An epiphany on making money in the market

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Gaddock's picture
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Joined: 2007-02-23

A thought worth sharing to those with an open mind. I've consistently beat the market by not competing with the geniuses. I've been seeking out blatant stupidity and taking the other side of the bet.Go figure.

N.D.'s picture
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Joined: 2009-07-13

I'm listening...

loneMADman's picture
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Joined: 2010-05-10

Exactly right and what I am doing with a real money strategy the past two years and back-tested to 2003.  I won't go into specifics, but am happy, excited even, to talk about general strategies and observations.I find the trick to being successful is two-fold:  being able to identify blatant stupidity and having a disciplined strategy for getting in and out of these investments.  Because even blatant stupidity can persist for a while, I find a disciplined approach to buy and sell decisions works better than gut instinct alone.  The strategy works well over the long haul, but is not a 100% fool-proof strategy that's sure to yield obvious short-term benefits.What has actually surprised me is that my strategy's relative performance has actually been better in up than down markets.  I thought it would be the reverse and am a little puzzled as to why.  My only theory is that investor psyche since the dot-com bubble burst has been so fragile that when sell-offs happen the good gets tossed with the bad.  When rallies happen, investors are a little more disciminating.Right now I am only employing long strategies and results are 3% per annum better than the S&P 500 in all-equity (primarily ETF) portfolios.  International and small stock exposure explains some of the benefit, but not most.  I keep portfolios in a S&P index fund by default, but will sell out of that and buy into sectors that appear to be oversold/undervalued.  Avoiding overheated sectors, therefore, is also a key to these results.  If I expanded to bonds and commodities, as well as employed options/shorts, I think the results would be even better, but being cautious, I haven't wanted to put a lot of money at risk until I am convinced of the strategy's merit.I do NOT market this strategy aggressively to clients for the same reason (and also because I am fairly new to this biz after following the market for 20+ years), but rather take an approach of "if you're interested in a more aggressive approach with a portion of your equity portfolio, here are some ideas I have...".  I have one client who has sworn off equity markets altogether (and really shouldn't because he is far from set), but I have him interested in this approach as well.  So I am hoping to use this as a selling point to people who are jaded by equities.What do you do, generally?  What do you think of the above? 

N.D.'s picture
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Joined: 2009-07-13

Long post but makes some sense. One thing I would say would be for you to take a good look at CEFs in place of some ETFs. Watch for them to trade at a discount to NAV but do your research on the managers, strategies and underlying positions.

Gaddock's picture
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Joined: 2007-02-23

loneMADman wrote:Exactly right and what I am doing with a real money strategy the past two years and back-tested to 2003.  I won't go into specifics, but am happy, excited even, to talk about general strategies and observations.I find the trick to being successful is two-fold:  being able to identify blatant stupidity and having a disciplined strategy for getting in and out of these investments.  Because even blatant stupidity can persist for a while, I find a disciplined approach to buy and sell decisions works better than gut instinct alone.  The strategy works well over the long haul, but is not a 100% fool-proof strategy that's sure to yield obvious short-term benefits.What has actually surprised me is that my strategy's relative performance has actually been better in up than down markets.  I thought it would be the reverse and am a little puzzled as to why.  My only theory is that investor psyche since the dot-com bubble burst has been so fragile that when sell-offs happen the good gets tossed with the bad.  When rallies happen, investors are a little more disciminating.Right now I am only employing long strategies and results are 3% per annum better than the S&P 500 in all-equity (primarily ETF) portfolios.  International and small stock exposure explains some of the benefit, but not most.  I keep portfolios in a S&P index fund by default, but will sell out of that and buy into sectors that appear to be oversold/undervalued.  Avoiding overheated sectors, therefore, is also a key to these results.  If I expanded to bonds and commodities, as well as employed options/shorts, I think the results would be even better, but being cautious, I haven't wanted to put a lot of money at risk until I am convinced of the strategy's merit.I do NOT market this strategy aggressively to clients for the same reason (and also because I am fairly new to this biz after following the market for 20+ years), but rather take an approach of "if you're interested in a more aggressive approach with a portion of your equity portfolio, here are some ideas I have...".  I have one client who has sworn off equity markets altogether (and really shouldn't because he is far from set), but I have him interested in this approach as well.  So I am hoping to use this as a selling point to people who are jaded by equities.What do you do, generally?  What do you think of the above?I am amazed at the garbage I am able to consistently sell .... who would take a position that has a 97% probability. of failure? Answer; endless armies of speculators(?) who have marginalized the funds applied to the position(?)Even if the 3% occurs I get the highest quality equities I can find at a incredible price. It's truly a win win. If not I get paid for being wrong.

N.D.'s picture
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Joined: 2009-07-13

Are you just talking about selling puts? That's nothing new. Tell us more.

loneMADman's picture
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Joined: 2010-05-10

N.D. wrote:Long post but makes some sense. One thing I would say would be for you to take a good look at CEFs in place of some ETFs. Watch for them to trade at a discount to NAV but do your research on the managers, strategies and underlying positions.Thanks, I will look into them.

NOVA's picture
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Joined: 2005-01-11

closed-endfunds.com 

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