Two videos this week;
This
and this
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Random Roger
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34 comments:
Roger, good morning. Maybe it's just my balky machine, but I'm having a very difficult time downloading and playing your videos this week. Just a heads up and hopefully your other readers will have better luck.
Thanks as always.
I'm having the same problem and it appears to be a YouTube thing. Other videos on YouTube are loading slow or not at all.
Great video(s), Roger. I know even less about the fixed income markets than I do about the equity markets (zilch) so thanks for the heads up.
And if anyone had a good last quarter they must have been extremely lucky.
sorry about the video, not sure what to say. it works on my ISP which BTW sucks, limited choices for rural living but it streams just fine here.
again, apologies
I had no problem viewing the videos. Just with the content. :)
Go Sox!
Video works fine for me.
My basic 50/50 buy and hold portfolio seems to be faring as well or better than yours with no effort at all except to direct all dividends and interest into stock index funds for now.
At least you have the guts to let everyone know you make mistakes too.
I don't suspect it's an ISP issue, it's a YouTube issue. Different parts of the world hit different servers no doubt and anonymous and I aren't having luck this morning.
Not much you or anyone can do about it.
I'll try again later tonight because as usual, I'm looking forward to them.
Roger,
What are your thoughts on the Harry Browne permanent portfolio theory? I believe there is a fund that attempts to mimic this in PRPFX however an investor may be better off duplicating this with index ETF, gold, treasuries, swiss francs, etc on their own
roger - do you have any opinion on muni money market funds. For instance, FTEXX is now yielding about 8%. I know there's no free lunch, but I find it very hard to believe that Fidelity would break the buck on one of their funds. Is this too good to be true?
Re: YouTube videos. I had problems when viewing off the blog links. Those problems disappeared when I went directly to Youtube.com and searched for "big picture" to find the videos. The difference turned out to be a different URL for YouTube caching (one out of NYC, the other out of ATL). So it's probably a problem with the Interwebs or Youtube's underlying cache sites.
Roger -- I found on DecisionPoint this high-level swag at S&P levels based on P/E valuation:
Undervalued (SPX if P/E = 10): 604
Fair Value (SPX if P/E = 15): 906
Overvalued (SPX if P/E = 20): 1208
("Based upon the latest GAAP earnings the following would be the approximate S&P 500 values at the cardinal points of the normal historical value range.")
Do you put any weight on that kind of price-via-historical-PE analysis?
Roger, I'm new to your blog, so excuse me if I repeat something you've already addressed. I noticed recently you apparently hedged your portfolio with SDS. What criteria do you use in initiating and removing that hedge? Was it primarily the hedge that allowed you to do better than the market generally? I too have used SDS as a hedge and have managed to keep my intermediate term stock portfolio currently at -1.6% YTD. However, my primary emphasis is on short term swing (not day) trading, where I have two accounts one at +33.2% and the other at +16.9% YTD. In the short term trading accounts, I use the 2x short and long SPX, NDX and RUT etf's and Rydex index funds exclusively.
Roger,
I have been reading a lot of info that Merrill Lynch - David Rosenberg has been putting out over the last year. He is very bullish on long-dated Treasuries as a core position in a portfolio. Do you know of any ETF's that would fit this recomendation and do you agree with his suggestion? Great Video!
BWJR
a lot of comments while i was at fire training;
Harry Browne; don't know it first hand, based on your description it is an everybody into the bunker type of thing. Some exposure to that sort of thing for diversification seems to make sense but i don't think it can be relied upon for growth.
re muni money funds; if california goes bankrupt or the like what does that do to muni paper from that state? then how many other states have problems that then hurt their debt? this is a 0% world, what do you think of 8%?
Rick, i think PEs have close to zero predictive value. They help value stocks, IMO, but pe's can stay too "low" or too "high" for a very long time with close to no relevance. Obviously some would disagree strenuously.
TD, not recently, I added SDS when the SPX went below its 200 DMA. I have had some double short, a lot of cash and been underweight financials for quite a while.
Long term bonds; if you believe in deflation then you probably like them. if you think the dollar is going to go down because of the bailout and or other things then long term bonds look pretty bad.
there are plenty of bond etfs, look at the provider sites.
When you added the SDS at the 200 DMA (I did a partial hedge when SPX crossed below the 55 SMA and a full hedge crossing the 233 SMA), did you carry enough of it to neutralize the total value of the portfolio? I will probably carry the full hedge until either the 55 or 233 is crossed to the upside, then only a partial hedge until both SMA's are crossed, at which point I'll remove the hedge completely.
not even close, i added a couple of percent, along with selling a little bit to look less like the market. down less was the goal not down zero
Why would your goal be to be down less instead of down zero? I realize there may be some slippage at the crossover points due to multiple crossings, etc., but it's usually a small price to pay to keep from being wiped out. When the SPX gets below 200, you're in a bear market. Any attempt to be net long is like trying to swim against tide. In the dot com bust, I tried to anticipate bottoms to go long. But one bottom was followed by another bottom and another. I almost got wiped out. Back then we only had options to protect against those markets. Now, with inverse etf's and the like we have excellent tools for hedging. Why not use them to their maximum extent?
this thread is years in the making.
i manage diversified portfolios i do not trade. going done some every now and then goes with the territory, I don't try to avoid down a little, i try to avoid big chunks of down a lot with the goal of adding value over the entire stock market cycle.
you can look at the archives if you want more on this but you and i are coming at this much differently.
What is your opinion about the market bottoming... Our members of myinvestorsplace.com have been discussing this...and you seem very knowledegable.. what do you suggest for us... we want to know...
market bottoming; the question reads in a way i would not frame it. i have mentioned repeatedly that i think we are close in price not less so in terms of time. i may be on the optimistic side thinking q2 of 2009 we start to turn up.
However guessing this is a bottom with your money is a risk i don't plan on taking. my plan set out years ago was get defenseive when the market goes below its 200 dma, get fully invested when it is above. winging it now because the market may seem cheap and guessing seems like a mistake waiting to happen.
portfolio tweaks should be done whenever deemed appropriate, i am talking about meaningful reequitization because of a hunch about a bottom being in.
i'm not radically changing things until my strategy, whcih i have faith in, tells me to.
I'm not talking trading here. I'm discussing buying protection. You did this when you bought SDS and went to cash on some stocks to protect yourself. I didn't sell any stocks, I just bought enough SDS to protect my entire portfolio while the SPX remains below the 233 moving average. If you're going to buy protection, why not buy enough to do the job. Speaking of not being a trader, what are you doing trying to anticipate bottoms? That's what a trader does.
Roger,
I would be curious to hear you reply to trader dick's last post?
Thxs
Great videos Roger, thank you. I was fine, relatively speaking, until the third quarter when my "nicely diversified" portfolio fell apart. You mentioned all the right culprits, to which I would add commodities. Nothing I owned was spared from the woodshed once the financial crisis unfolded. I've tweaked several things, too late obviously, but my defense has turned into a goal line stand. Just being honest.
Dr. Brett has a very instructive post up today about volatility and bottom picking for those so interested.
so you think there is a chance that a company like fidelity or vanguard would let their muni money funds break the buck? it just seems crazy that they would let that happen
as far as fido and vanguard breaking the buck, i am saying i don't want to have to even think about it.
my mindset is not to chase yield here, not sure if that is what you are doing or not.
markets are not functioning normally. I view that as a warning for not to take risk. 8% in a 0% or 1% means you are taking on risk. maybe there will be no consequecne for that risk or maybe there will be, I don't know but i don't want to have to think about it.
0% or 1% world, sorry.
I can see you're not going to answer my question. What is your portfolio doing YTD? It's easy being successful when the market is going up over a number of years and you're invested in stocks. The real test is how good are you in the bad times. Yes, there are cycles of up and down, but some can be ruinous. Every 50% drop takes a 100% gain to get to even. One bad year can wipe out years of progress.
click on the videos
Hi Rog,,
The stats over at Q. Edges look good this time,, of the 17 s&p drops of the most recent type,,,
i'm glad to say 14 have been followed by a rally,,which moves mondays action to a positive bias,
however, with the darkening clouds of world events,, it sounds as though rate cuts on a scale not witnessed to date may be coming..
What is your take on the pending CB
actions and short term outlook???
Mac
Re Trader Dick's comments re hedging 100% of the portfolio using SDS...
There is a "little bit pregnant" problem in the dialogue IMHO...
Roger has been consistent (for the past year that I've been paying attention, anyway) about being a portfolio manager who selects names and sectors and regions and focuses on intermediate to longer term results. The use of inverse ETFs is not the same as it is for me (or apparently for Trader Dick).
I understand Roger to use the inverse ETF SDS to - in effect - somewhat flatten the descent vector of his held portfolio. But b/c exposure is essential if you are going to avoid missing a quick leg up after a bottom, maintaining some of that exposure is part of his philosophy.
To extend Trader Dick's apparent theses, it makes no sense why Roger doesn't simply exit the market at the appropriate crossover points viz the selected moving averages, or purchase enough SDS to effect the same outcome.
Putting aside the partial ineffectiveness of the DAILY inverse ETF when held over a longer period (see archives?), it seems to me that Trader D is arguing for a "negative delta" portfolio position whenever the moving averages are in the "bearish" configuration, and then going to the positive delta portfolio when in a bullish configuration.
But when one is - as Roger appears to be - considering and investing across a variety of dimensions and parameters (sector, geographical, and individual names), finding a "neutral" or "net negative" delta for the entire portfolio runs the risk of measuring the weight of one's suitcase by pulling out a yardstick. (You might be able to get to the "weight" if you make certain assumptions/guesses about density, but you'll be controlled by assumptions. Who knows whether past correlations between BRICs and the SPX will hold? How does one "hedge" against the generic/generalized losses in a down market if a part of one's thesis is to increase exposure in foreign large caps whenever the relationship of the yield curve to the dollar resembles X?)
If all you ever invest in is SPY, then maybe you can use an inverse to effectively manage your "portfolio" in/through a bear market. But if your investment thesis includes a variety of components, a "macro" hedge becomes increasingly dependent on your assumptions re: correlation.
And if you think you got that wired, Hank Paulson has some recently purchased assets that he'd like to broker to you!
R in NY
(apologies to RN if I've completely misunderstood his thesis/philosophy)
I have used inverse funds in the past to reduce the volatility in my portfolio. They worked as expected, but after a while, I got tired of this and converted to an 'equivalent' portfolio with no short positions, less equities and more fixed income. I'm sure it has different expected return and risk, but I feel more comfortable with it. Maybe Roger could comment on or send us a link to something which compares portfolios with short hedge to more traditional ones with a fixed income component. I can see that holding ultrashort would be a more efficient way to reduce volatility without excessive trading. Not sure why Trader Dick would want to have enough to neutralize the whole portfolio, instead of just exiting the market and at least collecting interest.
Jim
R in NY is right in implying that
hedging is not an exact science, maybe even somewhat of an art. But credible estimates can be made so as to protect a portfolio from severe downturns, let alone devastation. By the way, when it comes to having to make "assumptions", is there another way? I thought that's what we all did in any of our investment decisions.
I think estimates for hedging a portfolio can be at least as accurate as taking stabs at various sectors with the hope that they will outperform the market or other sectors. No part of investing is really science.
And while we're at it, why shouldn't the inverse etf's be considered for future appreciation in down markets, just like we look for appreciation in up markets by going long various sectors. I see no reason why we can't expect to make a profit in down markets as well as in up markets. The turning points can get messy, but the potential benefits out way in my experience.
Investment thinking of old usually thinks of profiting in up markets and holding its breath by switching to defensive stocks (and they say they are not traders!)in down markets, hoping not to go down as much as the market. This approach shows a lack of ability to adopt to the new tools we have been given, namely, inverse etf's. What better defensive tool could you have? These etf's even allow you to go on the offense in a down market.
Hedging would be easier if you were to invest only in indexes with comparable inverse etf's. But then you might as well go to cash at decision points; unless, of course, you plan on profiting in the down market.
But for strictly hedging a portfolio of diverse stocks, I have found you can do pretty well with an inverse etf, like SDS. If you calibrate it right, you may find you'll take a loss some days and a gain on others.
In one account I have a quite diverse stock portfolio and have managed to be plus or minus about 2% YTD with hardly any change in the amount of SDS. (However, depending on the emphasis in the portfolio, there are other inverse etf's that may be a better fit that SDS.) But even if not calibrated just right using this approach, you aren't going to take the 10 to 30% hits a lot of people are currently taking.
If the market goes down 30% and your portfolio only goes down 20%, should anybody settle for that, if there is a better way?
Jim, I prefer using the inverse etf's to hedge because it can be done with a single trade. If you have a large portfolio of stocks, it's not practical to trade them all each time you feel it's important to protect yourself. For one thing there is the cost of these trades. But more important, it's very hard for people to sell stocks in which they have invested some of their ego into their selection, especially if they have to acknowledge a loss. They are not likely to make choices quickly enough to be effective, given these considerations.
Wow!!! One of the better comment threads I've seen here in a while. I must say, I find myself leaning towards Trader Dick's position (i.e. "the best defense is a good offense", so to speak).
The only other double inverse ETF I follow is SKF, but the volatilty, frankly, scares the pants off of me. It makes SDS look like a stroll in the park, *s*. Unfortunately, I'm out of the office the bulk of the day, and imho, to use something like SKF profitably, one needs to be at the puter during market hours (including extended)
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