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TaiPan

TaiPan
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  • Chart Of The Week: Bonds Versus Oil [View article]

    Author. I am confused on a main point. You said:
    "While many factors influence the bond market, it's worth noting that cyclical bottoms in oil prices (NYSEARCA:USO) have often matched cyclical bottoms in long-term Treasury (NYSEARCA:TLT) yields."

    Does this not mean that TLT prices peaked (to make their relatively-fixed dividend yields decline) ? How did holders of TLT or actual bonds get "clobbered", if prices rose? They could sell and take a nice capital gain, no? Or if they held, they continued to get the dividends.
    Jan 26, 2015. 09:25 AM | Likes Like |Link to Comment
  • Closed End Funds Vs. ETFs, Which Is Better For You? [View article]
    Tim:

    That's good information. But are you saying one needs to have a specific CEF in mind before calling up a chart? How to screen for them, please?
    Jan 25, 2015. 01:45 PM | Likes Like |Link to Comment
  • Closed End Funds Vs. ETFs, Which Is Better For You? [View article]
    I agree Hardog. In fact, I have a dividend-growth portfolio as well as my ETF portfolio. Diversifying my strategies.
    Jan 25, 2015. 01:34 PM | Likes Like |Link to Comment
  • Closed End Funds Vs. ETFs, Which Is Better For You? [View article]
    Good point, Lawrence.
    Jan 25, 2015. 01:31 PM | Likes Like |Link to Comment
  • The Single Greatest Mistake Investors Make [View article]


    Dale:

    If you're saying that market timing is doomed to fail, and that dollar-cost-averaging (DCA) is the better way to manage risk, I must disagree.

    I agree that market timing "largely" does not work, if you mean that the majority of timers lose. But that does not mean that market timing per se is doomed. In the right hands, timing can make a portfolio safer and more profitable. Look at the results for Alphassetallocation.com, a strategy reported in Seeking Alpha some time ago. Those superior results are being verified by Timertrac, and I also have been tracking it for about 1.5 years. Look too at the results of Teddi Knight in her website FullyInformed.com. She wins more than 70% of the time. These are the two sites I follow closely; I expect there are others.

    Dollar-cost averaging (DCA) works when you have an independent source of income, have fresh cash to invest periodically, AND that cash is substantial compared to the size of the portfolio. For example, if you are investing $500 per month into a $50,000 portfolio, the impact on annualized return will be favourable (as long as the market goes down and not just up). But where that portfolio has grown to (say) $1,000,000, and the market declines, the loss on the $1,000,000 will dwarf the positive impact of the $500 monthly DCA.

    And DCA is not a good strategy for retirees who have no fresh cash to invest. If they were going to DCA, they'd have to reserve cash in the portfolio -- i.e. leave cash on the table with which to fund the DCA. This is profitable (cash on the table) in market downturns, but unprofitable in Bull markets.

    When you say that market timing leaves a lot of money on the table, and imply that this is unwise, I suggest you re-think this. In the 2008 Bear market, going to cash when the S&P 500 crossed below its 200 day moving average left money on the table (i.e. safe cash) during most of the market crash. Not a bad result at all, in my opinion. What were the "better ways" to manage this risk that you allude to? DCAing $500 per month would not have saved the income-stream investor from serious losses.

    But of course getting out of the market to save serious losses is only half the battle with market timing. Getting reinvested in the early stages of a real recovery (but not a head fake) is the necessary second step. If our hypothetical investor had re-invested as the S&P 500 crossed above its 200 day moving average, he would have profited from much of the recovery. A quick glance at a SPX price chart, plus a 200-day MA line, confirms this. And a quick calculation confirms that the market timer with a large portfolio would have been much better off than if he had stayed invested and hoped to salvage his returns with a $500 per month DCA.

    There are more sophisticated market timing tools, to be sure, but this simple one illustrates the points that (1) going to cash and getting reinvested at the approximately-right times can be a very effective way to manage risk; (2) market timing need not be rocket science (a 200 day moving average is quite simple); and (3) there are several common investor situations where dollar-cost-averaging does NOT manage risk effectively.

    I'll end this by asking you to elaborate on the "better ways" to manage risk you mentioned. This strikes me as a very worthwhile direction for this discussion.
    Jan 25, 2015. 01:29 PM | 1 Like Like |Link to Comment
  • The Single Greatest Mistake Investors Make [View article]
    Author:
    My main point is below, but I just had to start by rescuing Mark Twain. You misrepresented him by reversing his famous quote. Twain didn't say 'history may rhyme, it doesn't repeat itself"; he said “History doesn't repeat itself, but it does rhyme.” His point was that the past may not be a perfect predictor of the future, but it is a rough indicator, the best we've got.

    I am not sure what your main point is. Are you saying that average investors are too emotional, but the good ones like Buffett thrive? That's not news.

    Are you cautioning us average investors to expect flat market returns for the next few years? That too is not news -- and we would have lost a lot of profit if we had heeded the first of those articles a few years ago and gone to cash.

    You dismiss a premise of momentum investing by saying that previous price action is in no way predictive of future price action. But there are many learned articles proving that momentum does work, in principle. The Devil is in the details, though. What defines "recent", and how long into the future will the trend continue? These are the critical variables, and most technical indicators (MACD, Ultimate Oscillator, etc) are designed to define them, identify the probable next price move. .

    When you deride investors for buying assets that have risen recently, and selling assets after they have declined, you are not really dismissing momentum investing. You are criticizing their timing, for waiting too long to respond. Those who had a momentum plan, and stuck to it, who did not let themselves be ruled by emotion, fared decently. For example, the 2008 financial crisis, even a simple momentum plan (sell below the 200 day moving average, buy above it) would have got the investor into cash before much of the decline, and back into the market for much of the recovery.

    Apart from some sort of momentum investing, what choice do investors have? Buy assets at the very bottom? Impossible to do consistently; even Buffett sometimes gets the price wrong. Buy assets on the way down (catching a falling knife)? Risky. Buy on the way up? Yes, as long as the investor doesn't wait too long. Sell on the way down to avoid catastrophic losses? Yes, as long as the investor doesn't wait too long.

    How to do this? Well, different technical chartists have their preferred indicators, but each investors should select the ones he or she likes, back test them, adjust them, then make a plan and stick to it. If you're right that markets will stagnate for a few years, momentum investing may be the only way to find the few bright spots.
    Jan 24, 2015. 02:14 PM | 5 Likes Like |Link to Comment
  • Closed End Funds Vs. ETFs, Which Is Better For You? [View article]
    The author's main distinction between ETFs and CEFs seems to be that CEFs permit active management, while most ETFs don't. If active management outperforms passive investing, then the advantage goes to CEFs.

    Yes, the theory of active management is attractive: get a smart investor at the helm and let him/her look for good deals. It's attractive in theory, but the reality is that (as we read time and time again) few active managers outperform the market over time, and so few CEFs will outperform either. If this reality forces us back to passive investing, the lower expense fees of ETFs give the advantage to ETFs.

    (I personally favour momentum investing, a variant of active management, but I would not be comfortable guessing which active manage of a CEF was going to be the winner over the next few years, and sticking with that manager over bad times as well as good, only to realize later that I had guessed wrong.)

    A second alleged advantage of CEFs over ETFs is that you can buy a CEF at a discount to NAV, and you cannot do this with an ETF. This is an advantage only if the CEF's price per share will eventually rise to equal its NAV, thus providing a capital gain. Of course, this rise must occur within a reasonable time (weeks or months, not years).

    Does this "equalization" always occur? Are there CEFs that always sell at a discount to NAV? If so, then obviously their discount to NAV is not an advantage to the investor, and there is no advantage to CEFs. But if there are CEFs that typically sell at a discount at one time, then their share prices rise to equal NAV at another time, then there is indeed a capital gains opportunity with these CEFs.

    Is this the case? Can we identify CEFs that allow us to harvest the capital gains from temporary discounts to NAV? This, to me, is the real potential advantage of CEFs, and needs to be explored further. If it were possible to examine charts of the relationship between share price and NAV, we could make a reasonable prediction of future share price. CEF Experts?
    Jan 24, 2015. 01:00 PM | 1 Like Like |Link to Comment
  • Closed End Funds Vs. ETFs, Which Is Better For You? [View article]
    Omer:

    When you buy a CEF at a discount to NAV, do you expect the discount to disappear eventually? If not, the discount doesn't help you. If yes, if the discount disappears and you get a capital gain, have you observed a typical time frame (e.g. 2-3 months)?
    Jan 24, 2015. 12:20 PM | Likes Like |Link to Comment
  • Risk Reward Shows Market In The Toilet For 2015 [View article]
    I've seen quite a few articles -- brilliant analyses all -- explaining why the market is due for a fall. The first of these appeared a few years ago! Glad I did not act by getting out of the market then.

    Of course the markets will decline, sooner or later. Saying so is not useful. Neither is walking in circles on a sidewalk with a placard stating that the world is at an end.

    Predicting WHEN the correction will occur is the only useful occupation, and such predictions are impossible, it seems.

    So, what is a pessimistic author to do? If he predicts the timing of the correction and is wrong, he looks silly. But if he is too vague about timing, we (at least I) tend to put the article in the same trash can where those placards telling us 'the end of the world is at hand' reside. We know they will be right eventually, but until then we must put our money to work somewhere.
    Jan 21, 2015. 10:11 AM | 8 Likes Like |Link to Comment
  • MDYG Looks Like A Great ETF, I Don't See A Single Weakness [View article]
    The risk statistics provided by Schwab don't favour using MDYG as a complement to SPY in a portfolio.

    First, if you are including MDYG as a non-correlated asset to SPY, eyeballing a price chart shows a significant correlation between the two ETFs.

    If you are including MDYG to increase the risk-adjusted return of the portfolio (in this case a portfolio of SPY and MDYG), the numbers say otherwise.

    Always stating SPY stats first, MDYG second, STD is 9.05 versus 11.52; Sharpe Ratio 2.03 versus 1.52 ; Treynor 19.61 versus 16.10; Alpha -0.08 versus -4.07; Upside capture 99% versus 100%; downside capture 100 versus 128; volume high versus extremely low; bid-ask spread (at the moment I looked) 0.14% versus 17%.

    So, in virtually every category by which one measures risk versus return, SPY seems superior. MDYG has higher volatility, a slightly lower Sharpe, a significantly lower Alpha, the downside capture ratio is 128% (i.e. how much MDYG declines compared with declines in the S&P 500), and the bid-ask spread is a phenomenal 17% for MDYG and a miniscule 0.4% for SPY. The latter means the investor will likely pay more and sell for less with MDYG.

    Sorry, Colorado, I don't see a convincing case for MDYG here.
    Jan 18, 2015. 12:59 PM | 4 Likes Like |Link to Comment
  • Start Living An Easier Life And Start Beating The Market Through Contrarian ETF Investments [View article]
    One day I'll do some deep digging and calculate the end gain/loss of dollar-cost averaging XOP after its initial 40% decline from peak price (XOP is the oil ETF referenced in this article), to see how it would have worked out. But just eyeballing the XOP chart from late 2007 to now it doesn't seem like a good strategy.

    This is not to dismiss dollar-cost averaging; it is an old and revered strategy. It works best when the investor is investing a part of salary (or other constant income stream). But where there is no income stream, where the dollar-cost averaging must be financed from within the portfolio, keeping aside the necessary cash would reduce portfolio returns in a bull market, and (of course) reduce losses in a bear market. Over time, since bull markets are longer than bears, keeping cash aside would have a negative impact on a portfolio, reducing the benefit of dollar-cost averaging into XOP (and similar ETFs).

    The net effect would be interesting to calculate.
    Jan 15, 2015. 08:40 AM | 1 Like Like |Link to Comment
  • Start Living An Easier Life And Start Beating The Market Through Contrarian ETF Investments [View article]
    XOP (the ETF) declined much more than 40% in 2008. If you had bought at the -40% price, you'd have been looking at considerable losses for quite a while as XOP continued to plunge. The old saw "don't try to catch a falling knife" has survived a long time, for good reason.

    It's much more gratifying, and safer, to buy when a rebound is underway. So, when XOP was (say) 10% off its bottom, I think that would have been a better entry point than buying at -40% and hoping that the worst was over.

    Also, what if the knife falls for ever? Might happen in the case of Argentine bonds, and might have happened in the case of Greece. Might still happen with Greece for that matter.

    Again, better to wait for a confirmed recovery, rather than guess. Looking at past charts will indicate with reasonable assurance how much an asset must recover before you can invest with confidence.

    Then comes the problem of when to exit. Had you invested in XOP when it had recovered (say) 10% above its bottom in 2008, and held on until the peak before the current decline, you would STILL have been better off in SPY. So, the conclusion is that with volatile assets, the ones likely to decline 40% or more in down markets (the exception being the 2008 recession when almost everything declined 40% or more), then you need to be a timer, getting in and out at the right times, and this is not a strategy espoused by the author.

    The point: I am dubious that we can be successful contrarian investors simply buying at -40%
    Jan 14, 2015. 01:26 PM | 4 Likes Like |Link to Comment
  • Join Them If You Can't Beat Them: Stop Picking Individual Stocks And Start Living An Easier Life [View article]
    Really, I am not trying to dominate this thread; it's just that the comments have raised many interesting points for me.

    I am not a "buy and hold" investor, nor a day trader. I am (perhaps) (a) a swing trader and (b) a dividend-growth investor.

    Strategy (b) is clear enough. Just find a way to pare the stocks about to falter BEFORE they actually falter. Easier said than done. I review monthly. Takes but a few moments to reassure myself that the current selection of stocks is OK for now. Takes longer if I decide to sell a stock; then I need to research a replacement. But all in all this is an easy portfolio to run.

    It is strategy (a) that is more challenging to run, and (frankly) more fun. Conditions change, certain sectors of the markets achieve momentum and outperform -- sometimes for only a few days, but sometimes for several months. It is the latter I try to find, and invest in via ETFs.

    How to find these ETFs? I use ETFReplay. Com . I set my search criteria to the most effective ones (after much back testing), and run a list. Then I pick the first six ETFs on the list. I don't duplicate "types" of ETF. I skip over the replicating ETF and pass on to the next different type of ETF. Example, if two Dividend ETFs were at the top of the list, I would pick the first and pass on to the next different type (e.g. QQQ for tech stocks).

    I pick six, and invest in these for a month, then review.

    I don't let this list stand alone. I also follow Alphaassetallocation.com. I track my Replay portfolio and the AAA portfolio on a spreadsheet. If one strategy outperforms the other over 4 weeks, then I lean toward the winner for the next month, by replacing the weaker performers of the "losing" strategy with ETF(s) from the "winner".

    It's fun, not too much work, and outperforms SPY most weeks.
    Jan 10, 2015. 01:34 PM | Likes Like |Link to Comment
  • Join Them If You Can't Beat Them: Stop Picking Individual Stocks And Start Living An Easier Life [View article]
    RHS is an equal-weighted version of SPY, is it not? When I last compared this ETF with SPY I found that the risk-adjusted return was not much different than SPY. In other words, RHS was more profitable, yes, but more volatile too.
    Jan 10, 2015. 01:14 PM | 1 Like Like |Link to Comment
  • Join Them If You Can't Beat Them: Stop Picking Individual Stocks And Start Living An Easier Life [View article]
    Psycho Analyst:

    "If you can tell me what the dividend aristocrats are going to be in 2030 so I only invest in the stocks that continue to flourish I'd like to borrow your crystal ball."

    True, you never completely know which stocks will survive the next few decades. But if a stock has provided dividends through good times and bad for decades, it is a reasonable assumption it will continue to do so, no?

    But what if it doesn't? What are the signs to consider dumping a faltering stock -- i.e. how to spot trouble BEFORE the price declines.

    Here's my short list; others please add their signs:

    1) The company delays a dividend, even if only by a few weeks.
    2) The dividend is reduced (indicating negative financial results to come).
    3) The dividend is increased dramatically (to convince wavering investors to stay with the stock, foreshadowing negative news).
    4) Revenue decreases for two years in a row.

    In all these cases I look for better alternatives, and l read any and all analyses of this stock, more than I normally would.
    Jan 10, 2015. 01:11 PM | 2 Likes Like |Link to Comment
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