Last week I disclosed selling China Mobile (CHL) leaving us with about 0.65% via themed ETFs. I don't plan to be away as long as I was starting in Q2 2007 but for now the ETF exposure is it.
The chart makes a critical point about what to expect when investing in a country or theme. Whether you are on board with long term merits of investing in China or favor some other country or theme it will not always be right for the shorter term.China is no less valid today than it was on January 1st. All of the various risk factors that are written about today have been around for months. Really big, long term concepts don't change week to week very often if ever.
Obviously I think occasional tactical tweaks are appropriate but for anyone not comfortable with that sort of thing it is important to realize that the fundamentals of a big macro theme are not washed away because that theme lags other markets for a while.
From 30,000 feet if you own China you believe it will become increasingly more important in the global economy and you expect that to be a tailwind for stocks. That type of thesis could easily be a ten year concept and in any lengthy period of time even the right theme will have periods where it struggles. If you take the time to look at the countries I write most about like Brazil, Norway, Chile, Australia and so on you will see that most of them clocked the S&P 500 in the last decade but there were plenty of short time periods where the lagged meaningfully.
What I think happens, in the context of people not wanting to make tactical trades around a theme, is that people second guess themselves when a theme they favor does struggle for a bit. After two or three months of lagging it is easy to think something is wrong with the analysis, you lose patience and pull the trigger.
I think back to that nugget from Montier from last week about the long term being a huge advantage that investors have over traders.
Not to contradict myself too much but it has to be said, occasionally though we all will end up being wrong about a theme or country at some point or we may be right but then a theme plays itself out and no longer is a hold. So investing is not easy apparently and it comes down to how well you understand the theme in question. No matter how well you understand something you can always understand it better and through ongoing monitoring you can hopefully have a sense for when something really has changed and when it is just a market thing.
On a very positive note Versus is back on Directv which means I will not have to go to a neighbor's house everyday in the month of July.
8 comments:
Roger (or anyone) - Do you know when the expense ratio of ETFs are deducted? If I put on a day trade and I am paying any fees outside of my broker transaction charge? I think fees might be settled up at the close of the day, but I can't seem to find this info anywhere. If anyone knows how it works I would appreciate it. Thanks!
The return of versus is the best part of your post :)
You have not explained yourself well other than for me to question are your tweaks accurate or are you being fooled by randomness. Another bad point is you are increasing taxes for the portfolio.
You continually point out to me my strategies require me to be right. You need to be right about getting in and out of these sectors or you will lag.
I am not so sure if selling laggards makes as much sense as rebalancing to increase the laggards if you do not believe the theme has changed. Just difficult to agree with you with such a generalized explanation.
you say i am increasing taxes by selling a laggard and then you talk about rebalancing more into laggards. where would the more come from? the winners? you are increasing taxes. I disclosed selling CHL at a loss for most clients.
my priority is owning the best proxies going forward not the taxes. in an actively managed portfolio some thing will turn out to be correct and some incorrect.
you are correct my comment about taxes was not handled evenly in this mornings fog.
I still think some clients will be concerned about taxes.
You have not explained yourself well other than for me to question are your tweaks accurate or are you being fooled by randomness.
The problem here is this is impossible to "prove" with the level of statistical robustness an extreme skeptic would require.
For example, in my benchmark account inception of April 2004 I'm up 30% cumulatively which is obviously well in excess of the S&P over that time frame. That is the cumulative result of multiple decisions to shift back and forth between varying levels of equity versus cash exposure, sector and asset class overweights and underweights, and individual stock and mutual fund manager selection (such as Berkshire and Fairholme).
At the end of the day maybe 15-20 big decisions over a 6 year time frame. Was I accurate because my forward-looking analysis and valuation work was correct, or just plain lucky. I'm confident enough of the answer myself, but I couldn't prove it to an extreme skeptic.
Anon 5:26am:
expenses for ETFs (and mutual funds) are taken out in very small increments each night. There are usually 252 trading days in a year -- so a typical ETF would see a small increase in net asset value at the rate of 1/252nd per night (when NAV is calculated). thus, an intraday round-trip trade would not pay anything to the ETF provider.
meant to say DECREASE -- not increase of course.
Mike C,
I do not view myself as an extreme skeptic. Roger seemed to essentially say one area was lagging so I got out and I'll do it again if need be. I usually find Rogers reasoning and explanations a lot better than that.
I am not saying he did not have better reasons. I am saying he did not explain them well and switching to a momentum basis theme will not work for many investors.
Post a Comment