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Old 12-20-2001, 02:11 PM
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Default REALITY:YOU THINK YOU\'RE DECIDING (self weighting)



The problem with all this buy-and-hold claptrap is that you think you are deciding when to buy and sell, or even that you are deciding NOT to decide when to buy and sell. But in truth, SOMETHING must be deciding when you will buy and sell, and it may be the worst possible thing. You are just deciding what mechanism you wish to use to time the market. But you are still timing the market, even if you "buy and hold!"


I agree that, if you had bought at the lowest price over the last 100 years, and held through today, you would have made money.


And I also would not argue that, if you picked two random numbers between 1 and 100, and called the lower one the year you bought, and the higher one the year you sold, chances are you would have made money.


But if you followed the rule of buying as soon as you had money, then holding, and selling when you need money - if we refer to the average person as "you" - you would lose money every time!


You cannot roll some dice and buy, if you do not have the money. And when you DO have the money to invest is likely to be the same time as everyone else has the money to invest. I never heard of anybody rolling dice to decide to keep some of their portfolio in cash for an indefinite, random, period! And I never heard of anybody who needed money not withdrawing it because a set of dice told him to wait!


In a 1997 San Francsico Examiner article, I compared the bull market to Woodstock. Why were there so many people piling in and out of the same, single place in Woodstock New York on that random day in, what, 1968? Did they all roll dice? No, it was because of the Second World War, and the resulting demographics of the Baby-Boom generation.


30-year olds are poor and unproductive, and have immediate needs! The market started to lag the moment the Baby-Boomers entered the workforce, because they were net borrowers, against their future earnings!


But you don't even need to be the same age as someone, or work at the same company as someone, or even live in the same country as someone, to have money to invest, to learn about mutual funds, and to need money, at the same time.


In other words, it is your very attempt to shirk the responsibility of making a decison that causes you to make the decison for you! You end up having your decison made by demographic and economic trends, and you end up doing the bulk of your buying at the absolute high! Then you need your money - or sell for whatever reason or lesson or cultural trend - at the same time as everyone else, and sell at the absolute low of the sub-period!


Earnings have gone up, and the availbility of excess capital to invest has increased over time, causing stock prices to rise. But the smaller trend, within your working lifetime, is quite often enough to overcome this faint background trend, is quite often a counter-trend! It doesn't matter how much the market rises, if you harness your very correlation with the rest of the workforce to time the market, you will have picked a stupid, idiotic, moronic decison structure.


And to think people are so dumb as to fancy that they aren't timing the market when they buy and hold!


Buffet is the anti-Boomer, and he was investing when it was unpopular, you dolts! In reality, you can go the whole way back to The Reconstruction, and you still will not have a sufficient statistical sample to back up buy-and-hold!


Tell me, Russ, when did you start investing? Was it 1972, 1982, 1932? Or was it 1999? Actually, it would be fun to hear about the contraption you are using to time the market! Are you buying more as the market rises, reinvesting dividends, goign on margin? Are you buying as wages rise nationwide? Are you buying as interst rates drop and credit-card debt falls? Are you selling as credit-card debt rises? What broad economic trends have you chosen to use as inputs into your super-complex timing strategy?


All these things affect your timing, in terms of the timing the money becomes available to you to invest! Because, it sounds to me, like you're using a more complex and esoteric timing strategy than the most ambitious economist on Wall St. And the fact that you are not thinking, or are too dumb to think, doesn't make it not exist. It's there, and you're bobbing like a cork without knowing it.


leroy
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Old 12-20-2001, 03:18 PM
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Default Re: REALITY:YOU THINK YOU\'RE DECIDING (self weight



I accept in advance your thanks for my providing you with an ad hominem target for your rantings. Excellent trolling, by the way... Later, Russ.
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Old 12-20-2001, 03:54 PM
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Default okay, let\'s talk about your feelings :-)



I'm sorry Russ


I really am.


leroy


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Old 12-26-2001, 07:36 AM
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Default the currency effect



Understand that the only way your stock price can rise is if the producers and manufacturers of stock - the capitalists - manufacture just the right amount of stock or too little stock. It is always possible to manufacture too much of anything, causing the price to collapse.


And it may be this very indiscriminate purchasing of stock without regard to price - indexing - that delivers the false price signal.


In other words, look at it like a gigantic bid-ask spread, where the public buys at the venture-capitalist offer, and then sells at the leveraged-buyout bid. If you keep buying at the offer they'll just keep manufacturing more stock to sell you, they'll NEVER stop. By paying a hair more for stock than it costs them to make it, you cause the supply to become infinite.


I call this "the currency effect" because it is a problem that generally occurs with manufactured currency. The simplest example is, suppose people know they want to buy a dome house 10 years from now. There are no dome-house futures for delivery in 10 years, you can't today buy a dome house 10 years from now, it's just not the same thing, trust me.


So, instead, people buy gold, with the intention to sell the gold in 10 years and use the proceeds to buy their dome houses. Problem is, the price signal this sends is to manufacture gold. Since it looks like people want gold - and no speculator could possibly guess they want dome-homes - all the dome-home construction workers get laid off and go to work in gold mines, until gold is worthless.


That's what defines an inventor or a speculator, because there is no specific immediate price signal telling him to produce what he produces. There cannot be a price signal in products which have not yet been invented! Problem is, retirement investors buy too much stock - because there are no uninvented-pill futures - and all the eggheads out of college go to work starting new companies at the VC firms, not inventing new geriatric cures at the biotech firms.


There is, in fact, an indicator you can look at that my brother used to fiend all over when he ran a hedge fund. I forget how it was constructed - by the real freaky balance-sheet crunching types - but it basically measured the price of stocks compared to the costs of building the companies from scratch or by buying their parts. The ratio between these two numbers gives you the rate at which stock is being manufactured, and it is obscure enough to actually work.


No, it ain't in the Yahoo stock screener, but if you want to construct it yourself, you might want to start with all the recommended reading for the Level I examination towards the CFA designation (and probably Level II as well which deals with international accounting and reporting conventions). (Level III is mostly academic hogwash.)


So, anyway, as usual I forgot the point. I guess it was something like the only way your stock can hope to be worth peanuts a few years out, is if stocks are undervalued leading up to the period when you want to sell them, otherwise they'll swamp you with supply. Problem with buy-and-hold is that the capitalists will give you all you can carry, and then make some extra just in case.


Or something...


lurch



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