Thread: A Study of Your Returns

Oh boy, have we ever bumped by the way? You forgot the disciplined approach of a buy and holder using dollar cost averaging - it's my redeemer and does make a substantial contribution to performance.

Hey, at least the mean was pretty good. 11.64% for a year isn't too bad. You're making it look bad because you are comparing it to the other funds this year. There are many years to be invested. Some of them will be real bad. When we have a bear market, compare the returns of the market to the returns of TSP traders. You might still find a mean of 11 to 12% for the traders, but a -20% for the market.

This is a terrible comparison. I wonder how many professional mutual fund managers beat the S&P this year. It's very difficult to beat in a big up year. (Defined in my book as greater than the trailing 10 years avg) Fabijo, you got it right....let's compare over an entire cycle and I'll bet you find TSP Talkers do quite well.

Who let the Grinch in?

Originally Posted by Ghageman

This is a terrible comparison. I wonder how many professional mutual fund managers beat the S&P this year. It's very difficult to beat in a big up year. (Defined in my book as greater than the trailing 10 years avg) Fabijo, you got it right....let's compare over an entire cycle and I'll bet you find TSP Talkers do quite well.

Provide the data and I'll crunch the numbers.

Not you again!

Desperado,

As one of the not so glamoursly dubbed "warren buffets" of the group, I can tell you that I consistently slip behind a buy and hold strategy during the up cycles of the market.

However, a monkey throwing darts will not stay out of the market during major corrections. This is the rosetta stone of the whole timing process.

Since you like to crunch numbers, do me a favor. Calculate what a buy and hold strategy would have returned for each of the stock funds for the past ten complete years (1996-2005) given a starting amount of 100K and assuming no additional contributions, and then calculate what the return of a person who missed the top performing fund (i.e. underperformed the best performing of the funds) annually by 0%, 1%, 2%, 3% etc... until you have sufficiently bracketed the buy and hold strategies.

The majority of us on the board have the goal of meeting or beating the best performing fund each year. I recognize that is an ambitious goal and only a few of us will likely achieve it. My gut tells me achieveing that goal is probably not necessary to be beneficial. I would be extremely interested in how close I have to get to that goal to make it worth my while to time.

Please do your calculations in excel and post your work so that we may review it. I mean this with all sincerity, I would appreciate the effort.

Thank you.

Originally Posted by Desperado

A Perfect Display of Why Market Timing Doesn’t Work

A group of 48 Federal Employee Thrift Savings Plan (TSP) investors tracked their returns from Jan 1 2006 to Nov 24 2006 at TSPtalk.com. These investors changed their asset allocations on average 37.6 times over the 11 month study period, with the most frequent trader swapping 157 times, (impressive given the fact that the NYSE was only open 226 days.) As the TSP is a tax-deferred, no-fee plan these traders incurred NO transaction costs. Their investment options include 4 very low cost index funds which mimic the S&P 500, the Wilshire 4500, the EAFE, and the Lehman Bros Bond Index, and a special fund called the G fund, which essentially has the return of a medium-term government bond fund with the risk of a money market fund. There are also 5 “lifecycle” funds within the TSP program, but these are infrequently used by these investors. Transactions requested prior to noon Eastern time take place at the close of business that same day.

The individual fund returns for the study period were:
G Fund (Treasuries): 4.48%
F Fund (Lehman Bond): 4.50%
C Fund (S&P 500): 14.17%
S Fund (Wilshire 4500): 15.43%
I Fund (EAFE): 21.15%

The mean return for these investors was 11.64%. The median return was 11.97%. The best return was 22.16%. The worst return was -4.01. The standard deviation of returns was 5.45%.

Comparison against appropriate indexes would be appropriate:
Perhaps the best comparison for these relatively aggressive investors would be against an all-stock “Total Global Market” portfolio (50% I, 39% C, 11% S), which bested 92% of them. Even an all-stock buy-and-hold investor who feared foreign markets and invested only in the “Total US Stock Market” portfolio (78% C, 22% S) would have beaten 35% of investors. Only 52% (not statistically significantly different from &#189 of investors topped a “know-nothing” portfolio of 20% in each of the 5 funds. Even the average lifecycle fund investor (who often held a large percentage of relatively low-performing fixed income) bested 46% of these traders.

But what about the “Warren Buffets” of the group. Surely there must be at least a few very talented traders in this group. In a random distribution, one would expect approximately 2.5% (or about 1 trader) to perform better than 2 standard deviations above the mean. In fact, no traders managed this feat, suggesting that the outperformance of their top performers was less likely to be due to skill than sheer luck. In fact, a distribution of monkeys throwing darts to choose their allocations would likely have produced a higher performer than these 48 investors. One would also expect 16.9% of investors to perform better than 1 standard deviation above the mean. In fact, only 14.5% of investors did so.

It is noteworthy that these investors were functioning in a “zero-sum” game, quite different from the typical investor, in that they pay no portfolio fees (aside from the miniscule ERs of the individual funds), no transaction costs, and no taxes on gains. If these traders had been operating in a typical investing environment, their transaction costs and taxes would have made their performance even more dismal.

The correlation coefficient between # of trades and return was 0.048, which means there was no significant benefit to trading more often.

Oh Boy, this should be fun!

Your article should be why most day traders don't beat the market. Not Why Market Timing Doesn't work. Market Timing DOES NOT MEAN TRADING 20 TIMES A MONTH. Thats day trading. The Top Timers I follow beat the Market overtime.

Compare your data to Professional Market Timers, and Buy and Hold folks lose money. Bob Brinker is a Market Timer last buy signal 2003. Day traders are different from true Market Timers and Trend traders. Some of the folks on the board might not like being called traders, but they are.


Run the data for year 2000 (-9.14 ) 2001 ( -11.94 ) 2002 ( -22.05 )

I made money during these years because I get Bob Brinker's
( MARKETTIMER ) newsletter.

Gave a sell signal in early 2000. I could post many articles why Market Timing does work, but whats the point. It's like going into a cigar store and telling people cigars are bad for you.

I do respect your opinion. We will again have a Bear market and you and many other buy and hold folks can ride it down.

However, when Bob Brinker gives me a sell signal I will no longer own stocks. One of the Greatest MARKETTIMERS of all Times. The Top Timers are mostly Bullish so buy and hold for now and buying the dips will work. It's a paid service so we can't show returns, but some beat the market.

It's easy to pick and chose your data. I do respect your opinion and I make very few moves in my TSP account. Please look at my data below. Looks like the Market Timer did ok!

5 years ended 6-30-06 for all Model Portfolios:
Portfolio I: 75%
Portfolio II: 72%
Portfolio III: 52% (balanced portfolio with 50% fixed-income position)
Active/Passive: 64% (this portfolio started March 1997)
Total Stock Market Index: 21% (VTSMX)
S&P 500: 12%


http://www.bobbrinker.com/portfolio.asp

http://www.timerdigest.com/


My point is your general opinion of Market Timing is incorrect and Bob's data proves that. However, Bob is a Top Timer!

Take Care and it was a very good article, and I agree with most of what you said. Call it daytrading and I agree with everthing.

I also like the L Funds for most folks.

Back to the Cave.

The trouble with statistics.....

Your group has problems. Not all investors listed have the goal of having high risk, high gains at all cost. There are investors in that group that have capital preservation as a goal because they are retired or nearing retirement. You have an investor, Rod who has the negative return, who was aggresive and then bcause of job duties and an inability to follow the market went 100% G and thus had no chance to recover from the May market correction. You have others who have gone inactive and just haven't dropped off the list yet.

That being said, your point is well taken. Being a market timer ain't easy. The true numbers are not as bad as you have painted them, but we do have a number of folks who would have done better in L2040.

Last year 11 of the 12 people who had complete year returns beat the S&P 500. The one person who did not was Safetyguy who is nearing retirement and is more conservative. Last years final result. Last year also backs up the claims that it is easier to beat the market when the market is not as strong as this year.

Originally Posted by Desperado

In a random distribution, one would expect approximately 2.5% (or about 1 trader) to perform better than 2 standard deviations above the mean. In fact, no traders managed this feat, suggesting that the out performance of their top performers was less likely to be due to skill than sheer luck.

Desperado,

I don't disagree with your general conclusions.

However, since my statistics are very rusty, would you elaborate on why, statistically, this nearly normal return distribution suggests that the out performance displayed by the top traders, i.e. FundSurfer, Griffin, Show-me, and Sugar and Spice, is due to luck? Note, this is the second year that Show-me has demonstrated outstanding, market beating performance. The other top traders were not tracked for a full year in 2005.

Desperado,

You may want to go back and review your statistics. You are describing the group using a symmetrical distribution based on a simple linear regression analysis. In fact, the distribution of the group should be based on resistant measures of spread. Which means you need to begin your analysis buy applying a function such as a five number summary interquartile range analysis. There are several reason for this, first you have to look at the funds themselves and what the statistical limiting factors of those are. You also have to look at the tailed statistics of the distribution of daily returns. In a bull market, the market will typically yield more green days with relative lower average returns and fewer red days with greater negative returns. This has a profound effect on the potential distributions.

Personally, I have no desire to go back and reteach myself semesters of statsical analysis that I have not used in 10 years. However, the fundamentals of your statistics are not applicable to the situation. If you performed the kind of applicable statistical analysis I have briefly described, I believe you would find it highly unlikely that any of us would actually beat the best performing fund under a random distribution.

But if you care to do the math, I would be interested in seeing that also.