Jan

3

1. All stock timing systems suffer from their inability to get back long after selling.

2. It is impossible to overcome the positive drift of 10% a year with timing systems.

3. Investing in an index fund enables one to capture the drift without being forced out by emotional reasons and news.

4. The moves in just two days, e.g from 1384 to 1458 in two days can be very violent and account for the major portion of profits in a year.

5. The big 27 point decline on 12 24 provided a cathartic unleashing of all weak longs from the market.

6. Any flexions or strong longs who were able to take the opposite side of that trade, i.e. by buying at 1384 would have been well situated especially if their customers were forced to liquidate due to margin or they knew of margin liquidations.

7. There were thousands of articles talking about the big market decline that was inevitable if we fell off the fiscal cliff but hardly a one that talked about the market rise that would occur if we didn't fall off it.

8. The stock market vigilantes forced the politicians to agree on a deal, and at the highest levels that was given as a reason for the necessity of agreeing on a deal.

9. The fixed income market moved to near a 1 year low as the stock market moved to a 1 year high

10. The Mississippi bubble wherein the French Government bought in all its outstanding debt before those of bent posture used their back to allow buying of stocks at the peak seems more analogous to the present situation then the scholarly Chair's studies of what happened during the Depression. What other biggies did I miss.

11. The time to buy stocks is when fear is at the greatest. 

12. The best thing for the investor to read is Dimson, Marsh and Staunton's The Triumph of the Optimists and Fisher and Lorie on returns from buying stocks with different holding periods. But don't be put off by the relatively pessimistic conclusions of the former paper as that is de rigeur for the zeitgeist of Europe.

13. The big up moves both absolute and relative in all other stock markets like Japan and Germany well before the US carried ours along by gravitational force and were predictive. 

Anatoly Veltman writes: 

The Chair's summary is correct indeed and is greatly appreciated. I rush to add that it was the preceding decline of an even greater magnitude than 70 points, that caused the 70 points to be regained in the last two sessions. After all said and done, the stock values will remain roughly the same - as if there was no event on the Hill. And that may qualify as a pointer number 12.

One contention I have is that all of this is not really related to drift. I happen to be edgy not to over-hype the drift as stocks approach record levels. I will not say that any record will stand an eternity; however, I was thinking more positively about the drift, when market was carving out its 2008 and 2009 lows, and C was briefly a penny stock.
 


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2 Comments so far

  1. Philip on January 3, 2013 10:12 am

    Victor, regarding #10, while reading the John Law chapter of Men of Wealth by John Flynn, I was struck by the analogy of that whole episode to the present (government debt, lack of liquidity creating a ‘crisis’ which is solved by monetization, inflation, pump and dump). Perhaps Laws’ ’system’ is being replayed intentionally? I would enjoy Prof. Jovanovich’s take.

  2. Ed on January 3, 2013 2:11 pm

    “All stock timing systems suffer from their inability to get back long after selling”

    Victor, I have found this to be very true. But, I have also found that if you quantify those times you wish you could “get back in” into a general rule, the forward expectation is generally below average or even negative over the short term. Having separate long term stock investments aside from trading accounts seems to be a good middle ground.

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