Mathjak's Market Calls

[MachineGhost]

no not all . it just looks at the big picture and matches a funds weighting . maybe we have 2 or 3 fund swps at most a year .

What does that mean, "the big picture"?  How does that translate into choosing funds and swapping them?

[mathjak107]

manager changes at the fund , weightings in a fund changing drastically , rising rates, rising inflation , weak dollar , strong dollar , etc .

do they get it right every time ? no but then you don't do better then the index  at the worst  case  . most of the time they do get these things correct and so it adds alpha to the portfolio .

[Xan]

manager changes at the fund , weightings in a fund changing drastically , rising rates, rising inflation , weak dollar , strong dollar , etc .

do they get it right every time ? no but then you don't do better then the index  at the worst  case  . most of the time they do get these things correct and so it adds alpha to the portfolio .

My understanding is that it's rare for a manager to beat the index, and that none of them can do so repeatedly or predictably.

[mathjak107]

Don't confuse a manager beating an index with the fund.

There are thousands of small funds with mangers that are pretty good but the funds are small and the fees run high and expenses for lots of things are the same if you are a big fund or a small fund ..

When you actually look at investor money 80% of investor money is in 20% of the largest  funds and many do beat there indexes because the fees are lower.

You have index funds today in 401 k plans with high fees and they suck .

There was just an article in forbes about the fact that fidelity's large cap funds beat their indexes  6 out of the last 7 years almost across the board . The difference between indexing and those funds was 35 billion dollars.

But in this case we are talking a portfolio. The funds individually don't have to beat their index but because you are swapping  them out at times you are cherry picking the best time for each.

So if you have a fund that is weighted for a strong dollar you exploit it and then when the dollar weakens swap it for a better weighted choice.

A few months ago a fund that was heavy in biotech was swapped for one in consumer staples to lessen risk and volatility. Ended up a great move.

Neither fund may beat their index but working together they both do.

[MachineGhost]

I guess the question is if you would have done better without all the swapping since that incurs transanction costs and taxes as well as the drag of underperforming due to the higher fees of actively managed funds? 

Yet, I still think this sounds like some kind of momentum.  There's no way to consistently earn more than the market index without using that and compounding the short-term alpha.  Unless you had a perfect crystal ball for the business cycle!

[mathjak107]

there is no way to know how you would have done doing something else , ever , even indexing .

different buy points , adding money at different times , different sell points , different rebalance points . there are so many variables even if you indexed you likely would never no .

i can say this , picking a reference like the s&p 500 the growth model blew it away if you look at the lab results .

a 100k invested in the growth model on the start day in 1986 was worth almost 500k more than the s&p 500 so i would say that it had a pretty good track record  up to today .

the problem with many good funds is they are bound by design to only certain types of stocks . as an example typically a fund like fidelity export and multi national is a fund that buys only us stocks with  big presence over seas . at times it is a great fund but other times not the place to be .  but by having the ability in your own portfolio to swap you can extract the best of times for certain funds and use something else when that ran its course .

believe it or not it is only 2 or 3x in a year that an older fund may be replaced . quite a few funds in the models have been in them for decades . it isn't all the  equity  funds  that get swapped ,


http://www.fidelityinsight.com/about/pe ... f2012.html

[bedraggled]

MJ,

Would you please address the tax question.  Does swapping funds create a tax burden for you?

Thanks.

[mathjak107]

not until recently since equity's were in the  retirement  account . but after the sale of some property's we have them in a brokerage account too .

the taxes are a mixed bag . the  zero to 15% rate is a lot better then  my regular rate it it was money coming out of the retirement account  , especially when rmds get added so tax wise it is not a much bigger difference .  there are few swaps in a year so it has not been a problem .

there is a positive side to paying some taxes  yearly and that is 30 years of gains in an index fund can be pretty complex dealing with down the road  when you have 30 years of pent up taxes if you want to make portfolio changes .

i  would say  the taxes may hurt a little but if performance is better it is worth it .  so  in the long term  i would have to say it may be better to get the performance and pay the tax . but most folks will have equity's in their retirement accounts .

[bedraggled]

Thanks, MJ

[mathjak107]

so we ended the week with :

the growth model  down 1.88% ytd

growth and income model  down 1.77%

income and capital preservation model down just  .58%

s&p 500 down 1.93% ytd

pp with vti ,gld ,tlt and cash is down about 1.75%  equal to  the 70/30 growth and income model and 100% equity growth model .

so far this years winner is the conservative income and capital preservation model  only down .58% ytd. 

[ochotona]

As of October 1, the Ivy portfolio methodology was telling me to be

1/6  SCHZ = BND
1/6  BNDX  Vanguard total international bond ETF
1/6  TLO = TLT
3/6  CASH

I can't buy TLT in my 401(k), so I had to do the bullet - barbell exchange.

So,

1/6  BNDX
5/12  401(k) total intermediate bond fund
5/12  401(k) short term bond fund

Should work the same. I backtested it. Good enough for government work. I can roll my 401(k) early next year. That will have to do for now.

My 12 ETF universe is an expansion of Faber's 10 ETF universe. I added TLO and BNDX. Could not add emerging bonds for reasons of conscience, and junk bonds... just seems like a bad choice at this time. No risk assets are ON at this time. Gold is asleep.

[mathjak107]

no equity's  ?

that would never be a choice  in anything i i would choose for myself .

[rickb]

no equity's  ?

that would never be a choice  in anything i i would choose for myself .

Ochotona is talking about Mebane Faber's Ivy Portfolio.  Faber's 10-way slice includes equities - but since the current price is below the 10 month monthly average (not quite the same as a 200 dma) Ochotona is rotated into cash for these assets.

[mathjak107]

so it is sitting with no equity exposure , yes ?

[ochotona]

Currently, no equity exposure. I acknowledge that I may have to buy in higher than I exited, but the other side is, what if we go to lower lows during the rest of the correction? The author warns that you can have one or more bad trades in a row, but keep your chin up... over time it will work out.

I can see that possibly soon US REITS and Gold and US Large Caps could be asset classes that get activated next... but decision day is Nov 1. In this market, I'd say anything could happen, so I won't think about it yet.

[mathjak107]

well whatever works .  i never go in our out . we alter allocations a little or swap fund types but trying to bet the ranch on in or out of equity's is a game i have not played since fabians can't lose  moving average newsletter .

that was until we lost  ha ha ha

[buddtholomew]

Currently, no equity exposure. I acknowledge that I may have to buy in higher than I exited, but the other side is, what if we go to lower lows during the rest of the correction? The author warns that you can have one or more bad trades in a row, but keep your chin up... over time it will work out.

I can see that possibly soon US REITS and Gold and US Large Caps could be asset classes that get activated next... but decision day is Nov 1. In this market, I'd say anything could happen, so I won't think about it yet.

Fools errand. O, given your many years of investment experience, why would you place your faith in someone else's hands? Market timing only benefits the croupier, in other words the house that collects the transaction fees. Buy, hold, rebalance to your set allocation and move on.

[dualstow]

O, given your many years of investment experience, why would you place your faith in someone else's hands? Market timing only benefits the croupier, in other words the house that collects the transaction fees. Buy, hold, rebalance to your set allocation and move on.

+1

[mathjak107]

fabian had a pretty good track  record back in the day with his moving average system .  his newsletter was hot . his thing was he would sacrifice the 10% at the top and bottom and you get the 80% in the middle .

well markets whip sawed the model so bad it fell way behind . the markets were acting faster than the moving averages could respond . eventually performance sucked .

so he went back to the lab and revised hings . he proclaimed it is going to be so god that he publicly posted his moves in his own portfolio .

needless to say it to failed o perform ,.

[mathjak107]

if anyonw had a system that really worked they wouldn't be telling you . once we all do it systems can't work .

goldman sachs would just pay them a few hundred million , adopt the system , fire the quants and analysts and rake in the profits .

[MachineGhost]

if anyonw had a system that really worked they wouldn't be telling you . once we all do it systems can't work .

goldman sachs would just pay them a few hundred million , adopt the system , fire the quants and analysts and rake in the profits .

People don't believe if you tell them anyway, which is why systems continue to work.  GS has massive liquidity issues that supersede the issue of finding a working system.  Working systems are a dime a dozen.  Believing in them and sticking to them thick and thin is where the failure lies.  Discipline.

P.S. The PP is a working system.  There's no difference between a moving average and a rebalancing band; both are measures of momentum.  Ultimately, all working systems come down to momentum as that is what moves prices up or down.

P.P.S. Fidelity Insight is a working system as well.

[MachineGhost]

Fabian's problem wasn't that the system didn't work, it was that he stopped following his own rules [well, actually his father's rules] and started trying to second guess the mechanical switch signals, and guessed wrong too many times. Proving once again, the difficulty of following rules when emotions are involved and also the inability of anyone to time the market.

What was the original moving average period of his father?

[mathjak107]

39  weeks i believe

[MachineGhost]

39  weeks i believe

Boy, his son is pretty dumb.

Or actually, he's probably too smart.  Smart people take things and ruin it.

[mathjak107]

all i know is it was the first investment strategy i tried and it  stunk .  when i first started out in the 1980's i was inundated with mail from him , so being green i gave it a go .

ended up going to fidelity insight and never  regretted it even after i could put my own models together in my sleep ..