Some time after 1987 an article compared the performance of Mutual Shares, a respected conservative fund at the time and Fidelity Magellan,a popular and suceesful growth fund for that year.. The conclusion was that both funds had roughly the same performance for the year but holding Magellan for the first half of the year and switching to Mutual Shares after 6 months because the market seemed a little rich outperformed both funds and provided a decent return in what turned out to be a roughly flat year,
These days many are suggesting keeping your bond allocation roughly unchanged but switching to short term bond funds. Am i seeing an analogy when there isn't one?.Is this a popular approach ? Are there reasons to not do this ?The idea I guess is that if you invest when the market is high in a lower beta fund you will still participate in a rise in the market but will reduce the downside risk
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I do not know if that is also likely with global/emerging market funds.
I don’t remember ever being exposed to the Magellan fund and Mutual fund serial tradeoff that you recalled from the late 1980s. That was a longtime ago and much has changed, within the marketplace, and particularly with the Fidelity and Mutual organizations. There has been a lot of water under that correlation bridge.
The mutual fund handoff that you referenced smacks of a random correlation based on a statistical monthly returns distribution. During the 1980s the Magellan fund and the Mutual fund were two entirely different animals following very distinctly disparate corporate cultures. I would tend to classify the approach as purely accidental without a fundamental basis, and likely the product of intense data mining. Whatever correlation existed in the 1980s evaporated quickly with the many management changes that both organizations experienced in the following years.
Decades ago I did some trading using technical analysis signals. I did not do well so I abandoned all technical methods. Today I do no such trading and am convinced that technical analysis thrives on poorly documented, sometimes ad hoc theories, and a huge dose of mysticism.
In the investment world, each investor gets to choose his own guiding star. If technical analysis attracts you, I would suggest you consult Tom Bulkowski. Although I do not practice his techniques, I have been a fan for a long time.
Bulkowski’s many books and his website provide tools within the technical arena. He is one of the few technicians who has done enough experimental work to quote the probability of success odds for the many indicators that he follows. You might want to explore his methodology at the following website address:
http://thepatternsite.com/
Any strategy that dictates a specific handoff date for transferring between short and long term bond positions is far too arbitrary. If anything, that handoff date should be a function of economic prospects, and anticipated changes in inflation rates. These things are not annually fixed to any special date. I would be skeptical of such a theory and would likely reject it.
Please understand where I am coming from. I am a long term investor and do NO market timing. I believe that is a fool’s mission. I do make minor adjustments to my asset allocation when I feel macroeconomic conditions are degenerating.
I hope this helps a little. Ron contributed some fine advice in this thread.
Best Wishes.
What I was advocating was that if one thinks the market is high and one does not believe that successful market timing is is possible one can back one's judgment by switching to more conservative stock funds. That way if the market continues to go up you will continue to make money though not quite as much while if the market goes down you will lose money but not so much. Its the opposite of an all or nothing approach. Similarly in the current bond market one can continue to invest in bonds but go to bonds with lower duration and perhaps better credit risk .
This approach seems to be mathematically sound since as we know if the market drops 10% we need a rise of 11-12% to get back to even while if the market drops 50% we need our investments to go up 100% to break even. Thus an approach that avoids big losses will probably work out. A fund like Sequoia (SEQUX) has regularly outperformed in the long run but it generally underperforms in good markets while outperforming in bad ones.