[DugDug]

james - there is an interesting article under John Authers - the long view - in the Financial Times about stock picking and asset allocation. They mention a Robert Ibbotson and the Financial Analysts journal - his recent study adds a third factor into the debate between asset allocation and stock picking - market movement.
If you are interested it might be worth looking up as I just read about it on the back of the paper this weekend.

When it comes to diversification I I guess I should have specified it as blind diversification is not so good - ie; buying an index. I think James said it correctly having a simple model that you can adjust simply with the 70/30 split is always going to beat most markets,
( and I am sure most things will beat 90% of short term traders.)

As another point I follow a lot of long term trend trading ideas and models and this is definitely not buy and hold, however over the long term this outperforms most things - the issue here is - how long is the long term and how to deal with the drawdowns.

example; EMC classic is a fund that has returned CAGR = 23.2% over 25 years however they went through a period between 1995-2001 being underwater - very tough to handle.

In all these matters it is the long term compounding that is the vital element

[thalestrader]

Originally Posted by james_gsx »

Well the IDB index certainly outperformed the S&P 500 during the market crisis - that is, if losing money is your thing.

And the idea to go into cash during a bear market then start buying again in a bull market is about as fantasized as most economic theories. It sounds great, but how realistic is to implement?

You ought to read and understand O'Neil before you critique the approach. IBD's approach uses very specific criteria for quickly cutting losses, and very specific criteria for distinguishing confirmed uptrends from downtrends. And it will be no news to anyone who has been buyng stocks for more than 6 months that the leading stocks in a raging bull often lead to the downside in a rabid bear.

By the way, there are few things easier in life than distinguishing a chart where price is going from lower left to upper right from a chart that is going from lower right to upper left. While no one knows how long or how far a bull or bear swing will carry, it is nonetheless very easy to distinguish a bull swing from a bear a bear market.

How realistic it is to implement will depend, like everything in trading, on the individual and his or her discipline and ability to trade according to the plan rather than one's fear, greed, or desire to be right rather than flat.

Best Wishes,

Thales

[thalestrader]

Originally Posted by DugDug »

When it comes to diversification ...

On diversification I agree with Gerald Loeb, and William O'Neils's formulation that "Diversification is an excuse for ignorance." Watch any bull market, and you will find that there are typically 1-3 sectors/industries that outperform by far the rest of the market. Why buy from under performing sectors just for the sake of being "diversified."

Gerald Loeb's recommendation was to "put all your eggs in one basket, but watch the basket"

Again, this all assumes someone wishing actively to watch his or her basket, which includes the ability to distinguish a chart printing price from lower left to upper right from one printing prices going from upper left to lower right.

Best Wishes,

Thales

[james_gsx]

Originally Posted by thalestrader »

You ought to read and understand O'Neil before you critique the approach. IBD's approach uses very specific criteria for quickly cutting losses, and very specific criteria for distinguishing confirmed uptrends from downtrends. And it will be no news to anyone who has been buyng stocks for more than 6 months that the leading stocks in a raging bull often lead to the downside in a rabid bear.

By the way, there are few things easier in life than distinguishing a chart where price is going from lower left to upper right from a chart that is going from lower right to upper left. While no one knows how long or how far a bull or bear swing will carry, it is nonetheless very easy to distinguish a bull swing from a bear a bear market.

I have read all his books, back in high school.

It worked great during the bull market. But even during the bear market they got chopped around between "buy" and "sell" - I remember looking at their paper and laughing since they couldn't make up their mind.

I'm sure it's a great philosophy for a small IRA if you have the time to adjust accordingly. But flip the tables to an asset manager with $100m under management, it's not such a great strategy. The idea also leaves out risk, and this might sound shocking, but most people don't want to take that kind of risk of holding 20 mid cap stocks and rotating every few months.

[james_gsx]

Originally Posted by DugDug »

james - there is an interesting article under John Authers - the long view - in the Financial Times about stock picking and asset allocation. They mention a Robert Ibbotson and the Financial Analysts journal - his recent study adds a third factor into the debate between asset allocation and stock picking - market movement.
If you are interested it might be worth looking up as I just read about it on the back of the paper this weekend.

When it comes to diversification I I guess I should have specified it as blind diversification is not so good - ie; buying an index. I think James said it correctly having a simple model that you can adjust simply with the 70/30 split is always going to beat most markets,
( and I am sure most things will beat 90% of short term traders.)

As another point I follow a lot of long term trend trading ideas and models and this is definitely not buy and hold, however over the long term this outperforms most things - the issue here is - how long is the long term and how to deal with the drawdowns.

example; EMC classic is a fund that has returned CAGR = 23.2% over 25 years however they went through a period between 1995-2001 being underwater - very tough to handle.

In all these matters it is the long term compounding that is the vital element

I will check out the article in FT. We get the paper, so I will just ask my boss for his copy (that's if he doesn't leave it on my desk). Thanks for the heads up.

I think you hit the nail on the head with "how long is the long term and how to deal with the drawdowns." Certainly, if you hold everything during the drawdown, on the rise back up you will most likely have very good results. Even better, if you get out at the top and back in at the bottom like so many pundits claim is possible using their historical data then you will do even better. But it all changes over time, and that leaves out so many holes it's nearly impossible to implement in real time.

I guess you could ask yourself, "Do I want to own this for 3 years?" In which case, why not just own everything and buy beaten down assets? But of course, you have to expect some stuff to suck for longer than 3 years, and expect big drawdowns. You could always own the best performing assets, but chances are when those turn around you'll be holding a bag of junk. It's much easier to adapt to those changes on a few portfolios, but if you are an asset manager with $100m it's not quite so simple unless every portfolio holds the exact same thing. But then you also have to deal with taxes at the end of the year... and most clients HATE paying taxes so short term trades are typically frowned upon (which I will admit, is unfortunate)

[thalestrader]

Originally Posted by james_gsx »

I have read all his books, back in high school. I'll leave it at that.

No problem, that's what makes it a market. At least you admit that you are not qualified to pass judgment on the approach so others will know to investigate and decide for themselves.

Best Wishes,

Thales

[james_gsx]

Originally Posted by thalestrader »

No problem, that's what makes it a market. At least you admit that you are not qualified to pass judgment on the approach so others will know to investigate and decide for themselves.

Best Wishes,

Thales

I apologize, I thought this was a thread about buy and hold - not my personal critiquing of O'Neils books. If you would like, I can list out why I left his camp several years ago.

[thalestrader]

Originally Posted by james_gsx »

If you would like, I can list out why I left his camp several years ago.

You read O'Neil in high school. That is all I needed to hear.

One would presume that a discussion of Buy and Hold might benefit from a discussion of alternates to the approach.

Best Wishes,

Thales