FYI: Carl is a 75-year-old retiree from Mercer Island, splitting time between charity efforts, yard work, family and trying to make sure his money will last for the rest of his life.
In September 2018, Carl’s portfolio — 100% invested in index and specialty exchange-traded funds (ETFs) — was up more than 15% on the year. By the middle of December, he was in the red and “just could not afford to lose any more,” so liquidated nearly his entire portfolio.
As a result, he finished 2018 with a loss of about 10%.
By mid-January, Carl was convinced that the bull market was back on, so he invested again, just in time to catch the end of the rally.
As a result, Carl didn’t endure the very worst of the “buy high, sell low” cycle that investors experienced in the last six months.
Regards,
Ted
https://www.seattletimes.com/business/the-signal-for-avoiding-markets-next-painful-downturn-comes-from-within/
Comments
In order for me to better follow the movement of the stock market I came up with my market barometer which scores the S&P 500 Index based upon three main data feeds. They are an earnings feed, breadth feed, and a technical score feed. Generally, when the barometer indicates that the markets are oversold I will do a little buying; and, when it reflects that the markets are overbought I'll trim my equity positions if warranted based on where I bubble within my asset allocation.
Most on the board know of my monthly (and sometimes weekly) postings of my barometer report.
If you are not familiar with it I have provided a link below to the my April report. Perhaps, in reading Old_Skeet's Barometer Report will instill some ideas that you might carry forward in developing a system of your own to become a more skilled retail investor.
https://mutualfundobserver.com/discuss/discussion/48963/old-skeet-s-market-barometer-report-thinking-for-april-2019-april-18th-update#latest
Wishing all ... "Good Investing."
Old_Skeet
Not trying to be flippant. But it seems illogical to me that everyone might possibly avoid market downturns with proper planning & preparation. If I somehow avoid a loss when the markets turn downward, does not the next (unfortunate) fellow have to swallow both his anticipated loss and the loss I avoided as well?
Carrying these teachings to the logical extreme, than it’s even more illogical to expect future market / financial downturns to be milder - should more investors sell at the onset. That mindset can only serve to amplify the severity of the inevitable downturn.
These assumptions about market timing run contrary to the core philosophy and methodology of great long-term investors like D&C or TRP who (because of huge AUMs) can’t easily unload equities at the beginning of a downturn and dive back in when the upturn resumes. Yet these guys (and many others) manage to chalk up very impressive 10-year, 20-year and longer returns mainly by staying the course.
Possibly there’s some discrepancy between what we think we can achieve by cycling in and out and what we actually achieve over time?
I think some try to go all in when the investing climate is in an uptrend and the all out with the climate becomes stormy. For me, I'm a long term investor that will move between certain ranges within my established asset allocation. Did I better the swing type investor or the one that goes in and stays in through the ups and downs? I'd like to think so ... but, there is no way to really tell because I've changed my asset allocation a couple of times over the past ten years.
But, I do know that I have bettered the returns of some of my hybrid funds over the past ten years. Three that I have marked myself against are FKINX, AMECX and CAIBX.
So, if I am able to increase my portfolio's returns by just 1% over what they have done annually pays me an addition 10K , or more, per year. For me, this makes being active in the markets worth while.
How others have faired I have no idea.
Your follow-up statement (or question) is easier to address: Provided the risk level in your investments remained essentially the same as or lower than that of the hybrid funds you selected as benchmarks, than investors in those funds did fair more poorly than you over that 10-year period. Importantly, their lower returns were due in some small measure to the fact that you successfully gamed the system to your advantage by side-stepping the market losses they sustained - while at the same time not having to assume a higher level of risk in your portfolio.
One problem comparing oneself to mutual funds is that they possess both structural advantages and disadvantages which individual investors don’t have. One advantage for funds is having access to lower fee institutional class shares. Another is (sometimes) having access to funds created solely for in-house use. Reduced brokerage fees buying / selling in lots reflects another advantage. And, to the extent that fund managers can better afford, and are better afforded, access to company data and management, it’s a structural advantage that should serve to lower risk compared to individual investors. One big structural disadvantage however, is that they have little control over “hot money” entering and leaving their funds - especially money running away during downturns. This may force them to sell assets at temporarily distressed levels. Also, their ability to short-term “market time” is greatly constrained; though, as I’ve argued, that may well constitute a longer term advantage.
You bring up an interesting point. I am better playing the upside than I am the downside. This is the reason that I am currently running a 20/40/40 portfolio. Once, the downside comes then I can put some cash to work in an equity spiff position to benefit from the upside. Thus far, over the past ten years my average returns are higher than if I had just invested in some of the better rated hybrid funds over just letting the money sit in these funds.
By playing spiff position (from time to time) increased my total returns in the range of one to two percent per year. And, based upon the size of my portfolio this made playing the spiff position endeavor worth while for me.
I'm thinking we all need to invest to our strengths. As in investing, generally, no two card players are alike and the better ones will prevail with the better returns over time.