Stock scream room

Discussion of the Stock portion of the Permanent Portfolio

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Re: Stock scream room

Post by pmward » Mon May 27, 2019 3:36 pm

It's just random noise. Nothing more. The problem with backtesting is that it makes people believe in things that don't really exist.
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Re: Stock scream room

Post by mathjak107 » Mon May 27, 2019 3:44 pm

Well so far templeton was right .. the most expensive words in the English language when it comes to investing is THIS TIME IS DIFFERENT
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Re: Stock scream room

Post by pmward » Mon May 27, 2019 3:51 pm

mathjak107 wrote:
Mon May 27, 2019 3:44 pm
Well so far templeton was right .. the most expensive words in the English language when it comes to investing is THIS TIME IS DIFFERENT
The context he is speaking of with that comment is much different than seasonality and trying to call market tops.
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Re: Stock scream room

Post by dualstow » Mon May 27, 2019 3:59 pm

pmward wrote:
Mon May 27, 2019 3:36 pm
It's just random noise. Nothing more. The problem with backtesting is that it makes people believe in things that don't really exist.
It’s the financial version of ‘The Bible Code’.
https://www.goodreads.com/book/show/521 ... Bible_Code
RIP Marcello Gandini
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Re: Stock scream room

Post by ochotona » Mon May 27, 2019 5:07 pm

I'll be the first to admit that 1200 months is a small dataset.
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Re: Stock scream room

Post by pmward » Mon May 27, 2019 6:59 pm

It's not even the size of the dataset that matters, some things are simply random anomaly. The data in question, even over many years, is still also skewed heavily by a couple of really bad years, and those selloffs could have just as easily happened in November or December if the news that caused those selloffs would have come a few weeks later. It is also not something that repeats every year; it's a coin flip. I mean, even last year, we rallied all summer, and sold off in the winter during the "best time of the year for stocks". If you torture data enough you can make it tell you anything you want. I'm saying this because I don't want to see you lose a ton of money implementing a bad strategy. I'm also honestly not aware of anybody that really takes the "sell in May and go away" thing seriously. I follow a lot of institutional traders and investors, and I've never seen a single one use that as a basis for any of their moves.
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Re: Stock scream room

Post by Cortopassi » Tue May 28, 2019 12:58 pm

pmward, I like your writing and insights.

Wondering what your thoughts are regarding technical indicators becoming self fulfilling, since it seems so many people/algorithms use them? It *seems* there are plenty of bloggers (and shysters) who use these indicators very well, or to sell products, newsletter, subscriptions. Their "unique" indicator that gives clear buys and sells all the time.

That is, until you buy their subscription.

TA was yet another method I tried years back, and it simply failed for me. It was an attempt again to get the emotion out of trading and do it robotically, but you've got it right, you have to manage risk first. I did not.
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Re: Stock scream room

Post by pmward » Tue May 28, 2019 1:35 pm

Oh geez, I could write a book. I know I've mentioned it here in a few places, but I used to be a swing trader, mostly in the realms of individual small cap growth stocks and the general market ETF's (SPY, QQQ, IWM, GLD, TLT, USO, and the Spyder sector ETF's were my favorites). I did pretty well with it and really only stopped because I found that the stress and time involved were not worth it; the juice was not worth the squeeze. And when I discovered the PP and MPT I realized there was a way I could protect myself without having to actively monitor all my positions. Buy and hold with no downside protection has never made any sense to me, and that's what drew me to trading and then in turn to the PP.

So with that experience I can tell you that there is no such thing as a foolproof system. Technical analysis and quantitative analysis do have value; much more value than they get credit for on the popular forums like Reddit, Bogleheads, and even here. It's not so much that TA or QA fail investors, its that investors expectations of TA and QA are way way way too high. There is no foolproof system. There is no magic indicator. All you can do is "analyze" the markets. What TA specifically does is measure market sentiment by looking at some combination of price, volume, trend, and momentum. That's it. It makes no judgements or predictions, that's the art that needs to learned in how to interpret that data; it's simply a way of analyzing data.

When using TA or QA what you are doing is looking at probabilities. TA and QA are backward looking not forward looking. They can describe what happened, but it's up to you to decipher what the probability of what will happen next. But, since nobody can see the future nobody can ever be certain. It's just a game of probabilities. There are always going to be indicators or data points that are bullish and bearish at any period of time. So you don't want to stick to any one data point. I might see a bullish chart pattern, but volume could be low. Large caps could be breaking out, but small caps could be breaking down. Price may be moving up, but momentum may be trending down. You have to look at it from all angles, and use all of that information to make a judgement call. Then, when you have a high probability move, when you place on a position, you need to use risk management to make sure that you don't lose. I used to have a rule where I would never risk more than 1% of my portfolio on any one trade. So, that means if I put on a position that was 10% of my portfolio I could withstand a 10% loss on that position. If I put on a 20% position, I could withstand a 5% loss on that position. If I put on a 100% position, I could only withstand a 1% loss. I also held myself to a maximum of 5% total capitol at risk at any one time, so 5 positions with a maximum loss of 1% of my portfolio each was my max (I usually had 1-2 positions on most of the time, really only in strongly trending markets would I be fully invested). I would also regularly scale into and out of positions to further manage risk. On top of all of that I would also raise my stop loss as my positions went up to lock in gains (there's nothing worse than giving back a large gain, I learned this lesson early on the hard way as one of my first trades was a stock that broke out for a quick 50% gain in the course of a couple days, and I got greedy and wound up closing it out like 3 weeks later for a 13% loss).

Contrary to popular belief, most good traders lose more than they win. BUT they manage their risk so that they cut their losses short and let their winners run. Most traders won't go into a position without at least 3-5x potential gain vs potential loss. Risk management is the most important piece because it means you don't have to be right often, so long as you catch a big winner every now and again. It also limits your total potential downside losses. Trading can work very well, but it has a cost in that it is very time consuming, it takes a long time to learn and a lifetime to master, and it can be very stressful as well. You really get to see a lot of who you are and how you react to fear and greed when you're playing the day to day tape.

So yes, technicals do provide a lot of value, more than they get credit for, but they are not magic nor are they foolproof. Playing with TA or QA without having any form of risk management is playing with fire, and this is where most people get burned. They go all in on TA or QA and pay no mind to the most important part, managing their risk.

Also, things are always changing. One indicator or data point might work really well for awhile, then magically it stops working. TA and QA are strategies that need to be constantly tweaked and adapted as things are always changing. Which is why I'm always skeptical of backtest data conclusions. People find something in a backtest that looks good, then they look for a reason to justify it. It should be the other way around. They should instead for a theory and then look back to see if the data doesn't prove it wrong. Also, backtesting is better at proving what *doesn't* work as opposed to what does work.

Finally, for people trying to sell you their wares, as with anything you have to be careful and skeptical of everything. There are some legit resources out there that will teach you some stuff, but there are sure a lot of false prophets out there as well. In general, it's better to be taught how to fish as opposed to paying for fish. The better TA educators out there are the ones that teach you how to perform analysis, not the ones that try to lock you into their proprietary signals. And any teacher that teaches TA or QA without covering risk management strategies are someone I would also avoid. The good teachers always start with risk management and move out from there.

One last thing I will say is that even though I don't "trade" using technicals anymore, I still use technicals all the time to analyze the assets I'm invested in with my golden butterfly. I use what I see here to help guide my decisions of when to rebalance, how much to rebalance, if I should cut my cash position down a few percent to buy another asset on a dip, what specific assets I should put money in on each paycheck, etc. Small tweaks that add a bit of alpha here or there. I also view the small cap portion as a 20% VP and if I ever have a very strong conviction in a certain narrative come up I would not hesitate to use some of that allocation to play it.
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Re: Stock scream room

Post by pmward » Wed May 29, 2019 9:11 am

Speaking of technicals... you all can thank me for the S&P losing support today. I'm vesting for a very large chunk of company stock next Monday, so of course we need to sell off right beforehand, haha. Ugly break of major support today though. I'm really hoping for a head fake false breakdown and a quick recovery back above 2800 before the weekly close. If not, the next support level is all the way down at the 2625-2675ish range so we could test those levels in the coming weeks. This is the first real technical damage of the recent pullback, we just opened the door to a possible correction if stocks don't catch a bid here and bounce back up. On the plus side... TLT is breaking out above resistance today. It's been such a strong run that I wouldn't be surprised to see a pullback or sideways consolidation here. If we keep going up the next resistance level is about 132.50. I would be very surprised to see it continue to go up to those levels uncontested though, as the market is a bit extended in it's current run. But if stocks continue to sell, anything is possible. Either way, my theory of a blowoff top to new all-time highs in bonds over the next year or two to end the decades long bull run is looking on target.
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Re: Stock scream room

Post by jacksonM » Sat Jun 01, 2019 10:20 am

Too bad Budd's not here any more. He always got upset when the PP didn't immediately perform as expected in the short term so today he might have been happy. With stocks taking a big hit I think my SEP-IRA which is mostly LTT's and gold might have had its biggest one day gain ever.

So will this be a continuing story for a while like it was when I first started the PP? Stay tuned.
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Re: Stock scream room

Post by Kbg » Sat Jun 01, 2019 10:28 am

I run a leveraged PP and, ya. Big pop. TMF is up huge.
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Re: Stock scream room

Post by pmward » Sat Jun 01, 2019 11:45 am

Yeah I didn't think TLT was going to test the resistance level at 132.50 without a pullback first. But there seems to be nothing that can stop it, it's taken off like a rocketship. If it gets above that the next big supply level is 138.50, and all time highs are just a hop, skip and a jump from there. I'm not sure how much further this rally can go, but man it has some serious steam behind it, so who knows?
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Re: Stock scream room

Post by dualstow » Mon Jun 10, 2019 11:29 am

I am very happy for PointedStick as I believe is all in stocks. As long as I live, I don't think I could ever go back to a 100% allocation. I only did that when I was starting out in investing, before my dad said, "You really should have some bonds."

S&P is closing in on its all-time high.
RIP Marcello Gandini
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Re: Stock scream room

Post by Cortopassi » Mon Jun 10, 2019 11:38 am

Am I just a negative Nancy on stocks? Thank God for the PP, or I would still not be invested in stocks at all, but really why, for years now, can I not shake the feeling that the current economy is all a mirage, based off fake numbers and debt?

It must be a condition. I should be just as happy when my 40% allocation to stocks goes up as I am when my 25% allocation to gold goes up, but I just can't seem to ever be confident that the market isn't going to plunge at a moment's notice.

Must be that wall of worry?
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Re: Stock scream room

Post by dualstow » Mon Jun 10, 2019 11:42 am

Cortopassi wrote:
Mon Jun 10, 2019 11:38 am
Am I just a negative Nancy on stocks?
... but really why, for years now, can I not shake the feeling that the current economy is all a mirage
...
Must be that wall of worry?

You're just alive and using your brain.
I'm able to enjoy these surges while they last, but I am only using a small particle of brain. O0
Last edited by dualstow on Mon Jun 10, 2019 11:44 am, edited 1 time in total.
RIP Marcello Gandini
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Re: Stock scream room

Post by ochotona » Mon Jun 10, 2019 11:42 am

I can't help thinking that going from the lower Bollinger Band to the upper in a few days isn't a good thing.
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Re: Stock scream room

Post by pmward » Mon Jun 10, 2019 12:17 pm

ochotona wrote:
Mon Jun 10, 2019 11:42 am
I can't help thinking that going from the lower Bollinger Band to the upper in a few days isn't a good thing.
Depends on the timeframe you're looking at. On a daily chart yes it is, but daily chart is also for short term swing trades. On a weekly chart, which is a bit more accurate for long term investors, we are just barely above the center line. I probably wouldn't recommend anyone that is on this forum looking at a daily chart for anything, as nobody here is that short term. I think weekly and monthly charts are probably what I would recommend sticking to for analysis, as it filters out the short term noise. It helps separate the wheat from the chaff for someone that is not actively trading on a daily timeframe.
Last edited by pmward on Mon Jun 10, 2019 12:24 pm, edited 1 time in total.
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Re: Stock scream room

Post by flyingpylon » Mon Jun 10, 2019 12:23 pm

Cortopassi wrote:
Mon Jun 10, 2019 11:38 am
Am I just a negative Nancy on stocks? Thank God for the PP, or I would still not be invested in stocks at all, but really why, for years now, can I not shake the feeling that the current economy is all a mirage, based off fake numbers and debt?

It must be a condition. I should be just as happy when my 40% allocation to stocks goes up as I am when my 25% allocation to gold goes up, but I just can't seem to ever be confident that the market isn't going to plunge at a moment's notice.

Must be that wall of worry?
I used to feel similarly about the economy and stocks being a mirage, until I started to realize that the mirage includes WAY more than just that. Now it's like... why ask why... so what?
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Re: Stock scream room

Post by Kriegsspiel » Mon Jun 10, 2019 7:30 pm

I get where PS is coming from. Like a Stoic or Buddhist philosophy of not being too attached to your wealth, so just let it ride on 100% stocks and screw the risk. I obviously come at it from the other angle, why bet it all on one thing if you don't have to? I like the idea of stable, robust, generational wealth, and I think that's best expressed in something like the PP.
You there, Ephialtes. May you live forever.
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Re: Stock scream room

Post by Tortoise » Mon Jun 10, 2019 8:17 pm

Nicely put.

I actually decided just today that my taxable savings have finally grown to a size where it makes sense to consider my emergency fund and intermediate-term savings as part of my taxable PP rather than separate from it.

That change required me to make three large purchases of stocks, bonds, and gold. In isolation, the stock purchase would have made me nervous as hell since stocks seem potentially overvalued right now. But because I also bought bonds and gold to diversify, I'll sleep well tonight.

I love never having to worry about timing the market.
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Re: Stock scream room

Post by drumminj » Mon Jun 10, 2019 9:03 pm

Tortoise wrote:
Mon Jun 10, 2019 8:17 pm
But because I also bought bonds and gold to diversify, I'll sleep well tonight.
This is part of why I struggle with buying the lagging asset when contributing. Feels like betting on one asset vs buying another "share" in the portfolio.

May need to start contributing to cash and then buying all assets when I get enough to justify purchasing each...
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Re: Stock scream room

Post by dualstow » Tue Jun 11, 2019 7:07 am

I think Sophie did some backtesting that showed buying the lagging asset produced, well, a lagging total compared to the other methods.
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Re: Stock scream room

Post by pmward » Tue Jun 11, 2019 11:53 am

dualstow wrote:
Tue Jun 11, 2019 7:07 am
I think Sophie did some backtesting that showed buying the lagging asset produced, well, a lagging total compared to the other methods.
I would be curious to see the results of that. I've always wondered which was the best way to accumulate, but I'm not aware of any tools I can use to automate this so it would require either hand coding a tool or hand testing, nether of which I've had the motivation to do, haha.
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Re: Stock scream room

Post by Tortoise » Tue Jun 11, 2019 12:51 pm

I remember Sophie’s backtest. However, I recall the difference in measured performance was not huge and might have been due simply to statistical variation within the historical data set. Even if the difference were real, there’s no guarantee it would persist going forward.

Whether you buy the lagging asset, buy equal amounts of all assets, or contribute to cash until you hit a rebalance band, the net effect is very similar. In all three cases, you’re effectively buying more of the cheaper assets and less of the pricier ones.
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Re: Stock scream room

Post by dualstow » Tue Jun 11, 2019 2:03 pm

pmward wrote:
Tue Jun 11, 2019 11:53 am
dualstow wrote:
Tue Jun 11, 2019 7:07 am
I think Sophie did some backtesting that showed buying the lagging asset produced, well, a lagging total compared to the other methods.
I would be curious to see the results of that. I've always wondered which was the best way to accumulate, but I'm not aware of any tools I can use to automate this so it would require either hand coding a tool or hand testing, nether of which I've had the motivation to do, haha.

I remembered wrong. Lagging asset method does well. Tortoise remembers right: not a huge difference between #1 and #2.
viewtopic.php?f=1&t=9393&p=169302#p169386

I was unable to find the original post, but the link above is Sophie's summary of her findings.

ADDED: here's a 2013 thread on the topic. viewtopic.php?f=1&t=4452
RIP Marcello Gandini
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