sorry, my mistake should be correct now
1 Like
can you show them? Reentry point should usually be lower than exit or similar
1 Like
For short periods moving averages, 2016 comes to mind. 2018 may also have some false positive situations. For longer ones (200D and the likes), you’d be looking in the range of 2010-2014 for those I have on the top of my mind.
Yeah you are right 2015-16 the msci world was hovering around the MA without clear direction…staying put would have been better, at least in saving fees
similar story 2010-14, but still no real harm done
This is all back fitting. There is no guarantee that the chosen threshold would work again in the future. And then when things don’t seem to work, people get hitchy and deviate, and start using 25 instead of 30 eg trying to adjust etc .
So investing is in reality the mastering of discipline. It may be that a moving average strategy reduce volatility, but it requires discipline & an alert system that could be stressful.
Many, many strategies have worked great in back fitting from 2010 - there has been a big upwards trend with clear patterns.
If we enter a sigsaw, horizontal market that last 4+ years, a sma based system get crushed and keeping discipline impossible
2 Likes
Emphasis mine. That’s mostly true for every style of investing that doesn’t match your risk tolerance, and even those who do aren’t easy to follow through thick and thin. Buying and holding is no different: it is simple, not easy.
That being said, we all react differently, there are some who find discipline impossible, there are those who can’t even understand why emotions would have anything to do with investing at all since they have made equanimity their domain. That is why personal finance is personal and we should be wary before recommanding investing styles to complete strangers.
I see comments like these pop from time to time and I don’t understand them.
I’ve seen no Vanguard evangelism that I can tell. Sure, VT is considered the gold standard but that’s because it is a cheap, globally diversified ETF with good AUM.
If we’re getting into broadly diversified CHF hedged intermediate term bonds funds, I’ve been seen displaying Blackrock’s AGGS as taking the pot and I’ve yet to see someone argue that VAGX is better.
Regarding passively investing in cheap, broadly diversified ETFs, that’s the default because it’s the strategy that guarantees you get market returns. Deviating from that would require you to have a reason to (and there are good ones) but we don’t know who reads our messages and what their personal and financial situation is. Giving a hedge to the default means you need real determination and personal conviction in your investing style to go for it. Conviction is required to stick with any given strategy so I see it as a huge plus (take it as the “are you sure you want to delete this file?” window in old Windows OS, it doesn’t prevent you from deleting whatever you want but it tries to make you pause and ponder your decision).
That being said, I don’t see much of a backlash against other strategies than buy and hold.
@xorfish regularly touts factor investing and gets positive questions about it.
I’m openly market timing and have had no backlash to speak of about it.
@Julianek gets a lot of praise for his very insightful value investing posts.
Even the GME thread got more interest than backlash.
Cryptos, TSLA and often leverage tend to drive more aggressive comments but that’s still a far shot from “everything but “VT and chill” gets shot down without any consideration”.
I think trading on moving averages changes the risk profile of your investments without guaranteeing better returns. It should give you some comfort during big downtrends but can also kill your investments when everybody else is flat or slightly up. You have to choose your kind of disheartening and stick with it.
I don’t like following a single moving average because they keep getting in and out during flat markets, generating fees, a lot of trading and probably underperformance.
Using more than one moving average usually comes with the problem that you loose access to your signals right after entering or exiting the markets, which can be stressful and disorienting. I’ve chosen to sacrifice some upside and take on more downside in order to always have a clear signal and limit the number of times I have to trade, though some times, like these ones, tend to bring a lot of mess with them anyway.
I find that it is highly dependent on market conditions. It will outperform in some situations and underperform in others. It’s easy to backtest and get the exact best indicators for past conditions but we don’t know what the future holds so, at any point in time, we’re still exposed to a risk of winning and a risk of loosing.
I’m sure you can come up with conditions where the strategy wins but the test with the 30 days SMA on the SPY since January 1994 I’ve mentioned above gives both worse risk adjusted returns (lower Sharpe and Sortino ratios vs Buy & Hold) and a lower CAGR. It does have a lower max drawdown so it may fit some investors if that’s what they’re after.
Other strategies will have other benefits and downsides. No matter from what angle I look at it, it always seems like a game of tradeoffs to me. There is no absolute best strategy, there are strategies with different properties that may fit you if they emphasise what is important to you while their downsides don’t matter much to you. Another investor might get turned off by the downsides and find a strategy that seems awful to you most suited for their own needs.
15 Likes
Nice recent podcast on active vs. passive. Don’t worry, they’re really respectful towards active guys 
https://www.bogleheads.org/blog/2021/05/02/episode-033-bogleheads-on-investing-guest-jeff-ptak-host-rick-ferri/
Oh and btw, active CAN be cured, you just need to address your bias: overconfidence, recency, survivorship etc. No shame in it.
Great reply!
That’s exactly why I think you’ll also need some chart interpretation in addition to determine whether it’s just a just a flash crash/pump with a quick bounce back or a real trend change. Strictly sticking to a mathematical model results in too many (or too little) false buy/sell signal.
The moving averages give an indication only. And as you mentioned it clearly works less good with “slow” assets like broad index funds and better with ones further out the risk curve with strong up/down trends like single tech stocks and cryptos. In latter you are currently seeing a lot of people hurt, hodling all the way down.
I find being fully invested during times like these now too stressful and rather be in cash waiting for a clear trend reversal for reentry than watching my net worth shrink day by day by day over months and months and maybe even years! 
But yeah, it’s a personality thing, I’m honestly just not cool enough for passive investing. 
I theory yes, if you can buy the bottom perfectly you’d miss out on a potentially big gain.
With the moving average strategy you’d have substantially reduced your losses during the big crashes like 2000 (-8% instead of -40% over 900 days from ATH, max drop -50%) and 2008 (-8% instead of -38% over 500 days from ATH, max drop - 58%). We are currently at -23% from ATH, sell indicator was at -9%. (example S+P 500 EMA 50)
Very rough assumption: Let’s say this bear market is going to be 2 years and goes down 40% and you invest 5k per month at an average discount of 40% that’s potential 50k gain.
At the same time you portfolio of 500k drops to 300k (-40%) instead of 450k (-10%), that’s a 150k delta or with you potential low buying opportunity gain included around 100k or -20%. Guess it strongly depends in which phase of wealth building you are.
1 Like
If you retired with a withdrawal rate of 4% or above and P/E indicators were high - what makes sense for you is quite different vs someone in the accumulation phase
1 Like
I can see how support/resistance levels or flag patterns could be linked with investors psychology/sentiment and give a signal on whether the times are rather bullish or bearish but I have high doubts about other patterns (it seems a bit like astrology to me, something unrelated with the actual underlying psychology that we have refined to make it fit as best we can).
The problem I have with patterns related technical analysis is that it works until it doesn’t. Support/resistance bands can be breached every time they’re tested, it is very important to make sure we can’t loose more by a change of sentiment (support/resistance line breached) than using the whole system makes us win, which makes it very hard to use to me.
I’d rather test my own sentiment vs an attempt at understanding what is really going on in the market: who is invested with how much money, who is investing, who sits on the sidelines with how much dry powder that could get in, what are their objectives, what may make them change their stance and so on.
It is a very time consuming endeavour. I’d be willing to think, if we factor in the time we spend following it, only professional funds managers manage to make it a profitable venture. That’s the strength of passive: spend a weekend reading a selection of articles, starting with Bill Bernstein’s If you can, take a week to think about your personal situation, your goals and the risks you are willing to take, select your asset allocation, a broker and a few ETFs that fit you and you’re done. Enjoy spending time with your family on the weekends, being focused on enjoying your work and getting the most value out of it and just live life.
Indeed, investing in retirement/with significant assets invested is very different than being a (all but late) accumulator. It would probably deserve its own thread. I’d personally not envision going into retirement with anything else than a risk parity portfolio including many asset classes. A risk mitigation strategy requirering active actions from my part would be vulnerable to me having to spend a prolonged period of time in dire shape in a hospital (or wherever else where I can’t trade), for example after a road accident.
7 Likes
Sure. Going broke would have a more detrimental impact on my life than getting a shot at becoming a billionaire would compensate for, though (have you computed the real chances of that? Multimillionaire, sure, billionnaire+, I’d be amazed if the chances to reach it with a 100% VT investment starting at a relatively relatable FIRE value of, let’s say, 5 millions are significant).
The concept of “enough” is what I’d be taking into consideration here (I know it tends to feel alien in our current society, which is why talking about it is so important).
2 Likes
To answer the question of this thread: when the SP500 hits ~2700.
4 Likes
I saw an interesting comment that now at the turn of a month/quarter a rebalancing of institutional investors into stocks might kick in. So we can have a rally next week or so.
1 Like
how does that work? Institutional investors publish when they are investing? It should be easy to make a quick buck if you know how they balance.
1 Like
Like rebalancing a typical 60:40 (for example) stocks-bond portfolio?
While stocks have dropped around 20% in 2022, unfortunately the Bloomberg Global Aggregate Bond Index has also dropped 15% this year, so there may not be much to rebalance.
1 Like
They are typically rebalancing around a turn of a month/quarter/half year. Now we have all of them.
It is just one factor out of many, so good luck with trying to catch upward movement due to the institutional investors rebalancing.
Yes.
True but even small rebalancing by institutional investors can easily create huge orders.
Nevertheless I agree with both of you, nothing to really get excited about. Just wanted to share a thought.
4 Likes
There’s quite a few institution that think we could (or should, if we want to avoid hyperinflation) be headed for proper recession, most recently the BIS. So what’s the argument that the pain is short term vs. multi year?
1 Like
I think the argument isn’t that the pain is short term but that it is mostly already priced in, which should limit further declines in stock prices. I’m not sure I agree with that. While pain is expected this winter, there’s been a habit of being overly optimistic so far and I don’t feel that the optimistic spirits have really been crushed yet.
That’s just the crapshot that my magic eight ball tells me. None should act on it, and I won’t.
2 Likes
Isn’t that almost 50% from the top? Can’t it be considered an hard crash?
1 Like