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Catching falling knives

edited October 2014 in Fund Discussions
I disagree with about 99.9% of what I see on this forum regarding wealth accumulation strategies. That doesn't mean I am right and everyone else is wrong, merely that I am a trader of funds, not an investor. As such I don't believe in catching falling knives, adding to losers, taking the advice of others, and the like, but sticking with wherever the momentum is and with tight stops. So why do I hang around here? Simply because it's an *excellent* forum. There is only one Pretender here. That's actually the ultimate compliment as most forums, especially the trading forums, are infested with Pretenders. I am grateful David Snowball stood up after FundAlarm left the scene. I would guess if you took the all the Mom and Pop traders who post on the various trading forums and all the Mom and Pop investors who post here, the investors here would be the ones with the most sizable brokerage accounts - and by far!

On a somewhat related note, it always amazes me how dumb I really am when it comes to predicting and forecasting. That's probably why I never trade my opinions, but let the market dictate my actions (and we know where that action has been this year) Before this recent decline I was actually pretty bullish on the stock market based on its impressive resilience to any negative news. In hindsight, not sure why I was bullish since the signs were all there ala the top this summer in junk corporates as well as the AD line and the ominous signals from new highs/lows among others. Where we go from here, as usual, I haven't a clue. The ones who think they have a clue.......... well, I better not go there.

Late Edit: Mom and Pop traders and investors was not meant in a derogatory way. Most of us, including myself, fit into that category. What many don't realize though are all those gurus and Wall Street strategists that get all the press and TV air time aren't anymore clued in than we are as to where markets are headed. It's easy to be seduced by those who come across as articulate and knowledgeable. What I've found over many decades is that doesn't always translate into trading or investing success. Be you a trader or investor, what it all boils down to is how you manage your positions.
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Comments

  • Junkster,

    Glad to see you posting!

    Mona
  • Recently I was thinking on how I will spend that $500 when the US 10 year gets to 1%.
  • edited October 2014
    Dex, I am praying I have to pay that $250 at 2%. But at 1% I don't believe either of us will be happy (with you know what) I mean 1% could mean some serious economic problems worse than 2008 and you saw what you know what did in 2008.
  • Great to see you posting, Junkster!
  • You know what they say in the used car business? " there's an ass for every seat"
    I would say ditto for investing (opinion)
  • edited October 2014
    @Tampabay I think investing is slightly different: sooner or later, at any single point in time, there is a humbled ass for every available seat. And, in a long-leg-down market, it is a very willing ass, grateful to even have a seat to take; on the floor around will be the litter of those who attempt to catch the falling knives, to which Junkster alludes.

    Keep your cool, Fundsters; ya can't trade the market ya wish for, ya has to trade the market ya has. Being all pensive will mess with our A game. The week is young... and the bell has just rung. Away we go! (or, "away" we go?)

    10/14/2014
    00:56:22
    10-yr T: 2.24% ;)
  • heezasafe: I'll pay you 2% for your money, if that makes you happy!
  • Dex
    edited October 2014
    Amazing interest rates on 10 year Gov't bonds around the world!
    USA 2.21%
    Germany .8%

    The FED was surprised when it went below 2.6%
    It signals an economic slowdown to me.
    I'll say it again. I think we all will be surprised how low and long this interest rate environment will last.
  • yields continue to sink globally. In the US the whole curve had a bid – 2yr yields are at multi-month lows down at 0.37% (keep in mind this was 0.58% only back on 9/24). 10yr yields are now ~2.2% (down ~8bp Tues). The 2-10 spread is at risk of hitting fresh lows (it narrowed ~3bp Tues to 182bp). 30yr yields broke under 3% and are at new 52w lows (2.94%, down 7bp). A lot of moving pieces are at play. To start, some of this is just catch-up (recall FI was closed Mon while the SPX sank >30 points). Meanwhile, European yields continue to sink – German 10yr yields are at risk of falling to 0.8% and regardless of what is happening in the US Treasury yields won’t be able to rise so long as European borrowing costs sink. Nominal growth expectations continue to move lower – globally the collapse of crude prices is feeding through to inflation forecasts and market-based break-even indications are still sinking (US 10yr TIPS spreads are down to new lows today) while growth assumptions are nudging lower too.
  • Good stuff FundAlarm. Always value your take. Central banks must be more than a little worried?
  • edited October 2014
    Hi Junkster,

    Nice to see you posting again. About catching falling knifes ... I don't look at my current special strategy in that light. But, one that uses market money to make new purchases at discount prices. Below is my thinking, my strategy, what I am doing and my anticipated outcome.

    I am hoping the 2100 comes to be for a year end close for the S&P 500 Index as forecasted by Birinyi. This would equate to just short of a 12% gain from current levels of 1878. Which is indeed possible should forward earnings estimates materialize as anticipated.

    Anyway, I now have my marker on the bet line that it will as I bought again today. With this I have recently bought at the 1970's, the 1920's and the 1870's. My next buy step is the 1820's and then beyond that at the 1770's should we reach these levels on the Index.

    Keep in mind that year end mutual fund capital gain distributions are expected to be on the heavy side this year. Since, I take all my distributions in cash I have decided to put these anticipated distributions to work early and use the forth coming distributions to restore the cash position within my portfolio used to make these purchases.

    With my average cost on amount invested currently at about 1920 and should the Index reach the forecasted 2100 year end closing mark then this will equal about a 8.5% gain. Should I buy again at the 1820's then this will lower my cost on amount invested to about 1895 and increase the gain to 10.8% should the 2100 mark be reached. With another buy at the 1770's and if the 2100 year end closing mark be reached then this would equate to about a 12.3% gain.

    For me it is risk on for the traditional fall stock market rally. After all, the way I look at this is that I am using market money derived from investment distributions to make more market investments which from my thinking is kind of clever by using market products that generated the cash that will, in the end, fund these special purchases.

    Should my strategy not play out by year end; I believe it will over time and besides the funds I invested in have a history of paying out good distributions.

    Since this is being played in a tax deferred account there are no taxes to pay until withdrawals are made and I am investing in funds that are nav purchases for me.

    Old_Skeet
  • edited October 2014
    Thanks Old_Skeet for posting your moves and not after the fact. What you are doing is fine for an investor and over time will turn out profitable for you as it always has in the past. As a trader though, the first rule I learned as a teenager after "cut your losses and let your profits run" was to "never average down on a losing trade/position". Again, from what I have seen over the years, it's the small time investors that accumulate the wealth and not the small time traders. I just try to be an exception. The small time traders think that I am old fashioned because they foolishly believe trading mutual funds is for their grandfathers or grandmothers. In other words, they believe it's like watching paint dry. Instead they feverishly trade in and out like whirling dervishes be it futures, Forex, or individual equities trying to make a few hundred here or there. In the end though and over time for the vast majority of them it's just like they are spinning their wheels on their way to nowhere.
  • edited October 2014
    Deleted
  • edited October 2014
    I thought I'd update the board on the special investment position (spiff) I made in what turned out to be a downdraft in the S&P 500 Index as it did pull back about ten per cent from its recent high of about 2020 to a recent low in the 1820 range. As I write, the Index is selling for about 1920 and my spiff is now in the money. Should the Index reach 2100 as forecast by some for its yearend close then this will result in better than a ten percent return for this spiff. If for some reason this turns on me I'll be collecting a good yield and time is on my side for this spiff to work as I am an investor rather than a trader although I have, at times, sold off some of my spiffs once they have reached a targeted goal or to rebalance my portfolio.

    Although some may say I averaged down in opening this spiff I don't look at this in that light. I view it as I will have, in the end, invested market derived money back into certain investments that were selling at discounted prices at the time they were purchased. I ventured into this special spiff based more on market fundamentals rather than its technical’s. Investors govern more by market fundamentals over market technical’s but may use technical’s to aid in positioning their new entries while traders seem to govern more by price line action and technical’s to enter and exit positions.

    Please don't take this as an Old_Skeet vs. Junkster debate but it is intended, by me, to expand and to better explain the difference of the two very different styles. No doubt, Junkster has had good success ... but, so have I as a long term investor. I truly believe we can learn form each other by exploring each others success and failures and studying the thinking in making these ventures. For me, it is indeed good to have Junkster post his thinking. And, although I have had success thus far this year he was right on spot with his call on muni high yield. Indeed, he has trounced another trader that I follow, to see what he is doing and thinking, and that is the Moose.

    Thanks Junkster for the continued posting of your thinking. It is much appreciated.

    I wish all ... "Good Investing."

    Old_Skeet
  • edited October 2014
    Thanks for the update Skeet:

    It's clear you have a well thought out plan and adhere to it. That kind of planning and persistency of approach seems to me more important to long term success than any particular "sacred cow" investment cliche. Hopefully, none here were driven to login to their equity accounts last week and hit the "Sell All" button in a moment of panic.

    There are many other thought provoking and colorful investing cliches in addition to the falling knives one.
    Here's "The 64 Biggest Investing Cliches to Sound Like a Pundit" (courtesy of Forbes).
    http://www.forbes.com/sites/ericjackson/2012/06/28/the-64-biggest-investing-cliches-to-sound-like-a-pundit/

    A few of my favorites from the list:
    --- Buy low. Sell high.
    --- Buy only what you understand.
    --- Be fearful when everyone else is greedy, and greedy when everyone else is fearful.
    --- When the tide goes out we know who's been swimming naked.
    --- Bulls make money. Bears make money. Pigs get slaughtered.

    Regards
  • edited October 2014
    Howdy @Old_Skeet

    You noted: " I ventured into this special spiff based more on market fundamentals rather than its technical’s."

    Will you please 'splain to me what you view as fundamentals versus technical's in your above statement.

    For me, when one notes moving monies based upon something like the SP500 pricing; one is using technical aspects to determine a price value for either under or over sold. No?

    I suppose it may be said that I use fundamental analysis in respect to a broad view of what I perceive is moving or not moving a particular seqment of a market.

    Thank you for your input and time.

    Catch
  • edited October 2014
    Hi Catch22 ...

    Thanks for your question.

    I reference the below link for certain P/E Ratio details on the S&P 500 Index.

    http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=wsj_mdc_additional_ustocks

    Notice the continued positive outlook for forward earnings ... this, to me, is a fundmanetal and not a technical. It was the large part of my thinking process to increase equity positions within my portfolio.

    I used the decline in the Index's price line to add value and to enter into the spiff in time for the anticipated fall stock market rally. In Novemeber and December many of my mutual funds will be making large capital gain distributions and some of them as high as eight percent, or more. I made a guess as to how much these anticipated distributions would amount to and chose to position in while I felt prices in October would be more favorable than what they might be towards yearend; and, I fronted the money to make the purchases. I'll let the forthcoming anticipated capital gain distributions restore my cash allocation within my portfolio. Kind of clever ... Don't you think?

    In short, I felt prices would be more favorable in October than they might be in November, December, January, February and March ... and, I chose to go ahead and position in to hopefully catching the anticipated fall stock market rally that usually starts sometime towards the end of October and usually runs through the first quarter of the following year on and into its second quarter.

    In addition, as an investor, I'll will remian invested within my portfolio's asset allocation ranges. These ranges follow: Cash Area (5% to 25%) ... Income Area (20% to 40%) ... Growth & Income Area (30% to 50%) ... and, the Growth Area (10% to 20%). With this, my allocation to equities can range for a low of about 40% to a high of about 70% and my allocation to debt securities, which include cash, can range form a low of 30% to a high of 60% within my portfolio. All asset areas can not be at their low, or high, percentage mark at the same time.

    Old_Skeet
  • Old_Skeet said:

    Hi Catch22 ...
    I used the decline in the Index's price line to add value and to enter into the spiff in time for the anticipated fall stock market rally. .....I made a guess as to how much these anticipated distributions would amount to and chose to position in while I felt prices in October would be more favorable than what they might be towards yearend; and, I fronted the money to make the purchases. I'll let the forthcoming anticipated capital gain distributions restore my cash allocation within my portfolio. Kind of clever ... Don't you think?

    In short, I felt prices would be more favorable in October than they might be in November, December, January, February and March ... and, I chose to go ahead and position in to hopefully catching the anticipated fall stock market rally that usually starts sometime towards the end of October and usually runs through the first quarter of the following year on and into its second quarter.

    Old_Skeet

    Old_Skeet, I'm very glad this worked out well for you. You realize this was a market timing decision. What made you so confident that prices would be more favorable now versus what you mentioned above, November thru March? For example, at this time in October, 2007, I don't believe that decision would have worked out well. Nor the year after, in October 2008. And you know there have been some nasty Octobers in the market, such as 1987 and maybe others, where this same decision would not have been good.

    Seems the market could just as easily have continued downward, due to unknowns such as Ebola, fears of deflation in Europe, issues in Japan, Hong Kong, fears of slowing in China, all that is happening globally from Ukraine to the middle east......to unemployment, less than robust recovery, you know the whole story......

    Anyway, a market timing decision. Looks like you got it right, but I haven't seen evidence that many can time the stock market well.

    I agree with what you said about forward earnings, forward P/E ratios looking reasonable. Have you seen the forward P/E on the Dow? Seems to me that buying the etf DIA is a reasonable choice. 30 quality stocks with an aggregate P/E less than 15. Of course, the bears like Hussman say that earnings have peaked, so the P/E is not accurate, because the "E" will be reverting to the mean. No, I'm not in Hussman's funds.
  • edited October 2014
    Hi rjb112,

    Thanks for your comments.

    So far it looks as though it might come through as I anticipated as history tells us STS will work more times than not. However, there are many things that can take place for the rally to turn as you have stated above. Note though history tells me that the best time to be invested in the stock market is during the 4th quarter and 1st quarter of each year. With this, I just put in what I am expecting to get paid back out through anticipated capital gains distributions during the months of November and December. My gain, with this, will be what is made on the spiff between now and then. After that I'll be back to my starting equity allocation once the distributions have taken place plus or minus the gain and/or loss that might occur on my remaining invested principal.

    I am linking the details on the seasonal strategy that I have followed for a good many years. Again, note that it has worked for me more times than not and I felt my chances of it working now were greater, by my thinking, than it not working. There seems from what I have been recently reading and hearing that big money sold around the low of 1840 to 1820 during the recent plullback, perhaps this was due to margin calls as reported by some news outlets and now they are having to buy back in at higher levels pushing prices back upward. And, another ... I felt good corporate earnings would be coming through for the third quarter reporting and thus far they have. It has been my experience that earnings drive the markets.

    http://www.streetsmartreport.com/sts

    Call it a timming strategy if you like ... or call ... it a rebalance of sorts based upon the calendar. I am still within the confines of my asset allocation and from my thinking that makes me an investor rather than a trader as they seem to be all in or all out over short periods of time. So, call it what you like, either way, I am currently on the heavy side in my equity allocation.

    Old_Skeet

  • Old_Skeet said:

    Hi rjb112,
    Thanks for your comments.

    I am linking the details on the seasonal strategy that I have followed for a good many years.
    http://www.streetsmartreport.com/sts

    Call it a timming strategy if you like ... or call ... it a rebalance of sorts based upon the calendar. Old_Skeet

    Thanks Old_Skeet.
    So do you "sell in May and go away" according to the STS? Do you subscribe to both these newsletters and follow their advice?

    I don't recall you posting in the last several months that you "sold in May and went away"

    How have you been applying these 2 newsletters?
  • @rjb112 Thought provoking comments, indeed. On this board, I look for well reasoned actionable advice. @Old_Skeet 's comments as reasoned from the streetsmartreport.com commentary seem to qualify, but I didn't take any action as that commentary doesn't reflect my investing strategy.
  • Old_Skeet is proof that one size fits all investing is not for everyone. The STS strategy doesn't fit into my investing style either but it makes for interesting reading. It seems he is adapting it somewhat to fit his needs too as he mentioned they do a fair amount of quick trades in and out.
  • I think strategy like sts will work if we repeat a 15 year market like from 1998. So will a simp,e strategy around 10 month MA. Wonder why sts uses DJIA.
  • edited October 2014
    Hi rjb112, Blitzer, John Chisum, V/F and others,

    Thanks again for your comments.

    If you were to look back through the historical postings here and at fund alarm you will find that in the past I go heavy in equities around fall and usually start to lighten up during the first quarter and on into and through the second quarter as we move from winter into and through spring. I am never all out of the markets as my allocation range for equities allows for a low range at 40% and a high at 70%. A neutral allocation in equities would be somewhere around 55%. I am currently about 5% heavy from neutral since equities are currently selling pretty close to fair value but we are now moving into the season where I have trended to go heavy equity. The recent pullback came at a time that I believe will add good value to my traditional seasonal move.

    Generally, when equities are oversold I’ll carry a greater allocation to them and when they have become overbought I’ll reduce my allocation in them. In addition, I follow a seasonal investment strategy and tend to overweight them based upon the calendar (STS) around fall and then let my capital gain distribution pay to cash thus automatically reducing my equity allocation (an automatic rebalance of sorts). Should I need to reduce equities farther I do it in steps as the market advances (selling into the advance) until my desired allocation is reached and/or my cash allocation has reached its upper range. Naturally, if things move against me, in a big way, I'll reduce my equity allocation in a defensive move down towards its low range.

    I call this a walking allocation because my asset allocation resets from time-to-time based upon market valuation, the calendar, and other considerations I feel that should influence its weighting.

    I hope this provides some insight as to how Old_Skeet governs as it does allow for some flexability based upon certain variables. However, since I am totally never out of the market I consider myself a long term investor that employees some special strategies form time-to-time.
  • Good morning Old_Skeet: I was wondering if your return was on the + side for the 3/rd quarter? As for me , down < than 3 %.
    Good investing to all, Derf
  • edited October 2014
    Hi Derf,

    Thanks for the question.

    In checking my weekly valuation log, I ended the third quarter about even with where it began but slightly up by only a couple of grand. So over those 13 weeks my pay was only a couple of thousand from investing if one were to choose to look at it in this light. I guess that is better than being down a couple thousand.

    However, my year-to-date total return through the third quarter was about 6.7%. As you may have guessed my production came during the first and second quarters.

    How about you? … After being down <3% for the third quarter ... How did you fair ytd?

    Old_Skeet
  • @Old_Skeet Thanks for the explanation. Not my style of investing, but certainly insightful.
  • edited October 2014
    Hi Blizer,

    Thanks again for making a comment.

    In the spirit of broadening investment knowledge would you care to make a brief comment about your investing style?

    I would be interested in knowing how you govern. Thus far, we know a good bit about Junkster and Old_Skeet but we don’t about the styles of others.

    Perhaps those that post a good amount on the board should look for me ask those that make comments going forward to posture them by sharing their investment style. This might help all of us better understand their comments if we knew more about their thinking and style.

    I did answer those that had questions of me so they might have a better understanding of my thinking and investment actions.

    So how about it … Will you keep it going by telling us a little bit about your investment thinking and style of investing? Perhaps others will join in.

    Old_Skeet


  • edited October 2014
    "On this board, I look for well reasoned actionable advice."

    There's lots of advice here. Most I dare say sounds reasonable. Do I consider it "actionable"? Emphatically No. That's unless your time horizon is measured in decades. (Some of the best actionable advice in that regard pertains to buying low cost index funds.)

    Shorter term? ... Nobody really knows what will happen tomorrow or next month. Even a great house like T. Rowe Price cautions us in writing that the fund we're about to purchase may lose money. And the big fellas earning millions a year at the hedge funds don't get it right every time either.

    I admire Ol Skeet's willingness to spend so much time explaining his approach and trying to make it understandable. I'd never be able to articulate mine so clearly. As many know, Skeet's father was a long time investor and taught him much. So he's literally spent a lifetime watching markets. I'm sure many things he does are second nature to him, in the same way we learn to drive.

    I think a lot of this lengthy discussion stems from Scott's "What are you buying ... selling ... pondering" threads. While I find the comments in those threads interesting, I've never seen them as meant to give actionable advice. If that's the intent, it might be a good idea for future contributors to include (1) an explanation of why they took the action, (2) the percentage of their overall holdings so invested and (3) the specific time frame (measured in weeks, months, or years) before which they expect to realize a profit. For my part, I'll refrain from mentioning any sales or purchases I've made in those threads in the future.



  • edited October 2014
    >>>>>I think a lot of this lengthy discussion stems from Scott's "What are you buying ... selling ... pondering" threads. While I find the comments in those threads interesting, I've never seen them as meant to give actionable advice. If that's the intent, it might be a good idea for future contributors to include (1) an explanation of why they took the action, (2) the percentage of their overall holdings so invested and (3) the specific time frame (measured in weeks, months, or years) before which they expect to realize a profit. For my part, I'll refrain from mentioning any sales or purchases I've made in those threads in the future. <<<<<

    Couldn't agree more Hank!!! Some here have a seemingly unlimited bankroll and hold just about every listed stock and fund in the universe.
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