day trading vs hold steady

[DrD]

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All,

The returns for the year for TSP talk are about 2.5% following a day-trading strategy. For the G fund, they are 3.6%, and the G fund is the worst performing of the funds. Yesterday, someone following the advice to go to 50% G missed a huge uptick. This has happened all year. Daytrading has underperformed the G fund! How bad is that?

I went 70%S and 30% I on the first of Janaury, and have held firm. As a result, I am beating the TSP day trading performance with over three times the rate of return.

Watching the board has convinced me that trying to day trade the TSP funds is a mistake; you can't get your positions switched fast enough and you underperform by chasing trends you can't catch.

I'll rebalance next January again (I only do it oncea year) and then we can see again which strategy does better. When rebalancing, I look at macro trends (I think the dollar is going to continue to drop so I may go heavier I fund as a hedge).

Best wishes

DrD

 

[Keenster]

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I am new to this web page and I think it is a very good forum and I hope to learn alot. DRD, I have to agree with your philosophy. I am 60% C, 20% S and 20% I and I have been that way since the other funds became available. I am confident the best way to make the most of the TSP is to stay steady. When the market goes down I look at it as buying cheaper (funds are onsale). Dollar cost averaging helps add to the value of your account and if you miss out on a good day I would think that doesn't help dollar cost averaging. I understand everyone has their own thoughts and again I think this page is a great forum.

 

[zoeb]

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awwww shucks Doc, your taking all the fun out of this board...not. :l

I for one have learned a lot by listening to the guys since I joined this forum. Since our government didn't see fit to educate anyone on how to invest in the TSP funds, this place wins hands down.I've watched a stagnant TSP fund grow considerably since I joined in August...I was back into stocks on Tuesday and I'm quiet happy with my returns.

Take all the advice on the boardsand look at all the charts, shake your eight ball, and give it a go. You might find you do better than simple once or twice a year allocation change.

 

[smedlap]

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I agree with you firmly.

 

[Guest]

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I disagree. No one can do this consistantly with any formula. I tried to find one for 3 months, 8 hours a day and could not come up with one that didn't involve emotion. All's that happened was Ibecame obcessed with it.

Unless you dollar cost average and rebalance ( a huge key) at the end of every year, your just guessing at what is going to happen, not to mention the addiction that goes along with "timing" and all the stress. If someone can show me how to obtain 15% per year with a "system" that has no emotion, than maybe I'll look at it. Another problem with backtesting is you often "cheat" to get the desired results. What I mean by this is you buy (on a borderline signal) when it benefits and sell, the same. It's emotion.

I know, I tried to "time" my IRA money and lost 33% this year! That feels great. At the same time I left a much larger pot of money in a pension plan (former job) and did not move it at all the whole year and I'm up 23% or so for the year. So what does that tell you (besides I can't time the market) ?

Example: MLK_man had a great system for this year (all credit to you, man) but when he and I backtested it against bull and bear markets of the past, it floundered badly. It was a good idea on his part for this year (basically an up and down market) but he was let's just say "fortunate" for implementing in this type of year. If we go into a long Bull, how will you know when to change systems?

It all comes down to this: How much do you need to retire comfortably and when is that? Start with that and work backwards to see what rate of return is needed and amount needed todeposit per paycheck. I'm sure most of us will find we don't need as high of a return as we think, especially if you start early. I've realized that I don't. So I'm quitting the gambling addiction (call a spade, a spade) and going back to Dollar cost averaging! Have a great day, y'all.

PS- I do enjoy the input from this board. Let's just say it helps me realize a lot of things.

 

[Guest]

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Dr D:

Check out www.fundadvice.com and look at the articles on the "TSP advice" and "The ultimate Buy and Hold Strategy". They are excellent and will help us dollar cost average people a ton! Check em' out and see what you think.

Joel

 

[tsptalk]

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DrD wrote:

All,

The returns for the year for TSP talk are about 2.5% following a day-trading strategy. For the G fund, they are 3.6%, and the G fund is the worst performing of the funds. Yesterday, someone following the advice to go to 50% G missed a huge uptick. This has happened all year. Daytrading has underperformed the G fund! How bad is that?

I went 70%S and 30% I on the first of Janaury, and have held firm. As a result, I am beating the TSP day trading performance with over three times the rate of return.

Watching the board has convinced me that trying to day trade the TSP funds is a mistake; you can't get your positions switched fast enough and you underperform by chasing trends you can't catch.

I'll rebalance next January again (I only do it oncea year) and then we can see again which strategy does better. When rebalancing, I look at macro trends (I think the dollar is going to continue to drop so I may go heavier I fund as a hedge).

Best wishes

DrD

I guess we'll see you again in January. So you knew Bush was going to win the election?We went into defensive mode for a dayin caseKerry won or if there were recounts. If that did happen we may not have heard from you.

You seem like an intelligent person but your allocation in January tells me you don't know very much about the market and are merely hoping for an outcome. The indices were so overbought in January after running up 22% to 42% in 2003 (I made 39% btw) that we were certainly due for at the very least a long consolidation period. The only mistake I made this year was to get fully invested in July. Too early.

I guarantee my 5 year record outperformed your buy and hold strategy. My returnbeat the S&P 500 by over 23% from 2000 to 2003 (although the G fund did better than I did) but obviously a buy and hold investor got clobbered. The fact that you got100% in stocks in Januarytells us you don't heed the market warnings. I talked about the bumpy road for the first part of 2004 back in January ([url]http://www.tsptalk.com/comments_archive.html[/url])

Anyway, we've had the buy and hold vs. trading strategy discussion here many times before. I think it is good to let people know each side and have them decide which is best for them. For most people, buy and hold is the best strategy. I have spent the last year trying to helpingnovice investing TSP'ers toget answers,understand markets, investing andtrading, and take control of their investment lives. There isn't only one way to do it. Now they can make more informed decisions.

If being 2% behind the C fund this year (I passed the G fund today btw) makes my strategy bad, then beating it by 23% from 2000-2003 must be pretty good.

One more thing, in August I staked my reputation on the next 80 point move in the S&P 500 being up rather than downwhile the bears thought I was nuts to get so aggressive. That was 100 points ago. Their reasoning was that they wanted to see the downtrend end before they got in. Well they missed 7 or8% since then. Most of thosebears don't show up here anymore. When I'm wrong I have to show up the next day. I'm not proud to be a couple points below the S&P at this point in the year. Again July killed me. But I have a reason to my madness and for meit is better than blindly buying and holding which I consider a hedge on ignorance.

Let us know what you do in January. I'll be curious how you determine what to do.

Thanks for joining us.
Tom

 

[coolhand]

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DrD - In my opinion, day trading isquite different from what this forum is about. These are index funds not individual stocks.

While it is very true that we cannot move our funds in less than a day, it is not generally necessary.Averages are not determinedin a day. We primarily watch for trends. Of course the people on this board have varying strategies so results can be wide ranging. I myself have managed an overall gain of about 12% this year. And I've only moved funds maybe 6 times.

Buy and hold is certainly a good strategy, but my feeling is that ifone develops a good understanding of themarkets, the emotion inherent in them,chart reading etc. one can do better.

Your observation is appreciated.

 

[FundSurfer]

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I used to be like you DrD.

Here is a suggestion. Just follow the market and paper trade for a year and see how you do. I did that and would have almost doubled my return going from 2 trades in a years time to about 5 trades.

I've actually gotten more aggressive as I've learned more and you can make some predictions about the market.

Tsptalk (Tom) had one bad month. He isn't the only one who made the mistake that he did (I recall several analysist makeing wrong predictions in July). He was being very agressive and lost ground. Staying agressive he is likely to pass the "buy and hold" type positions within the next year. You don't have to win them all. The one thing he has done is he know knows more as a result of having been more aggressive and learning the trends. Perhaps you are right and he would never beat a buy and hold strategy long term. I would bet money the other way long term.

Everyone has to invest at the level at which they are comfortable.

Also, there are others on this board who have done quite well this year using different methodologies.

 

[Guest]

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Dr. D:

Here's the direct links for the TSP and buy/hold articles.The TSP ishard to find on the websight.

http://www.fundadvice.com/QA/cbs/cbs102903a.html

http://www.fundadvice.com/FEhtml/BHStrategies/0108/0108a.html

you have to click on the bottom of the page of each article to get to the next one.

I hope this helps.

Joel

 

[tsptalk]

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jgpalmerdds wrote:

It's emotion.

Emotion and ego arethe biggest enemies. I have done this for years and I am far less disturbed by swings and being wrong than I used to be. Being wrong at times is inevitable. How you handle it is the key.

Here is a case where the writing was on the wall. The script, if you will. The problem isn't reading the market.It is executing based on what you know to be true, even if it goes against everything your emotions tell you.

On January 22, 2004 I wrote:
(http://www.tsptalk.com/comments_archive/comments_1_22_04.html)

"Presidential election years are usually a good time to be in stocks. The current administration pulls every punch to make sure things are looking good near Election Day. But looking back over prior election years, the market tends to begin a stalling period in late January, early February. A lot of up and down action for several weeks or months, but not much headway. The trend will continue to be slightly upward, but not in a straight line. Then sometime in the early fall of these election years, the market picks up steam again.

"So, depending on your tolerance for fluctuations, you have some choices. You can keep your account in stocks and ride the storm knowing you should have a nice return at the end of the year. You can play the volatility by getting in at oversold levels, and out when overbought. Or you can play very conservatively and stay out of the stock funds until the volatility has subsided, hopefully sitting on some nice gains over last few months." end quote


Notice I didn't tell people what to do. I told them there are different ways to play it. It's up to the individual. Some timers did better than others. Buy and holders were at the mercy of the market.

 

[Spaf]

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Tom - Back to the issues. We got a Bull market. Ignore the the freaks!

Halloween is over. Lets get on with business!

 

[Pete1]

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Dr. D., I have a question for you. Will you maintain a buy and hold approach when your account value drops 50%? With your current allocation, you should be prepared for a maximum 50% loss in any single year. Most of the expert buy and holders(WilliamBernstein, John Bogle, Rick Ferri, Larry Swedroe, etc.) recommend that diversified buy and holders maintain at least some fixed income. The aggresive end of the spectrum is usually around 80/20 (around a 40% maximum one year loss). This year has been relatively benign.

Regarding Tom's performance, he had one really bad month. Otherwise, he has done well. In fact, since his bad month, he has done a very nice job of catching up. I expectthat he will catch up with the diversified account at some point.

 

[Guest]

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Spaf- Flattery will get you nowhere. Take care. Let us know when that "system" is developed. Thanks in advance.

In all seriousness, what are you looking for when you get "In" and "Out". Just curious.

Joel

 

[Spaf]

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Joel
For a bear market thats trending with cycles I use moving averages of x days, where x equals 1/2 of the peak to peak cycle. I confirm this with the Parabolic-SAR. And I use market talk or sentiment.
For a bull market it just the ride and the allocation of funds.
A big help was understanding "The Dow Theory". I put it on this site under readings.
And then generally I listen to you guys.
Rgds Spaf

 

[Mike]

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Spaf wrote:

Joel

And then generally I listen to you guys.
Rgds Spaf

You'll get burned by that last one. :^

 

[rokid]

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The experts recommend buy and hold.However, why be a whimp and settlefor the market return when you can beat the market?

But can we?

Ithink we can all agree that Tom is smart, has studied the market extensively, and works very hard to beat the market return. He is also brave enough to reveal all of his moves both good and bad! However,the following compares his 2000-2004returns to the returns achievable from a very conventional, off recommended, 60/40 buy and hold portfolio. Specifically:

60% Equities: 36% C Fund, 9% S Fund, and 15% I Fund

40% Bonds: F Fund.

The results:

% Annual Returns Tom 60/40 Buy and hold

2000 4.5 -2.2

2001 -14.6 -4.5

2002 -16.5 -7.9

2003 39.1 21.5

2004 (YTD) 4.0 6.4

Average 3.3 2.6

Std Deviation (risk) 22.4 11.8

Starting with $100,000 in 1999:

1999 100,000 100,000

2000 104,540 97,833

2001 89,277 92,956

2002 74,564 85,650

2003 103,741 104,041

2004 (YTD) 107,922 110,676

Conclusions:

1. Tom’s four year average return was .7% higher than the conventional buy and hold portfolio. However, this slight increase in average return was achieved at the expense of almost twice the volatility/risk.He should have received a much higher return for accepting this additional risk.
2. Even though his average percent return was higher, his portfolio’s high volatility caused his overall dollar return to be lower than the buy and hold portfolio. In addition, in four out of the five years, the buy and hold portfolio had a better dollar return.
3. Therefore, these, admittedly,limited results appear tosupport the experts’ opinion, i.e. with a reasonable asset allocation, it’s very hard to consistently beat buy and hold.

 

[Pete1]

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Hi Rokid,

Just curious, are you 60/40, 70/30, 80/20, something else?How are your assets allocated between TSP funds?

Pete

 

[tsptalk]

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However, the following compares his 2000-2004 returns to the returns achievable from a very conventional, off recommended, 60/40 buy and hold portfolio.

I know it's all you have to work with butthat small sampleincludesone of the worst bear markets of the century (2000-2003). 1995 to 1999 were huge years for stocks and blew away the 60/40 allocation. I just didn't starttracking my returns until 2000.

The main reason I put this site together wasn't really to get people to day trade. It was to get people out of the G fund now that the bear market is over. Only a very small percentage of TSP membersuse the S and I fund. I "trade" because I enjoy it and it's a challenge. If I just bought and held, there would beno site and there would be a lot of people trying to retire on a 4% annual return.

 

[rokid]

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Hi Pete,

My overall mutual fund assets are75/25 stocks/bonds. My TSP funds are: F: 52%, C: 32%, S: 11%, I: 5%. However, my TSP fund allocationsare designed to compliment the return/risk characteristics of my other 401K mutual funds (mid-small cap and international).

Based on an MVO analysis (historical returns), I'm shooting for a 12.75 return with a 10.71 standard deviation. I'm also hoping that Siegel is correct about equity long-term returns, i.e. stocks beating bonds and inflation over the long-run. Fortunately, I have a relatively long investment horizon (> 10 years), so, theoretically, I can take on more short term equity risk.