" And after soaking both packages down with sterilizing solution as I do with all mail , I'll get around to reading over the next week-
Dividend reinvestment accounts for 40% of the long term returns- so it is an important factor when comparing strategies- I found this out when an American funds Rep tried to demonstrate the American funds performance (with dividends reinvested) vs the S&P -without dividends- Apples and pears comparisom. Cannot trust anyone that wants to fudge the performance results by omitting the advantage for the SPY and including them for the Amer. Funds- You had to note the small asterisk and note at the bottom of the page to pick up on the obvious deception-
One fund -dividends reinvested vs the Market index without dividend reinvestment.
My one lament would be that these books on timing using historical back testing are indeed dated- Masonson's reprint 2nd edition is from 2011. I would think that the viability of any approach that can consistently improve one's market results deserves updating and "Proofing"
that the concepts that seemed to work in hindsight in decades past are still relevant and outperforming in today's fast computer driven markets.
A lot has happened since 2011- the last update- but it gives the groundwork of outlining the various approaches - The book cover looks familiar -LOL- perhaps I should have looked in the back bedroom before ordering!
Something I've realized about receiving information- reading, lectures , Youtube etc- is that one's willingness to be receptive and adopt or analyze the information objectively is often subjective and not analytical. Ultimately, the common ground of all trading approaches starts with the precept that one has the ability to execute a strategy based on the parameters one sets. Very few have such discipline (self included) to apply such a strategy across the board - and instead we apply discretionary interpretations to our investment decisions to our detriment.

As i proceed further down this path, I find i am developing a simple momentum belief- Go long with what is Outperforming- and that can possibly be defined simply by broad programs that already track the momentum-- Stockcharts ETF SCTR ratings for examnple-

Consider the potential impact of a portfolio % allocation to the higher SCTR ratings ETFs.....

[sd]

100 Best performing etf list for 2020-
etfdb.com/compare/highest-ytd-returns/no-leveraged/
The ARKK funds are well represented-
Considering to expand and diversify the portfolio- and may select from some of these funds-
With the future risks - Virus, continued shut downs, election all unknown- areas of the markets that have outperformed may not participate in the future if the economic outlook comes under
negative sentiment.

May also consider some hedging ETFs -One example would be a fund like SWAN as a possible holding amplifyetfs.com/Data/Sites/6/media/docs/BlackSwan_Risks_on_the_Horizon-8-2019.pdf
Amplify has some interesting focused funds amplifyetfs.com/

ETFDB.com & ETF.com good resources-


EOD TRADES- Took a $150.00 loss on CGC- one of the few individual stocks I purchased a week or so earlier on impulse- Did buy TSLA - 1 share this week just to see how it behaves with the split news- One of the best gains I've had is from ARKG's momentum- So I added to All of the Ark funds- - All were in profitable territory- Approx $50k among the Ark funds inside the Van. Roth account. In the Van IRA, I added to the VGT, VOOG, and also bought 200 shares of SWAN as a diversification - Still holding VXUS, BND, VPU,BNDX,
but still holding approx 57K in cash -
While I expected seasonality, Virus, elections, narrow breadth and High PEs to push us down, we somehow continue to grind to new highs -

[ira85]

I was writing a review of several unusual changes in the major markets and these changes seem to be converging now. We may see several long term trends change and head the other way in the next year. What kind of changes? One such change is how markets function differently with the growing popularity of low cost index ETFs and the passive investment process it spawned. John Bogle has said, “If everybody indexed, the only word you could use is chaos, catastrophe.” Well thankfully not everyone is going to index, so presumably we won't have chaos. But even it you have just millions of indexers, what changes will that cause? Also tax and retirement laws have changed in recent years to make it easier to invest for retirement. In fact there are multiple ways Americans are being encouraged and rewarded for saving and investing for retirement. In the past a lot of the money in the markets was held by the wealthy. They wanted to grow their wealth and pass it on to future generations. But now the market is structurally different. A big chunk of the money in the market was saved by working class people who plan to spend that money in their retirement. We now have millions of stock investors who think of their investments more like bank accounts. They plan to save till they need to start making withdrawals. They have been encouraged to do just that by congress, their employers, and by the discount financial services companies that have made it easier and cheaper to invest for retirement. We might find that stock markets work differently when they have millions of people all expecting to take monthly withdrawals from their brokerage accounts.

Another once in a lifetime change we are living through is extremely low interest rates. So far it seems lower and lower rates have been warmly greeted and there has been very little opposition. I remember where I was on August 18, 1982 when the rising interest rate trend peaked and started to fall. That was the big story on news radio that day as I drove from Dallas back to Fort Worth that afternoon. The stock market had a sharp rally and it seemed lots of people could see the rising rates and falling stocks trend was breaking. I remember wishing I had some money to buy some of those cheap stocks. I didn't imagine in my wildest dreams interest rates would continue falling from August 1982 to August 2020, 37 years. The 1980 to 82 bear market saw the S&P 500 make a low of 111.59. Mortgage rates peaked at 17% in 1982. Falling interest rates have provided a generally supportive environment for rising stock prices. So we've seen the S&P 500 go from 111.59 in February 1982 to 3401.25 today. We've seen Presidents, congress, and the Federal Reserve all support stimulating the economy to maintain high stock prices and low interest rates. There seems to be a sense that all is well so long as stock prices keep rising. If everyone thinks falling interest rates and rising stock prices are always good, then what could go wrong? We've all heard the stories about how everyone wanted to buy stocks in the booming 1920's. Lots of people were getting rich, especially by speculating using leverage. Joseph Kennedy's shoe shine boy reportedly told Mr. Kennedy one morning that he bought some stock the day before. Mr. Kennedy reportedly went back to his office and started selling his stock holdings. The shoe shine boy was his sell signal. When everyone agrees on the direction of the stock market we know it ain't gonna go that way.

It seems to me we've had a trend since 1983 of multiple political, financial, monetary etc. etc ad infinitum factors all supportive of higher stock prices. So now we see analysts saying stocks are ridiculously highly valued, such they have very little chance to continue on the high growth path of recent years. They are priced for better than perfection. Then the very same analyst will give his or her's stock recommendations! Seems like we have a bubble and we've been living in the bubble for so long no one recognizes it any more. Could there be a problem here? How about this tid bit.

The United States spent more than $4 trillion, or 36% of its GDP, fighting World War II. That's fighting an all out war in Europe AND another war in the Pacific simultaneously for 4 years. We've spent more than $4 trillion in the first 7 months of COVID 19.

There used to be some principle of financial responsibility. It used to be a candidate for president needed to show at least a little respect for financially responsible. People used to think it was important to balance the federal budget. It was considered to be a part of being conservative. William F. Buckley would be a good example of a conservative who valued financial responsibility.

Well I was going to write an article on these issues but then I read one on Seeking Alpha that covers most of the same issues. But that author knows a lot more about the economy than I do. That article is much better than I could have written. See it here
seekingalpha.com/article/4369782-s-and-p-500-flying-in-danger-zone?utm_medium=email&utm_source=seeking_alpha&mail_subject=must-read-tesla-investors-are-flying-blind-in-china&utm_campaign=nl-must-read&utm_content=link-10

This convergence of negative factors reminds me of the Bob Dylan lyric, "And it's a hard rain's a-gonna fall." -ira

[sd]

But now the market is structurally different. A big chunk of the money in the market was saved by working class people who plan to spend that money in their retirement. We now have millions of stock investors who think of their investments more like bank accounts. They plan to save till they need to start making withdrawals. They have been encouraged to do just that by congress, their employers, and by the discount financial services companies that have made it easier and cheaper to invest for retirement. We might find that stock markets work differently when they have millions of people all expecting to take monthly withdrawals from their brokerage accounts.

I don't think the added individual market participants will have a significant impact- For Decades, pension funds would provide that same monthly disbursement - and they had to use monies that were once invested - I think the retail investor does cause short term impacts - enthusiasm to Buy High, and remorse to sell again at the lows, based on emotions. I expect that the greater # in the retired population , and more RMDs taken- Will continue to boost the economy over the long term- Yes, I expect we will see a wave of unemployment and defaults
that we will eventually recover from- and I think the market is pricing that recovery in despite the present day tepid and stumbling attempts to regain some normalcy. There is a lot to be desired, and a quick recovery is through Rose colored glasses. But , We will recover- it may take longer- A lot also depends on the political outcomes- A Biden win means higher taxes for business, further exacerbating the loss of jobs, and further regulations affecting industries and individuals alike. Unfortunately, when so many people have been adversely affected and lives disrupted , it is easy to see how they could listen to the siren song of the socialist/progressives.


Another once in a lifetime change we are living through is extremely low interest rates. So far it seems lower and lower rates have been warmly greeted and there has been very little opposition. I remember where I was on August 18, 1982 when the rising interest rate trend peaked and started to fall. That was the big story on news radio that day as I drove from Dallas back to Fort Worth that afternoon. The stock market had a sharp rally and it seemed lots of people could see the rising rates and falling stocks trend was breaking. I remember wishing I had some money to buy some of those cheap stocks. I didn't imagine in my wildest dreams interest rates would continue falling from August 1982 to August 2020, 37 years. The 1980 to 82 bear market saw the S&P 500 make a low of 111.59. Mortgage rates peaked at 17% in 1982. Falling interest rates have provided a generally supportive environment for rising stock prices. So we've seen the S&P 500 go from 111.59 in February 1982 to 3401.25 today. We've seen Presidents, congress, and the Federal Reserve all support stimulating the economy to maintain high stock prices and low interest rates. There seems to be a sense that all is well so long as stock prices keep rising. If everyone thinks falling interest rates and rising stock prices are always good, then what could go wrong? We've all heard the stories about how everyone wanted to buy stocks in the booming 1920's. Lots of people were getting rich, especially by speculating using leverage. Joseph Kennedy's shoe shine boy reportedly told Mr. Kennedy one morning that he bought some stock the day before. Mr. Kennedy reportedly went back to his office and started selling his stock holdings. The shoe shine boy was his sell signal. When everyone agrees on the direction of the stock market we know it ain't gonna go that way.

I bought a house in Baytown Texas in 1983 @ 15% interest! Boy, have times changed on the interest fronts! Low rates support more home ownership, and the "American Dream"
Despite that valuations are seemingly stretched, The music is still playing- But perhaps the TSLA and AAPL splits really signify the Peak is near! Yet, I continue to add to some positions, Knowing better than I did in 2000- You have to be willing to protect the larger part of gains, and suffer smaller losses- in order to stay IN-
Good Article Link you posted! Impossible to discredit the authors reasoning, other than to say the trend continues until it turns- He offers some good defensive suggestions at the end
seekingalpha.com/article/4369782-s-and-p-500-flying-in-danger-zone?utm_medium=email&utm_source=seeking_alpha&mail_subject=must-read-tesla-investors-are-flying-blind-in-china&utm_campaign=nl-must-read&utm_content=link-10

It seems to me we've had a trend since 1983 of multiple political, financial, monetary etc. etc ad infinitum factors all supportive of higher stock prices. So now we see analysts saying stocks are ridiculously highly valued, such they have very little chance to continue on the high growth path of recent years. They are priced for better than perfection. Then the very same analyst will give his or her's stock recommendations! Seems like we have a bubble and we've been living in the bubble for so long no one recognizes it any more. Could there be a problem here? How about this tid bit.

The United States spent more than $4 trillion, or 36% of its GDP, fighting World War II. That's fighting an all out war in Europe AND another war in the Pacific simultaneously for 4 years. We've spent more than $4 trillion in the first 7 months of COVID 19.

But consider that dollar allocation back in 1940-1945 was 7 decades in the past- so the dollar equation in terms of size is similar- but in actual terms post decades of inflation- and with a beneficial printing press at the Fed- ..... are yesterdays financial apples compared to todays Kiwis?


There used to be some principle of financial responsibility. It used to be a candidate for president needed to show at least a little respect for financially responsible. People used to think it was important to balance the federal budget. It was considered to be a part of being conservative. William F. Buckley would be a good example of a conservative who valued financial responsibility.[/i]

Well I was going to write an article on these issues but then I read one on Seeking Alpha that covers most of the same issues. But that author knows a lot more about the economy than I do. That article is much better than I could have written. See it here
seekingalpha.com/article/4369782-s-and-p-500-flying-in-danger-zone?utm_medium=email&utm_source=seeking_alpha&mail_subject=must-read-tesla-investors-are-flying-blind-in-china&utm_campaign=nl-must-read&utm_content=link-10

This convergence of negative factors reminds me of the Bob Dylan lyric, "And it's a hard rain's a-gonna fall." -ira
Last Edit: 13 hours ago by ira85
Like Dylan- www.youtube.com/watch?v=T5al0HmR4to

Final thoughts- All of the arguments about the bubble and over valuations presented by the author are quite valid- Similarly sounded out by Marks previously 2 years ago- caused a minor uproar and decline and yet, Voila! we recovered- roared higher and again, Is it smoke and mirrors?
www.oaktreecapital.com/insights/howard-marks-memos
Most certainly- Don't drink the Kool Aid - Eventually the pendulum swings back and everything rights itself- by back tracking- and evaporating profits from those who fail to take action. Those seeking "Value" have plenty to select from - but when will "Value"
take it's place again and be recognized by the markets? That is the Why Warren holds so much cash and Why BRKB is struggling to recover back to break-even for 2020-
And, since Warren elected to buy GOLD, AAPL, and sell a lot of his bank positions for a loss, The Oracle does not appear to believe we will see a recovery soon.
The individual investor can relax, because He/She does not control enough assets to move the markets by trading in/out of positions- Individuals can have the opportunity to allocate and move assets from aggressive into conservative- and even into money markets should conditions warrant.
Or Not -
I think investors can take proactive positions to position themselves from the major market swings-
Marks:The normal cycle starts off from an economic and market low; overcomes psychological and capital market headwinds; benefits from gathering strength in the economy; witnesses corporate results that exceed expectations; is amplified by optimistic corporate decisions; is reinforced by increasingly positive investor sentiment; and thus fosters rising prices for stocks and other risk assets until they become excessive at the top (and vice versa on the downside). But in the current case, a moderate recovery – marked by reasonable growth, realistic expectations, an absence of corporate overexpansion and a lack of investor euphoria – was struck down by an unexpected meteor strike.

More than ever, an awareness of the expected future fragility of this financial "bubble" does not support the "Stay in Cash" mindset- because- eventually there will be a day of
reckoning- That Day may take weeks or Months- or occur overnite on the results of an election- True believers will be buying "Value" at this low level with the patience to hold for as long as it takes to be rewarded. Momentum investors expect to be rewarded shortly after taking positions , and can opt to trail stop-losses to secure net gains, or to take smaller losses. It seems prudent to not be all-in any one approach at this time- SD








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