Fantastic read; holding versus selling

[lucifuge]

This has to be one of the most brilliant reads I've come across regarding holding versus selling in times of crisis with regards to shares.

http://www.iht.com/articles/2008/10/09/business/09money.php

The entire doco is awesome, but this point, is fascinating:

".....H. Nejat Seyhun, a professor of finance at the Ross School of Business at the University of Michigan, put together a study in 2005 for Towneley Capital Management, where he tested the long-term damage that investors could do to their portfolios if they missed out on the small percentage of days when the stock market experienced big gains.

From 1963 to 2004, the index of American stocks he tested gained 10.84 percent annually in a geometric average, which avoided overstating the true performance. For people who missed the 90 biggest-gaining days in that period, however, the annual return fell to just 3.2 percent. Less than 1 percent of the trading days accounted for 96 percent of the market gains.

This fall, Javier Estrada, a professor of finance at IESE Business School in Barcelona, published a similar study in The Journal of Investing that looked at equity markets in 15 nations, including the United States. A portfolio belonging to an investor who missed the 10 best days over several decades across all of those markets would end up, on average, with about half the balance of someone who sat tight throughout...."

 

[tech/a]

Then how would those same investors accounts looked if they were prudent enough to liquidate their entire holdings in those downturns which equated to a 40% + fall in the index. In the All Ords there have been 4 such periods including now over the same period 3 if to 2004.

The knife is two sided.

 

[motorway]

Guess when the 10 best days occur ?

are they after the 10 worst days ?

The worst days are often worse than the best days

And missing equal number of worse and best days through a cycle ?

eg missing say 90% of a bear market
and getting back in 10% from the bottom
but missing some of those best days ?

and how many of those worse day bottoms
are retested ?


We have had some of the best days
but markets are still lower
but does missing them only hurt
if you were perversely in for all the worse ones


dyor
motorway

 

[fimmwolf]

Guess when the 10 best days occur ?

are they after the 10 worst days ?

The worst days are often worse than the best days

And missing equal number of worse and best days through a cycle ?

eg missing say 90% of a bear market
and getting back in 10% from the bottom
but missing some of those best days ?

and how many of those worse day bottoms
are retested ?


We have had some of the best days
but markets are still lower
but does missing them only hurt
if you were perversely in for all the worse ones


dyor
motorway

There's an article here titled "Black Swans in emerging markets" that I think would interest you.

 

[awg]

There has only been one other time that worldwide equity and property prices have tumbled simultaneously like this.

I most certainly wouldnt want to have been a "holder" thru that one.

If you examine certain other demographic and especially environmental issues,
would suggest we could be in for a fairly prolonged downturn.

do not forget that growth comes partly from natural capital.

China, for example, has issues of environmental degradation, that, in my opinion, will at some time in the near future cause some unpredictable impairment in growth.

So does Australia, India, Indonesia. This was not the case in previous downturns

 

[motorway]

There's an article here titled "Black Swans in emerging markets" that I think would interest you.

Two recommendations seem to follow from these results, both based on the fact that
black swans in emerging markets are largely unpredictable and have a massive impact on long
term performance. First, investors should diversify broadly in order to mitigate exposure to
negative black swans while at the same time preserving some exposure to positive black swans.
Second, investors should not try to predict the best days to be in and out of emerging markets.
Attempting to predict the negligible proportion of days that determines an enormous creation or
destruction of wealth is a losing proposition; like playing roulette, it may be exciting and
entertaining, but not a good way to generate long term returns. Black swans render market
timing in emerging markets a goose chase.

Volatility Clusters

postive black swans and negative black swans
occur together

We could say they generate each other

If that is SO ( and dyor )

missing both
positive and negative

( which is not as hard as missing just one or the other )

On the figures presented
would outperform

SUBSTANTIALLY ( just keep watching those P&F charts if the thread continues )

ie

missing the best 10 days (0.15% of the days
considered in the average market) resulted in portfolios 69.3% less valuable than a passive
investment; and avoiding the worst 10 days resulted in portfolios 337.1% more valuable than a
passive investment.

to miss one without the other is HARD but to miss
Both is doable

and the research is deficient in not canvassing this possibility

discussion only
dyor

motorway

 

[Glen48]

I can't see it working on shares unless you spent 25 hrs a day checking shares.
With my limited knowledge of CFD's I would be baking Oil down to $30 a barrel USD down in a few Months time once the election is over and the Yanks say now what..
Taleb made most of his money working on the theory that every now and then there will be a major disaster.

 

[skyQuake]

ABN Amro has a fund based on investing only on the last and first few days of each month or something, and that significantly outperformed buy and hold. It was called something alpha and pretty much did a good job of capturing the up days.

 

[MRC & Co]

ABN Amro has a fund based on investing only on the last and first few days of each month or something, and that significantly outperformed buy and hold. It was called something alpha and pretty much did a good job of capturing the up days.

Here is one for you:

Norman Fosback and Arthur Merrill did a study. Holding only for the last trading day and first four of every month. Along with the two trading days preceeding a market holiday.

From the period 1928 to 1994, if you owned the S&P index only on those days (28% of all trading days) and held cash the rest of the time (not including commissions, taxes, or interest you could have earned on the cash in the nonholding period, nor dividends).

If you owned for those 28% of days, your $10,000 would now be worth $4.6 million. If you instead held for only the other 72% of nonfavoured monthly days, your $10,000 would now be worth $569.

That is just one bit of interesting seasonality I have here, but I guess the ABN Amro fund you talk of is based on a similar premise.

Fosback, at the time of this print, maintains several real-money trading accounts based on his seasonality system. Not sure if it's still around, but results were monitored regularly in his newsletter, market logic.

Cheers

 

[skyQuake]

Ahh there we go finally dug it up - ABN Amro Alpha Indices. 'Investing' based purely on the seasonality effects of months.

PDF link: http://www.warrants.ch/download/newissues/swiss_broschure__en__alpha_produkte4.pdf

Edit: Realised my post was sounding like an ad for it. I don't hold and don't plan to buy into it.