It's difficult to trade sucessfully

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Re: It's difficult to trade sucessfully

Postby Rickson9 » 12 Oct 2011 11:21

deaddog wrote:
Rickson9 wrote:It would appear that I have all the characteristics of a 'trader'?

I guess you could be considered a long term trend follower with no risk control.


True, I don't have price risk control, but I will sell if insider ownership and/or profit takes a significant dive. Those are my risk metrics.

So would your question of 'trading successfully' still apply considering my methodology of allocating capital?
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Re: It's difficult to trade sucessfully

Postby StuBee » 12 Oct 2011 11:37

deaddog wrote:Why would you invest in anything other than the market? Why not buy an index fund or ETF.


My CAGR is a 15 year CAGR. I believe that index funds and ETF's are quite a bit younger than that.
15% of my portfolio is in foreign equity: ETF's, MF's and JNJ, PG and General Dynamics (hoping to profit from WW3 :wink: )
35% of my portfolio is in FI: Cash, GIC's, Strips, a mortgage fund, XCB, CBO and a High yield bond fund
50% of my portfolio is (unevenly) spread over individual Canadian stocks (10). Here, I like the steadily increasing income stream which appears to be immune to the short-term(and even medium-term) shenanigans of the market. So, for my purposes, I think I am as "funded-up" as I can be.
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Re: It's difficult to trade sucessfully

Postby deaddog » 12 Oct 2011 11:44

StuBee wrote:
deaddog wrote:Why would you invest in anything other than the market? Why not buy an index fund or ETF.


My CAGR is a 15 year CAGR. I believe that index funds and ETF's are quite a bit younger than that.
15% of my portfolio is in foreign equity: ETF's, MF's and JNJ, PG and General Dynamics (hoping to profit from WW3 :wink: )
35% of my portfolio is in FI: Cash, GIC's, Strips, a mortgage fund, XCB, CBO and a High yield bond fund
50% of my portfolio is (unevenly) spread over individual Canadian stocks (10). Here, I like the steadily increasing income stream which appears to be immune to the short-term(and even medium-term) shenanigans of the market. So, for my purposes, I think I am as "funded-up" as I can be.


I don't think anything I say will change your way of doing things.
The question you have to ask yourself is if you are not outperforming the market why aren't you buying the market?
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Re: It's difficult to trade sucessfully

Postby deaddog » 12 Oct 2011 11:53

Rickson9 wrote:True, I don't have price risk control, but I will sell if insider ownership and/or profit takes a significant dive. Those are my risk metrics.

So would your question of 'trading successfully' still apply considering my methodology of allocating capital?

You don't seem to have done that with your portfolio.
I'm not questioning your success. I respect that you have a definite plan and have the discipline to stick to it.
I just wouldn't consider you a trader.
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Re: It's difficult to trade sucessfully

Postby StuBee » 12 Oct 2011 13:29

deaddog wrote:I don't think anything I say will change your way of doing things.


On this point, I hope that you are wrong. However, you may be right... I will admit to the possibility that I may be too set in my ways...(They say that "an old dog cannot learn new tricks" but, I am not even old yet!!)

deaddog wrote:The question you have to ask yourself is if you are not outperforming the market why aren't you buying the market?


Because if I were to buy the market, I might underperform the market anyway. #1 Logically if you buy the market you cannot outperform the market. In the best (purely hypothetical scenario) you can match it. Therefore logic dictates that you will certainly underperform it. #2 To buy the market inevitably involves intermediary entities. They charge a fee which is how much? 50 to 100 bps? #3 Most of the intermediaries do not even match the market anyway.
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Re: It's difficult to trade sucessfully

Postby Shakespeare » 12 Oct 2011 13:35

To buy the market inevitably involves intermediary entities. They charge a fee which is how much? 50 to 100 bps?
You can get ETFs for a fraction of that, particularly in the US market.
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Re: It's difficult to trade sucessfully

Postby StuBee » 12 Oct 2011 13:52

Shakespeare wrote:
To buy the market inevitably involves intermediary entities. They charge a fee which is how much? 50 to 100 bps?
You can get ETFs for a fraction of that, particularly in the US market.


I am mostly in Canada and a quick running of a filter on the G&M website reveals that for equity ETF's the MER's start at 50 bps. In foreign equity, I am mostly invested in index funds anyway. For fixed income, I suspect that I am probably performing roughly equal to what I would get by investing through intermediaries: They get a better price for their securities but, they charge me a MER.
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Re: It's difficult to trade sucessfully

Postby Pickles » 12 Oct 2011 14:08

StuBee wrote:
Shakespeare wrote:
To buy the market inevitably involves intermediary entities. They charge a fee which is how much? 50 to 100 bps?
You can get ETFs for a fraction of that, particularly in the US market.


I am mostly in Canada and a quick running of a filter on the G&M website reveals that for equity ETF's the MER's start at 50 bps. In foreign equity, I am mostly invested in index funds anyway. For fixed income, I suspect that I am probably performing roughly equal to what I would get by investing through intermediaries: They get a better price for their securities but, they charge me a MER.


Hmmm. Ishares XIU charges only a MER of 0.17% (S&P /TSX60) XIC charges 0.27%
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Re: It's difficult to trade sucessfully

Postby newguy » 12 Oct 2011 14:23

Pickles wrote:
StuBee wrote:
Shakespeare wrote:You can get ETFs for a fraction of that, particularly in the US market.


I am mostly in Canada and a quick running of a filter on the G&M website reveals that for equity ETF's the MER's start at 50 bps. In foreign equity, I am mostly invested in index funds anyway. For fixed income, I suspect that I am probably performing roughly equal to what I would get by investing through intermediaries: They get a better price for their securities but, they charge me a MER.


Hmmm. Ishares XIU charges only a MER of 0.17% (S&P /TSX60) XIC charges 0.27%

0.07%

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Re: It's difficult to trade sucessfully

Postby Pickles » 12 Oct 2011 14:25

So Stubee, does Globeinvestor have the incorrect MER for these ETFs or do they just not list them?
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Re: It's difficult to trade sucessfully

Postby StuBee » 12 Oct 2011 15:16

Pickles wrote:So Stubee, does Globeinvestor have the incorrect MER for these ETFs or do they just not list them?


Globeinvestor has the correct MER's. They are exactly as you have written them. And, I have to get my eyes checked :shock:
I take back what I wrote in my most recent post on this thread. I was wrong. To be honest, I had forgotten. Forgotten perhaps because I am too set in my ways.

In my defense, the current MER on my Canadian equity portfolio is 0% and all of the income is dividend income (no ROC, CG or other income). Offsetting this is a total lack of diversification in my own portfolio (i.e. only 10 companies). OTOH, I have total control over the contents of my portfolio. Of course, this control allows me the opportunity to drive off the edge of a cliff into oblivion.

Now, you may be inclined to say: "Nothing will change his mind, why waste our time?". Indeed, it has been said before.

I will add one last thing which is quite problematic in my situation which I have mentioned before: 50% of my entire Canadian equity portfolio is in the form of non realized capital gains. The tax hit would be important. I am very content to be living off of the dividend cheques corresponding to that portion which would other wise be in government coffers. Of course, one can argue that you should not let the tax tail wag the investment dog.

So, at the end of the day, when everything is said and done, am I right in stubbornly owning individual stocks. Well, if I am wrong, I am not the only one.

StuBee

NB. I have calculated a CAGR for my entire portfolio and not for different asset allocations of it. It is quite possible that the Canadian equity parts "total return" compares quite well with the TSX. For me to find this out would take hundreds of hours sifting through about 300 financial account statements. I do not feel like doing this at this time.
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Re: It's difficult to trade sucessfully

Postby Sensei » 12 Oct 2011 17:18

Hi,

Why can't most investors (dare I say the large majority?) beat the market consistently? Very good question, but one which is irrelevant to me.

I'm not trying to beat the market, although I have on occasion such as in 2010. That is a matter of public record on FWR. I think trying to beat the market is why many investors don't beat it. I stopped trying to beat the market in 2008 or 2009. At that time, beating the market would have meant losing a minus double digit %. Buying the market ditto. Saying that you beat this or that index by 3% when the index lost 40% is cold comfort indeed.

Dividends, among other investments (bonds, preferreds) offer an alternative. Positive income regardless of what the market is doing. I equate it very much to owning a nice rental property. OK. The housing market tanks. You've still got the cash flow, so why would you sell the property up or down?????

Personally, I don't want to get to 65 only to have my retirement fund slashed by, say, 40% (as it was) without some kind of backstop. It is nice when a stock that I own goes up in price, but not essential to my strategy. At best, it is an indicator that the company is growing enough to support a dividend, or at worst, the company is not growing enough to support its dividend. Other than that, it means very little.

We dividend investors often get accused of chasing yield, but may we not also apply the same kind of logic to those chasing capital gains? The benefits and pitfalls are somewhat the same, except those who chase capital gains are subject to many more disappointments I believe.
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Re: It's difficult to trade sucessfully

Postby StuBee » 12 Oct 2011 18:01

When it comes to assessing my portfolio performance, there are three things that I look at. #1 How my CAGR compares to my long term objective (CPI plus 3.5%). #2 How my CAGR compares to my benchmark. #3 How my dividend growth rate compares to my long term objective (CPI plus 2%). I use 3 yr and 5 yr rolling yields. If in any given year I outperform on at least 2 of these metrics, I am content. In a sense, the benchmark is what I want but I only need my long term objective.

Therefore, in a manner of speaking, to beat the benchmark is secondary.

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Re: It's difficult to trade sucessfully

Postby Pickles » 12 Oct 2011 18:18

Stubee, like you, I have a portfolio of (mainly) Canadian stocks -- about 15 plus some prefs. I like tracking and pocketing the dividends, reading their quarterly press releases and thinking about the companies I "own". It just seems to give me more control than I'd had if I were an indexer. It's certainly more interesting. But, also like you, I don't think of myself as a trader, because I'm basically a buy and holder investor.

So I'm surprised to see you in this thread. I joined you because I had been looking up some ishare etfs today and wanted to pass on that info. Although I like my individual stocks, I'm considering buying , for trading purposes, some XIC or XIU for my "juicing" in my RRSP instead of buying individual bank and insurance company shares. First of all, they are cheaper, so are easier to buy with maturing small GICs or interest payments on large GICs. Second, I avoid the risk of choosing "the wrong bank", Third, when I want to sell, I have only one commission to pay. Finally, given the market volatility these days, there will be ample opportunity for gamblingtrading.
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Re: It's difficult to trade sucessfully

Postby Lazy Ninja » 12 Oct 2011 20:07

Pickles wrote: Although I like my individual stocks, I'm considering buying , for trading purposes, some XIC or XIU for my "juicing" in my RRSP instead of buying individual bank and insurance company shares. First of all, they are cheaper, so are easier to buy with maturing small GICs or interest payments on large GICs. Second, I avoid the risk of choosing "the wrong bank", Third, when I want to sell, I have only one commission to pay. Finally, given the market volatility these days, there will be ample opportunity for gamblingtrading.


Do they yield enough to suit your purposes? XIC/XIU won't provide much extra 'juice' in terms of income alone. Have you considered a dividend ETF (more expensive, but higher yield)? BTW, I understand the rationale for the second and third reasons, but I don't think the first is particularly relevant. See this thread for a rather extreme example. The only difference in cost worth noting is the ongoing expense for the MER of the ETF's. Aside from that it won't really matter whether you buy 21 shares of RY, 59 shares of XIU or 54 shares of XIC.
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Re: It's difficult to trade sucessfully

Postby Lazy Ninja » 12 Oct 2011 20:16

Speaking of which, I must have read a few dozen times on this forum about the old rule of thumb to keep your transaction costs when buying under 1% (if you qualify for $10 trades, make the transaction at least $1000 etc.) Personally I like to lower the cost a little further for equity ETFs, and further still for bond ETFs to account for the MERs. My question is how did this 1% rule come to be generally accepted? Why not 1% round trip, or 92 or 106 beeps per trade? Why no mention of consideration of current interest rates regarding bond ETFs etc.?
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Re: It's difficult to trade sucessfully

Postby Pickles » 12 Oct 2011 21:41

Lazy Ninja wrote:Do they yield enough to suit your purposes? XIC/XIU won't provide much extra 'juice' in terms of income alone. Have you considered a dividend ETF (more expensive, but higher yield)? BTW, I understand the rationale for the second and third reasons, but I don't think the first is particularly relevant. See this thread for a rather extreme example. The only difference in cost worth noting is the ongoing expense for the MER of the ETF's. Aside from that it won't really matter whether you buy 21 shares of RY, 59 shares of XIU or 54 shares of XIC.
Good points, LN, especially the last. Indeed, I've been buying odd bits of stock with some of the GIC proceeds when I couldn't afford a whole lot.

The lower yield of the ETFs (including XDV and XFN) is the main reason I haven't yet bought ETFs for juicing. Another reason to buy ETFs rather than bank or insurance company shares as "juicers" is that I will never have to worry I will screw up harvesting a capital loss in my non-registered account by buying the same company a few days later in my RRSP.

Anyway, I haven't yet decided either way; I'm just considering it and that's why I happened to post in this thread (where I clearly don't belong, right, deaddog?).

Thanks for your observations.
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Re: It's difficult to trade sucessfully

Postby Lazy Ninja » 12 Oct 2011 22:06

Pickles wrote: I've been buying odd bits of stock with some of the GIC proceeds when I couldn't afford a whole lot.


I can't believe I didn't mention board lots in my post; that was my whole point! Thank you for understanding what I meant even though I stupidly provided an example that was merely comparing three odd lots :oops:

Edit to add: And now I realize I've directed you to a thread that you've already contributed to! I think my work here is done; I'll go away now....
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Re: It's difficult to trade sucessfully

Postby BRIAN5000 » 13 Oct 2011 08:58

Speaking of which, I must have read a few dozen times on this forum about the old rule of thumb to keep your transaction costs when buying under 1% (if you qualify for $10 trades, make the transaction at least $1000 etc.)


If everyone/some follow Scotia's lead in free ETF trades and the free ones work for what you want it might make it cheaper.
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Re: It's difficult to trade sucessfully

Postby deaddog » 13 Oct 2011 12:15


Taggart; thanks for the links, interesting reading.
Of course I’m looking for the glass to be half full.

Study #1 states the following reasons for underperformance:
Trading expenses (brokerage fees of 3% and the spread between bid and ask). I don’t think this applies today as deep discount brokers and decimalization have cut these cost significantly.

Over confidence: A good trading plan should overcome this. Or do I sound over confident? :wink:

Holding losers and selling winners. Again a good trading plan and the discipline to follow the plan should over come this reason.

Study #2: How can you argue that men are smarter than women? I know better. Women win hands down.

Study #3: On day trading; what I took away from this study was the fact that although 80% of day traders lost money, the ones that had substantial returns continued to have stellar returns in subsequent periods. This answers Ochhams question about whether the few who make money are the same people.

Study #4: The only answer to why given is “Investors often suffer from poor timing and poor planning” It would be interesting to know whether timing or planning was the biggest culprit. My guess would be that good planning should overcome poor timing.
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Re: It's difficult to trade sucessfully

Postby newguy » 13 Oct 2011 12:34

deaddog wrote:Study #1 states the following reasons for underperformance:
Trading expenses (brokerage fees of 3% and the spread between bid and ask). I don’t think this applies today as deep discount brokers and decimalization have cut these cost significantly.

Depends on style. If I'm scalping more than half my profits go to commissions, of course the spread can work for you as well.

This answers Ochhams question about whether the few who make money are the same people.

It's much easier to determine that if you look at daytraders in places like prop firms. With a few hundred trades per day it doesn't take long to make a decent sample. Of course they suffer from burnout and it's more like work than trading.

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Re: It's difficult to trade sucessfully

Postby deaddog » 13 Oct 2011 19:23

Shakespeare wrote:There's also Sharpe's The Arithmetic of Active Management, from which it follows that only a minority can make after-cost trading profits compared to the market as a whole.

The best way to measure a manager's performance is to compare his or her return with that of a comparable passive alternative. The latter -- often termed a "benchmark" or "normal portfolio" -- should be a feasible alternative identified in advance of the period over which performance is measured. Only when this type of measurement is in place can an active manager (or one who hires active managers) know whether he or she is in the minority of those who have beaten viable passive alternatives.


I tend to agree with the article. All investors are the market. On average managed funds will underperform passive because of trading cost. However there is a minority that outperforms the market. The question still remains, what are these managers doing to get these results?

The explanation for this seems to be simple enough. These managers aren’t doing the same thing as everybody else.
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Re: It's difficult to trade sucessfully

Postby deaddog » 13 Oct 2011 19:32

Shakespeare wrote:
find it difficult to trade cyclicals
To do so successfully requires forecasting the price of (say) oil successfully - twice.

Even the professionals can't do that reliably.

You don’t have to forecast the direction of either the commodity price or the stock price correctly 100% of the time. You have to be able to admit that you have forecast incorrectly and take your loss quickly.

Over 100 trades if you are only right 50% of the time but make $3 on each winner and only lose $1 on each loss you have a net gain. Trading is a probabilities game. You won’t win every time.
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Re: It's difficult to trade sucessfully

Postby OptsyEagle » 14 Oct 2011 07:42

kcowan wrote:I know a guy (friend of a friend) who spends about 5 hours a day trading. He uses professional tools to assist in decision-making and claims to make $1500 a day. I have not pursued him on his claims because I have no interest in another day job.


Most current daytraders are having this level of success right up until they go broke and don't daytrade anymore.
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Re: It's difficult to trade sucessfully

Postby kcowan » 14 Oct 2011 08:31

OptsyEagle wrote:
kcowan wrote:I know a guy (friend of a friend) who spends about 5 hours a day trading. He uses professional tools to assist in decision-making and claims to make $1500 a day. I have not pursued him on his claims because I have no interest in another day job.
Most current daytraders are having this level up success right up until they go broke and don't daytrade anymore.
Could you cite a source for this assertion?
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