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    • Sun Aug 17th 09:33 AM
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      Market Timing: Don’t Let Emotions Take Control
      This is another poor quality, un-, or even worse, counter-scientific argument for buy and hold. It is embarrassing to me that professional advisors display such an uneducated view of basic concepts.
      To begin: Warren Buffett is the epitome of market timing! Why do you think is he currently holding an enormous percentage of his portfolio in cash instead of investing in a broad World-based or US-based index?! Who has forgotten Buffett’s legendary anti-market commentaries near its bubble-bursting stage in 1999 or his disparaging comments on the status of the credit markets in 2006 just before the bursting of the credit bubble?! If one bothers to study his investment moves over time, one sees how successful this investors has been by timing correctly his exposure to the market and selecting the proper entries for his positions. Buffett has not beaten the market by holding the market, or by being fully invested at all times! On the contrary… It is of course true that Buffett in his philosophizing has utter disparaging comments about the broad investment public’s ability to market time, but (a) this is Buffett’s sin of talking down to the plebeians while reserving for the elites, which includes himself, the right to do the opposite, as his own investment record (not his self-reflection) clearly shows; and (b) this is because market timing or tactical allocation is the indeed a very difficult enterprise best left to the real pros.
      The author also quotes a study of the markets in the 1985-1997 period to prove the superiority of B&H over market timing! How embarrassing! Why not to choose just 1999?! No scientific comparison between these two methods (B&H and TAA) can be based on any period that is uniquely one-sided! 1982-1999 marks the history’s strongest bull market, but any bull market is just one side of a full market cycle. How about selecting 1966-1982 instead? In that time frame market timing shows to be far superior to B&H and that is practically true for any of the large number of standard tactical models that are regularly studied in academic literature (look for instance at the work of SA’s own Mebane Faber). Any comparison MUST include a FULL market cycle, including both a secular bear and a secular bull market. In such comparisons B&H and TAA remain neck to neck.
      There is of course the naïve or tendentious argument that over the longest run (like 100 years) the market has shown to go up and so over consecutive full cycles, that is strings of paired secular bull and bear cycles, the market goes up. That seems to favor B&H over TAA. This is of course a deceptive argument… Real-flesh investors (as opposed to institutions) DO NOT HAVE 100 years of investment horizon! Most investment lives run barely the length of a full market cycle, and so there is no way of dismissing TAA in favor of B&H… Even worse, the most intense contributory phases of real-flesh investors’ lives run usually the length of a half a market cycle (roughly 17 years)… and that means that investors should be exceedingly careful to distinguish between the potency of B&H in raging secular bull markets vs. its patent impotence during secular bear markets. Keep in mind that the broadest major stock indices are in 10-year negative territories right now… adjusted for inflation (real returns), those indices are down catastrophically for investors that have practiced B&H since 2000. Especially if those investors had to take regular withdrawals from their nest eggs!
      This highlights another point: If investors are taking withdrawals, than the comparison of B&H to TAA gets far more interesting: If investors do not realign tactically their allocations during periods of prolonged or significant downturns (or both) than most of the time they fair badly over full market cycles.
      Next, the advantage of TAA over B&H is not as much an issue of returns as it is of risk-adjusted returns. And those are the only returns that matter since nobody knows in advance how long their PERSONAL investment life-time will be! Real-flesh investors are not institutions with perpetual horizons or budgets that they can control… Real-flesh investor needs and consequently demands on their portfolios are unpredictable. Divorces, deaths, catastrophic health changes, etc all too often change the lifepaths of real-flesh investors who cannot rely on a stellar rebound of the market to grow or even restore their nest eggs at the end of a massive bear market… For that reason, the only returns that are useful for investors’ planning are risk-adjusted returns and the reality is that TAA models deliver superior risk-adjusted returns.
      There are many other points to make… but the key fact remains that most defenses of B&H are embarrassing pieces of ignorance and tendentious self-interest made by the unskilled.
      View article »
    • Wed May 7th 21:50 PM
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      Commented on:
      Buffett's Advice to the Berkshire Faithful: Buy Index Funds
      I love Warren, but his advise is absolute garbage. There is a myriad of ways to beat the market. The only excuse he has is that he knows that the average pesrson is a horrible investor, so he talks down to their level trying to help them avoid disaster. The broader market (proxied by indeces) is frequently a widow-maker: there are many very long stretches (some more than 30 years) when indices on a net, inflation-adjusted basis lost money. Simply if you are not knowledgeable give your money to the few that realy are to invest. Warren is misleading and talking garbage, which is probably his one and only (but repeated) investment sin. Otherwise, he is a true saint.
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    • Sat May 3rd 14:22 PM
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      Commented on:
      Trying to Make Sense of the New GSCI
      Does anybody know where monthly/daily historical data for the GSCI can be found?
      View article »
    • Thu Mar 27th 03:09 AM
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      Fixing Target Date Strategies: 'Target Date Folios'
      It appears that IYE, which is listed as one of the 17 ETFs components in your article, is not included in the 16 ETFs universe that serves the Folio's. Any reason for the departure?
      View article »