Weekend Reading: Errant Thinking

Tyler Durden's picture

Submitted by Lance Roberts via RealInvestmentAdvice.com,

Last week, I penned a post entitled “You Can’t Time The Market?” which was subsequently picked up on the Seeking Alpha website. It is always interesting for me to read the comments on the articles as it gives me a lot of insight as to the psychology of individuals currently investing in the markets. Specifically, it also tells me much about individuals who have never been through a “reversion” in the markets.

The article was addressing an individual’s ability to capture the upside in the market while missing a bulk of the downside by employing even a simple moving average strategy. To wit:

“While there are many sophisticated methods of handling risk within a portfolio, even using a basic method of price analysis, such as a moving average crossover, can be a valuable tool over the long term holding periods. Will such a method ALWAYS be right? Absolutely not. However, will such a method keep you from losing large amounts of capital? Absolutely.”

“By using some measures, fundamental or technical, to reduce portfolio risk by taking profits as prices/valuations rise, or vice versa, the long-term results of avoiding periods of severe capital loss will outweigh missed short term gains. Small adjustments can have a significant impact over the long run.”

Of course, this is where, despite seeing the chart posted above, this comment was left.

“Completely disagree since the market can trade at or near a record top for months or years. Yes, much of the time. Check a monthly chart of SPX. “

Okay, we can do that. As shown, while markets during the FIRST HALF of the market cycle can certainly elevate to extremely overvalued levels as exuberance displaces underlying fundamentals, the SECOND HALF takes generally wipes out all of the gains from previous break-even levels.

Unfortunately, given the fact that investors don’t live forever, unless they have contracted vampirism along the way, the issue of time horizons are a major problem of the recovery process.

It is this errant thinking that continually leads investors to believe that somehow this time is different.

While exuberance in the markets currently reigns as prices continue to reflect economic and fundamental perfection, this time is likely no different than the last. The only difference will be that those with experience will leave the markets with the money from those whom will ultimately gain the experience.

In the meantime, here is what I am reading this weekend.


Fed/Economy


Markets


Research / Interesting Reads


“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality is distorted by a misconception.” – George Soros

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Insurrexion's picture

Bullshit.

Sue the Media.

Make them prove their story is true.

Make them prove their sources.

SILVERGEDDON's picture

Nothing is real, specially the stawk market, which was traditionally more about sex, lies, recorded video, hookers, and blow,

Now, the special new ingredient amongst the top select group of moneyvchangers - is pizza. 

Dang - I miss the good old days when skirts were short, bras were burnt, love was free, money was silver and gold, cigarettes, booze and drugs were pure, and the future was bright.

Now, it's all child molesters, fake drugs, fake tits, fake markets, Skynet algos, and bat shit crazy Klingon cocksucker from Uranus analytics.  

Lead, copper, brass, silver, gold, food, land, and toilet paper - it's what's safe to invest in. 

The_Juggernaut's picture

Maybe the misconception is that the dollar is a steaming pile of shit.

SILVERGEDDON's picture

Wow - all doubt as to your intelligence was flushed down the toilet of life with one short bus special school hockey helmet wearing rama lama ding dong Klingon cocksucker from Uranus rainbow skittle shitting unicorn pussy headed protester head up your libtard ass comment. 

limited man's picture
limited man (not verified) SILVERGEDDON Feb 25, 2017 5:21 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Red Fred's picture

Ijit! If you tell everyone about it you will dilute your earnings!

SILVERGEDDON's picture

Nope, been there, done that, got the tee shirt and the memories.

More than I can say for you. 

Snaffew's picture

in that case, then one would also have to sue Trump many times each day as the majority of what comes out of his mouth is just plain old false---he can't help it--he is not a thinking man---he's a clubber.

Got The Wrong No's picture

and you are a Puke Troll and a Moron. How's That?

barysenter's picture

I can see from my porch in Siberia that those fun bags are real. Thanks.

dizzyfingers's picture

https://www.theburningplatform.com/2017/02/21/six-impossible-things-befo...

TPTB propaganda everywhere all the time. No wonder there's no peace.

DontFollowMyAdviceImaDummy's picture

Just watch what happens with the SNAP ipo on Wednesday; that'll tell you everything you need to know about this "market".

Snaffew's picture

i agree with most, but land is a cyclical investment in a euphoric frenzy right now, not to mention the taxes--at least here in NY---are ridiculous.

moneybots's picture

“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality is distorted by a misconception.” – George Soros

 

Stock bubbles grow out of massive financial fraud. Reality bursts the bubble.

dlfield's picture

"...even using a basic method of price analysis, such as a moving average crossover..."

Agree -- The problem is it takes substantial capital to trade at a time to keep from getting most of one's gains from being eaten up by transaction fees.  "It's rigged!"  :-)

androkles's picture

MDB strikes again!

alfredhorg's picture

"the issue of time horizons are a major problem of the recovery process."

Not if you have at least a decade left to live.  I started investing for myself in 2006, endured the 2008 crashes, went 100 percent into gold stocks in 2014 before they all crashed in 2015, held on, recovered, flourished, and now have a track record of 24% annualized gains over the past eleven years:

https://howibeatgold.wordpress.com/2017/01/25/trash-dump-worker-invests-...

Dilluminati's picture

The article is correct, and in many respects goes to the question of loss avoidance.  You hit the variable correctly for decision making age.  But at the basis of this article is a truth, you never do bad raking a profit.  Looking at YTD the markets are up approxiimately .25%

I'm using S&P numbers as they are more reliable than the Dow which is up YTD 25%

http://money.cnn.com/data/markets/sandp/

Market is at "all new highs" and probably had some match in the 401K, so you realize that amout

But broadly speaking: it's never a bad idea to take some of the money off of the table.

If you don't have a 20 year horizon you need to be taking money off of the table and awaiting a correction to put it back to work again.

I look at the demographics and broadly speaking most people are insolvent, but to make things more interesting is that allot of baby boomers want to retire pretty much at the same time, the key is that most can't afford to do so now.  It is that chart of the time to recovery and people forget the Nikkei 38916, 

http://blogs.wsj.com/japanrealtime/2014/12/29/tokyos-stock-bubble-25-yea...

http://ritholtz.com/wp-content/uploads/2013/05/Nikkei-20-years.jpg

I cannot find a chart that shows the true max history, but the point is that if you were 67 in 1989 and fully invested you would be almost 90 and have still not recovered 1/2 your earnings of a lifetime in the workforce.

any medical emergency or any other requirement for funds and you are selling at .50 of a dollar or worse.

Now let me be clear there were people who looked around and said in November of 1989, I like the gains and have x amount of years to retirement.  And then there are those who did not.

That simple folks.

http://ritholtz.com/wp-content/uploads/2013/05/Nikkei-20-years.jpg

That picture is what you cannot allow to happen and as an adult and living in a democracy that is your responsibility.

President John F. Kennedy’s father, sold his stocks before the 1929 stock market crash and kept millions of dollars of profit.

http://www.thebubblebubble.com/1929-crash/

My point is that follish people allow profits and opportunity to turn instead to hope alone.

The final truth is that smart money is getting out of this market.

But in closing you are never wrong to take the profits and if you see a run-up of 25% you need to look in the mirror and ask: do I need that money?

I have a feeling that this ends badly for the finacially illiterate and that taking the money off of the table is historically wise.

 

 

 

 

 

Billy G's picture

Excellent article guys. Makes for some interesting reading for sure. But  I Like to say that if I see an analysst who continually proves his/her record then that is legit.  The problem is first of all there are very few analysts who do know anything with regards to what a stock and commodities analysts is to do. 

 

Only analyst I have seen who proves their track record and contineus to do so over and over, week after week in up and down markets is Shepwave

 

Oh, and guess what, they show their past time stamped charts to prove that.  See, most people who trade and invest in the markets are not accustomed to a real analyst. 

 

The group of analysts who split off from Goldman about 30 years ago a.k.a. shepwave have been nailing markets. 

Their charts on one of their FB pages contains past charts that prove their correctness with market calls.

  

 

 

https://www.facebook.com/166578775325/photos/a.10153488951800326.1073741827.166578775325/10154415124400326/?type=3&theater 


Dreedle's picture

You are right to a degree.  For example you are wrong thinking that ZH does any prediction work.  Yes, they have painted  a bearish picture for the markets for about six years and most of their readers who were traders are now broke, but that is the readers fault.  Because ZH is correct in their bearish stance of the indicators the readers have interpreted that wrongly and have lost a lot of money. 

 

And I agree it is nice to see an analyst who actually puts his money where his mouth is and shows past charts giving market predictions. 

SlothHedge's picture

It is always the analysts or market writers who say "You can't time the market" or "the market is rigged", who are losing constantly and are losing their reader base. That is why if you notice Shepwave is probably the only analyst who over the last 20 years has remained low keyed and private to a unique investor and trader and yet continues to gain notoriety. It is for a good reason that they only allow new subscribers a couple of times a year. They would prefer the majority of morons out there to go somewhere else. 

SILVERGEDDON's picture

Goldball Sack suckers running Shitwave.

That - is one step removed from the guy making seven grand a month hiring out his asshole who also pimps his shit here. 

Irvingm's picture

Shepwave has been doing great. But they should show people more of their  calls like the one Friday afternoon calling the end of day rally. I mean they could show past calls of every day and still not reveal any future calls. 

blindman's picture

two divergent or differently oriented brain cells
constitute a market, so markets are nothing more
than diversity and conflict among brain cells.
.
are you trying to feed on some other productive
life form or making a contribution to a life form
other than your self? that is the question no one
will tolerate or ask in public today. the money system
demands this blindness and censorship.
no?

No More Bubbles's picture

Investors don't live forever.

I wish someone would tell that to Warren Buffett and he'd take it to heart (attack)........

DOGGONE's picture

Dispute this if you dare:

The main enabler of sizable asset price bubbles is keeping rarely seen the inflation-adjusted asset price histories! Take a look:
http://showrealhist.com/yTRIAL.html