Buy and hold?

132 replies [Last post]
Milyunair's picture
Offline
Joined: 2009-09-25

Here is the old question. I see an article in Investment News, " 61% of advisors have increased their cash allocation since May 6th. "I guess I'm old school, no money has gone fixed in my portfolios since then. Keeping the allocations moderate, with a little "tactical" allocation. Article says many advisers have decided that buy and hold is an outdated strategy. Really? I do a little tactical around the economic cycle and interest rates, but these events surprise me. Granted, my portfolios are more conservative than in 1999 ( surprise), but I take that to be the important learning ( growth and income, and suitability, versus timing, and overemphasis on growth - otherwise known as greed).

N.D.'s picture
Offline
Joined: 2009-07-14

I "Buy and Hold" then manage risk with derivatives while looking for stock market capitulation opportunities...

Milyunair's picture
Offline
Joined: 2009-09-25

So, does the cost of the derivatives drag down long term performance? I was never very comfortable at calling market capitulation opportunities. Do you know how much value you're adding, above the trailing S&P index? I hear sophisticated RIA firms are adding value to the indexes, but I don't believe it. I see all of this BS like, " Botique asset managers offer competitive advantages",  (for investment performance), but I don't see research showing ten or fifteen plus year superiority over the indexes. Maybe I'm just a weenie. " Advisors make a mad dash for cash". Now that's wild.

N.D.'s picture
Offline
Joined: 2009-07-14

Yes anytime you try to hedge against the downside you are potentially limiting the upside. If you use the mindset of sticking with the indexes and not trying to mitigate some of the risk you might as well not diversify at all and just place one ticket for EEM or RWR. The idea of using derivatives for me is another way to try and smooth the ride out a little more.I believe in an up market you cannot beat an index but in a down market you can (apples to apples of course so that depends on the index/portfolio being compared). I am not an analyst but I would hope there are some managers that can even beat an index in all markets. I am not very good at finding them though because mostly their strategies are specific to a set point in time. But if you can find one that has the ability to go long the good and short the bad it can be done but it is so expensive to hire those managers.The funny thing about investment management is that even if an advisor sucks, over the long haul he will look competent if his clients are invested in a boring 50/50 allocation at least 75% of the time. Heck just stay in above the 200 and out below the 200 and you will probably be fine. Why do you think hedge fund managers, Buffet, Desmarais etc. have strong track records? Because they eat, sleep and shit thinking about ways to make money. Most FAs work 10-2 and spend most of that time playing the game and pretending to be a big swinging @#$%.

B24's picture
B24
Offline
Joined: 2008-07-08

I can't address all the sophistcated strategies, but in basic terms, the purpose of hedging is to limit drawdown.  As we all know, losses have a much greater impact ona  portfolio than do gains.  Think of it this way....if in 2008 you only lost 10%, it meant in 2009 you only needed +12% to break even (rounded up).  SO that's great if you did +40% in 2009, but if you lsot 45% in 2008, you are WAY behind.  Bottom line, if you don't lose much, you don't need to make much on the upside swings.  Remember, the market VERY RARELY even comes CLOSE to the long-term average return in any given year.  SO you NEED to make those huge positive gains in order to offset big down years.  So it's not about making 38% when the market makes 30%.  It's about losing 5% when the market loses 25%.  So good risk managers will outperform in down years, and underperform in good years.  The net effect is beating the markets on a COMPOUND ANNUAL GROWTH RATE (CAGR), which is often much different than average annual returns.year 1   +5%year 2   -5%Average   0%CAGR   -0.25%Start with $100, end with $99.75

Milyunair's picture
Offline
Joined: 2009-09-25

Good points. I still maintain that the most efficient way to hedge risk is buy and hold, with the proper asset allocation. Which, long term, is about 60% equity and 40% bonds. Most clients will prefer a lighter equity load. Not trying to prove anything, I just have not been able to find hard evidence anywhere to justify derivatives, market timing, or any other smoke and mirrors. No hard evidence. If anyone knows where to find it, I would be obliged.Of course risk means loss of principal risk, inflation risk, security risk, interest rate risk, market timing risk ( in or out), and so on, so there can be no perfect system to hedge risk, hence, buy and hold and asset allocation.

B24's picture
B24
Offline
Joined: 2008-07-08

Buy and Hold the S&P 500 starting in 1999/200 and you went backwards.  Yes, I am am cherry picking dates, and this does not include dividends, but you get the point.  Sometimes, you should just not be invested (or take your gains off the table).  Simple analysis of market P/E can help that.VFINX:Dec 1999135.3300 USDDec 2000121.8600 USDDec 2001105.8900 USDDec 200281.1500 USDDec 2003102.6700 USDDec 2004111.6400 USDDec 2005114.9200 USDDec 2006130.5900 USDDec 2007135.1500 USDDec 200883.0900 USDDec 2009102.6700 USDMay 2010100.6800 USD Yes, that's great that you got back to even in 2007 (only to lose it alla gain).  But if you retired in 1999 (or 1998 or 2000), THEN what would you do?  Wait 10-12 years to get your money back?  Most advisors don't understand the secular nature of the markets.  There is no harm in taking gains off the table in favor of consistent income and safety.  I wish I had done it personally in 1999.  For clients, I did take some off the table in 2007, but not nearly enough (the market itself wasn't over-bought as much as 1999).  I also took some off the table over the past 6 months (it remains to be seen whether it was enough ). 

B24's picture
B24
Offline
Joined: 2008-07-08

FYI - Sorry about the chart above.  Those numebrs were copied in as a chart, but didn't come across that way.  Basically, it shows the Vanguard 500 Fund at $135 in 1999, and $100 in 2010.

BondGuy's picture
Offline
Joined: 2006-09-21

Buy and hold?It's now called buy and hope.Try to keep up with the times. 60/40 allocation with client assets left on the tracks is exactly what's wrong with this industry today. And for this you collect a fee?

B24's picture
B24
Offline
Joined: 2008-07-08

BG, I totally agree.  I just don't, for the life of me, understand how advisors could recommend the same allocation in 1996, 1999, 2002, 2005, 2008, 2010.  Even just a SMALL amount of analysis tells you that there are periods that are so overbought that there is simply no way for things to end well.  60/40 just seems so arbitrary.  If you are going to buy and forget, it might as well be 100% quality equities, or 100% muni's.

N.D.'s picture
Offline
Joined: 2009-07-14

Milyunair wrote:Good points. I still maintain that the most efficient way to hedge risk is buy and hold, with the proper asset allocation. Which, long term, is about 60% equity and 40% bonds. Most clients will prefer a lighter equity load. Not trying to prove anything, I just have not been able to find hard evidence anywhere to justify derivatives, market timing, or any other smoke and mirrors. No hard evidence. If anyone knows where to find it, I would be obliged.Of course risk means loss of principal risk, inflation risk, security risk, interest rate risk, market timing risk ( in or out), and so on, so there can be no perfect system to hedge risk, hence, buy and hold and asset allocation. What would you consider hard evidence? Do you want evidence that these strategies improve return or rduce risk? 2008 proved that asset allocation has its faults as well. All these components you refer to are beneficial if used correctly. They are designed to either smooth volatility (which is the entire thesis behind asset allocation) or improve returns (which is very debatable). Buy and Hold hedges the risk of not being in the market.Asset Allocation hedges the risk of volatility.Market Timing hedges the risk of poor returns (very debatable and hard to do).Options hedge volatility and risk of poor returns depending on intent.Every hedge or investment strategy has its place. But you cannot simply compare "Buy and Hold" to "Sector Rotation" or "Buy Write". They are not comparable in apples to apples kind of way.

Milyunair's picture
Offline
Joined: 2009-09-25

BondGuy wrote:Buy and hold?It's now called buy and hope.Try to keep up with the times. 60/40 allocation with client assets left on the tracks is exactly what's wrong with this industry today. And for this you collect a fee?Great example of self- righteous BS. Just like your attack on Beck. High opinion of yourself, BG?

Milyunair's picture
Offline
Joined: 2009-09-25

B24 wrote:BG, I totally agree.  I just don't, for the life of me, understand how advisors could recommend the same allocation in 1996, 1999, 2002, 2005, 2008, 2010.  Even just a SMALL amount of analysis tells you that there are periods that are so overbought that there is simply no way for things to end well.  60/40 just seems so arbitrary.  If you are going to buy and forget, it might as well be 100% quality equities, or 100% muni's. If you're referring to my posts, read them carefully. How about some evidence to back up your narrative claims. You guys suck up to BG the way he sucks up to the socialists.

Milyunair's picture
Offline
Joined: 2009-09-25

N.D. wrote:Milyunair wrote:Good points. I still maintain that the most efficient way to hedge risk is buy and hold, with the proper asset allocation. Which, long term, is about 60% equity and 40% bonds. Most clients will prefer a lighter equity load. Not trying to prove anything, I just have not been able to find hard evidence anywhere to justify derivatives, market timing, or any other smoke and mirrors. No hard evidence. If anyone knows where to find it, I would be obliged.Of course risk means loss of principal risk, inflation risk, security risk, interest rate risk, market timing risk ( in or out), and so on, so there can be no perfect system to hedge risk, hence, buy and hold and asset allocation. What would you consider hard evidence? Do you want evidence that these strategies improve return or rduce risk? 2008 proved that asset allocation has its faults as well. All these components you refer to are beneficial if used correctly. They are designed to either smooth volatility (which is the entire thesis behind asset allocation) or improve returns (which is very debatable). Buy and Hold hedges the risk of not being in the market.Asset Allocation hedges the risk of volatility.Market Timing hedges the risk of poor returns (very debatable and hard to do).Options hedge volatility and risk of poor returns depending on intent.Every hedge or investment strategy has its place. But you cannot simply compare "Buy and Hold" to "Sector Rotation" or "Buy Write". They are not comparable in apples to apples kind of way.I'm referring to the idea that many advisors are turning into pussies. Instead of teaching clients about risk, they are capitulating to the fears and emotions of their clients, at a cost. I'd like to see the numbers, where average advisors are beating indexes with "custom" risk management strategies. You know it doesn't exist, anyone with a CFP or CFA could say the same. No big deal. Like I said, I believe in a little tactical around a moderate profile, but in my heart I believe that is more pandering to the individual. Not sure I am adding value, my portfolios are way about the S&P over ten years with much less "risk" (equity percentage), but we'll see what happens going forward.Just the fact that so many of the advisors here are so apparently politically liberal pretty much backs up the (economic) pussy claim. The fact that they are so righteous is almost scary. Gives new meaning to the term RR.

BondGuy's picture
Offline
Joined: 2006-09-21

Milyunair wrote:BondGuy wrote:Buy and hold?It's now called buy and hope.Try to keep up with the times. 60/40 allocation with client assets left on the tracks is exactly what's wrong with this industry today. And for this you collect a fee?Great example of self- righteous BS. Just like your attack on Beck. High opinion of yourself, BG?No, a low opinion of  your investment strategy. Well, if you can call that a strategy. 60/40 fee'em and forget'em? There should be a law!!As for your myopic political cheap shots at me, I'm Boston Irish, sticks and stones dude ! But, it really is getting old. This thread is on your vaunted investment strategy. Maybe you should try to stay on topic and leave the cheap shots to political threads. Your time would be better spent proving that your strategy is still valid and worth your fee. Whatcha got? 

Milyunair's picture
Offline
Joined: 2009-09-25

For anyone who wants to have a discussion, obviously, portfolio construction begins with goals, timeframes, and "risk". Retired clients are likely but not always more conservative - I like a range of about 25% to 35% equites for those conservatives who can handle risk. Maybe 40 to 50% equites for moderate, and so on. Tactical to the economic cycle, not geopolitical events. I do a complete portfolio analysis twice a year, and run my b/d affliliated book like an RIA. Yeah, I charge for proactive portfolio management, and general financial advice. Anyone who has a CFA think it's worth adding to the CFP?

Milyunair's picture
Offline
Joined: 2009-09-25

BondGuy wrote:Milyunair wrote:BondGuy wrote:Buy and hold?It's now called buy and hope.Try to keep up with the times. 60/40 allocation with client assets left on the tracks is exactly what's wrong with this industry today. And for this you collect a fee?Great example of self- righteous BS. Just like your attack on Beck. High opinion of yourself, BG?No, a low opinion of  your investment strategy. Well, if you can call that a strategy. 60/40 fee'em and forget'em? There should be a law!!As for your myopic political cheap shots at me, I'm Boston Irish, sticks and stones dude ! But, it really is getting old. This thread is on your vaunted investment strategy. Maybe you should try to stay on topic and leave the cheap shots to political threads. Your time would be better spent proving that your strategy is still valid and worth your fee. Whatcha got?  Haha, Irish, you finally come out of your corner. I don't plan on building your straw man here, lefty.

B24's picture
B24
Offline
Joined: 2008-07-08

FWIW, I am not even close to the same political persuasion as BG.  And that would actually have nothing to do with my opinion of his investment theory.  Not sure how one has to do with the other.You turned a perfectly good debate about investment theory into a wet t-shirt contest.  Nice job.

BondGuy's picture
Offline
Joined: 2006-09-21

Milyunair wrote:BondGuy wrote:Milyunair wrote:BondGuy wrote:Buy and hold?It's now called buy and hope.Try to keep up with the times. 60/40 allocation with client assets left on the tracks is exactly what's wrong with this industry today. And for this you collect a fee?Great example of self- righteous BS. Just like your attack on Beck. High opinion of yourself, BG?No, a low opinion of  your investment strategy. Well, if you can call that a strategy. 60/40 fee'em and forget'em? There should be a law!!As for your myopic political cheap shots at me, I'm Boston Irish, sticks and stones dude ! But, it really is getting old. This thread is on your vaunted investment strategy. Maybe you should try to stay on topic and leave the cheap shots to political threads. Your time would be better spent proving that your strategy is still valid and worth your fee. Whatcha got?  Haha, Irish, you finally come out of your corner. I don't plan on building your straw man here, lefty. That's because you've got nothing!  Straw man my butt!!You push a tired and ultimately useless investment strategy on the unsuspecting. That's indefensible! You're smart not to try to defend it. Aren't your clients tired of getting run over by the same train?

navet's picture
Offline
Joined: 2010-02-25

We had a waterfall financial event in '08. Considering that such events happen maybe 1 year in 60 or so, is it viable to use those calculations in figuring financial strategies. Face it, some outlying event can screw up any strategy. Taking '08 out of the math, buy and hold may still be reasonable.

Milyunair's picture
Offline
Joined: 2009-09-25

B24 wrote:FWIW, I am not even close to the same political persuasion as BG.  And that would actually have nothing to do with my opinion of his investment theory.  Not sure how one has to do with the other.You turned a perfectly good debate about investment theory into a wet t-shirt contest.  Nice job.Thanks, I was getting bored of my posts. Let me put it together for you: we are all artists, working on a total package for our clients. No way is the best way. None of us wants to be held to performance, but many of us pretend like we are adding value in our investment approach, as was pointed out, since that has to do with "risk" (volatility) and client's ability to hold the course, and so on, I don't think there will be a definitive answer. In my opinion, if you look back at BG's first response, I see a bigger picture. BG attacks my approach, which he really doesn't understand, as representing everything that is wrong with this industry. What worries me is aggressive liberal economic pussies. I don't really know if the Irishman is one of them - but to the extent that they are attacking others, and making claims, and potentially pandering to client's "risk" (fear of volatility) - and making a virtue out of charging for it in their own special way - well, I guess politics and portfolio construction may be related. My main point is that buy and hold eliminates a lot of BS. What do clients pay us for? Nothing really new under the sun - I'm just here to check in, if you like, teach me a new trick, don't attack my cred. As for self righteous, aggressive, economic pussydom, that could threaten the capital markets, ownership, investment, and appropriate  portfolio construction, too. No Monte Carlo for economic progressivism in the American capital markets.

BondGuy's picture
Offline
Joined: 2006-09-21

navet wrote:We had a waterfall financial event in '08. Considering that such events happen maybe 1 year in 60 or so, is it viable to use those calculations in figuring financial strategies. Face it, some outlying event can screw up any strategy. Taking '08 out of the math, buy and hold may still be reasonable. OMG, please don't tell me you really said that? Let me approach this this way. I'll tell a horror story. Back in 1996 or there abouts Critter 592 crashed in the Everglades killing everyone of the 110 unlucky souls to have stepped aboard N904VJ that day. They were dead less then ten minutes after the plane left the runway. You probably have heard about this crash as the crash of ValuJet flight 592. The crash did so much damage to ValuJet's reputation that after the crash ValuJet changed their name and are now known as AirTran. The cause of the crash was a fire caused by illegally packaged and shipped out of date chemical oxygen generators. A big no no! The generators were in the cargo hold below the passenger compartment. One caught fire igniting other cargo including tires. The fire was intense and burned through the floor mounted control cables making the aging DC 9 rather difficult to control. Not that that mattered as many of the passengers were busy being burned to death. Those not being burned alive suffocated in the thick toxic smoke. The out of control jet hit the swamp in a better than 500mph death dive that was a relief for anyone onboard unlucky enough to still be alive at that point. Investigaters doubt anyone was alive at impact. Now I tell you that horrific story in gory detail to bring up this point and ask a question: In the history of aviation a chemical oxygen generator had never caught fire and had never caused a crash. In the 14 years since this crash a chemical oxygen generator has never caused a crash. And, by the way, they are on every airliner. Here's the question, should we ignore the events that took place on Critter 592?Or should we learn from them?About your business. Things sure are easier  if you ignore 2008. To do so is playing with fire.

BondGuy's picture
Offline
Joined: 2006-09-21

  My main point is that buy and hold eliminates a lot of BS. What do clients pay us for? Nothing really new under the sun - I'm just here to check in, if you like, teach me a new trick, don't attack my cred. First, you have to have cred.  

Milyunair's picture
Offline
Joined: 2009-09-25

BondGuy wrote:navet wrote:We had a waterfall financial event in '08. Considering that such events happen maybe 1 year in 60 or so, is it viable to use those calculations in figuring financial strategies. Face it, some outlying event can screw up any strategy. Taking '08 out of the math, buy and hold may still be reasonable. OMG, please don't tell me you really said that? Let me approach this this way. I'll tell a horror story. Back in 1996 or there abouts Critter 592 crashed in the Everglades killing everyone of the 110 unlucky souls to have stepped aboard N904VJ that day. They were dead less then ten minutes after the plane left the runway. You probably have heard about this crash as the crash of ValuJet flight 592. The crash did so much damage to ValuJet's reputation that after the crash ValuJet changed their name and are now known as AirTran. The cause of the crash was a fire caused by illegally packaged and shipped out of date chemical oxygen generators. A big no no! The generators were in the cargo hold below the passenger compartment. One caught fire igniting other cargo including tires. The fire was intense and burned through the floor mounted control cables making the aging DC 9 rather difficult to control. Not that that mattered as many of the passengers were busy being burned to death. Those not being burned alive suffocated in the thick toxic smoke. The out of control jet hit the swamp in a better than 500mph death dive that was a relief for anyone onboard unlucky enough to still be alive at that point. Investigaters doubt anyone was alive at impact. Now I tell you that horrific story in gory detail to bring up this point and ask a question: In the history of aviation a chemical oxygen generator had never caught fire and had never caused a crash. In the 14 years since this crash a chemical oxygen generator has never caused a crash. And, by the way, they are on every airliner. Here's the question, should we ignore the events that took place on Critter 592?Or should we learn from them?About your business. Things sure are easier  if you ignore 2008. To do so is playing with fire. Interesting. What does this have to do with long-term ownership of equities, versus holding cash or lending your money in bonds? You tell a long story, and make no point.  Is this liberal diarrhea of the brain? Blowhards love to tell stories, and brag about cars and scare people, and have other people suck up to them. This is what scares me about  investing in America, and why buy and hold gives me comfort. Warren Buffet says about buying a company, " Our holding period is forever. " Blowhards like to tell stories and cheat you out of your money ( policies, taxes, programs, systems, ideologies, fairness). And attack other peoples  ideas with stories.

Milyunair's picture
Offline
Joined: 2009-09-25

BondGuy wrote:  My main point is that buy and hold eliminates a lot of BS. What do clients pay us for? Nothing really new under the sun - I'm just here to check in, if you like, teach me a new trick, don't attack my cred. First, you have to have cred.   Wow, thoughtful comeback. I guess we're done, lefty. At least you didn't run away and hide this time.

BondGuy's picture
Offline
Joined: 2006-09-21

Milyunair wrote:BondGuy wrote:navet wrote:We had a waterfall financial event in '08. Considering that such events happen maybe 1 year in 60 or so, is it viable to use those calculations in figuring financial strategies. Face it, some outlying event can screw up any strategy. Taking '08 out of the math, buy and hold may still be reasonable. OMG, please don't tell me you really said that? Let me approach this this way. I'll tell a horror story. Back in 1996 or there abouts Critter 592 crashed in the Everglades killing everyone of the 110 unlucky souls to have stepped aboard N904VJ that day. They were dead less then ten minutes after the plane left the runway. You probably have heard about this crash as the crash of ValuJet flight 592. The crash did so much damage to ValuJet's reputation that after the crash ValuJet changed their name and are now known as AirTran. The cause of the crash was a fire caused by illegally packaged and shipped out of date chemical oxygen generators. A big no no! The generators were in the cargo hold below the passenger compartment. One caught fire igniting other cargo including tires. The fire was intense and burned through the floor mounted control cables making the aging DC 9 rather difficult to control. Not that that mattered as many of the passengers were busy being burned to death. Those not being burned alive suffocated in the thick toxic smoke. The out of control jet hit the swamp in a better than 500mph death dive that was a relief for anyone onboard unlucky enough to still be alive at that point. Investigaters doubt anyone was alive at impact. Now I tell you that horrific story in gory detail to bring up this point and ask a question: In the history of aviation a chemical oxygen generator had never caught fire and had never caused a crash. In the 14 years since this crash a chemical oxygen generator has never caused a crash. And, by the way, they are on every airliner. Here's the question, should we ignore the events that took place on Critter 592?Or should we learn from them?About your business. Things sure are easier  if you ignore 2008. To do so is playing with fire. Interesting. What does this have to do with long-term ownership of equities, versus holding cash or lending your money in bonds?  Thank you for chiming in on que! Two points for you!What's interesting is that you don't see the corollary. Ignoring a once in a lifetime horrific event, making like it didn't happen. Let's just pretend it's all OK and it won't happen again. Problem is it did happen. And i'm not talking about the plane crash. The market did crash in 2008. Yeah, it was a really unusual event. Then again so was 2001-2003 and so was 1987. But, rather than learn from it, defense against it, let's make like 2008 didn't happen. That's what every fee grabbing wire house broker is doing. The fee'em up independants as well. Risk is something for the managers to handle. If they eff up, well, not our fault, it's the managers fault. Just pick a new set of managers and keep on collecting the fees. And therein lies the problem. Clients are left on the tracks without any plan to deal with risk. 60/40, collect the fee,let the chips fall where they may, about sums it up.  

Milyunair's picture
Offline
Joined: 2009-09-25

 I am going to try to set aside my own feelings for you as being a pompous liberal, and try to dissect your meaning in hopes of learning something. Thank you for chiming in on que! Two points for you!Thanks, dad.What's interesting is that you don't see the corollary. Ignoring a once in a lifetime horrific event, making like it didn't happen. Let's just pretend it's all OK and it won't happen again. Problem is it did happen. And i'm not talking about the plane crash. The market did crash in 2008. Yeah, it was a really unusual event. Then again so was 2001-2003 and so was 1987. But, rather than learn from it, defense against it, let's make like 2008 didn't happen. That's what every fee grabbing wire house broker is doing. The fee'em up independants as well. Risk is something for the managers to handle. If they eff up, well, not our fault, it's the managers fault. Just pick a new set of managers and keep on collecting the fees. And therein lies the problem. Clients are left on the tracks without any plan to deal with risk. So I don't assume anything, what is the corollary? How is the fact that I don't see it interesting? When you say not our fault, are you excluding yourself as an advisor?60/40, collect the fee,let the chips fall where they may, about sums it up.What are you really trying to say? Is this a vague attack on wrap accounts and support for transaction trading, or what?It seems like you have some ideas, and are also attacking others. It seems like you assume people are just supposed to know what you are thinking or assuming. If you're trying to talk about a new reality of geopolitical turmoil and market volatility, and are justifying or sharing your own brand of active management, and talk about risk and fees, then perhaps you and I can get this discussion back on track. Pardon me for trying to generalize your communications up until now as being support for concern about liberals trying to use the status quo to drive a social agenda, and I wish I could say I was surprised or that this is a good use my time, but I asking you to use your intellect  and experience to contribute, or at least don't get on my thread and attack my credibility with your BS, lefty. Take some time and try to thoughtfully articulate your ideas, and receive some meaningful feedback. Why waste your time and other people's time here. No one is going to invest time here if you just satisfy your own need for emotional and political BS that reinforces your idea of the world. Read this and think about it:Buy and hold?It's now called buy and hope.Try to keep up with the times. Don't just condescend and attack and try to win little emotional points. The reason I edit my posts is to make them better. Try waiting a few minutes and thinking a little before you respond, lefty.  

BondGuy's picture
Offline
Joined: 2006-09-21

Milyunair[/quote wrote:  Wow, thoughtful comeback. I guess we're done, lefty. At least you didn't run away and hide this time. Two issues in responding to anything you write:1. You constantly edit and re-edit your posts. I get cleaning up an unruly sentence or two, but you completely change what was written. Quite frankly, you come off as confused. So, not hiding, just scratching my head wondering what to respond to? 2.  You are not really interested in having a discusion.

N.D.'s picture
Offline
Joined: 2009-07-14

If your point is to say that 75% (maybe more) of advisors are lazy and "pretend” to manage money, then I agree. I hear all kinds of stories about this guy putting some dry powder to work in Brazil or that guy found an opportunity because investors are throwing the baby out with the bath water in financials. It gets mind numbing sometimes. I want to stick my pointer and middle figure down my throat and puke in their lying bullshitting face but I know it is just playing the game. I think that many advisors are just simply playing the game. They are good at BSing and know it. The thing about it though is unless you just constantly pick crap, you will still get decent returns if you are invested in SOMETHING. A clock is right twice a day, and as our market sees the increased volatility it has over the last 10-15 years, you have to be a moron to consistently loose money if you are invested in something and it is tailored to the clients goals, time frame, risk tolerance etc.If you want to continue discussing this topic lets stay on point or let me know a little more about what you are asking or telling us. 

Milyunair's picture
Offline
Joined: 2009-09-25

N.D. wrote:If your point is to say that 75% (maybe more) of advisors are lazy and "pretend” to manage money, then I agree. I hear all kinds of stories about this guy putting some dry powder to work in Brazil or that guy found an opportunity because investors are throwing the baby out with the bath water in financials. It gets mind numbing sometimes. I want to stick my pointer and middle figure down my throat and puke in their lying bullshitting face but I know it is just playing the game. I think that many advisors are just simply playing the game. They are good at BSing and know it. The thing about it though is unless you just constantly pick crap, you will still get decent returns if you are invested in SOMETHING. A clock is right twice a day, and as our market sees the increased volatility it has over the last 10-15 years, you have to be a moron to consistently loose money if you are invested in something and it is tailored to the clients goals, time frame, risk tolerance etc.If you want to continue discussing this topic lets stay on point or let me know a little more about what you are asking or telling us. Right. I am interested in tactical allocation around core portfolio mixes 30-40, 40-60, 50-70, and so on. Since intuition or research is in play, there may not be much more for me to say without hearing from someone else who is specifcally relating to my concerns about portfolio construction, geopolitics, interest rates, debt, aging Americans and socialism, and  so on. I guess this is more crystal ball speculation. I know what I think and I'm looking for ideas, but I'm not going to continue building a straw man here for other purposes.  I don't care how other advisors get paid. I'm not sure this forum is a good use of my time, but I appreciate your thoughtful posts.

navet's picture
Offline
Joined: 2010-02-25

My question is much simpler. We had a bellweather event. That event skewed the data out of proportion, at least in the short term. That single event made 10 year investment returns look dismal. Now, since that event won't likely repeat itself, are we overreacting by completely changing a strategy that has worked for decades? I am not offering a solution, nor am I questioning strategy. I am simply suggesting that focusing on our most recent past problem may not equip us with the optimal future strategy.

Milyunair's picture
Offline
Joined: 2009-09-25

navet wrote:My question is much simpler. We had a bellweather event. That event skewed the data out of proportion, at least in the short term. That single event made 10 year investment returns look dismal. Now, since that event won't likely repeat itself, are we overreacting by completely changing a strategy that has worked for decades? I am not offering a solution, nor am I questioning strategy. I am simply suggesting that focusing on our most recent past problem may not equip us with the optimal future strategy.The world has nearly 7 billion souls, now. The geopolitical assumptions have to change. God forbid, some idiot will explode some nuclear material in a third world country, and the fallout will shut down most of the dairies the the Northern Hemishphere for a while. This is what I'm gettting at - that changes the "model" allocation, risk discussion, everything. And it can't be tactical, not when you have the "market" melting down. Yet it probably should somewhat tactical, because of the new reality, if only to try to squeeze out a little extra return from the "normal" economic cycle. That sounds like increasing market timing risk, to make up for bad times. Look around the industry, I'm amazed. I'm amazed at myself, but I see my method as more touching clients and personalizing the risk tolerance, with respect to trying to be a little contrarian and educating clients. Whatver.

N.D.'s picture
Offline
Joined: 2009-07-14

I think Chuck calls it "Core and Explore". Any strategy you choose will only be as good as you are willing to put in the time and effort. I use a similar strategy and break it down like this...A client's life is a football season.Each year is a football game.Each qtr is well a qtr.I use predetermined and quarterly screened models for the core and then try to determine possible catalysts to buy into or hedge against that qtr for the satellites.Maybe it works maybe it doesn't. What I do know is that after 2008, clients want to know I am not a buy and forget guy. I am systemizing the accounts and we will start block trading in discretionary accounts soon. This will make my strategy more efficient. Every sense 2008, my office has been putting in the extra hours so clients that want to be more involved can be. If the ship sinks again, we will go down together. None of this "I can't believe you did nothing while my accounts went down" crap. 

Milyunair's picture
Offline
Joined: 2009-09-25

Exactly. You got it.

BondGuy's picture
Offline
Joined: 2006-09-21

Milyunair wrote: I am going to try to set aside my own feelings for you as being a pompous liberal, and try to dissect your meaning in hopes of learning something. Thank you for chiming in on que! Two points for you!Thanks, dad.What's interesting is that you don't see the corollary. Ignoring a once in a lifetime horrific event, making like it didn't happen. Let's just pretend it's all OK and it won't happen again. Problem is it did happen. And i'm not talking about the plane crash. The market did crash in 2008. Yeah, it was a really unusual event. Then again so was 2001-2003 and so was 1987. But, rather than learn from it, defense against it, let's make like 2008 didn't happen. That's what every fee grabbing wire house broker is doing. The fee'em up independants as well. Risk is something for the managers to handle. If they eff up, well, not our fault, it's the managers fault. Just pick a new set of managers and keep on collecting the fees. And therein lies the problem. Clients are left on the tracks without any plan to deal with risk. So I don't assume anything, what is the corollary? How is the fact that I don't see it interesting? When you say not our fault, are you excluding yourself as an advisor?60/40, collect the fee,let the chips fall where they may, about sums it up.What are you really trying to say? Is this a vague attack on wrap accounts and support for transaction trading, or what?It seems like you have some ideas, and are also attacking others. It seems like you assume people are just supposed to know what you are thinking or assuming. If you're trying to talk about a new reality of geopolitical turmoil and market volatility, and are justifying or sharing your own brand of active management, and talk about risk and fees, then perhaps you and I can get this discussion back on track. Pardon me for trying to generalize your communications up until now as being support for concern about liberals trying to use the status quo to drive a social agenda, and I wish I could say I was surprised or that this is a good use my time, but I asking you to use your intellect  and experience to contribute, or at least don't get on my thread and attack my credibility with your BS, lefty. Take some time and try to thoughtfully articulate your ideas, and receive some meaningful feedback. Why waste your time and other people's time here. No one is going to invest time here if you just satisfy your own need for emotional and political BS that reinforces your idea of the world. Read this and think about it:Buy and hold?It's now called buy and hope.Try to keep up with the times. Don't just condescend and attack and try to win little emotional points. The reason I edit my posts is to make them better. Try waiting a few minutes and thinking a little before you respond, lefty.  You're not responding to my post to learn anything. You're responding because i've gotten under your skin and you feel a need to defend yourself.You edit your posts because you speak before you think. Oh, and speaking of speaking before you think, the comment on the other thread about Porsches being the cars of the left, wrong again! Big surprise there! Average Porsche buyer is a 46 year old male biz exec or business owner with an income of $384K.  Not exactly the left's demographic.Do yourself a favor and don't respond.

BondGuy's picture
Offline
Joined: 2006-09-21

navet wrote:My question is much simpler. We had a bellweather event. That event skewed the data out of proportion, at least in the short term. That single event made 10 year investment returns look dismal. Now, since that event won't likely repeat itself, are we overreacting by completely changing a strategy that has worked for decades? I am not offering a solution, nor am I questioning strategy. I am simply suggesting that focusing on our most recent past problem may not equip us with the optimal future strategy. Navet, do you have kids? If so, are they vacinated? Are you vacinated? If so, why? It is highly unlikely that you or your children would contract any of the dreaded illnesses you've vacinated against. You have a better chance of winning the Powerball lottery than contracting any of those diseases. Yet, do you still chose to protect yourself and those you love. And, if so, why? You say the event won't likely repeat itself. What event? I ask because if you're talking about a mortgage backed house of cards bring down the market i probably agree. But, if you are talking about what really collapsed the market, a breakdown of trust, well, we've got a bit of that right now in the markets. And guess what? Same thing! Not as deep this time but still there. A breakdown of trust could easily cause another crash. But, the truth is another crash could come from anywhere. And, just like 2008 the circumstances that cause it will be unimaginable. You also claim a strategy that has worked for decades. Worked for who? Did it work for those who rolled over their life savings in August of 2001? Or those who were set to retire in 2003? How about the poor people who had pension plans of 100% company stock and retired in November of 1987? How'd they do? I think of the prospect i met with 500K of Lucent stock and was building a house to retire to. I couldn't talk him out of that stock at 67 a share. How'd the strategy work out for him?Navet, your chart works only for those with time to recover from a Black Swan event. Right now there is an entire generation, your prime prospects, who are out of time.You can't ignore what happened in 2008, as convenient as it would be. So, what are you doing to vacinate your clients? If you say tactical allocation - Did that work in 2008? I don't think so. It's reactive on the risk scale. Clients were still left on the tracks. Well diversified tracks, but tracks all the same. But there is an answer. A way to protect your clients while giving them exposure to the wealth building power of the stock market. But to do it you're going to really have to start earning your fees. It's called technical analysis. You need to become an expert in technical analysis.Tech analysis is kinda like predicting the weather. it's not always right but it's right enough, and it called this last move down as well as 08. Learn it and apply it. It will set you apart. And, it sure beats keeping your fingers crossed.

B24's picture
B24
Offline
Joined: 2008-07-08

navet wrote:We had a waterfall financial event in '08. Considering that such events happen maybe 1 year in 60 or so, is it viable to use those calculations in figuring financial strategies. Face it, some outlying event can screw up any strategy. Taking '08 out of the math, buy and hold may still be reasonable. Thank god.  I thought 2000-2002 actually HAPPENED (-40% S&P).  I guess it was just a massive nightmare.  And I guess since I was just a kid in 1973-74 (-40% S&P), that was probably just a sugar high.Actually, 1982-1999 is really the norm.  Those days will be here soon enough....

BondGuy's picture
Offline
Joined: 2006-09-21

B24 wrote:navet wrote:We had a waterfall financial event in '08. Considering that such events happen maybe 1 year in 60 or so, is it viable to use those calculations in figuring financial strategies. Face it, some outlying event can screw up any strategy. Taking '08 out of the math, buy and hold may still be reasonable. Thank god.  I thought 2000-2002 actually HAPPENED (-40% S&P).  I guess it was just a massive nightmare.  And I guess since I was just a kid in 1973-74 (-40% S&P), that was probably just a sugar high.Actually, 1982-1999 is really the norm.  Those days will be here soon enough....B24, thanks for posting this. For a while there i thought i was in the twilight zone of alternative reality. The old saying about those who fail to learn from history comes to mind when i think about the Tech Wreck of the late nineties. We went through exactly the same thing in the early seventies with the Nifty Fifty. The old rules no longer applied. Revenues, earnings, P/E ratios no longer mattered. Those who drank that kool aide found out that not only did these things matter, but they did so with a vengence. I did everything i could to warn cleints about the coming wreck. I even sent them letters describing the nify fifty. Most listened, some didn't . Most were fine, some no so much.There is nothing wrong with investing clients in stocks. There is something very wrong with doing so without plan to deal with the risk of the market. Sailing on a cruise ship without lifeboats is foolharty at best. Unfortunately, sailing on that ship describes most of Wall Street right now. The wires have trained legions of advisors to be asset gatherers. These people don't get paid to protect assets, only to gather them. Many, if not most, are clueless as to how to invest money, They've never been trained on how to invest and in my experience, most have spent scant little time educating themselves. Many of these people can't spell S-T-O-C-K  let alone complete the reasearch necessary to competently invest in one. They are ill equipped to protect investors who have entrusted their life's savings to them. And, their bosses are fine with this. Nothing interupts the fee machine. They do this by laying off responsbility to the managers and by convincing their clients that "It won't happen again."The problem is it will happen again. I think those who invest clients money without a plan to deal with these Black Swan events should rename their practices "Titanic Investments." At least then, prospects would know what kind of thinking is at the helm.  

navet's picture
Offline
Joined: 2010-02-25

BG. I was posing a question, not making a statement. We experienced a once in a lifetine(OK hopefully!) event where there was no safe harbor. Using that event as a standard leaves us with little choice for where to invest. The question is, how to develope an investment strategy that deals with a future unlikely to look much like the recent past. And in my case, to do so in a Jones model that doesn't incluse hedges. Personally, I believe that we are going to be in a stock pickers market for some time(and bond pickers, but I'll leave that question yo you who seems to really have that expertise). And this site, as thin as it has become has provided a wealth of good information as compared to much that I have recieved from Jones. As to my kids innoculations, yes they were, as has been my grandchild. However, disease is constant, waterfall financial events are rare and the same innoculation doesn't cover each event. This is a good conversation and I would like to keep it going.

B24's picture
B24
Offline
Joined: 2008-07-08

Navet, go back and reference my rowing vs. sailing analogy.  It's not really about sophisticated hedging strategies.  It's really about common sense.  I'm not sure if I can make this clear in writing.....but here goes.....Buy and Hold works real well during a secular bull market (reference 82-99).  Any fukcnut with 2 bucks and a broker could have made money on stocks during that time period.  But remember that 82-99, though a long period, was a bit of an anomoly, since it WAS the greatest bull market run, EVER.  If you go back throughout history and look at the various secular periods, and even rolling 10-year periods, it becomes clear that today's boomers and Greatest Generationers (how's that for a name) accumulated a LOT of smack in the 80's and 90's (I guess actually, the 70+'ers retired nicely on that bull run).  But there have been a LOT of periods throughout history where wealth was PERMANENTLY destroyed.  And because we all have the luxury of recent hindsight, all the buy-and-hopers sit around saying "yeah, but what are the chances of THAT happeneing again?" (referring to the last DECADE).  If you think 2000-02 and 2007-09 are anomolies and Black Swans, think again.  Or maybe they ARE Black Swans, and Black Swans just aren't THAT uncommon.During most other periods of time, allocating assets properly is of the utmost importance.  And as I explained above, every economic era cannot be navigated with the same boat.  There are times (like now, when, if you have much uncertainty about teh direction of the market) complete diversification is critical.  Split your money 12 ways and allocate among 12 different asset classes.  THAT'S how the average investor can "hedge".  Or maybe it means just being ultra conservative, since no matter which direction the market turns, you'll still guarantee yourself 3 or 4 percent.  Maybe tax-free.  Maybe after your potrfolio runs up significantly, you take some off the table.  Or a LOT off the table.  Be happy for what you made.  Are you still achieving your goals?  Don't be a hog (Cuz hogs get slaughtered!).  But you gotta step back sometimes and look at the big picture and use your head.

navet's picture
Offline
Joined: 2010-02-25

Good points B24. One small issue I have is that you put 2000-02 in the same sentence with '07-09. Two completely different issues. I would never suiggest "buy and hold(forget)" and I have been outspoken with other FA's when I say that a 20% non US equity allocation is too little. I think that 40% may be too little, but I don't want to start a fire storm. With China adding 300 million people to their middle class in the next 10 years(conservative estimate on both numbers and timeframe), investment in said region is a no brainer, but what to invest in becomes a brainer.  And the issue I'm getting in my own practise is that people want low cost investments because that's what the public talking heads propose, and that means no-load index funds, and that means buy the market, and that means the opposite of the stock pickers market. How's that for a run-on sentence(Sister Mary Therese would beat my a-s).But, continuing the catholic metaphor and being the devils advocate, after the big bull market, buy and hold became the popular strategy and ended in the lost generation. Conversely, after a lost generation is it possible that returning to buy and hold may be successful because a return to the mean? Just raising the question.

B24's picture
B24
Offline
Joined: 2008-07-08

First off, you CAN put 00-02 (-49%) in the same sentence, just like 56-57 (-21%), 61-62 (-28%), 66(-22%), 68-70 (-36%), 72-73( -48%), 80-82 (-27%), and 90(-20%).  This does not even INCLUDE the depression era meltdowns.Again, you THINK 2007-09 was an anomoly, and ignore 2000-2002.  But look at the facts.  Simply because 2008 was the WORST does not mean that major meltdowns don't happen...and OFTEN.  If you don't consider nine 20%+ corrections in 60 years as "often", then I'm not sure what would qualify.Would a return to buy and hold work now?  I have no idea.  The bull market ran 17 years and WAAAAAY overshot the mean to the upside.  It's possible that we underperform the mean to the downside for many years also.  And FWIW, by most metrics, we are still above historical mean (P/E, Q ratio, etc.).Here's a simple chart that you might find interesting.http://dshort.com/charts/SP-Composite-secular-bull-bear-markets.html?SP-Composite-secular-trends-with-regression

navet's picture
Offline
Joined: 2010-02-25

I keep hearing every seg 3 Jones guy say that '08 was a correction. Nonsense! The difference between '01 and '02 and '07-'09 is that there was a complete international financial meltdown with no safe harbor in the later period.  If you just add '07-'09 to the list of regular corrections you are missing a very significant difference. It's a waste of time to rehash this point. If we can't discern the momentous from the common, we shouldn't be recommendig strategies to our clients.

Sportsfreakbob's picture
Offline
Joined: 2008-08-24

I have always been tactical at heart. Sometimes its hurt me on the way up. But it has helped me immensely on the way down. There is nothing that requires being intellectual in this. Its just a fact that all the crap spewed by the wires about 25 year average returns on the S&P and never a 15 year rolling period where markets were down at the end of the 15 years (used to be 10) is nonsense. Yes they may be giving us facts, but its just raw data that means nothing in the real world.When a client is down 15% in a year, he doesnt care about 15 year returns. And he cares even less, if you had a buy and hold strategy. Bond Guy is 100% correct. Our clients pay us to keep them out of deep sh*t. And if we do what we did when we were 17 years old, find em, feel em furck em and forget em, then we are not earning our fee. Period.One more point. All this talk about the optimum 60/40 allocation is crap too. It is stated with the benefit of hindsight. Tell me how well served your clients will be over the next 5 years owning 40% bonds. Sure, that will really dampen their volatility. Yeah, right.I left a wire to go indie a year ago last month. After the greatest shitstorm clients ever saw in their lifetimes. And i took well over 90% of my clients with me, and 100% of my A and B clients. Trust me when i tell you, that wouldn't have happened if i was walking around with a pie chart up my arse, every time i called them.

Sportsfreakbob's picture
Offline
Joined: 2008-08-24

I have always been tactical at heart. Sometimes its hurt me on the way up. But it has helped me immensely on the way down. There is nothing that requires being intellectual in this. Its just a fact that all the crap spewed by the wires about 25 year average returns on the S&P and never a 15 year rolling period where markets were down at the end of the 15 years (used to be 10) is nonsense. Yes they may be giving us facts, but its just raw data that means nothing in the real world.When a client is down 15% in a year, he doesnt care about 15 year returns. And he cares even less, if you had a buy and hold strategy. Bond Guy is 100% correct. Our clients pay us to keep them out of deep sh*t. And if we do what we did when we were 17 years old, find em, feel em furck em and forget em, then we are not earning our fee. Period.One more point. All this talk about the optimum 60/40 allocation is crap too. It is stated with the benefit of hindsight. Tell me how well served your clients will be over the next 5 years owning 40% bonds. Sure, that will really dampen their volatility. Yeah, right.I left a wire to go indie a year ago last month. After the greatest shitstorm clients ever saw in their lifetimes. And i took well over 90% of my clients with me, and 100% of my A and B clients. Trust me when i tell you, that wouldn't have happened if i was walking around with a pie chart up my arse, every time i called them.

BondGuy's picture
Offline
Joined: 2006-09-21

Navet, B24 and SFB bring some solid thinking to the discusion. I will add that you don't need to hedge. In 08 there were no hedges. I gave you the answer- technical analysis. It's not voodoo. It's the answer. And you don't have to be the be-all end -all expert. Just learn some point and figure stick charting so you can spot over bought- oversold market conditions and deteriorating trading patterns. This could be applied to C share mutual funds or a wrapped ETF program where the ETFs hit your tactical allocation requirements. Best used in descretionary accounts but it could work non descretionary as well. It's not like you'll be in a panic sell or buy situation. Just having a way to get your clients off the tracks will put you miles ahead of any of your competition. And lastly and again 2008 was not a unique one off situation.   

Sportsfreakbob's picture
Offline
Joined: 2008-08-24

BG - What do you use for Tech Analysis - do you use DWA, or just the Moving Averages, or other indicators?

squash2's picture
Offline
Joined: 2010-03-09

navet wrote:We had a waterfall financial event in '08. Considering that such events happen maybe 1 year in 60 or so, is it viable to use those calculations in figuring financial strategies. Face it, some outlying event can screw up any strategy. Taking '08 out of the math, buy and hold may still be reasonable. You aren't actually this stupid are you... "Well my strategy works if you don't count 2008,2002,2001,2000,1977,1974,1969 etc"...So your argument is that from 80-99 your strategy worked...No kidding, it's called a bull market...Buy and hold always works in a bull market... but now you are either even for the last 10 years or underwater...how did that help your clients.. Buy and hold is not a strategy, it is a wish..How about from1966-82 when the market didn't do anything.1929-53 again flat...1905-1923 negative...So your argument is...1982-1999 and 1954-65..notice how your markets don't last as long...

B24's picture
B24
Offline
Joined: 2008-07-08

Buy and Hold (forget) is for brokerage firms and advisors that are too lazy to do their own research, and too trustful of the firms that keeping getting us in the sh1t.

navet's picture
Offline
Joined: 2010-02-25

I am not advocating buy and hold. I am discussing it. My point is that I am not willing to dismiss buy and hold due to the market meltdown in '08, which WAS a unique event and should not be considered routine under any circumstances. Warren Buffet is a buy and hold advocate and I haven't seen anyone beat his record. However, I am simply trying to focus on and clarify my position on this investment strategy and its alternatives. I don't see much difference in managing an investment in 12 different sectors,  or buying a few good mutual funds etc, which seem to be buy and hold strategies to me, with the caveat that I don't buy and hold forever. For example, I have been transferring clients out of Bond Fund of America because of it's overweighting in Fed bonds. I tell my clients that a long term hold is a period of 4-7 years. All points for discussion.

B24's picture
B24
Offline
Joined: 2008-07-08

I am tired of people comparing an investing philosophy to Warren Buffet.  Yes, he's a sage, but when your investment horizon is infinite, it's pretty easy to be a buy-and-holder.  Most people cannot wait forever for their portfolios to recover from collapse.  Buffett's holdings and financial circumstances (at BRK) are much more complex than an individual in retirement.

Please or Register to post comments.

Industry Newsletters

Sponsored Introduction Continue on to (or wait seconds) ×