Gyroscopic Investing

This may be a good time to be a little more cautious in the equity markets. I was reading Decision Moose earlier and it looks like stocks may be overbought. It is also a time of year when market crashes have been known to occur. Decision Moose switched from stocks to gold this week. Time to rebalance and also to reduce variable portfolio risk? Possibly.

Of course, as Harry Browne knew, I could be wrong.

bah

Did you mean duh?

No, I mean bah, as in bah, humbug! I'm careful in the pp, but if a variable portfolio is truly money we are willing to lose, why be careful? True, if there were any place to try to time the market, it would be here in vP space. But, it seems like when stocks (or gold) go up, we see articles talking about the S&P at 20,000 (and gold at $5000/oz. When stocks go down, we see articles saying they are overbought. Bah.

Overbought is what the bears say after a run up.

Oversold is what bulls say after a decline.

Market Down is oversold. (Bullish)

Market Up is overbought. (Bearish)

Market is in fear and taking profits - sounds like the perfect time for another rally...  I know my fear and greed never seem to predict accurately; why should anyone else's?

Reub wrote: This may be a good time to be a little more cautious in the equity markets. I was reading Decision Moose earlier and it looks like stocks may be overbought. It is also a time of year when market crashes have been known to occur. Decision Moose switched from stocks to gold this week. Time to rebalance and also to reduce variable portfolio risk? Possibly.

I'm waiting for a clear signal to go short.  The third time is the charm, right?  VXX didn't work and neither did SHY in past two tanks.  I'm not risking messing up on a potential 2001 or 2007 style top.

Take a look at RGLD, its almost parabolic.  Silver's momentum turned negative on Monday in the short term as well.  DecisionMoose always switches to assets that are overbought in the short term by nature of how it works, but there's no guarantee of a sufficient pullback first to clear it.  I've seen it go both ways.  You need steel balls because when its wrong, it will be wrong from that overbought point and gold has had the most disastrous drawdowns. 

When asked what the stock market will do, J.P Morgan (1837-1913) (banker, financier, businessman) replied: "It will fluctuate."

I just rebalanced to lighten my stock load a little. I hope that Harry Browne wouldn't mind.

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how about this? fibonacci

http://www.zerohedge.com/news/2012-09-2 ... lth-effect

September 26, 2012, 9:58 A.M. ET
Gold To $3,000 By 2014: BofA Merrill Technicians / Barron's

September 25, 2012, 1:49 P.M. ET
Citi: Gold Could Top Out At $1,800 / Barron's

I wonder which one's going to look smarter.

Just sell all your stocks, sit in cash for a month and rebuy TWICE as many in November when the stock price falls. 

TripleB wrote: Just sell all your stocks, sit in cash for a month and rebuy TWICE as many in November when the stock price falls. 

;-) Imagine, though, tons of people are actually doing that and thinking it's a great idea.

Well, the DOW's up 150 points so far today but CNBC says "judgement day is coming." Hmm.

Judgement day in regards to what?

Breadth went negative last Thursday.  Fortunately, that wasn't the sell signal for me or I'd be pissed since I didn't notice the indicator wasn't updating until this morning (fixed a bug).

This month we have once or twice in a decade timing window lining up.  The bottom of the Internet bubble in 2002 as well as the top of the bull market in 2007 both converge.  If Romney is going to win, we have got to tank starting this week or he's lost the election.

MachineGhost wrote: Judgement day in regards to what?

It was another article about stocks being overvalued. I think the judgement meant people waking up and valuing stocks more accurately (i.e. lower). If course, there was another headline on the same page talking about how stocks are going to finish 2012 with a bang.

I'm actually comforted by conflicting headlines. It helps me to tune them all out, occasionally reading them for amusement purposes.

I would guess that the end of September or the end of April would be excellent times to rebalance as a rule if stocks are more plentiful in your portfolio than LTT's.

Reub wrote: I would guess that the end of September or the end of April would be excellent times to rebalance as a rule if stocks are more plentiful in your portfolio than LTT's.

Why not just wait until you hit a rebalancing band?

I agree on waiting for your rebalance rule to hit.

I've been watching the "sell in may and go away" effect for a lot of years and have not been able to find a definitive pattern.

Some years you need to be out the first week in may.  Other years you should hold on into June or even July.

This year I made about 5% by holding all the way thru that I would not have had if I had tried to buy back in the end of August, and made about 15% in September that I would have missed if I hadn't been in by then.  (That ignores transaction costs that I did not have to pay because I sat tight.) If I had timed my in and out perfectly, I might have done better, but I have two positions that gained over 20% in the summer months this year that I would have missed so the calculation is hard.  Plus I'm convinced I cannot do perfect timing so if that is required, I'm not interested.

edit:  I would consider fudging just a bit on the rebalance band.  There are seasonal doldrums for stocks (summer) and gold (spring thru mid-summer).  They aren't strong or certain enough to bet big, but if I was just a bit shy of a rebalance anyway...

I've done backtests using different times of the year for rebalancings, especially at the end of April or Oct and there really is no advantage with the PP.  Everything is too hedged.

Stand bye. This ride could get ugly!

Reub wrote: Stand bye. This ride could get ugly!

Seems like the last couple of weeks my PP has been leaking pretty bad. That's just an impression, I don't have any hard numbers. Wish I did so I could put it in perspective. Feels like 3% down or so.

Everything's been leaking in the last couple of weeks.  If you're tracking your PP's performance, go ahead and check this month's change now.  You'll be pleasantly surprised that it's not as bad as you think.  I had that same fear in the spring, and was really surprised to find, for example, that in May the S&P 500 dropped over 6%, while my PP dropped 1.16%.  The former is a scary amount to lose in one month, but 1% is manageable.

If you track the monthly returns for a while, you'll quickly notice that changes are slow and steady - not more than 1-2% in either direction, with the general trend being up.  Of course there have been losing years so that can - and surely will - happen again, but it's rare.

ZedThou wrote:

Reub wrote: Stand bye. This ride could get ugly!

Seems like the last couple of weeks my PP has been leaking pretty bad. That's just an impression, I don't have any hard numbers. Wish I did so I could put it in perspective. Feels like 3% down or so.

In the last 5 days it's down a little less than 1%.  Over the last 3 months it's up a little.  It looks like so far in October it's down about 1.7% or so.

Thanks MT. I usually wouldn't fret, and I'm not really now. I had a nice round number goal, a very optimistic one, for my wife and I to reach by the end of the year. My projection was that we were actually going to pull it off. So a couple of weeks ago I excitedly shared this with my wife. I guess I get to share it with her again, sometime later.

ZedThou wrote: Thanks MT. I usually wouldn't fret, and I'm not really now. I had a nice round number goal, a very optimistic one, for my wife and I to reach by the end of the year. My projection was that we were actually going to pull it off. So a couple of weeks ago I excitedly shared this with my wife. I guess I get to share it with her again, sometime later.

The PP is like the watched pot that never boils.

Over time, though, it cooks:



melveyr put together this great chart.