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  • MJG November 2017
  • Ted November 2017
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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How to Deal with Uncertainties

MJG
in Fund Discussions
Hi Guys,

It's not at all surprising that we quickly miss Ted's daily references. He is definitely an MFO asset who enhances the usefulness of this site.

In his temporary medical absence, I'll contribute a reference that he unfailingly makes:

http://awealthofcommonsense.com/2017/11/how-to-deal-with-market-moving-news/

The article does a reasonable summary, but I believe it misses a few significant actions that an individual investor can easily do to address changing market conditions. In the spirit of the article, I propose at least one additional "avoid" rule. Avoid an immediate decision. Allow some time to more fully assess the market's reactions by not reviewing your portfolio's current value on a daily basis. That frequent review encourages an overreaction and over-trading.

In addition to the avoidance rule set, I would also propose a "just do it" action. An investor should use a Monte Carlo simulation tool (many available for free on the Internet) to test the robustness of his portfolio to the uncertainties of future market returns.

History demonstrates the random nature of future returns. Predicting these returns is hazardous duty and failures greatly exceed accurate forecasts. Monte Carlo methods were specifically designed to address this randomness and noisey data characteristic. You can use this tool to explore numerous what-if future scenarios in a few minutes on the computer. These codes run thousands of possible time sequential histories based on easily changed inputs. Please give this powerful tool a chance to assess the range of possible portfolio performance outcomes using a probabilistic framework. Given the uncertainties, probabilities are the best we can do.

As a goal, I always attempted to reach a 95% plus portfolio survival likelihood. In the rare likelihood of portfolio failure, flexibility is always a saving policy.

Best Regards

Comments

  • TedTed
    @MJG: Sorry, I stepped on your toes. Thanks for linking Ben's article.
    Regards,
    Ted
  • MJG
    edited November 2017
    Hi Ted,

    Thanks, but no apologies are needed. I didn't anticipate your rapid recovery. Congratulations!!

    You are the fire that makes this site so interesting and useful. That's a second deeply felt thank you.

    Best Wishes
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