No post today just a cool picture from the Versus website. For any Tour de France fans the Versus site has a ton of great photos.
Wikinvest Wire
Saturday, August 01, 2009
The Big Picture for the Week of August 2, 2009
No post today just a cool picture from the Versus website. For any Tour de France fans the Versus site has a ton of great photos.
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17 comments:
Roger,
Your call for a rally that would be bigger than most expect was right on. Kudos.
You also thought we could have another whoosh down, though maybe not to the March lows.
Are you still thinking along those lines? If so, any further thoughts about when?
Along those lines, I'm thinking about when I might be comfortable enough to go all in. Eliminate the cash I have sitting on the sidelines.
Maybe 2010? Maybe after another possible "big drop?" It's one of those questions where I read and read and research and research but never really feel comfortable with an answer.
The problem of when to go long is much easier when analyzed in terms of tranches, in degrees of exposure; e.g., a proportional ladder approach to portfolio allocation (cf. http://tinyurl.com/m7uw4m). Permissible degrees could vary as age increases the ever present imperative for capital preservation but that should be a slow process based on anticipated liquidity and income needs rather than calendar age, never becoming a preponderance of the portfolio given the horrors inflation can inflict on fixed income.
It doesn't remove all discomfort of course; e.g., I certainly felt some last February when discipline demanded another 10% long, a feeling that approached nausea when it became clear in March that I was early (again); now I feel much better but discipline compensates for normal emotions while allowing attention to still be paid (and further analysis initiated) if/when feelings clue you that something just doesn't seem right.*
*Note: Psychobiological research strongly suggests that feelings are as cognitive as any other percept in (e.g., http://tinyurl.com/ly52ae) and while they may serve prejudice they may also bring into question previously unexamined beliefs, at least for those who are paying attention.
Roger,
I am hearing many money managers saying its time to move out of defensive stocks like PG, JNJ, and MCD for instance, and move into more discressionary (sp) stock with higher risk and higher pay out. What is your felling on this. I am thinking to hold through 09.
PS - Do you like the Phillies pick up of Lee and does that make them the favoriet in the NL?
Thanks,
Good Job,
bwjr
Article in WSJ today about leveraged and inverse ETFs facing increasing scrutiny by SEC. The article touches on the idea tht the funds were designed to meet their objectives on a daily basis but due to the effects of compounding investors may get a different result. So troubling is the behavior of these ETFs that many financial firms now have suspended or restricted their sales.
According to the article, "55% of leveraged ETFs and nearly 88% of inverse ETFs were "flipped," meaning they delivered negative returns when investors would normally expect positive returns, or vice versa."
How is this working out for you Roger? You frequently mention that you hold SDS which I believe is a inverse fund. Do you move in and out on a daily basis, or do you hold for longer periods?
"Hedges aren't supposed to become less trustworthy when you really need them," says Scott Burns, Morningstar's director of ETF analysis.
RW,
I admire that you can relate the amount of distress you felt rather than telling everyone how smart you were. I too was following my plan, sticking to my allocation, and reinvesting earnings in equities.
I am interested in hearing more of your views the division between fixed income and equities in the overall portfolio allocation. Agree about the concern of inflation, but also the need for capital preservation. How do you approach striking a balance?
You get Victor Martinez and the poor Tribe gets.....well, not much.
Congratulations on a great acquisition.
T
In articles critical of leveraged, inverse ETF's I have noticed that only smaller, less liquid funds are offered as specific examples of the 'compounding problem' and, if my own experience is any guide, I have some guesses why: 1) Indexes of highly liquid assets trading in large volumes are much easier to track; 2) it is unlikely even a very large fund could have an impact on such an index's behavior; 3) funds with large volumes seem to track much better generally anyway, 4) some firms just seem to do a better job of execution, and 5) the absence of large, stable inverse funds presented as counterfactuals to the putative problem funds suggests the person writing the article is more interested in their argument than the problem.
Bottom line I have never had a significant 'compounding' or tracking problem using SDS, even when I held for weeks at a time, and I have never seen an article that analyzed it comparatively in exploring the problem of reset frequency and tracking fidelity. YMMD
Anon 11:40, honesty about emotion is easier when I'm making money [lol]. I will trade bonds just like anything else when the environment is right but their role in the capital preservation or 'fixed income' picture is primarily to provide liquidity and cash flow for known expenses, usually in the fairly near future (1-5 years out, further if that can be reasonably defined). The rest of the fixed income picture is normally addressed with preferred, dividends, buy-write, REITs, MLP's, rentals (if you're up to handling it as a business) and other equity-like assets. All of good quality but conceptually longer in duration.
Annual rebalancing may convert some equity sources to debt but it's all a function of duration and anticipated future cash needs; e.g., if I know the need then I will want an asset with a face value and maturity that matches it. I do not use bond funds for this because they never mature (their assets turnover) and duration may vary; some bond funds are well worth owning for other reasons but should be treated the same as equity in the context of an income portfolio. That's the way I handle it anyway, in a nutshell at least. FWIW
RW,
Same guy here again.
How do you trade bonds without getting killed by markups and general lack of transparency in the bond market (except treasuries of course)? I like Vanguard Admiral tax-exempt bond funds because it is the closest thing to free I can find with an expense ratio of .12%.
I have wondered about the fact a bond fund never matures, but there have been several compelling arguements that seems to indicate it doesn't really matter. The importance, as you say, is the duration. For me, my portfolio needs to last in perpetuity so my concern is deflation vs. inflation. Intermediate seems to be a happy medium since the future is unknowable. Mixing short/intermediate/long term can fine tune the duration.
For me, a fund makes more sense because of 1) the costs involved and the potential to be taken advantage of, 2) i am a DIY investor and this is something my wife who dislikes investing can understand and continue if I am incapacitated, 3) the expertise and time required to evaluate the quality of the bond and its issuer is beyond my abilities and resources and 4) reluctance to get involved with and rely on a professional who in the long term adds little to no value over a fund or may not stay in the business as long I need him to.
Thoughts?
I'll post about what i think is happening in the markets tomorrow.
as far as SDS, look at a chart of varying intervals, what do you see? based on what you see how concerned would you be about a small weight destroying you in an up market?
if the stock market fell 10% this week i would feel quite confident it would go up a lot.
The Indians have clearly broken up the team Cliff Lee and Victor Martinez, wow. Lee did quite well his first time out. As for Martinez, adding in a 30 year old guy who wants to catch would seem to create an interesting dynamic for the rest of the season. Then what about Adam Laroche where does he fit in? Did I say Laroche? I meant Casey Kochman (spelling?). If Lowell can't play, ok Youk to third, that's easy. who catches, DH's and plays first? I count Varitek, Big Papi, Martinez and Kochman there so who sits? What if Lowell can play? then five guys for three spots.
Roger,
Isn't the whole point of the SEC's investigation is that the chart is misleading? Isn't the chart a representation of SDS on a daily basis whereas someone who holds it for several weeks or more may end up with totally different result?
I checked Google charts, SDS is almost the mirror image of the SP500 as one would expect, but SEC says results for >1 day can be significantly different.
I guess I'm gonna have to come down with the regulators and firms who have suspended trading on this one.
yes they can be different.
if in 2 months the market goes up 5% and SDS does down 12% then what is the horrible consequence? the issue then becomes proper sizing in the portfolio which then becomes about behavior not the product?
people are more likely to misuse options for hedging (IMO).
clearly some of the narrow products have done much "worse" than the broad funds but regulating the product seems crazy to me. this entire story has hopefully created enough awareness of the potential pitfalls and some idea of how not to use these thus obviating the need to regulate or otherwise restrict them.
"if in 2 months the market goes up 5% and SDS does down 12% then what is the horrible consequence?"
I dunno. Like you say, I guess it all depends on the ratio of SDS to long positions. Sounds like you have a good handle on things.
thanks, the bigger thing is what people do with the product. many folks buy way more than they should and that becomes the problem
Amen to that Roger: Position size matters, always. I would be more amused at how the definition of "suitability" becomes more conservative when wirehouses feel their royal prerogatives questioned or regulatory heat gets turned up if it did not otherwise constrain my ability to improve hedging strategies in retirement accounts.
Anon 11:40/2:27 agree Vanguard bond funds are excellent: I use them myself and would recommend them to just about anyone. In terms of individual bonds I use treasuries most and corporates hardly ever - too many potential pitfalls and ways to get taken for a ride as you point out - but agency and municipal bonds (general obligation in particular) are not too tough and worth exploring in cases where you can be fairly specific about cash needed within a particular time frame.
The virtue of a bond ladder (or ladders) is that you can make some 'rungs' thicker or thinner as needed, saving cash for other purposes in the latter case, but 'flexible income' funds can do some of this too and if aggregate cash flow from all sources is sufficient and there is a concern that survivors could become befuddled by more sophisticated stratagems then I would agree that discretion is probably the better part of valor; i.e., KISS.
JMO
Roger,
off to vacation. So I have liquidated some positions that in Europe on friday's opening gaped up. I still have some US positions that like to get off. So now I am becoming ever so liquid. I feel that from here we may have another 10% then off to what you predicted another down draft. However my numbers are still pointing up. But some stuff are getting so positive and there is talk in the street that now is the time to take on more risk. Well I am taking less of a risk.
Best to the summer all. Off to the beach.
Jeff from Milan Italy
The market generally doesn't have a memory, or so I am lead to believe. But if the market is made up of traders, managers etc then, surely, there is (at the least) some inertia?
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