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TaiPan

TaiPan
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  • Does Momentum Investing Actually Work? [View article]
    Let me wade in here with a few comments -- and the caveat that I have not made up my mind about momentum investing.

    Before I get to Momentum, I have read that it is (a) important to avoid holding a stock during an earnings announcement, and (b) unimportant because 4/5 announcements lead to price increases, not declines. Which one is right? Anyone have evidence?

    And now ... Momentum investing. There are many variations. On the face of it I would agree that momentum is a way of buying hot stocks, and these are the ones that will tend to cave in much more in declining markets. Sam Stovall outlines two basic momentum strategies in his book The Seven Rules of Wall Street. The simpler strategy involves using ETFs to represent the three sectors that rose most over the previous 12 months, and reviewing each month.

    From 1991 - 2007 the ETFs produced a CAGR of 14.6% versus 10.4% for the S&P 500. Standard deviation was 16.5% for the ETFs and 16% for the S&P 500. Seemingly not too much difference, but I want to know what the monthly draw-downs were in the depths of the bear market. Maybe the ETF strategy declined a lot more, but recovered by the end of the year?

    The ETF strategy beat the S&P 76% of the time; but what happened in the other 24%

    Does anyone have access to data to investigate these questions?
    Apr 16, 2013. 10:04 PM | Likes Like |Link to Comment
  • Something's Gotta Give [View article]
    What you say makes good sense, but gives me a sense of deja vue. Didn't I read equally-dire descriptions of the American economy back in 2003? Job growth was an illusion -- mere McJobs, in the low-paying service sector, were being added, not real jobs that would grow the economy. Companies were not hiring, not upgrading systems, etc etc.

    And what happened to the stock market? It kept rising. And the bears got more and more vocal in complaining that the market was not heeding their negative analyses.

    All this contradictory analysis between bulls and bears argues for a rules-based investment strategy that takes the need for intelligent judgment (and emotion) out of the equation.

    I have been reading articles on relative strength, seasonal investing, etc etc, and am trying to put it all together into a sensible strategy. Details at 6.
    Apr 14, 2013. 07:33 PM | 2 Likes Like |Link to Comment
  • Does Momentum Investing Actually Work? [View article]
    Makes sense, what you say, yet how to explain the out-performance of certain momentum strategies over many years? Sam Stovall (The Seven Rules of Wall Street ) examined 1991-2007. This was surely plenty of time for investors to catch on and arbitrage away the advantage, yet the out-performance continued.
    Apr 14, 2013. 09:12 AM | Likes Like |Link to Comment
  • Does Momentum Investing Actually Work? [View article]
    Dec141:

    Stovall's sell discipline is this: when a sector (when using ETFs) or an industry (when using stocks) falls out of the top 10%, sell it and buy the new arrival.

    My question was, how did the momentum strategy fare during terrible market conditions? Like you, I imagined that hot stocks or ETFs would fall faster and farther, but when I re-read the book his data show that the momentum strategy declined less then the S&P500 in 2007. His book was published before 2008 data could be analyzed.

    I was hoping that Johnking3 would give us the benefit if his hands-on experience.
    Apr 14, 2013. 08:54 AM | Likes Like |Link to Comment
  • ETF Strategy That Outperforms Hedge Funds [View article]
    During the back-test period, interest rates rose for certain periods too, and yet TLT did not plunge, so the results should be indicative of the future when rates start to rise again, no?
    Apr 14, 2013. 08:44 AM | Likes Like |Link to Comment
  • Sell In May And Go Away? [View article]
    Thanks for the reference. It corroborates what I've been reading too.

    But rather than going to cash, look at a chart of TLT during the summer months, whether interest rates were rising or falling.. Much better than cash. And, to hedge the bet, a combination of TLT and SPLV?
    Apr 13, 2013. 10:06 AM | Likes Like |Link to Comment
  • Absolute Momentum Portfolio Strategies [View article]
    There seem to be many,many variations of momentum investing. But the essence of it is that you choose the "hottest" stocks or ETFs, assume that the upward momentum will continue for a while longer, then when another comes along that is even hotter, or the one you have is starting to flag, you replace it.

    (Is this too simplistic?)

    No doubt that momentum strategies work in bull markets. But how do they perform in bear markets, or sudden declines? Hot stocks/ETF are by nature growth assets, with high P/Es etc etc -- all the ingredients for a dramatic and heart-stopping crash when the market turns south.

    Is this the experience for anyone who has nursed a momentum strategy through the 2008 market? If not, how did you avoid serious draw-downs?

    ,
    Apr 12, 2013. 09:43 PM | Likes Like |Link to Comment
  • Does Momentum Investing Actually Work? [View article]
    Sam Stovall outlines a variation of momentum investing in his book The Seven Rules of Wall Street. He advocates selecting top 10% of industries (based on previous 12 months of price performance), then picking high-rated stocks from each industry, and repeat each month, selling those that fall out of the top 10% and buying new "winners".

    Stovall found that over the long term, this firm of "momentum" investing significantly outperformed the S&P 500, but I wondered whether the declines were in fact greater during the 2008 bear market. It's difficult to get data that tells me which industries did best each month, several years ago.

    But if you have actual hands-on experience with momentum investing, could you share what happened? Were the draw-downs scarier than the declines of the indexes?
    Apr 12, 2013. 08:39 AM | Likes Like |Link to Comment
  • Sell In May And Go Away? [View article]
    Hmff!! I read a different article showing that rotating to SPLV in the weak season (May to October) and then to PDP in the strong season (November to April) beat buying and holding SPY. The article examined prices over about a 10 year period, and found that the rotation improved returns considerably.

    SPLV has not been around that long, so the article used an index in its place. I did my own test, from May 2007 to the present. I used TLT (plus SPLV onece it became available) during the weak season, and IWM, SPY and PDP during the strong season.

    Holding SPY would have returned 3.05% annualized. The rotating returned 13.5%, with fewer and smaller negative 6-month periods.

    Based on this, I think it is rash to dismiss the "sell in May" idea as "silly".
    Apr 12, 2013. 01:14 AM | Likes Like |Link to Comment
  • ETF Chart Of The Day: S&P 500 [View article]
    Lots of scornful rhetoric, but light on facts. Let's have useful discussion. Was Buffet's comment meant to cast doubt on this current market situation? What facts make you believe that economic growth is not at the heart of the current market rise?

    If Siegel is an "ass" , tell us the facts that show he is wrong to think that the economy is growing. Sure, the FED injecting liquidity into the market is a major cause of current market highs, but is it only this injection or did the injection succeed in increasing economic activity?

    This is where useful discussion focuses its attention.
    Apr 11, 2013. 11:51 PM | Likes Like |Link to Comment
  • This S&P 500 Rally Does Not Have Good Legs [View article]
    It would have been a glorious opportunity to have had cash back in 2007-2008, to invest at the bottom of the market(s). But who had cash -- those with a crystal ball to know the crash was coming? How did they know, with enough conviction to sell out into cash while the market was rising like a rocket?
    Apr 10, 2013. 09:03 PM | Likes Like |Link to Comment
  • How To Be Protected Before The Next Market Crash [View article]
    It is an unfortunate fact that asset classes with low correlation suddenly correlate highly in a Bear market. Low beta stocks, too, suddenly correlate highly with their benchmark index.

    Or so I have read. Is this your experience, Kurtis?

    Inverse ETFs don't always truly mirror their long counterparts, as one reader pointed out. In a Bull market some drop more than their counterpart rises, producing a drag on portfolio performance.

    If so, unless we have a crystal ball to know the onset of the next serious correction, we are likely going to take beating . Cash is really the only refuge -- and it sucks. But if we got lucky enough to have a cash cushion and a Bear market suddenly struck, were there stocks in the worst of the 2008 Bear that rose while the index was declining? These would be the stocks to wait for, and reason to build a cash cushion near market highs.

    Comments, Kurtis?
    Apr 8, 2013. 09:35 PM | Likes Like |Link to Comment
  • Something for the technicians to have a look at is this chart from ukarlewitz noting small-caps (IWM) have joined the industrials (XLI) and semiconductors (SMH) in slipping below their long-term uptrend line. Oversold in an uptrend tends to get bought, he says. It's a key time. [View news story]
    What's the long-term trend that IWM is now below? It's below its 20 day EMA, but above 50, 100, and 200 EMAs.
    Apr 3, 2013. 08:49 AM | Likes Like |Link to Comment
  • Averaging In To A Market Top [View article]
    Is there any tactical re-balancing going on in your portfolios? Or do you let rise the initial investment in each asset class?
    Apr 2, 2013. 08:29 AM | Likes Like |Link to Comment
  • The 30 Year Treasury Bond Makes No Sense Compared To Dividend Stocks [View article]
    If you examine the S&P 500 over many years, the time for bond-like investments (e.g. TL:T) is during the traditionally weak season of May - October. Rotating between bonds and stocks every six months on May 1 and November 1 dramatically improves CAGR.

    But yes, if you're holding for ever, dividend stocks will outperform bonds over time.
    Apr 1, 2013. 07:26 AM | Likes Like |Link to Comment
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