TO SELL OR NOT?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor.

Postby deaddog » 21 Nov 2008 19:29

Norbert Schlenker wrote: [You're presuming that you can identify and profit from a trend. I'm skeptical.


Isn't that what you are doing albeit longer term. Are you not assuming that the market will trend upwards over the long term.



Sure, but here's the thing. I could have paid $25k for it in July and now I can have it for $15k. Think carefully now. Given a choice of buying in July or November, which would make me better off in ten years? You seem to believe that the "trend" will let you buy it for $10k in February. I think it's just as likely it will be $20k then.


I think I'm better off in 10 years to have paid the lesser amount. All things being equal in 10 years the price of the car will be the same regardless of what price I paid this year. So seeing that the trend is down I wait until the 08s come on the scene and pay less.


I tell them it's not going to zero and, if it's not going to zero, buying it for half off means they're getting a bargain.


So every thing is 1/2 off now. And it will stay above zero. What makes you think that it will be worth more in 10 years.

If it all goes to zero, even you will be in trouble. You just don't realize it yet.


Ah but I do . I also have beans and bullets.

So is that the extent of your financial plan? Buy and hold a basket of diversified assets.

To me a plan consists of where I want to go. How am I going to get there? How do I know I’m getting there and what am I going to do if the plan doesn’t work.

Every one says don’t panic, well it’s a lot easier not to panic if you have run the disaster scenario and know what you are going to do when things don’t go the way you planned.

The sooner you realize the plan isn't going your way the better. Step to the sidelines and come up with a different plan. It's way easier to see whats going on when your not rationalizing a position thats going against you. It's a time out to regroup. If the market goes up without you , so be it. You can always get back in if it's part of your new plan.

Is there a point in your plan where you throw in the towel? Or do you reach a point where it’s too late.
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Postby DanH » 21 Nov 2008 20:00

mudLark wrote:Danielle Park believes it is quite possible the TSX may fall through 5678 before this cyclical bear phase ends. If she's correct, and she often is, selling today could save an investor a potential 25% loss. That's 25% lost going down, and a 33% gain needed to recover to today's level.


I don't know her but I hadn't heard her name before the last few years. If she is, as you say, "often right", what other trends did she correctly predict? Did she predict other crashes?

I wrote extensively about the danger of tech stock valuations (as did many others) and got lots of people out of the stuff before they cratered - which they did. I (and others) warned about payout cuts on a number of high payout products - which came to fruition. I wrote about the crazy valuations of certain stocks at the beginning of this June and had previously warned (as did others) about the frothiness in commodity stocks. Seems that was spot on also. I wrote an article discouraging advisors from using hedged product a year ago when the dollar sat year 1.07 - 1.10. That proved to be right too. But so what?

I've probably made at least as many wrong calls - not the least of which was failing to see what would happen to the non-commodity segments of the market. So, does being right "often" mean that person is ALWAYS right or even right most of the time? No.
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Postby deaddog » 21 Nov 2008 20:30

DanH wrote:

I wrote extensively about the danger of tech stock valuations (as did many others) and got lots of people out of the stuff before they cratered - which they did. I (and others) warned about payout cuts on a number of high payout products - which came to fruition. I wrote about the crazy valuations of certain stocks at the beginning of this June and had previously warned (as did others) about the frothiness in commodity stocks. Seems that was spot on also. I wrote an article discouraging advisors from using hedged product a year ago when the dollar sat year 1.07 - 1.10. That proved to be right too. But so what?

I've probably made at least as many wrong calls - not the least of which was failing to see what would happen to the non-commodity segments of the market. So, does being right "often" mean that person is ALWAYS right or even right most of the time? No.


Did you act on any of your calls? (I see you got people out of tech, anything else)

Did you or your clients do anything to make or save any money off these calls. If so you're way ahead of the "Buy and Hold" crowd.

And on the wrong calls did you adjust your plan once you realized you were not correct in your assessment of the situation?

Guessing which way the market/economy is headed is fine but you have to act on your convictions.
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Postby BRIAN5000 » 21 Nov 2008 20:43

Generally, I would recommend something pretty conservative, probably 30-40% equities.


Oh now you tell us, LOL. Things were going along well at 50/50 and I had decided to maybe take it down to 60/40 just a tad to late. Hey I think I'm there now.

So deaddog whats your alternate plan? I'm going to get a beer or two.
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Postby parvus » 21 Nov 2008 21:12

deaddog wrote:Where will i go: Any of the warm sunny tax havens might be a good place. At least I have the cash to get there. 8)

Well, some of it. Don't forget the deemed disposition once you expatriate yourself. :wink:
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Postby leonk » 22 Nov 2008 09:07

Norbert and others,

thank you for the voice of sanity in the chaos.
Fortunately, I am years from retirement and didn't have (don't have now for sure :-) )
large stock portfolio. The only thing I worry about now is my job.
I need to re-check my current allocation and decide how to invest the cash
I have.
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Postby DanH » 22 Nov 2008 09:16

deaddog wrote:Did you act on any of your calls? (I see you got people out of tech, anything else)


Yes, but the thing is I wasn't personally, nor did I have clients heavily invested in commodities or currency hedged funds to begin with. So, the damage of a rising loonie was done to foreign holdings. Gains were missed while commodity stocks soared. And I was okay with that - and clients were okay with that - because it didn't make much sense to me.

Did you or your clients do anything to make or save any money off these calls. If so you're way ahead of the "Buy and Hold" crowd.


In a sense, what I did was very much buy and hold. I didn't buy into commodities much on the way up. But more importantly, I resisted the urge (of missing out on gains and of clients asking...'shouldn't I have a piece of that action') to jump on the badwagon when it surely would have been too late.

When I was told my asset mix assessments were wimpy, I stood firm insisting that bonds were a necessary component even though they'd looked awful compared to their stocks.

So mostly it wasn't about making changes (except where portfolios were clearly a mess...like many of the tech portfolios I saw in 1999/2000) as it was resisting the urge to dump whatever I was doing to jump on the bandwagon of the day. But that, I contend, is equally important as it can be a major detractor from investor returns.

And on the wrong calls did you adjust your plan once you realized you were not correct in your assessment of the situation?


I'm afraid I can't know this for sure until it's too late to do anything about it. But again, I don't make wholesale shifts in portfolio allocation because my value isn't in my forecasting ability.

Besides, the point of my post was not to pat myself on the back for taking certain stands. It was to ask two questions of mudlark.

1. mudlark stated that Danielle Park has often been right in her macro calls. I asked: what other calls did she make?

2. I also challenged that even if somebody is "often right" does that necessarily mean that they are right most of the time and does it mean that the follow up call to a great call will be right? I answered this one myself as "no" but am interested in mudlark's response.
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Postby mudLark » 22 Nov 2008 11:08

DanH wrote:1. mudlark stated that Danielle Park has often been right in her macro calls. I asked: what other calls did she make?

For some, it seems, there is a season, and Danielle Park appears to be having her 15 minutes of fame (well earned IMO) during this one. She correctly presaged the credit crisis and has been sagely recommending that investors exit stock markets for more than a year. She also eats her own cooking.

At this moment in time her observations seem to resonate well with the facts; her view of current situation certainly does with mine...
Danielle Park wrote:For about a year, we have believed that the US is in a recession. It started with housing and the financial sector and then moved to manufacturing and the auto industry. We know that the contagion continues to spread and that even the previously perky service sector is now in outright contraction. We are clearly still in the early stages of this recession which could last for another year, maybe more. I have long observed that based on anaemic wage and job growth, we really should have experienced a two year recession in 2001 and 2002. Had it not been for the plentiful supply of cheap credit and Home Equity Withdrawals that prompted consumption, we would have had our two year recession 6 years ago. In a sense then, the carnage now, is really just that same recession delayed and magnified.

Most of her opinions flow from her book "Juggling Dynamite", which is a reasoned and informative condemnation of the wealth managment industry in general, and the great "buy and hope" sting in particular.

DanH wrote:2. I also challenged that even if somebody is "often right" does that necessarily mean that they are right most of the time and does it mean that the follow up call to a great call will be right?

Yes, until it isn't.

IMO a good financial analyst or advisor does not make predictions (?calls?). They establish a premiss, reason possible outcomes, and assess probabilities associated with outcomes.

Good or "great calls" are not made by the speaker, they are made by the listener. IOW, no call is right until it has been synthesized and acted upon by the listener, and the expected outcomes have occurred. IMO what you call "calls" are simply obscure clues that most people miss.

What will probably transpire as Danielle Park's most profound macro "call" is her appeal to people to take responsibility for their own actions and money, and to stop listening to the obfuscating, self-serving garbage spouted by many of today's so-called financial advisors. NOI :wink:
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Postby Norbert Schlenker » 22 Nov 2008 11:21

deaddog wrote:
Norbert Schlenker wrote: [You're presuming that you can identify and profit from a trend. I'm skeptical.

Isn't that what you are doing albeit longer term. Are you not assuming that the market will trend upwards over the long term.

Yes. If I didn't believe this, I would consider emigration seriously.

I think I'm better off in 10 years to have paid the lesser amount. All things being equal in 10 years the price of the car will be the same regardless of what price I paid this year. So seeing that the trend is down I wait until the 08s come on the scene and pay less.

Again, you are confident that you can see the trend. What makes you believe that? There's a lot of noise in markets. How certain are you that you're seeing a signal?

So every thing is 1/2 off now. And it will stay above zero. What makes you think that it will be worth more in 10 years.

That's a good question. I'm not sure that it will be. I'm not sure that anything will be "worth more" in ten years, although we should probably define what "worth more" actually means.

If it all goes to zero, even you will be in trouble. You just don't realize it yet.

Ah but I do . I also have beans and bullets.

Me too. And I have five acres to grow more beans on if worse comes to worst. You?

So is that the extent of your financial plan? Buy and hold a basket of diversified assets.

To a first approximation, yes.

To me a plan consists of where I want to go. How am I going to get there? How do I know I’m getting there and what am I going to do if the plan doesn’t work.

Where are you going and what will you do when 30 week moving averages don't work?

It's way easier to see whats going on when your not rationalizing a position thats going against you. It's a time out to regroup. If the market goes up without you , so be it. You can always get back in if it's part of your new plan.

Is this cost free, either financially or psychologically?

Is there a point in your plan where you throw in the towel? Or do you reach a point where it’s too late.

Of course it's possible to wait until it's too late, in life and in investing. Things change. We adapt. Convince me that I'm a dinosaur, the asteroid has struck, and moving averages will keep the mammals at bay. I invite you to start a new thread. Propose a solution that would have kept investors away from this year's carnage. Let's see how it would have helped five or ten or fifty years ago. Let's discuss whether it will help next year.

leonk wrote:thank you for the voice of sanity in the chaos.

Let me caution you. Bubbalouie may be right.
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Postby DanH » 22 Nov 2008 12:04

mudLark wrote:IMO a good financial analyst or advisor does not make predictions (?calls?). They establish a premiss, reason possible outcomes, and assess probabilities associated with outcomes.


That's what I'm referring to. Name it a "call", a "prediction" or whatever. It's an opinion backed by some reasoning and justification. Taking a firm stand on something. When you're advising others, you need to have an opinion. Your opinion could well be I don't do shifts of any sort so I will simply stick to a long term mix because you have a long time horizon. That's a valid opinion. Otherwise, everything else is a prediction of some sort so let's just call it what it is.

And I don't want to take anything away from Danielle Park. She not only make a bold call but she, I think, implemented this advice for her clients. And it's worth nothing that it's a lot easier to make a bunch of predictions. It's another to put real money to work based on the same. She deserves credit for both, particularly because her opinion was not, and is not, popular.

My only challenge was to be careful about assuming that even though she made this fantastic call - as did a few others - you should not assume that she's going to get the next call right or the one after that. The name Elaine Garzarelli comes to mind.

She got lots of attention for calling the '87 crash and going to cash to avoid it. Her website, which I visited recently, said that she called all sorts of other pull backs but I didn't hear of any of them (maybe I missed them or maybe she was quiet about it...who knows). Point being...lots of people get known for calling a single big event and never repeat it. So, be careful, that's all.
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Postby Clock Watcher » 22 Nov 2008 14:54

DanH wrote:And it's worth nothing that it's a lot easier to make a bunch of predictions. It's another to put real money to work based on the same.


+1

DanH wrote:Point being...lots of people get known for calling a single big event and never repeat it. So, be careful, that's all.


+1.

In my research thus far, there are investors/advisors who use market timing, and are consistently successful, over many complete market cycles, and in some cases for their entire adult investing lifes. I am continuing my research on alternate processes to buy-and-hold, with market timing being one of them. I am confident that such approaches can be successful and practical. The only problem is if everyone does it (such as buying and holding index funds), then it stops working. If everyone is rich, then no one is rich.
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Postby investor99 » 22 Nov 2008 14:59

The only problem is if everyone does it (such as buying and holding index funds), then it stops working.


Don't worry, everyone is not doing it and they never will. Negative 45% year to date return on the S&P 500 proves this. Human nature also lends itself to the desire for instant gratification, greed, fear, panic, and hasty action, which will always be so.
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Postby deaddog » 22 Nov 2008 16:23

Norbert Schlenker wrote: Me too. And I have five acres to grow more beans on if worse comes to worst. You?


Access to the family farm in SE BC. Gravity fed water system. Veggies , fruit tres,and a few fowl.Venison on the hoof. All the skills to get it from the hoof to the table.




Where are you going and what will you do when 30 week moving averages don't work?


I'm a slow learner but not that slow. I'll try and find something that does work.

Is this cost free, either financially or psychologically?


Financially it has it's costs when you get whipsawed. Psychologically I sleep better.

Of course it's possible to wait until it's too late, in life and in investing. Things change. We adapt. Convince me that I'm a dinosaur, the asteroid has struck, and moving averages will keep the mammals at bay. I invite you to start a new thread. Propose a solution that would have kept investors away from this year's carnage. Let's see how it would have helped five or ten or fifty years ago. Let's discuss whether it will help next year.


Lets do that Monday. Busy for the most part this weekend.
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Postby blonde » 22 Nov 2008 17:00

If everyone is rich, then no one is rich.


The Rich will always get 'Richer', and the poor...WHO Cares!!! (NATURAL LAW).

As per designers intention... Systems are designed that the 'Haves' are entitled to 'Have' anything and everything, with a bit more, and the 'haves-nots' are on 'eir own...

er, ah,...SK tried crankin-up the organ and make the monkey dance again!
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Postby mudLark » 25 Nov 2008 16:57

Norbert Schlenker wrote:Unless the market is going to zero, a lower price today means very little. Few investors have a time horizon - perhaps I should say "should have a time horizon" - of today or tomorrow or next week. Indeed, if an asset will not go to zero in the future, a lower price today is a benefit, not a drawback.

If it is going to zero, then sure you should get out. If you think the economy is going to zero - and like it or not, the market is related to the economy - then you should get out. Physically. Where are you planning to go?
Norbert's Hypothesis (above) has been on my mind for the past three days. ISTM his logic is unshakeable.

ISTM Norbert's point is: if you invest in the overall market you must have faith that this market (which is ultimately faith in the overall economy) is not going to zero. If you don't invest in a securities market (e.g. you invest only in cash) you must have faith that the economy is not going to zero.

Therefore, I(now)STM that selling securities and investing in cash is a bet on the same horse ... a bet placed at lower odds.
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Postby deaddog » 25 Nov 2008 20:46

mudLark wrote: [
ISTM Norbert's point is: if you invest in the overall market you must have faith that this market (which is ultimately faith in the overall economy) is not going to zero. If you don't invest in a securities market (e.g. you invest only in cash) you must have faith that the economy is not going to zero.

Therefore, I(now)STM that selling securities and investing in cash is a bet on the same horse ... a bet placed at lower odds.


I agree that the market is not going to zero. But what is to say it won't trade in a range for the next 10 years.

I'm sure that someone will correct me if the dates are wrong but the DOW index broke 1000 in the late 60's early 70's and eight years later was trading at 800. Money in the bank looked pretty good at that time.
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Postby uhoh » 25 Nov 2008 20:52

deaddog wrote:I agree that the market is not going to zero. But what is to say it won't trade in a range for the next 10 years.


so then, no hurry to sell anything now - why not wait and see how it all plays out?
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Postby deaddog » 25 Nov 2008 22:37

uhoh wrote:
so then, no hurry to sell anything now - why not wait and see how it all plays out?


I'm completely out. If you rode it down you might have a chance to get out at a higher level before it drops again.

You have to define your risk at today’s prices. I have no idea where the market is going or when. It's quite possible that it could run up as fast as it dropped. Or not.

My strategy allows me to react to what the market does, not hoping that the market will react to what I do. When I get in I'll have an exit plan for when it goes up and as well as for when it goes down.
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Postby Mike Schimek » 26 Nov 2008 01:32

I'm completely out. If you rode it down you might have a chance to get out at a higher level before it drops again.

You have to define your risk at today’s prices. I have no idea where the market is going or when. It's quite possible that it could run up as fast as it dropped. Or not.


Who cares about what the market is doing. If you buy good securities of good companies at a good price, and the market doesn't reflect that value, just sit around and wait. If you chose your securities right eventually it will pay off (IMO), particularly at these prices.

I'm 100% equities and any money I have coming in right now goes straight into more equities. I'm not leveraged like I used to be (pre May of this year) and won't re-leverage ever again, but all my bucks are going into equities.
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Postby kcowan » 26 Nov 2008 09:46

Norbert's Axiom reminds me of the argument that was used in high school. You are talking with your date and get around to discussing motherhood and if your date agrees that it is a good thing then we start discussing the benefits of starting now. :lol:

Timing is everything!

Of course, we also have to be on the lookout for the big blow to logical thinking: rationalization.
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Postby mudLark » 26 Nov 2008 10:45

deaddog wrote:My strategy allows me to react to what the market does...
Is that a good thing given the market is only rational over the long-term, in the short term it's manic; especially so now?
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Postby Nemo2 » 26 Nov 2008 11:08

mudLark wrote:Is that a good thing given the market is only rational over the long-term, in the short term it's manic; especially so now?
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Postby desk4811 » 26 Nov 2008 11:15

All this talk about about Canada throwing around billions in deficits sounds good for people who own the bank stocks, because the money will filter into their coffers in due time. Probably 2-3 years down the road. Then it will be about time for some well-deserved dividend bonus money to be handed out.
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Postby deaddog » 26 Nov 2008 12:33

Mike Schimek wrote:
Who cares about what the market is doing.


My guess would be just about every body that bought stock in the last couple of years.

If you buy good securities of good companies at a good price, and the market doesn't reflect that value, just sit around and wait. If you chose your securities right eventually it will pay off (IMO), particularly at these prices.


Sounds good in theory, just like Warren Buffet. Problem is that Warren has the where with all to actually have his own people look at the books and appraise the business. How do we as investors determine what are the good companies? Even good companies suffer in bad times.

One other problem that occurs when companies become too good a value is that other companies take them over. If it happens to be an all cash deal, we small investors have no choice but to take the cash. you can end up selling at a loss whether you want to or not.


I'm 100% equities and any money I have coming in right now goes straight into more equities. I'm not leveraged like I used to be (pre May of this year) and won't re-leverage ever again, but all my bucks are going into equities.


Nothing wrong with that. I'm curious as to when you plan to sell?
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Postby deaddog » 26 Nov 2008 12:42

mudLark wrote:
deaddog wrote:My strategy allows me to react to what the market does...
Is that a good thing given the market is only rational over the long-term, in the short term it's manic; especially so now?


I think it's a reasonable thing to do. If the market wants to go up I buy, if it wants to go down I sell. Never out at the top or in at the bottom, but if I can take a little slice out of the middle I'm happy.

Do I miss the odd move? Yes. Do I get whipsawed from time to time?Yes. Do I get caught in the crashes. No.

PS: I don't think the market is ever rational.
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