day trading vs hold steady

[DrD]

All,

The returns for the year for TSP talk are about 2.5% following a day-trading strategy. For the G fund, they are 3.6%, and the G fund is the worst performing of the funds. Yesterday, someone following the advice to go to 50% G missed a huge uptick. This has happened all year. Daytrading has underperformed the G fund! How bad is that?

I went 70%S and 30% I on the first of Janaury, and have held firm. As a result, I am beating the TSP day trading performance with over three times the rate of return.

Watching the board has convinced me that trying to day trade the TSP funds is a mistake; you can't get your positions switched fast enough and you underperform by chasing trends you can't catch.

I'll rebalance next January again (I only do it oncea year) and then we can see again which strategy does better. When rebalancing, I look at macro trends (I think the dollar is going to continue to drop so I may go heavier I fund as a hedge).

Best wishes

DrD

[Keenster]

I am new to this web page and I think it is a very good forum and I hope to learn alot. DRD, I have to agree with your philosophy. I am 60% C, 20% S and 20% I and I have been that way since the other funds became available. I am confident the best way to make the most of the TSP is to stay steady. When the market goes down I look at it as buying cheaper (funds are onsale). Dollar cost averaging helps add to the value of your account and if you miss out on a good day I would think that doesn't help dollar cost averaging. I understand everyone has their own thoughts and again I think this page is a great forum.

[zoeb]

awwww shucks Doc, your taking all the fun out of this board...not. :l

I for one have learned a lot by listening to the guys since I joined this forum. Since our government didn't see fit to educate anyone on how to invest in the TSP funds, this place wins hands down.I've watched a stagnant TSP fund grow considerably since I joined in August...I was back into stocks on Tuesday and I'm quiet happy with my returns.

Take all the advice on the boardsand look at all the charts, shake your eight ball, and give it a go. You might find you do better than simple once or twice a year allocation change.

[smedlap]

I agree with you firmly.

I disagree. No one can do this consistantly with any formula. I tried to find one for 3 months, 8 hours a day and could not come up with one that didn't involve emotion. All's that happened was Ibecame obcessed with it.

Unless you dollar cost average and rebalance ( a huge key) at the end of every year, your just guessing at what is going to happen, not to mention the addiction that goes along with "timing" and all the stress. If someone can show me how to obtain 15% per year with a "system" that has no emotion, than maybe I'll look at it. Another problem with backtesting is you often "cheat" to get the desired results. What I mean by this is you buy (on a borderline signal) when it benefits and sell, the same. It's emotion.

I know, I tried to "time" my IRA money and lost 33% this year! That feels great. At the same time I left a much larger pot of money in a pension plan (former job) and did not move it at all the whole year and I'm up 23% or so for the year. So what does that tell you (besides I can't time the market) ?

Example: MLK_man had a great system for this year (all credit to you, man) but when he and I backtested it against bull and bear markets of the past, it floundered badly. It was a good idea on his part for this year (basically an up and down market) but he was let's just say "fortunate" for implementing in this type of year. If we go into a long Bull, how will you know when to change systems?

It all comes down to this: How much do you need to retire comfortably and when is that? Start with that and work backwards to see what rate of return is needed and amount needed todeposit per paycheck. I'm sure most of us will find we don't need as high of a return as we think, especially if you start early. I've realized that I don't. So I'm quitting the gambling addiction (call a spade, a spade) and going back to Dollar cost averaging! Have a great day, y'all.

PS- I do enjoy the input from this board. Let's just say it helps me realize a lot of things.

Dr D:

Check out www.fundadvice.com (http://www.fundadvice.com) and look at the articles on the "TSP advice" and "The ultimate Buy and Hold Strategy". They are excellent and will help us dollar cost average people a ton! Check em' out and see what you think.

Joel

[tsptalk]

DrD wrote:
All,

The returns for the year for TSP talk are about 2.5% following a day-trading strategy. For the G fund, they are 3.6%, and the G fund is the worst performing of the funds. Yesterday, someone following the advice to go to 50% G missed a huge uptick. This has happened all year. Daytrading has underperformed the G fund! How bad is that?

I went 70%S and 30% I on the first of Janaury, and have held firm. As a result, I am beating the TSP day trading performance with over three times the rate of return.

Watching the board has convinced me that trying to day trade the TSP funds is a mistake; you can't get your positions switched fast enough and you underperform by chasing trends you can't catch.

I'll rebalance next January again (I only do it oncea year) and then we can see again which strategy does better. When rebalancing, I look at macro trends (I think the dollar is going to continue to drop so I may go heavier I fund as a hedge).

Best wishes

DrD


I guess we'll see you again in January. So you knew Bush was going to win the election?We went into defensive mode for a dayin caseKerry won or if there were recounts. If that did happen we may not have heard from you.

You seem like an intelligent person but your allocation in January tells me you don't know very much about the market and are merely hoping for an outcome. The indices were so overbought in January after running up 22% to 42% in 2003 (I made 39% btw) that we were certainly due for at the very least a long consolidation period. The only mistake I made this year was to get fully invested in July. Too early.

I guarantee my 5 year record outperformed your buy and hold strategy. My returnbeat the S&P 500 by over 23% from 2000 to 2003 (although the G fund did better than I did) but obviously a buy and hold investor got clobbered. The fact that you got100% in stocks in Januarytells us you don't heed the market warnings. I talked about the bumpy road for the first part of 2004 back in January (http://www.tsptalk.com/comments_archive.html (http://www.tsptalk.com/comments_archive.html))

Anyway, we've had the buy and hold vs. trading strategy discussion here many times before. I think it is good to let people know each side and have them decide which is best for them. For most people, buy and hold is the best strategy. I have spent the last year trying to helpingnovice investing TSP'ers toget answers,understand markets, investing andtrading, and take control of their investment lives. There isn't only one way to do it. Now they can make more informed decisions.

If being 2% behind the C fund this year (I passed the G fund today btw) makes my strategy bad, then beating it by 23% from 2000-2003 must be pretty good.

One more thing, in August I staked my reputation on the next 80 point move in the S&P 500 being up rather than downwhile the bears thought I was nuts to get so aggressive. That was 100 points ago. Their reasoning was that they wanted to see the downtrend end before they got in. Well they missed 7 or8% since then. Most of thosebears don't show up here anymore. When I'm wrong I have to show up the next day. I'm not proud to be a couple points below the S&P at this point in the year. Again July killed me. But I have a reason to my madness and for meit is better than blindly buying and holding which I consider a hedge on ignorance.

Let us know what you do in January. I'll be curious how you determine what to do.

Thanks for joining us.
Tom

[coolhand]

DrD - In my opinion, day trading isquite different from what this forum is about. These are index funds not individual stocks.

While it is very true that we cannot move our funds in less than a day, it is not generally necessary.Averages are not determinedin a day. We primarily watch for trends. Of course the people on this board have varying strategies so results can be wide ranging. I myself have managed an overall gain of about 12% this year. And I've only moved funds maybe 6 times.

Buy and hold is certainly a good strategy, but my feeling is that ifone develops a good understanding of themarkets, the emotion inherent in them,chart reading etc. one can do better.

Your observation is appreciated.

[FundSurfer]

I used to be like you DrD.

Here is a suggestion. Just follow the market and paper trade for a year and see how you do. I did that and would have almost doubled my return going from 2 trades in a years time to about 5 trades.

I've actually gotten more aggressive as I've learned more and you can make some predictions about the market.

Tsptalk (Tom) had one bad month. He isn't the only one who made the mistake that he did (I recall several analysist makeing wrong predictions in July). He was being very agressive and lost ground. Staying agressive he is likely to pass the "buy and hold" type positions within the next year. You don't have to win them all. The one thing he has done is he know knows more as a result of having been more aggressive and learning the trends. Perhaps you are right and he would never beat a buy and hold strategy long term. I would bet money the other way long term.

Everyone has to invest at the level at which they are comfortable.

Also, there are others on this board who have done quite well this year using different methodologies.

Dr. D:

Here's the direct links for the TSP and buy/hold articles.The TSP ishard to find on the websight.

http://www.fundadvice.com/QA/cbs/cbs102903a.html

http://www.fundadvice.com/FEhtml/BHStrategies/0108/0108a.html

you have to click on the bottom of the page of each article to get to the next one.

I hope this helps.

Joel

[tsptalk]

jgpalmerdds wrote:
It's emotion.


Emotion and ego arethe biggest enemies. I have done this for years and I am far less disturbed by swings and being wrong than I used to be. Being wrong at times is inevitable. How you handle it is the key.

Here is a case where the writing was on the wall. The script, if you will. The problem isn't reading the market.It is executing based on what you know to be true, even if it goes against everything your emotions tell you.

On January 22, 2004 I wrote:
(http://www.tsptalk.com/comments_archive/comments_1_22_04.html)

"Presidential election years are usually a good time to be in stocks. The current administration pulls every punch to make sure things are looking good near Election Day. But looking back over prior election years, the market tends to begin a stalling period in late January, early February. A lot of up and down action for several weeks or months, but not much headway. The trend will continue to be slightly upward, but not in a straight line. Then sometime in the early fall of these election years, the market picks up steam again.

"So, depending on your tolerance for fluctuations, you have some choices. You can keep your account in stocks and ride the storm knowing you should have a nice return at the end of the year. You can play the volatility by getting in at oversold levels, and out when overbought. Or you can play very conservatively and stay out of the stock funds until the volatility has subsided, hopefully sitting on some nice gains over last few months." end quote


Notice I didn't tell people what to do. I told them there are different ways to play it. It's up to the individual. Some timers did better than others. Buy and holders were at the mercy of the market.

[Spaf]

Tom - Back to the issues. We got a Bull market. Ignore the the freaks!

Halloween is over. Lets get on with business!

[Pete1]

Dr. D., I have a question for you. Will you maintain a buy and hold approach when your account value drops 50%? With your current allocation, you should be prepared for a maximum 50% loss in any single year. Most of the expert buy and holders(WilliamBernstein, John Bogle, Rick Ferri, Larry Swedroe, etc.) recommend that diversified buy and holders maintain at least some fixed income. The aggresive end of the spectrum is usually around 80/20 (around a 40% maximum one year loss). This year has been relatively benign.

Regarding Tom's performance, he had one really bad month. Otherwise, he has done well. In fact, since his bad month, he has done a very nice job of catching up. I expectthat he will catch up with the diversified account at some point. :)

Spaf- Flattery will get you nowhere. Take care. Let us know when that "system" is developed. Thanks in advance.

In all seriousness, what are you looking for when you get "In" and "Out". Just curious.

Joel

[Spaf]

Joel
For a bear market thats trending with cycles I use moving averages of x days, where x equals 1/2 of the peak to peak cycle. I confirm this with the Parabolic-SAR. And I use market talk or sentiment.
For a bull market it just the ride and the allocation of funds.
A big help was understanding "The Dow Theory". I put it on this site under readings.
And then generally I listen to you guys.
Rgds ;) Spaf

[Mike]

Spaf wrote:
Joel

And then generally I listen to you guys.
Rgds ;) Spaf
You'll get burned by that last one. :^

[rokid]

The experts recommend buy and hold.However, why be a whimp and settlefor the market return when you can beat the market?

But can we?

Ithink we can all agree that Tom is smart, has studied the market extensively, and works very hard to beat the market return. He is also brave enough to reveal all of his moves both good and bad! However,the following compares his 2000-2004returns to the returns achievable from a very conventional, off recommended, 60/40 buy and hold portfolio. Specifically:

60% Equities: 36% C Fund, 9% S Fund, and 15% I Fund

40% Bonds: F Fund.

The results:

% Annual Returns Tom 60/40 Buy and hold

2000 4.5 -2.2

2001 -14.6 -4.5

2002 -16.5 -7.9

2003 39.1 21.5

2004 (YTD) 4.0 6.4

Average 3.3 2.6

Std Deviation (risk) 22.4 11.8

Starting with $100,000 in 1999:

1999 100,000 100,000

2000 104,540 97,833

2001 89,277 92,956

2002 74,564 85,650

2003 103,741 104,041

2004 (YTD) 107,922 110,676

Conclusions:



Tom’s four year average return was .7% higher than the conventional buy and hold portfolio. However, this slight increase in average return was achieved at the expense of almost twice the volatility/risk.He should have received a much higher return for accepting this additional risk.
Even though his average percent return was higher, his portfolio’s high volatility caused his overall dollar return to be lower than the buy and hold portfolio. In addition, in four out of the five years, the buy and hold portfolio had a better dollar return.
Therefore, these, admittedly,limited results appear tosupport the experts’ opinion, i.e. with a reasonable asset allocation, it’s very hard to consistently beat buy and hold.

[Pete1]

Hi Rokid,

Just curious, are you 60/40, 70/30, 80/20, something else?How are your assets allocated between TSP funds?

Pete

[tsptalk]

However, the following compares his 2000-2004 returns to the returns achievable from a very conventional, off recommended, 60/40 buy and hold portfolio.
I know it's all you have to work with butthat small sampleincludesone of the worst bear markets of the century (2000-2003). 1995 to 1999 were huge years for stocks and blew away the 60/40 allocation. I just didn't starttracking my returns until 2000.

The main reason I put this site together wasn't really to get people to day trade. It was to get people out of the G fund now that the bear market is over. Only a very small percentage of TSP membersuse the S and I fund. I "trade" because I enjoy it and it's a challenge. If I just bought and held, there would beno site and there would be a lot of people trying to retire on a 4% annual return.

[rokid]

Hi Pete,

My overall mutual fund assets are75/25 stocks/bonds. My TSP funds are: F: 52%, C: 32%, S: 11%, I: 5%. However, my TSP fund allocationsare designed to compliment the return/risk characteristics of my other 401K mutual funds (mid-small cap and international).

Based on an MVO analysis (historical returns), I'm shooting for a 12.75 return with a 10.71 standard deviation. I'm also hoping that Siegel is correct about equity long-term returns, i.e. stocks beating bonds and inflation over the long-run. Fortunately, I have a relatively long investment horizon (> 10 years), so, theoretically, I can take on more short term equity risk.

[Pete1]

Okay, thanks, Rokid. Howisthe equity portion of your overall allocationdistributed between domestic large, domestic mid/small (any REITS), and international?I'm also looking at 75/25 (currently 70/30).

Pete

[rokid]

Pete,

Large caps: 32%

Small/mid-cap: 43% - I'm over weightedhere because I have the Fidelity Low Priced Stock fund (FLPSX). It's had greatreturns and low volatility over the past 15 years. In addition, it has alow correlation with all of the TSP funds!Even though it is an actively managed fund, it's hard to ignore Joel Tillinghast's exceptional long term performance. Otherwise, I'd probably go with 45% large cap and 30% small/mid-cap.

EAFE: 25%

IfI get some extra money, I'llinvest in theVanguard REIT fund. Ithas solid returns,low volatility for an equity fund,and a low correlation with the TSP funds.I'd also like to invest in anemerging markets fund. Too bad TSP doesn't offer those choices.

[rokid]

Tom,

You're providing a great service. I follow the site daily. In addition, I can see that you and most of the active members really enjoy sharing information, strategizing,playing the market, and providing TSP advice to the newbees.

I was just responding to the active vs. passivediscussion andyour 2000-2003 results were theonly "hard" dataavailable for adetailed comparison.

[tsptalk]

What, me defensive? :)

[tsptalk]

Another buy and hold vs.market timing article...

http://www.fundadvice.com/FEhtml/BHStrategies/9712.htm (http://www.fundadvice.com/FEhtml/BHStrategies/9712.htm)

[tsptalk]

DrD wrote:
I went 70%S and 30% I on the first of Janaury, and have held firm.

DrD

I know I am beating this to death but for the record, on July 26th,

DrD wrote:
"I went 70% S, 20%I, 10% C in January when I did my annual rebalancing. I think that was and is still a pretty good call"

http://www.tsptalk.com/mb/view_topic.php?id=378&forum_id=10&jump_to=3527#p35 27

Pretty close but he must have changed his allocation. in there somewhere. It seems to have gotten slightly better. Another interesting note, he said this about my return the other day...



"The returns for the year for TSP talk are about 2.5% following a day-trading strategy. For the G fund, they are 3.6%, and the G fund is the worst performing of the funds. "
On July 26th when he wrote his first post, the G fund was up 2.44% whileDrD's allocationwas down 1.86% or behind the G fund by 3.3%.

So what does this tell you about buy andhold vs. trading? At any given time a buy and hold or trading strategy can have good and bad runs. (Today we both happen to be beatingthe G fund return.)

OK, I'm done. Just a little credibilty check. DrD seems like an intelligent guybut the post and email he sent me "Nobody can time the market. Nobody. And most certainly nobody in their right mind tries to time the market with the frequency you do."were attacks on my strategy and deserved acounterpoint.

Trading happens to be amulti-billion dollar industry and while most stock daytraders do lose money, they do so because of commissions, slippage of prices, and being against some of the brightestpeople in the world. Three things TSP members don't have to deal with.

[Spaf]

Tom
I agree with U. There are pros and cons both ways.Stats can be manupliated to prove anything. If you get a chance please see the "TSP Highlights of October 2004" on the TSP web site. WOW! but not that suprising. The numbers only lend crediance to YOUR SITE!
Rgds :) Spaf

And: Ihold to my comments to DrD, but apoligize to any members otherwise offended, because, I defend!

[DrD]

Tom, Spaf,

New contributions are 70% S, 30%I, and have been since 1 Jan. On 1 Jan, I rebalanced what I had to 70% S, 20%I, 10%C. Sorry for the confusion.

WRT to the other points, I agree that at any given point one strategy can cross the other. Just out of curiosity, wherewas TSP Talkon July 26 against the G fund?

Also agree that this is a great site, and I'm not trying to attack you. Just want to make the point that buy and hold is a defensible strategy, easily executed,and often can outperform an more aggressive trading strategy, such as the one in your market allocation this year. See Rodik's post.

I started with the government in late 2001, so I haven't had the fun of watching the TSP run up over the 90s. I did watch 2001 and 2002 drop like rocks, but I dollar cost averaged and held to my allocations, and didn't miss any of the upticks by being out of the market when they occured. The worst part about an aggressive trading strategy is the risk of being out of the market when you get a big runup such as the last two weeks.

Best wishes

DrD

I think you just stimulated a lot of good coversation.

[tsptalk]

DrD wrote:
Just out of curiosity, wherewas TSP Talkon July 26 against the G fund?

On June 28th I was beating the G fund by 1.21% :^
On July 26th I was down 6.13% vs the G:'

I can't find the post, but somewhere shortly after this, I made some sort of irresponsible guarantee that I would beat the G fund before the year is up as my indicators were screaming "BUY".

Currently .40% upvs G:^

Of course my indicators have been screaming BUY since about the end of May. It's been quite a roller-coasterbut my point still stands that not beating the G fund doesn't make a system bad. Just as your buy and hold strategy did poorly against the G fund in 2000-2002, it blew it away in 2003 and hopefully 2004.

[DrD]

The trick is to buy and hold the right asset mix for the year -- and that is hard to do.;)

In 2001 and 2002, I was aggressive in equities (but not as much as the last two years) and could have done much better in the bond funds. In 2003 and so far in 2004 my equity mix has been lucky. I like the S fund because it has larger growth potential, and I like the I fund because the dollar has no bottom in sight.

I think the strategy of a newcomer (where dollar cost averaging has a more significant edge because you are investing a higher fraction of the total pie initially each week and things average out) might be different from that of an 'oldtimer', where the averaging effect is much smaller. (This is different from the investment horizon idea, which focuses on when you need the money out).

Overall, I think there are two main issues. What is the best allocation strategy, and what is the window for holding that strategy. I don't have a crystal ball for the best annual strategy, but I think that you can be the macro trends.

Steve Barr, who writes Federal Diary for the Post, and I had a long email conversation in January about the best strategies for the year. I owe him an answer, too, in January, but this year I think I picked a good one.

I prefer long windows to smooth out the bumps in the ride, but if you hold a losing strategy too long, you can get burned badly. Since the market moves in fits and starts, you can miss big moves if you are not holding to your basic strategy when it occurs (such as anyone who wasn't fully invested in equities the last two weeks). On the other hand, if you can predict the drops, it makes great sense to take your winnings out when the price is high and put them back in when they are low. I just don't think it is possible (for me at least and maybe for anyone) to do that consistently. And market theory suggests that those that claim to do it well are often just lucky for a given period. If 100 people try random strategies, some of them are going to do well just by chance.

I looked back at your home page, and I agree with your over-arching comment that too many folks are 100% in the G fund. You are doing a great service to the extent you move folks to equities.

Perhaps rebalancing more frequently than annually is a good idea. I'd be interested in other opinions about how often it should be done, and especially how to do so without missing the sudden upticks.

Best wishes

DrD

[tsptalk]

DrD wrote:
Perhaps rebalancing more frequently than annually is a good idea. I'd be interested in other opinions about how often it should be done, and especially how to do so without missing the sudden upticks.
One alternative strategy to the once a year rebalancing is the no brainer six month "system". I have theinfo hiding somewhere and I'll post it as soon as I find it, but basically you get in stocks November to April and out from May to October. Of course it is a long term strategy that does not pan out every year but it has been a very decent strategy going back many years.

[Spaf]

DrD
We got off on the wrong foot because of your Nov. 4 post. I wasen't going to reply until I noticed that you addressed it to "All,"

RE Nov. 4. 2:41. Sometimes people follow advice and miss a huge uptick. Right, it happens all the time. It happened to me when I listened to the market reps at my investment company! No more! I'm in to market timing, not day trading, and not by choise.
We generally frown on speaking on results in the past, i.e., I went 100% x last month and made whatever.
We can't day trade with TSP. The system has a one to two day transfer time. I can day tradewith my Scottrade accounts, but not with TSP system.
I rebalance as necessary, usingThe Dow Theory, withTSP allocations in accordance with theway the TSP funds werebuilt.

RE Nov. 8. 5:16. You addressed Tom and myself.
Appreciate your indication onnew contribution and rebalancing.
Agreed strategies can cross.Thats why we talk about them here.
Buy and hold is a strategy that sometimes works. It isoften overused toseek fundsfrom the uninformed investor.
I started in the market in 1985, so I havehad the wrath of watching members and others suffer significant losses only to return to the G fund (or get out of the market)with what remaining funds they had left.

RE Nov. 8. 7:19. The market changed in 2000. So far there has not been a right asset mix for many of us. In Jan 2001 through Feb 2003 the market declined. And then a Bull market set in that lasted till about Feb. 2004. The S fund was good during the Bull period. Many folks stayed away from the I fund because of it's twofold risk (market and currency). It is still the least used fund in TSP. It has some good features but everyone is not educated on the risks either. This is where TSPTalk tries to bridge the gap. For the most part TSP participants are government employees, not market guru's. Well, we have "other" day jobs.
Dollar cost averaging depends on a certain type of market and a certain time frame in the market in order to work properly. This is not understood, but misused to seek funds from the uninformed investor. Sometimes it works, sometimes it doesn't, other times it's soomeplace inbetween. The correct approach is to understand the market, buy low and sell high, this is not always emphasised, if you get my drift.
There is no best allocation strategy, because the market and events are morein a more frequent changing nature now. The window for a particular strategy can change, more now then in the past. Again I refer back to the market since 2000. None of us have a "crystal ball", but , there is a lot of market help and methods in online web references that can educate and midigate the guess work.
I agree, I would like a long running bull market. If you are uninformed you are more likely to hold a losing strategy. That's what this site is all about. The market does move in fits. A bull market started in late October, however if a particular strategy keeps you awake at nights, then it's probably not right for you. It ispossible tostop and reverse allocations in bear markets to your advantage,under certain conditions, and it is not arandom strategy, but one thathas been around for years and years.
Take a look at the TSP web site, the number of members that are simply letting their funds go harem scarem.
We have a lot of opportunities if we work together.
Thats the heart of this site, we may not always agree, thatswhen we have the freedom to ask, why?
Tom gave no warranty/guarantee to members on this site, he just gave his welcome!
Rgds. :) Spaf

[vectorman]

Hi Tom and all,

I'm a friend of clester.I can honestly say that after he told me about this site I have made great improvements in my investment decisions with my TSP account. I've been on the sidelines reading many of your comments which for the most part I found very helpful. I'm always learning like many of you. Tom, I appreciate your market comments. The information isinteresting and it gives me something to think about leading up to 12:00est on most days. I use to be buy and hold. Since I have been moving into and out ofmy funds based on trends, rumors, news, rate hikes...etc; I have found that I don't have to becontrolled by what goes on in the world or market conditions.For example, before if the c fund went down. I usually went all the way down with it. Now if the c fund goes down. I check out the trend, moving average.... thenif needed, I take control go into the g fund, wait for the c fund to bottom out, then jump back in making me more money. Yes, I have sometimes missed out on a one day rally, but I have also made out by not being in the market while its free falling.:)

[tsptalk]

Welcome vectorman! Thanks for joining us. I'm glad you have been learning, it only makes sense to me but buying and holding certainly has its merits. I hope you old buy and holders don't come after me if things go wrong. :shock::)

Tom

[tsptalk]

Here is a piece of an article by Rev Shark of RealMoney.com. He is a master at swing trading....

The Art of Playing the Pause
11/9/04 8:53 AMET

"The notes I handle no better than many pianists. But the pauses between the notes -- ah, that is where the art resides."
-- Artur Schabel

Many market participants have no problem loading up and riding the market when it is strong, but it is the trader who adeptly handles the pauses and pullbacks that is the true artist of Wall Street. The conventional wisdom of Wall Street is that the vast majority of investors should simply buy and hold for the long term. We are advised that trying to time the market is not only futile but likely to cost us.

Certainly, market timing is not easy, but it definitely is not impossible. The market is full of surprises, but it does have a rhythm, and the astute trader can dance to it with some success. He must stay focused and be ready to move quickly and decisively as events unfold, but he knows there will be pauses and flourishes and crescendos that will offer great opportunity. While others stay paralyzed and mesmerized by the music of the market, the virtuoso trader is looking to dance with both the bulls and the bears as the band plays on...

[DrD]

Spaf wrote:
<snip>
We generally frown on speaking on results in the past, i.e., I went 100% x last month and made whatever.
<snip>




Sorry, didn't know the protocol for this board.

Best wishes

DrD

Wonder Woman wrote:
I think you just stimulated a lot of good coversation.Speaking of stimulating, nice pic Wonder Woman!! <:o)

[Boots]

rokid wrote:
60% Equities: 36% C Fund, 9% S Fund, and 15% I Fund

40% Bonds: F Fund.

The results:

% Annual Returns Tom 60/40 Buy and hold

2000 4.5 -2.2

2001 -14.6 -4.5

2002 -16.5 -7.9

2003 39.1 21.5

2004 (YTD) 4.0 6.4

Average 3.3 2.6

Std Deviation (risk) 22.4 11.8

Starting with $100,000 in 1999:

1999 100,000 100,000

2000 104,540 97,833

2001 89,277 92,956

2002 74,564 85,650

2003 103,741 104,041

2004 (YTD) 107,922 110,676



How would the aggressive strategyon the front page (35-C, 35-S, 30-I)have faired given the same scenario?

[rokid]

Boots,

Not so well.

Bonds had good returns during the bear market of 2000-2001. Therefore, a portfolio containing a significant portion of bonds, i.e. 40-50%, did very well. On the other hand, yourtest portfolio would have done very well in the period 1995-1999. However, not as well as 100% C Fund.

Since the returns on stocks and bonds typically move in opposite directions,many buy and hold portfolios contain from 30-50% bonds to dampen portfolio volatility. Of course, stocksusually provide better long-term returns than bonds. EricSiegel (Stocks for the Long Run) recommends almost 100% stocks for the conservative investor over long periods. Since I'd probably panic if I lost 25-30% in a single year, regardless of the long term advantage, I hold 25-30% bonds.


60% Equities: 36% C Fund, 9% S Fund, and 15% I Fund

40% Bonds: F Fund.

Bootstestallocation: 35% C Fund, 35% S Fund, and 30% I Fund


The results:

% Annual Returns Boots Test 60/40 Buy and hold

2000 -13.0 -2.2

2001 -14.0 -4.5

2002 -12.5 -7.9

2003 36.4 21.5

2004 (YTD) 9.1 6.4

Average 1.2 2.6

Std Deviation (risk) 21.9 11.8

Starting with $100,000 in 1999:

1999 100,000 100,000

2000 87,031 97,833

200174,823 92,956

200265,462 85,650

2003 89,295 104,041

2004 (YTD) 97,379 110,676

[/quote]

mlk_man wrote:
Wonder Woman wrote:
I think you just stimulated a lot of good coversation.Speaking of stimulating, nice pic Wonder Woman!! <:o)Thanks for noticing M_M. I just wanted to make a nice first impression

I just noted I got mana!! I thought one earned mana by making some super insightful, intelligent and skillful financial assessment or move. Thanks all.. :D

Wonder Woman wrote:
I just noted I got mana!! I thought one earned mana by making some super insightful, intelligent and skillful financial assessment or move. Thanks all.. :D
And for nice pics apparentlly............:^

[Pete1]

Hi Rokid,

Do you mind running the numbers with G fund rather than F fund for the fixed income component? F fund had a nice run over those years and so, should have the edge but would be interesting for comparison. Thanks!

Pete

[tsptalk]

Pete1 wrote:
Hi Rokid,

Do you mind running the numbers with G fund rather than F fund for the fixed income component? F fund had a nice run over those years and so, should have the edge but would be interesting for comparison. Thanks!

Pete

Even if it comes out good, do you really want to consider an allocation with significantF fund exposure (20-40%) right now, I mean with rates rising?

Unless you are a strict long term buy and holder and never make changes then maybe.But now?

[rokid]

Pete,



I ran the numbers to capture both the bull and bear markets. Clearly, the F Fund portfolio was the winner. Incidentally, the G Fund portfolio also returned less in the 1999-2004 bear market. I find it interesting that the standard deviation for the entire period is only .1% greater for the F Fund portfolio.Finally, this result also tracks with my MVO analysis. The G Fund is never specified for higher returns, e.g. > 8%.The F Fund is always on the efficient frontier for higher returns.


60% Equities: 36% C Fund, 9% S Fund, and 15% I Fund

40% Bonds: G Fund and F Fund.


The results:

% Annual Returns 60/40: G Fund 60/40: F Fund

1995 21.0 25.5

1996 13.4 12.2

1997 17.2 18.3

1998 16.3 17.5

1999 17.1 14.4

2000 - 4.2 -2.2

2001 - 6.3 -4.5

2002 -10.0 -7.9

2003 17.6 21.5

2004 (YTD) 6.4 6.4

Average 8.610.1

Std Deviation (risk) 11.6 11.7

Starting with $100,000 in 1994:

1994 100,000 100,000

1995 120,983 125,495

1996 137,192 140,752

1997 160,779 166,545

1998 187,025 195,704

1999 219,082 223,894

2000 209,733 219,042

2001196,576 208,122

2002176,982 191,765

2003 208,148 232,941

2004 (YTD) 221,507 247,798


[/quote]

Nice work, ro, tell me, how did you figure out the STD? Basically you are laying down evidence that the non-equity position should clearly be the F fund and not the G, right? For only a smaller amount of risk, there is tremendous amount of F upside compared to the G.

Joel

[tsptalk]

jgpalmerdds wrote:
Basically you are laying down evidence that the non-equity position should clearly be the F fund and not the G, right? For only a smaller amount of risk, there is tremendous amount of F upside compared to the G.

Come on now. With a little extra thought process you can come up with a better allocation. When the economy is growing, avoid the F fund. When it is slowing, go to the F fund. The G fund is slightly beating the F fund this year because the economy turned around.

Even DrD's once a year rebalancing can do that.

[Pete1]

Thanks, Rokid.The MVO that I have been usingat Financialengines.com (William Sharpe's MVO)always favors G over F forrougly the first 30-35% of fixed income.Which MVO are you using? Also, how was STD calculated? You may want to give Financial Engines a try - it is free to TSP participants. It factors in your outsideinvestment but does not provide advice on them, you have to pay if you want advice on your outside accounts. However, it does provide advice regarding the allocation of your TSP account taking into account your outside investments.

Tom, not really considering changing at this point unless Rokid persuades me otherwise :). He does a terrific job working through the numbers.

[tsptalk]

rokid wrote:
Starting with $100,000 in 1994:

rokid -
Thanks for all of your calculations. I hate to do this to you, but can you run theboots allocation for that period (1994-present)? I know the S and I weren't available but can you use the Wilshire and EFA? If not how about just 100% C?

Thanks,
Tom



[/quote]

[rokid]

Pete,

No problem.

I'm using the MVO from Efficient Solutions. I discovered it off of Peter Bernstein's web site. They offer a 30 day, no obligation, free trial.

Excel has a functions for calculating standard deviation and correlation.

Roger Gibson suggests 50% money market, i.e. G Fund, for fixed investment portioninsome of his sample portfoliosin Asset Allocation. In addition, if I was close to retirement, Iwould have a healthy allocation of G Fund.

The G Fund disappears from my MVO efficient frontier at 9.44% return with 6.42% standard deviation. However, that's based on historical data. Who knows what will happen going forward.

Thanks for the financialengines tip. I'll check it out.

Finally, I'm buy and hold for now: Markowitz, Sharpe, Fama, French, Bernstein (Peter & William) and Bogle have got me convinced. In addition, I'm more than satisfied with my 2004 YTD return. However, I'll continue evaluate, watch the market and monitor TspTalk.

[rokid]

Tom,

Last call :D

100%C Fund won - if you could stomach losing $131K+ between 1999's high and 2002's low.

Boots test allocation: 35% C Fund, 35% S Fund, and 30% I Fund

% Annual Returns Boots Test 100% C Fund

1995 28.2 37.4

1996 15.9 22.9

1997 21.1 33.2

1998 19.0 28.4

1999 27.8 21.0

2000- 13.0 -9.1

2001-14.0-11.9

2002 -12.5-22.1

2003 36.4 28.5

2004 (YTD) 9.1 6.4

Average11.813.5

Std Deviation (risk) 18.7 21.2

Starting with $100,000 in 1994:

1994 100,000 100,000

1995 128,193 137,410

1996 148,514 168,808

1997 179,795 224,802

1998 213,959 288,736

1999 273,375 349,226

2000 237,920 317,306

2001204,548 279,420

2002178,956 217,808

2003 244,083 279,970

2004 (YTD) 266,209 297,748

[tsptalk]

rokid wrote:
Tom,

Last call :D

100%C Fund won - if you could stomach losing $131K+ between 1999's high and 2002's low.

Woohoo! :l

[DrD]

tsptalk wrote:

Even DrD's once a year rebalancing can do that.
This back-handed compliment ;)does raise a pretty good question: what is a good benchmark to judge performance of any strategy? Is it the 20% per fund allocation automatically generated by TSP? Is it the TSPtalk strategy? Is it the median return of managed funds? Very interested in opinions....

If youcan definea pretty good benchmark, is there any reason not to just adopt the benchmark as your strategy? (Similar to the 'invest in index funds' idea behind TSP...)

Best wishes, and still enjoying the discussion.....

DrD

[tsptalk]

DrD wrote:
what is a good benchmark to judge performance of any strategy? Is it the 20% per fund allocation automatically generated by TSP? Is it the TSPtalk strategy? Is it the median return of managed funds? Very interested in opinions....

I have always thought the S&P 500 was the benchmark for most mutual funds and money managers. The diversification discussion was brought to the table here back when I started the site because a diversified account (20% each) beat the S&P 500 during the 2000-2002 bear market pretty handily.

Rokid showed us that a 100% stock fundallocation over the last 10 years would have brought you the best return. So I like to use the S&P 500. But since I started tracking my returns in 2000, my return will be continue to be compared to the better performing diverified account, probably until we are five years past the end of the bear market.

[DrD]

tsptalk wrote:
So I like to use the S&P 500. But since I started tracking my returns in 2000, my return will be continue to be compared to the better performing diverified account, probably until we are five years past the end of the bear market.
Okay, so there areat least two benchmarks?

One is 100%C fund, mirroring the SP500.

Which diversified account do you have in mind, the 20% across all 5 funds, or the 60/40, or ? for the second?

Are both of those 'buy and hold' (or, 'passively managed') benchmarks? If so, is there a reasonable actively managed (notice I don't say 'day traded' anymore) strategy to use as a benchmark? Perhaps the 90th percentile performance of actively managed funds? If actively managed accounts do better, than using a passively managed fund as a benchmark doesn't seem to be appropriate.

By the way, Happy Veteran's Day to my fellow veterans!

Best wishes,

DrD

[Pete1]

Dr.D,

Many propose the "total stock market" as represented by the Willshire 5000.However, IMO it really boils down to consistently achieving the rate of return thatwill get you to your retirement goal with the least amount of risk and on time.Ifthe rate that you need is 8% annually,that is your individual benchmark.If you don't beat the W5000 each year, don't sweat it as long as you are on track for retirement.

[tsptalk]

DrD wrote:
Which diversified account do you have in mind, the 20% across all 5 funds, or the 60/40, or ? for the second?

I use the 5 x 20%, butonly because it was pointed out to me that way. That is why I use that as the diversified allocation on my returns page. Both instances have 60% in stocks but it looks like the 40% F has a better return so...


If so, is there a reasonable actively managed (notice I don't say 'day traded' anymore) strategy to use as a benchmark? Perhaps the 90th percentile performance of actively managed funds?
Not to my knowledge. Most mutual funds can't even beat the S&P 500. The difference between us(TSP) and them is that we can movefrom 100% stocks to 100% cash and visa versa, in one day.Mutual funds don't have that flexibility.


By the way, Happy Veteran's Day to my fellow veterans!
:^

Tom wrote to me:

Come on now. With a little extra thought process you can come up with a better allocation. When the economy is growing, avoid the F fund. When it is slowing, go to the F fund. The G fund is slightly beating the F fund this year because the economy turned around.

Even DrD's once a year rebalancing can do that.

Tom,

I never claimed to be an "expert" at this. It looks from Rokidsnumbers that over a 10 year period (both in good and bad economies) you would have been better off to have your 40% non-equities in the F fund over that time versus the G fund. Did I miss something? Are you OK Tom?

Joel

[tsptalk]

jgpalmerdds wrote:
I never claimed to be an "expert" at this. It looks from Rokidsnumbers that over a 10 year period (both in good and bad economies) you would have been better off to have your 40% non-equities in the F fund over that time versus the G fund. Did I miss something? Are you OK Tom?

Sorry if that came off wrong. You obviously know what you are doing.

My point is, what happens in the past doesn't guarantee anything. The F fund did well during the last 5 years because Greenspan was fighting a weak economy and lowering interest rates. I doubt we will see that over the next 5 years. So, using the F fund will probably not help too much considering the G fund is a guaranteed return and the F is more likely to be stagnant at best.

I don't claim to be an expert either but thissite is all about finding the best place to put your money. Blindly buying and holding a diversified account is not bad, but you can do better with just a few tweaks here and there.There are timesto use the F fund over G and this is not one of them in my opinion.

If someone wants to diversify (btw, a straight C fund allocation beat the 60/40 over the last 10 years) just moving your 40% from G to F and back depending on whether rates are rising or falling, could increase just a straight 60% stocks, 40% bonds allocation. Easier said than done but I know you are looking for some kind of formula or system to tell you what to do. Going 60/40 may be your best bet, but adding a G/F interest rate watch to the mix maybe all you need.

Again, sorry if I came off a being pompous. I was just surprised that you were so willing to accept a 60/40 allocation and forget about everything we talk about here.

Tom

Tom,

All is cool. I really don't know what I'm doing. I'm really not sure what I am looking for anymore. I read this sight daily and value the opinions/insight of everyone and I appreciate your hard work.

If I really knew what I was doing I wouldn't of lossed 30% in my personal IRA's this year trying to "time" the market on my own. That was offset by huge gains in my larger pension (I did nothing to achieve that) and decent gains in my TSP (thanks to all of you). I was definately looking for a "system" at one time to tell me what to do and I may still be. It looks like MLK may have something after much hard work so I'm watching carefully the trades. Right now, I'm fully invested C/S/I-30/30/40 and fortunately that is up around 6% since I have done that. This is purely coincidental (unless you subscribe to the feeling that stocks do well Oct-Dec typically, which I do.)

By the way, it seems that Oct the last 8 years has been an awesome month for stocks, even in bear markets. I think only in 2001 was that month down in the last 8 years. Even in the bear market of 2002, the S/P was up over 10% for the month. Why do you think that is?

I didn't know you had an art gallery? Pretty cool. Let's see- Federal job, Art Gallery owner, master of this sight. How long are your days? 36 hours? You have my utmost respect.

Joel

[rokid]

Joel,

Based on historical returns, the F Fund beats the G Fund.That result also makes intuitive sense,i.e. more risk usually impliesmore return. The F Fund is also a good diversifier. It non-correlates with the stock funds.

However, if I was market timing, I'd use the G Fund. It's not a moving target. Since I'm not, I use the F Fund.

Finally, Excel has a standard deviation function, i.e. STDEV. It also has functions for calculating the average return for a series and the correlation between the funds.

[rokid]

All,



The attached spreadsheet contains return, average return, standard deviation, and TSP fund correlations from 1988-2003. You can use it for back testing and MVO analysis. Pls let me know if you find any errors.

[rokid]

All,

Attached is a spreadsheet that allowsthe comparison of different "buy and hold"portfolios with the S&P 500 (C Fund) for the period 1988-2004. Not surprisingly, 100% C Fund had the highest returns 1988-2004.However, the C Fund might not be the best in the future (S Fund, I Fund?). Also note that 100% C Fundlost a considerable amount during the recent bear market. Finally,holding 100% G Fund was very, verycostly.

Thehilited blue areas in the spreadsheet, i.e. fund percentages and the initial portfolio value,can be modified to meet your analysis needs.

[tsptalk]

Nice rokid. Thanks!

[pyriel]

Ladies and Gents,

I need some help. I am a buy and hold but is getting braver to test the water of moving allocations (not too much moving). If the market is going down and interest rate is being slashed, is it best for me to be in F/G/C Fund? And if the market andinterest rate is going upis the C/S/I allocation the way to go?

[rokid]

Pyriel,

Stay buy and hold (that's probablynot what you wanted to hear!) andfocus on your strategic asset allocation, i.e. portfolio mix of the G/F/C/S & I funds.

In their 1986 landmark study, Determinants of Portfolio Performance, Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower concluded that asset allocation explained more than 93% of the variation in an investment manager's average returns over time (quoted from the Motley Fool). In other words, professional money managers' returns are almost 100% explained by asset allocation - not market timing.

In addition, Efficient Market Theory (EMT) contends that the current price is the consensus of the best minds on Wall Street. Therefore, unless you have information not known to the market, i.e. insider information, there is no way to consistently predict which way the price will go, i.e. up, down, or sideways.

rokid wrote:
Pyriel,

Stay buy and hold (that's probablynot what you wanted to hear!) andfocus on your strategic asset allocation, i.e. portfolio mix of the G/F/C/S & I funds.

In their 1986 landmark study, Determinants of Portfolio Performance, Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower concluded that asset allocation explained more than 93% of the variation in an investment manager's average returns over time (quoted from the Motley Fool). In other words, professional money managers' returns are almost 100% explained by asset allocation - not market timing.

In addition, Efficient Market Theory (EMT) contends that the current price is the consensus of the best minds on Wall Street. Therefore, unless you have information not known to the market, i.e. insider information, there is no way to consistently predict which way the price will go, i.e. up, down, or sideways.

That is exactly why "market timing" is best. You can get in and out anytime you want. IF the market is down, go somewhere safe and wait. If your buy and hold, you just sit there and watch your money twindle. Remember, professional money managers have hundreds even thousands of clients. Pretty hard tomarket timethat many accounts in the few hours that you have to make a move. Which in my opinion, is why most money managers push asset allocations instead of market timing.

A friend of mine had 4 different retirement funds she collected through the years.One wasan IRA, one was a 403B, one was an annuity, and one was a 401k. Each one has lost money the pastfour years. I took over her accounts, except for the annuity,at the end of June and am up between 10-15% in each of her accounts. I'm in the process of combining her IRA, her 403, and her annuity into one IRA where I will have more investment options and make her even more money, if she'll ever get off her butt and go get me the distribution form I needand her mother's SS# who is her beneficary....................I can't do awhole lotwith her present 401K because she is still with the company. They do have a couple of funds which mimic our C and S. They also have a real estate fund which I go into when I'm playing safe.

Besides these accounts, I also manage two other people's plus my own. I will be managing more in the coming months. Luckily my system tracks closing prices so I have all night to move things around. Some people I'll just be e-mailing and they will move things around on their own. I couldn't imagine trying to move things around for thousands of people. I'd probably tell them to spread out their allocations and leave it alone also..............remember, most money managers are 9 to 5 folk.........

Just my opinion..............

Good luck.............take control of your own future..........I wish I could with "MY" social security..........luckily, I'm notgonna need it though.........:^

M_M

rokid wrote:
Tom,

Last call :D

100%C Fund won - if you could stomach losing $131K+ between 1999's high and 2002's low.

Boots test allocation: 35% C Fund, 35% S Fund, and 30% I Fund

% Annual Returns Boots Test 100% C Fund

1995 28.2 37.4

1996 15.9 22.9

1997 21.1 33.2

1998 19.0 28.4

1999 27.8 21.0

2000- 13.0 -9.1

2001-14.0-11.9

2002 -12.5-22.1

2003 36.4 28.5

2004 (YTD) 9.1 6.4

Average11.813.5

Std Deviation (risk) 18.7 21.2

Starting with $100,000 in 1994:

1994 100,000 100,000

1995 128,193 137,410

1996 148,514 168,808

1997 179,795 224,802

1998 213,959 288,736

1999 273,375 349,226

2000 237,920 317,306

2001204,548 279,420

2002178,956 217,808

2003 244,083 279,970

2004 (YTD) 266,209 297,748


Are you really comfortable not making any money since the end of 1999? I don't get it..........

[Spaf]

pyriel wrote:
Ladies and Gents,

I need some help. I am a buy and hold but is getting braver to test the water of moving allocations (not too much moving). If the market is going down and interest rate is being slashed, is it best for me to be in F/G/C Fund? And if the market andinterest rate is going upis the C/S/I allocation the way to go?


Pyriel
rokid and mlk_man have good points. The problem is that TSP participants are generally not experts in the market. However, we have our retirement in funds that range from secure to volatile. Your question is what to do with the funds?

The answer is to become informed and take responsibility over your funds. The G fund is safe with small returns. F is bonds, and with interest rates rising, it's not the place to be. C-S-I are the stock funds, and the most volatile with gains/losses. I would suggest keeping in touch with the market on seeing it's " big picture" (is it a bear or bull market). Developing your own asset allocation: bonds%, stocks%%%, securities%, etc. based on your risk tolerance and goals. Stay with sites like this and learn how to protect your funds and grow.

mlk_man is right, my financial advisor was not around during thebubble years, and he doesn't sit on the beach giving advice to all his clients.

rokid is right, it's best to stayand hold until you learn the market and whatother people are really saying.

I feel that I have a right to reconfigure my asset allocation at will to preserve my investments. I don't have any specialnewsletters or future predictors that would qualify as market timing, but as M_M aluded to, why hold in allocations that are not profitable? Like the song said "It's time to hold them, and time to fold them".

[tsptalk]

pyriel wrote:
If the market is going down and interest rate is being slashed, is it best for me to be in F/G/C Fund?
In general I would saythe F fund until you see a bottom form in the stock market.


And if the market and interest rate is going up is the C/S/I allocation the way to go?
Good question. When the economy first recovers small caps (S fund) do well, but eventually the larger stocks (C) catch up. I believe we are somewhere in the middle of this small to large cap phase. The I fund is volatile and I would watch the dollar to decide how much to use it.

mlk_man wrote:

That is exactly why "market timing" is best. You can get in and out anytime you want. IF the market is down, go somewhere safe and wait. If your buy and hold, you just sit there and watch your money twindle. Did I say "twindle"? :shock:I meant "dwindle"...............:^

[Boots]

Spaf wrote:
"It's time to hold them, and time to fold them".

"You gotta know when to hold 'em. Know when to fold 'em. Know when to walk away. Know when to run."

Key phrase is "know when to run" when applying it to investing. ;)

Boots wrote:
Spaf wrote:
"It's time to hold them, and time to fold them".

"You gotta know when to hold 'em. Know when to fold 'em. Know when to walk away. Know when to run."

Key phrase is "know when to run" when applying it to investing. ;)
And "which way to run", thata way ---------------> or thata way <-------------------- :shock:

[pyriel]

Boots wrote:
Spaf wrote:
"It's time to hold them, and time to fold them".

"You gotta know when to hold 'em. Know when to fold 'em. Know when to walk away. Know when to run."

Key phrase is "know when to run" when applying it to investing. ;)

Back in 2001, after 9/11 and the downfall of Enron, there were big indications that themarket was about to tumble. From Sep through Dec 01, I could already tell that there was a market correction that was going to take place and would last for awhile. I could have taken action but didn't know how.

If I knew then what I know now, I would have moved my funds out of C fund and move them to either G or F. and ride them out for awhile. This site and the members here have taught me or at least made me aware of these options. I will definitely be looking out for signs such as what I witnessed in 2001.

I wonder if you all were aware on whattranspired in 2001 and if it wasdiscussed here in this site? How many of you jumped out and changed allocation or funds? Would you experts (compared to me) give us, novices, some warnings when it happens again?

On another note, I am still a "boring" buy and hold kind of guy with a little know how on jumping out of a fire when the time comes...;)

pyriel wrote:
Boots wrote:
Spaf wrote:
"It's time to hold them, and time to fold them".

"You gotta know when to hold 'em. Know when to fold 'em. Know when to walk away. Know when to run."

Key phrase is "know when to run" when applying it to investing. ;)

Back in 2001, after 9/11 and the downfall of Enron, there were big indications that themarket was about to tumble. From Sep through Dec 01, I could already tell that there was a market correction that was going to take place and would last for awhile. I could have taken action but didn't know how.

If I knew then what I know now, I would have moved my funds out of C fund and move them to either G or F. and ride them out for awhile. This site and the members here have taught me or at least made me aware of these options. I will definitely be looking out for signs such as what I witnessed in 2001.

I wonder if you all were aware on whattranspired in 2001 and if it wasdiscussed here in this site? How many of you jumped out and changed allocation or funds? Would you experts (compared to me) give us, novices, some warnings when it happens again?

On another note, I am still a "boring" buy and hold kind of guy with a little know how on jumping out of a fire when the time comes...;)



Wait a minute, what happened in 2001? Did I miss something? Oh wait, you mean my 20 year high school reunion? Nope, missed it.........:PJust kidding...........

If this site was here then, what would we have done? Say "hey, umm the WTC just got blown up, get out of the market"? Yep, I think most of us "experts" would of said that. Then again, would of made for a nice "buying" opportunity huh? :shock:

Pyriel, I believe you were like most of us here, we didn't know how to switch our funds back then. If you "knew" a correction was coming from Sept. to Dec. 01, why in the hell didn't you find out? Sooner or later you have to do things for yourself, momma isn't always gonna be here for ya...........:x

Oh sorry, in case you didn't figure it out yet, this site wasn't here in 2001.............which is one of the reasons Tom started this site was because most of us lost money in the early 2000's..............

Good luck,

M_M

[tsptalk]

Back in 2001 we were still only allowedone transfer a month. If the market was freefalling, we were stuck watching from the sidelines. I hate to admit it butI had a terrible year in 2001.After a bad year for the market in 2000, I was jumping into the market thinking I was catching a bottom.In September alone I lostover 11%. :shock:

The market actually did well fromOct to Dec 2001 (after 9/11). I made 5%, 7.8% and 4.4% in Oct, Nov, Dec respectively that year but the damage had already been done. Feb and March were down 9% and 6.3%.

And asI said, if you were in stocks during the month, you were stuck. And as you may remember, if you wanted to make a change for the following month, you had to do it by the 15th of the prior month. If you made the change on the 16th, you had to wait a month and a half for it to take effect. What a nightmare that was.

I ended up losing 14.6% in 2001. It is the only year I didn't beat the S&P 500 sinceI started tracking in 2000. The S&P 500 was down 12% that year.

[pyriel]

Milkmiser ;-)

:@I didn't move because I was ignorant so I just looked at my funds (to include my ROTH) get clobbered. Still stuck in the idea of buy and hold. I would have been better off moving my funds around before it hit bottom and put it back just when it is going back up. That my friend will not happen again....

:!

pyriel wrote:
Milkmiser ;-)

:@I didn't move because I was ignorant so I just looked at my funds (to include my ROTH) get clobbered. Still stuck in the idea of buy and hold. I would have been better off moving my funds around before it hit bottom and put it back just when it is going back up. That my friend will not happen again....

:!

LOL, milkmiser.........that's a new one..........;)

Good for you pyriel, I keep telling my friends and co-workers to take control of their own retirement funds. Some listen, some don't. It is in the best interests of money managers for their clients to stay in the market right? How many times have they told someone to get out and stay out for awhile?

Good luck to you,

M_M

[rokid]

My buy and hold Quicken 2004 IRR year to date: 16.81%

AllocationYTD Returns

F Fund 25.0% 3.8%

C Fund/Fidelity Spartan (FUSEX) 23.6%8.6%/8.6%

S Fund/Fidelity Low Priced Stock (FLPSX) 32.6%14.8%/18.5%

I Fund/Fidelity International Diversified (FDIVX)18.8% 16.98%/15.9%

The excess return is due to dollar cost averaging, i.e. buying low with new money during the first half of the year.

My son's buy and hold Quicken 2004 IRR return starting5/18/2004 (new William and Mary graduate :^), Vanguard 2045 Fund: 22.46% (life cycle fund).

If you're doing better, great job and congrats. If not, consider strategic asset allocation, dollar cost averaging, and buy and hold.It works!

[coolhand]

Please forgive my ignorance here Rokid, (I'm not near the math wizard you are) but I just can't see a 16.81% total return with these numbers.

The highest return is 18.5% (about 1/3 of portfolio) and the lowest returnis 3.8% in the "F" fund (a quarter of the portfolio). The "C" fund is only 8.6% and it is almost a quarter of the portfolio as well.

With half this portfolio (F and C) showing a roughly 6.2% return, how does the other half boost you up to almost 17% :??

Maybe I just don't have all the information. I'm not trying to challenge your position (well, maybe I am), just trying to understand it.

rokid wrote:
My buy and hold Quicken 2004 IRR year to date: 16.81%

AllocationYTD Returns

F Fund 25.0% 3.8%

C Fund/Fidelity Spartan (FUSEX) 23.6%8.6%/8.6%

S Fund/Fidelity Low Priced Stock (FLPSX) 32.6%14.8%/18.5%

I Fund/Fidelity International Diversified (FDIVX)18.8% 16.98%/15.9%

The excess return is due to dollar cost averaging, i.e. buying low with new money during the first half of the year.

My son's buy and hold Quicken 2004 IRR return starting5/18/2004 (new William and Mary graduate :^), Vanguard 2045 Fund: 22.46% (life cycle fund).

If you're doing better, great job and congrats. If not, consider strategic asset allocation, dollar cost averaging, and buy and hold.It works!




mlk_man's new system for the year -TSP: 43.98%, IRA: 414.28%Sorry, just had to throw that out there...........:P

[coolhand]

Here is my YTD totals as reported in M$ Money.

G - 5.31%

F- 5.04%

C- 13.35%

S - 19.14%

I - 24.25%

Total YTD - 14.22%

I was buy and hold up until spring this year then began more of an asset allocation strategy and now more of a day trade stategy. I was in and out of funds all year so I can't really say what the annual allocation might be, but these numbers are computed by the software.

My total, on the surface without crunching numbers, seems inline with those of the funds.

Your thoughts please :).

[rokid]

CoolHand,

Actually, I was initially surprised at the returns, i.e. how could my return be higher than just the sum of percentages of the overall fund returns? I suspected the Quicken performance report had a bug. However, I double checked the numbers and they compute.

Conclusion: The overall posted fund returns, e.g. 3.8% for the F Fund, are calculated from the opening fund price of the year. However, since I boughtnew shares throughout the year,I bought at different prices than the Jan 2 price - higherand lower. Therefore, the annualized returns for those particular shares werehigher or lower than thefund's posted return. Since the market was so choppy at the beginning of the year, I,apparently, bought a lot of new shares atlow prices.

In addition, I rebalanced my portfolio several times during the year (sold shares in funds that were doing well to buy shares of funds that were doing poorly to keep my allocation percentages constant). Rebalancing has the effect of market timing, i.e. buy low, sell high - eventually.

One of the reasons I posted my return was to demonstrate this interesting dollar cost averaging, rebalancingeffect. Finally,the 16.8% return is a calculated/projectedannual return. Depending on what my funds due during the next few weeks, it could turn out to be higher or lower for 2004.

Hope that helps. I'm still trying to figure this investing out. It's pretty complicated.

[rokid]

M_M,

You might want to double check your TSP numbers. I ran your posted account transactions (6/14-11/30)through Quicken and got a very differentreturn.

[rokid]

CoolHand,

Looks like you're pretty good at market timing.:^

[Spaf]

rokid

Trading vs holding

There are arguements pro and con!

Trading requires knowledge and personal accountability!
Holding requires relying on others per say!

Hey it's your retirement. This is America, your choise!

Rgds :( Spaf

[rokid]

Spaf,

I'm only interested inthe investing approach provides the best results. It's not amatter of taking or not taking responsibility, i.e. it's not a "values" thing. It's a matter of which approach, i.e. buy and hold or market timing,provides the best results.Both approaches require research, analysis, evaluation of risk vs. return, and decision making.

The best financial minds in the world claim it's not possible to beat the market on a consistent basis. Perhaps they're lying. Perhaps they're confused. However, except for Warren Buffett, I haven't seen anything to convince me that they are wrong. I'm still looking.

You're right, it's my retirement. Fortunately, I'm CSRS. :^

rokid wrote:
M_M,

You might want to double check your TSP numbers. I ran your posted account transactions (6/14-11/30)through Quicken and got a very differentreturn.

rokid, you have to read the fine print..........I said my system, which is why I started a new account. I believe my old system would be up around the 30% mark.......stay tuned......... the market gurus ARE wrong,you can beatthe market consistently. :^

I'll post my IRA return in 3 months or so, just you know I'm not talkin' out my ..........

M_M

[coolhand]

rokid wrote:
CoolHand,

Conclusion: The overall posted fund returns, e.g. 3.8% for the F Fund, are calculated from the opening fund price of the year. However, since I boughtnew shares throughout the year,I bought at different prices than the Jan 2 price - higherand lower. Therefore, the annualized returns for those particular shares werehigher or lower than thefund's posted return. Since the market was so choppy at the beginning of the year, I,apparently, bought a lot of new shares atlow prices.




I agree that adding new shares changes your return value, but doesn't the software take all that into account?How else can it compute a total? My individual values change as well as the overall YTD total.

Honestly, I still haven't figured out all the report metrics in my own software. Some still don't make sense to me, but I haven't taken the time to dig. I think it's because MS is notorious for releasing softwarecomplete with bugs. I racked my brain enough with Word and Excel only to find out that a known bug is causing my anguish.

Cool,

Send me your file in the e-mail section.

I will fix it for you.

Great! I can finally use my PhD in math!

Bill



coolhand wrote:

rokid wrote:
CoolHand,

Conclusion: The overall posted fund returns, e.g. 3.8% for the F Fund, are calculated from the opening fund price of the year. However, since I boughtnew shares throughout the year,I bought at different prices than the Jan 2 price - higherand lower. Therefore, the annualized returns for those particular shares werehigher or lower than thefund's posted return. Since the market was so choppy at the beginning of the year, I,apparently, bought a lot of new shares atlow prices.




I agree that adding new shares changes your return value, but doesn't the software take all that into account?How else can it compute a total? My individual values change as well as the overall YTD total.

Honestly, I still haven't figured out all the report metrics in my own software. Some still don't make sense to me, but I haven't taken the time to dig. I think it's because MS is notorious for releasing softwarecomplete with bugs. I racked my brain enough with Word and Excel only to find out that a known bug is causing my anguish.

[mbehr55]

Here's another "market timing" stategy for the TSP.....Use the allocations in http://www.401Khelp.com and the timing signals under Hotline in http://www.fundadvice.com. Someone who likes to backtest these things can do the math. Both sites are related to a guy named Paul Merriman.

I don't really want to "day trade" my TSP but I sure want some market signals to tell me when to move money around to limit my losses.:s

[rokid]

FYI.

"The best plan, for most of us, is to commit to buying some index funds and do nothing else. Benign neglect is the secret to long-term investing success. If you change your investment policy, you are likely to be wrong; if you change it with a sense of urgency, you're guaranteed to be wrong." --- Charles Ellis author of "Winning the Loser's Game".

[mbehr55]

No more staying steady for me. I don't like the losses. Even Fundadvice.com's hotline signals are now too slow for my taste. I'm trying to determine which ETFs best mirror the TSP funds and then use Technical Analysis for buy/sell signals. If this works then I should catch most of the upturns and miss most of the downturns.

[rokid]

mbehr55 wrote:
I'm trying to determine which ETFs best mirror the TSP funds and then use Technical Analysis for buy/sell signals. If this works then I should catch most of the upturns and miss most of the downturns.

If you can do that, you'll beat the overwhelming majority ofWall Street professionals and prove all of the academic experts wrong.

Good luck!:^

[Spaf]

mbehr55 wrote:
I'm trying to determine which ETFs best mirror the TSP funds and then use Technical Analysis for buy/sell signals. If this works then I should catch most of the upturns and miss most of the downturns.
IJR is close to S. IVV is close to C, AGG is AGG, and EAF is close to I. HOWEVER, ETFs come from brokers and they make $ on the ask and the bid.

See http://www.Barchart.com for a technical analysis of exchange traded funds.

Rgds:) Spaf

[tsptalk]

rokid wrote:
"The best plan, for most of us, is to commit to buying some index funds and do nothing else. Benign neglect is the secret to long-term investing success. If you change your investment policy, you are likely to be wrong; if you change it with a sense of urgency, you're guaranteed to be wrong." --- Charles Ellis author of "Winning the Loser's Game".

That last sentence is the key. Bailing out of stocks at any cost when they are falling or buying a euphoric buying frenzy is part of that guarantee and why I am a contrarian.

[DrD]

One additional factor to consider if you are still investing in the funds, as opposed to just managing a fixed balance, is the dollar cost averaging effect. As prices drop, you are buying more shares. This can be a small effect if you have been in the market for a while and the size of your contributions is small relative to your overall holdings, or very large if you have only been in for a short time.

Best wishes
DrD

[rokid]

Periodic rebalancing provides a somewhat similar effect, i.e. buy low, sell high, anditworks for fixed balance accounts.

[Mike]

Has anyone figured out what the "ideal" frequency of rebalancing is? With TSP, you could technically get away with doing it daily.

BTW, effective tomorrow, I will be switching my TSP account to asset allocation mode. I just need to figure out what percentages to set it at (I will be at least 90% equities).

[rokid]

Mike wrote:
Has anyone figured out what the "ideal" frequency of rebalancing is?
Nope. I've read quarterly, semi-annual, on your birthday, at the end of the year etc.

Personally, I'm trying to take advantage of the market momentum effect, i.e. the idea that an asset class will continue to do well for a while before it mean reverts.

As a result, I've decided to rebalance, on a yearly basis, only those asset classes that are +/- 5% from their designated allocations. If they get out of wack before that, I'll just let them ride.

We'll see how it works out.

[DrD]

Well, I guess this is it.

I have moved 50% G 50%I effective Monday. I wasn't going to do anything until April, so if you are looking for capitulation, this might be your sign.

My thinking is that the I fund MUST continue to do well, and that US stocks are very risky now with oil, etc. I'll wait until C and S hit bottoms, and then try to get back in.

TSP Talk, you have corrupted this buy and holder into thinking that he is smarter than the herd. no good can come of this.

Best wishes
DrD

[tsptalk]

DrD wrote:
TSP Talk, you have corrupted this buy and holder into thinking that he is smarter than the herd. no good can come of this.

:l It was just a matter of time. Good luck!

[Rolo]

DrD wrote:
TSP Talk, you have corrupted this buy and holder into thinking that he is smarter than the herd. no good can come of this.
LOL!

Just don't try to get ... "cute" with yer money. :)

[tsptalk]

tsptalk wrote:
DrD wrote:
TSP Talk, you have corrupted this buy and holder into thinking that he is smarter than the herd. no good can come of this.

:l It was just a matter of time. Good luck!
But seriously, this is exactly what happened to me. I've always followed the market but somewhere duringthe mid to late-90's my TSP account balance started to look likeserious money. I started watching it more regularly even though we couldn't do much about it (transfers were allowed only once a month with min 2 week wait before effective.) The more you watch, the more you have a hard timesittingby idly because patterns andtrends start making themselves more obvious to you. Yada, yada,yada, I became a shorter term investor.

[mbehr55]

I can't/won't leave my TSP alone now. After seeing the losses from 01 and 02 I started looking for a way to get some buy/sell (mostly sell) signals to limit the losses. I was also looking for some allocation recommendations. Thanks to this site and others I have recently found, I'm keeping a tight reign on my account. I won't always make the right decision but at least now I'm informed and won't let the market shoot me in the foot like the 01 tech crash.

I love technical analysis.......it's fun!

[DrD]

From Tom's market comments on 12/13/05:

"My longer term buy and hold return (http://www.tsptalk.com/returns/returns2.html) is up about 9% this year, but my actual trading account return is flat lining and could use some defibrillation."

Anyone want to reopen the active trading versus buy-and-hold discussion?

Best wishes
DrD

[mbehr55]

Lately, I've been using the fund graphs with moving averages at TSPMoney.com. I'm playing with two moving averages to tell me when to buy/sell. Currently using 10 day and 20 day. May switch to 13 and 26. That and watching the morning futures have been all. The last week or so the morning futures haven't been exactly "on the money." I also look at charts on IVV, IWM, VXF, EFA, and AGG for more technical analysis to compare to the corresponding funds.

F= AGG
C= IVV
S= IWM or VXF
I= EFA

Buy and Hold.....no way!

[neirbod]

Seems like the "buy and hold" vs. "active trading" tags are too black and white. Some people on this board make mulitple trades each week, some a few a month, some one every few months. All are active traders, but each has a very different stategy, and some trade infrequently enough that they are essentially buy and holders. Seems like a better distinction would be a finer scale, something like: "very active" (>1 trades a week), "active" (>1 trades a month), "infrequent" (>1 per year), and "buy and hold" (<= 1 trade a year).

That being said, since I have been active on this site (about3 years) I have not seenmuch good evidence that frequent trades has helped many people on this board. A very few do significantly better than the market (although different peoplefrom year to year), many are on par with themarket, and a substantial number are doing worse compared to an agressive buy and hold allocation. Maybeunder different marketconditions we would see greater benefit, but for my limited sample size I can see no great benefit, and significant potential harm, for those who are constantly moving money around. I include me in this category, by the way. Although I am doing pretty well this year, I would have done significantly better with my preferred long term allocation (40 C, 30 S, 30 I) compared to my actual retun. I for one have concluded that I do better with fewer trades (e.g. 1-3per month).

Thanks again to Tom and everyone for this great site. 3 years ago I wouldn't even be thinking about allocations and investment strategies. I am still learning a lot, and I am sure will be changing strategies along the way as I gain more knowledge.

Dave

[cowboy]

I like your post neibod! I am probably what many would consider an active trader as u say. But the truth is the averages and the markets trade and change daily and when u look back at your post, yesterday, 1 month, 3 months, a year from now your annalysis would change also. In other words it is a moving target and to compare to the markets or an average is a start but it doesn't in my opinion do justice. The main thing is to set long term goals and an interest rate you want per year till retirment and go for this. That is what will build to a very nice nest egg for you. Try to reach that goal annually and you will not worry about making that killing that most try to do. I have reached my goal for the year and feel great about it. I am preparing for hopefully another good year next. Do I hope to make more? Yes, I do but being greedy also costs u sometimes. It doesn't matter in my opinion what any of us do as the only way you can make money is to risk it and when u take that chance there is always a probability of it going against you. If there is one thing to learn it is that setting G or F fund is not where you want your money long term.

[The_Technician]

I'm slowly going to an active trade status.....just a few more details to work out...
:dude: