Author Topic: Blog post: It's all about the timing... Or is it?  (Read 4829 times)

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2550
  • Karma: +47/-2
    • View Profile
Blog post: It's all about the timing... Or is it?
« on: October 04, 2015, 01:10:01 pm »
http://investorchallenge.co.za/all-about-timing/

Bevan

  • Full Member
  • ***
  • Posts: 216
  • Karma: +19/-0
    • View Profile
Re: Blog post: It's all about the timing... Or is it?
« Reply #1 on: October 05, 2015, 12:26:31 pm »
Hi Patrick, thanks for another interesting post and congrats on the whole wedding thing. Remember that weddings are not expensive but divorce is quite possibly the biggest financial loss you will ever incur. Good luck for never having to go down that particular black hole.

With regards to these old long-run market analogies, I think we must also realise that the world has changed. Yes, shares will most likely present a very viable long run financial return. But crashes are going to become more imminent and market timing is going to become more important to maximise your returns. As an example, I can switch my Allan Gray retirement annuity funds in and out of equities whenever I choose, typically making a cost-free move once every couple of months. I typically do around 3 to 4% better than their Equity fund as a result i.e. I switch into hedged funds and cash when I suspect a sell-off is coming and then switch back into pure equities at a lower price.

I say the world has changed because 1) permanently low returns in bonds and elsewhere are forcing equity prices up unrealistically, keeping zombie companies alive and making others more expensive; and 2) there are now more bot-traders in the market than human traders.

The problem with 1) is that value is being eroded. Fundamental value investors are struggling to find real value anywhere based on tried and tested valuation methodologies. The markets are simply rallying because everyone knows that equities are the only place to find returns right now. Every man, his dog and shoe-shine kid is in the market. It's a very dangerous situation to be in. The problem with 2) is that bots are happy to make money from being short just as easily as from being long. Previously the market used to follow a right-angled triangle approach i.e. the bull walked up the stairs 80% of the time (the hypotenuse) and the bear jumped out the window 20% of the time (the upright of the triangle). I for one have noticed that this human tendency to want to buy and see the market rally is starting to break down. The sell-offs are happening with greater frequency, are more sustained and thus, although less ferocious in intensity, are probably starting to do more damage to long-only portfolios.

Although hedge funds have been largely ridiculed and seen major cash withdrawals of late, I suspect we will start to see star performing hedge funds emerge as average volatility in the market starts to pick up over time. Equity historical volatility has typically only been around 15-20%. Watch what happens when equity volatility starts to become more like 30-40% and equities start behaving more like commodities. I don't predict this trend will fully emerge for at least another year or so but watch this space....
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2550
  • Karma: +47/-2
    • View Profile
Re: Blog post: It's all about the timing... Or is it?
« Reply #2 on: October 05, 2015, 12:52:40 pm »
Thanks for the comments again Bevan. Fortunately my wife had a business to protect, so we're out of community, no accrual. But hopefully that never comes into play in any case :)

I'm curious about your RA being so flexible? Is this a standard feature of RAs or have you got something special? Also how do you feel about Allan Gray shifting the goalposts very largely in their favour regarding their performance fees? http://www.moneyweb.co.za/investing/questions-around-allan-grays-new-benchmark/

You might be right on the whole timing issue, but you're probably also much more knowledgeable than the average investor, being a professional in the field. I still think the average investor like myself has no chance against the professionals and the bots, and will probably be better off just going with the flow.

I also think that over time, smarter and smarter people will take advantage of the timing too, so the benefit gets smaller and smaller. It's all too much for me to even think about considering though, so I'll just watch you guys on the sidelines. It's bound to be quite entertaining at least :)

Bevan

  • Full Member
  • ***
  • Posts: 216
  • Karma: +19/-0
    • View Profile
Re: Blog post: It's all about the timing... Or is it?
« Reply #3 on: October 05, 2015, 01:19:59 pm »
Here's a little spreadsheet to support your stance... I've goal seeked to see what return a trader would have to make to compete against an investor who earns a 3% DY and 10% annual growth (both re-invested) over 10 years. You can see the trader typically has to return more than twice the investor's return after accounting for tax and brokerage fees. However, as volatility increases, a good trader's return will go up whilst a bad trader's return will be very bad, whilst an investor's return will also most likely shrink.

P.S. I should rather say I switch my retirement funds in and out of their Equity Fund from time to time, not an RA specifically. So I might switch into their Orbis Fund (which is more actively hedged) or into bonds or cash. I haven't really looked into the implications in too much detail. It's just fun trying to beat their Equity Fund guys over time.
« Last Edit: October 05, 2015, 01:27:46 pm by Bevan »
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za

Patrick

  • Administrator
  • Hero Member
  • *****
  • Posts: 2550
  • Karma: +47/-2
    • View Profile
Re: Blog post: It's all about the timing... Or is it?
« Reply #4 on: October 05, 2015, 02:50:21 pm »
Nice. Are traders always taxed at 28% or does it depend on your earnings?

Bevan

  • Full Member
  • ***
  • Posts: 216
  • Karma: +19/-0
    • View Profile
Re: Blog post: It's all about the timing... Or is it?
« Reply #5 on: October 05, 2015, 03:20:30 pm »
Nice. Are traders always taxed at 28% or does it depend on your earnings?

Of course it depends on your personal circumstances. But I had to choose something right..... I also only assume annual brokerage fees of R5,000 which might also be a bit advantageous for traders, although I assume only around 5 trades per year on something like the SATRIX40.
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za

jaDEB

  • Global Moderator
  • Hero Member
  • *****
  • Posts: 4534
  • Karma: +30/-3
    • View Profile
Re: Blog post: It's all about the timing... Or is it?
« Reply #6 on: October 05, 2015, 04:17:23 pm »
 :TU:
jaDEB

If it scares you, it's a sign you need to do it