I've been seeing a few commercials that really make me wonder about public perception of investment markets. The ad I keep seeing portrays one person who is down and concerned about his investments talking to another who exudes confidence because she's in commodities instead of stocks or real-estate. The commodity market has been advertised as being an easier place to invest because apparently p/e ratios are confusing and price speculation is an easy road to profits. Maybe I'm ignorant on the subject but you're either dealing with contracts for delivery at a later date, or the cost of storage. The possibility of losing money is there and I'd be surprised if it's any simpler.
I wonder why I never see bonds pushed as a less confusing and less risky alternative to stocks or real-estate. While there are some questionable bonds out there, there are also plenty of bonds out there that offer a reasonable measure of security. You can also predict your return easier since they have a stated interest rate and maturity. It's also much easier to make guesses as to whether or not a company will still be in business in two years. It doesn't need to grow for you to make money, it just needs to not be distressed between the purchase date and the bond maturity date.
Showing posts with label markets. Show all posts
Showing posts with label markets. Show all posts
Saturday, September 19, 2009
Saturday, September 5, 2009
The correlation between the stock market and the real economy
In his classic book "The Intelligent Investor," the great money manager Benjamin Graham wrote that "the investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances." If you can't exercise that kind of emotional control, then by Graham's definition you aren't an investor at all.
I recently came across yet another article expressing concerns that the stock market may be over valued at this point. It does point out that during a lot of economic recoveries, the stock market doesn't necessarily go the same way. Coincidently, I saw another article regarding how during some economic crisis, the stock market doesn't always collapse, which I'll have to try to find for this. This is another article that ties into this regarding how GDP growth and stock market returns don't correlate.
Apparently, it ain't so. There is no relationship between a country's high GDP growth and stock market returns, especially not in the long run and only weakly in the short run. In Economic Growth and Equity Returns from SSRN, professor Jay Ritter calculated that there was in fact a negative relationship between economic growth and stock returns in 16 major countries (including Canada and the USA) over the period 1900 to 2002 - this chart is taken from the paper.
Overall, I'm concerned that the stock market could go down further, however, I do feel that the economy is starting to turn around. At the same time though, I'm also expecting unemployment to trend higher for a little while longer. Question of the day though, do I get excited by sizable gains and concerned over significant declines? I get concerned any time anything looks irregular. Watching Al Gore's Inconvenient Truth gets me worried for the simple fact that if he isn't right the temperature isn't going to rise and disaster isn't upon us, correlation has broken down. There are unknowns challenging our understanding and I don't like that. After all, it's not what you don't know that screws you over, it's the things that you're certain of that are wrong that make you look nuts in the eyes of history.
With regards to current times though, I will be happy if cash flow is maintained and news releases don't cause me to wonder if declines are on the horizon. Though a significant decline right now would probably cause me to pause and re-evaluate my options and cause me a little bit of worry. Probably a healthy response.
Friday, August 21, 2009
A handful of days revisited
I was hoping to get this up prior to my mention on the Millionaire Or Bust podcast. In a previous episode, a listener submitted a comment involving pulling a few choice days out of several decades of stock market performance. Naturally, I pointed to my own article on the non-sense behind it, however, I then realized that I really have yet to put any real nails in the coffin. I also located the source of the quote that kicked off the non-sense.
As of the time of writing, the bold faced part still highlights the 36 years between 1970 and 1986. Before I go further, I suppose I should point out that I question whether or not any reputable financial agency would issue a report of this nature due to the meaninglessness of the result. Secondly, this sort of study should take at most an afternoon including the learning of some basic spreadsheet skills.
Rather than post my own spreadsheet, I'll tell you how to create your own assuming that you have a basic understanding of math, finance and spreadsheets. Scroll to the end if you'd rather just skip to the conclusions.
Step 1) download stock market data
If you manage your own investments, this shouldn't be difficult for you. Personally, I went to Yahoo! for this. Since Millionaire or Bust is American, and Yahoo! has much more S&P500 data than TSX and it's also the index referenced in the quote.
Step 2) convert point values into ratios
Assuming you have a basic understanding of mathematics, this should be a given. Going up 5 points doubles the value of an index that was 5 the previous day, increases the value by 5% for an index of 100 and for todays value we just say that things remain the same. Anyway, in the next free column, tell the spreadsheet that you want the closing value divided by the closing value of the previous day. If you prefer percentages, subtract 1 but it'll hinder things later on. Then copy and paste that down the entire column. If you've done what I did, this is column H, if your data come from a different place or you for some reason have more or less information than I do, just remember one column has been added so far.
Step 3) sort the values
How you do this will vary depending on the spreadsheet program that you use. For me, it starts with copying the column of ratios telling excel to paste special, otherwise the equations screw up. Then I select the ratios and tell it to sort.
Step 4) marking the values
Simple enough, tell the spreadsheet how many values you want to consider in your analysis. The reference says they took 25 days out of "36 years between 1970 and 1986" I have roughly 60 years of data. 25 sounds like a good number anyway. If you've got the highest values at the top, put a one in the next column by the first however many values you want, 25 in my case. Just for fun, go to the bottom and starting in a new and separate column mark the bottom 25 with 1. These two are columns I and J on my spread sheet, we've added a total of three columns so far.
Step 5) sort the values again
Put things back in chronological order, highlight the date and make sure it sorts the entire block of data. If you've done this right, your 1s should follow and you shouldn't have blocks of them at the top and bottom.
Step 6) identifying blocks of data
The assertion that I made was that if you consider the days near peak stock market gains you may actually wind up with increased returns if you miss the peaks. So make some judgement as to how many days you want to consider. Personally, I feel like going with five days before and after. So, new column now, four or K if you're keeping track. Perhaps its best I show you what's in my spread sheet and explain it after rather than explain each part as you type it in. "=IF(SUM(I103:I113)>=1,$H108,1)" occupies cell K108 in my spread sheet. If means what you'd expect it to, then there's three things or in slightly more technical terms, the if function has three arguments. The first of these is the one that decides which of the two following arguments will occupy this cell. "SUM(I103:I113)" means that you want to add all the values in that range, which covers five values above and five values bellow. The bulk of that column should be blank and adding all those values will result in 0, which is not greater than or equal to 1. Thus most of column K should take on the value of 1 or the third argument. For values around the highest gains though they should take on the value of the change in the stock market for that day.
The only peculiarity in the next argument is the $ in front of the H. In a whole bunch of spreadsheet programs, this indicates a static reference. You can copy these around and it will still point to the H column, whereas non-static references stay relative allowing for calculations to be repeated with ease.
Finally, the third argument, 1, will become pretty obvious once you're already aware of why it's there. I'll explain it later if you don't want to think about it right now.
Step 7) Repeat for losses
After that long one, a short step. Copy the column you just finished and paste it in the next one. This is L in my spread sheet and if yours is different, this is the 5th column that's been added.
Step 8) Compile your result
At the top of column K, tell the spreadsheet to multiply all the values bellow together using the product function. Then copy and paste that equation into the next column, L, to cover the big losses. This is where 1 comes in, anything multiplied by 1 is unchanged and retains it's previous value.
Step 9) Make sense of your data
If you've done exactly what I have and used data going from 1/3/1950 to 8/21/2009, you'll have 0.892222411 and 0.33212527 at the top of columns K and L. What does it all mean though? Recall that we arrived at these values by multiplying (change1) x (change2) x (change3) x ... x (changeN). Also, recall that going from the starting date to the ending date is simply the same thing, but including ever single day. For the benefit of the non-mathematically inclined, I'll switch to multiplying with * and say a * b * c * d * e * f * g. If we wanted to remove e from this we can divide the whole thing by e.
(a * b * c * d * e * f * g)/e = a * b * c * d * (e/e) * f * g
a * b * c * d * (e/e) * f * g = a * b * c * d * 1 * f * g
a * b * c * d * 1 * f * g = a * b * c * d * f * g
At any point of convenience, enter =1/whatever cell your result is located in. I get 1.120796774 and 3.010912118 respectively. In other words, if you were trying to miss the best trading days of the past roughly 60 years, but could only pull that off by missing the five days before and after, you would have 1.12 times the amount of money you have assuming that you missed few dividends during the few days you were out of the market, or 12% more. And the other for fun result, if you miss all the worst days and the five before and after that you'd have three times as much money. If you've done this with another index, different number of peak gains, or different number of days before and after removed, please post a comment and share your result.
Conclusion
Finally, we hit what does this all mean in the bigger picture. There's a lot you can walk away from with this. It's much easier to make a case for trying to time the market than against it. That point however is completely unsupported by the way the data was analyzed as stock market values are not posted in advance and you have no way of knowing whether there is a peak gain/loss day coming up. The point that I'm trying to impart the idea that you really need to think about whether or not the methodology used to get the numbers actually support any sort of meaningful conclusion. I think it's best summed up as, "It's important to think about things you see, after all you can use statistics to prove anything, including a lack of critical thinking." Other lessons include:
-statistics are messy when you don't know what you're doing
-spreadsheets can be fun
-make a fantastic claim and someone out there will believe you if you sound credible
-someone out there will waste an evening challenging your claim
-I suck at considering my audience when explaining things and jump around with different assumptions regarding knowledge levels
If you're still with me at this point, please leave a comment about other lessons learnt here.
For another cool curiosity figure, start over and put current market value/starting market value somewhere in your spreadsheet. Proceed to step 3 and tell it to multiply the first hundred or so values. Increase and decrease accordingly to figure out how many of the best days you'd need to miss to wipe out all your gains completely. Pulling out 25 days like whoever did that first study did was cool, but if you continue ignoring dividends like many of these so called studies do, pull the best 101 days out of the nearly 60 years that I used in my "study" you don't significantly reduce your gains, they're gone completely. Pull the best 125 days out of the 15006 days and you'll have half the money you started with. Makes you wonder about the claims people make. As for the I Will Teach You To Be Rich guy, that claim he'll teach you to be rich, there's no lie there, just remember that some people teach by example. Now I'm kind of curious if "36 years from 1970 to 1986" made it into the book.
From my book: “Recently, a group called Dimensional Funds studied the performance of the S&P 500 from January 1970 to December 2006, during which time the annualized return of the market was 11.1%. They also noted something amazing: Of those 36 years from 1970 to 1986, if you missed the 25 days when the stock market performed the best, your return would have dropped from 11.1% to 7.6%, a crippling difference.
Now, if only we could know the best investing days ahead of time.”
As of the time of writing, the bold faced part still highlights the 36 years between 1970 and 1986. Before I go further, I suppose I should point out that I question whether or not any reputable financial agency would issue a report of this nature due to the meaninglessness of the result. Secondly, this sort of study should take at most an afternoon including the learning of some basic spreadsheet skills.
Rather than post my own spreadsheet, I'll tell you how to create your own assuming that you have a basic understanding of math, finance and spreadsheets. Scroll to the end if you'd rather just skip to the conclusions.
Step 1) download stock market data
If you manage your own investments, this shouldn't be difficult for you. Personally, I went to Yahoo! for this. Since Millionaire or Bust is American, and Yahoo! has much more S&P500 data than TSX and it's also the index referenced in the quote.
Step 2) convert point values into ratios
Assuming you have a basic understanding of mathematics, this should be a given. Going up 5 points doubles the value of an index that was 5 the previous day, increases the value by 5% for an index of 100 and for todays value we just say that things remain the same. Anyway, in the next free column, tell the spreadsheet that you want the closing value divided by the closing value of the previous day. If you prefer percentages, subtract 1 but it'll hinder things later on. Then copy and paste that down the entire column. If you've done what I did, this is column H, if your data come from a different place or you for some reason have more or less information than I do, just remember one column has been added so far.
Step 3) sort the values
How you do this will vary depending on the spreadsheet program that you use. For me, it starts with copying the column of ratios telling excel to paste special, otherwise the equations screw up. Then I select the ratios and tell it to sort.
Step 4) marking the values
Simple enough, tell the spreadsheet how many values you want to consider in your analysis. The reference says they took 25 days out of "36 years between 1970 and 1986" I have roughly 60 years of data. 25 sounds like a good number anyway. If you've got the highest values at the top, put a one in the next column by the first however many values you want, 25 in my case. Just for fun, go to the bottom and starting in a new and separate column mark the bottom 25 with 1. These two are columns I and J on my spread sheet, we've added a total of three columns so far.
Step 5) sort the values again
Put things back in chronological order, highlight the date and make sure it sorts the entire block of data. If you've done this right, your 1s should follow and you shouldn't have blocks of them at the top and bottom.
Step 6) identifying blocks of data
The assertion that I made was that if you consider the days near peak stock market gains you may actually wind up with increased returns if you miss the peaks. So make some judgement as to how many days you want to consider. Personally, I feel like going with five days before and after. So, new column now, four or K if you're keeping track. Perhaps its best I show you what's in my spread sheet and explain it after rather than explain each part as you type it in. "=IF(SUM(I103:I113)>=1,$H108,1)" occupies cell K108 in my spread sheet. If means what you'd expect it to, then there's three things or in slightly more technical terms, the if function has three arguments. The first of these is the one that decides which of the two following arguments will occupy this cell. "SUM(I103:I113)" means that you want to add all the values in that range, which covers five values above and five values bellow. The bulk of that column should be blank and adding all those values will result in 0, which is not greater than or equal to 1. Thus most of column K should take on the value of 1 or the third argument. For values around the highest gains though they should take on the value of the change in the stock market for that day.
The only peculiarity in the next argument is the $ in front of the H. In a whole bunch of spreadsheet programs, this indicates a static reference. You can copy these around and it will still point to the H column, whereas non-static references stay relative allowing for calculations to be repeated with ease.
Finally, the third argument, 1, will become pretty obvious once you're already aware of why it's there. I'll explain it later if you don't want to think about it right now.
Step 7) Repeat for losses
After that long one, a short step. Copy the column you just finished and paste it in the next one. This is L in my spread sheet and if yours is different, this is the 5th column that's been added.
Step 8) Compile your result
At the top of column K, tell the spreadsheet to multiply all the values bellow together using the product function. Then copy and paste that equation into the next column, L, to cover the big losses. This is where 1 comes in, anything multiplied by 1 is unchanged and retains it's previous value.
Step 9) Make sense of your data
If you've done exactly what I have and used data going from 1/3/1950 to 8/21/2009, you'll have 0.892222411 and 0.33212527 at the top of columns K and L. What does it all mean though? Recall that we arrived at these values by multiplying (change1) x (change2) x (change3) x ... x (changeN). Also, recall that going from the starting date to the ending date is simply the same thing, but including ever single day. For the benefit of the non-mathematically inclined, I'll switch to multiplying with * and say a * b * c * d * e * f * g. If we wanted to remove e from this we can divide the whole thing by e.
(a * b * c * d * e * f * g)/e = a * b * c * d * (e/e) * f * g
a * b * c * d * (e/e) * f * g = a * b * c * d * 1 * f * g
a * b * c * d * 1 * f * g = a * b * c * d * f * g
At any point of convenience, enter =1/whatever cell your result is located in. I get 1.120796774 and 3.010912118 respectively. In other words, if you were trying to miss the best trading days of the past roughly 60 years, but could only pull that off by missing the five days before and after, you would have 1.12 times the amount of money you have assuming that you missed few dividends during the few days you were out of the market, or 12% more. And the other for fun result, if you miss all the worst days and the five before and after that you'd have three times as much money. If you've done this with another index, different number of peak gains, or different number of days before and after removed, please post a comment and share your result.
Conclusion
Finally, we hit what does this all mean in the bigger picture. There's a lot you can walk away from with this. It's much easier to make a case for trying to time the market than against it. That point however is completely unsupported by the way the data was analyzed as stock market values are not posted in advance and you have no way of knowing whether there is a peak gain/loss day coming up. The point that I'm trying to impart the idea that you really need to think about whether or not the methodology used to get the numbers actually support any sort of meaningful conclusion. I think it's best summed up as, "It's important to think about things you see, after all you can use statistics to prove anything, including a lack of critical thinking." Other lessons include:
-statistics are messy when you don't know what you're doing
-spreadsheets can be fun
-make a fantastic claim and someone out there will believe you if you sound credible
-someone out there will waste an evening challenging your claim
-I suck at considering my audience when explaining things and jump around with different assumptions regarding knowledge levels
If you're still with me at this point, please leave a comment about other lessons learnt here.
For another cool curiosity figure, start over and put current market value/starting market value somewhere in your spreadsheet. Proceed to step 3 and tell it to multiply the first hundred or so values. Increase and decrease accordingly to figure out how many of the best days you'd need to miss to wipe out all your gains completely. Pulling out 25 days like whoever did that first study did was cool, but if you continue ignoring dividends like many of these so called studies do, pull the best 101 days out of the nearly 60 years that I used in my "study" you don't significantly reduce your gains, they're gone completely. Pull the best 125 days out of the 15006 days and you'll have half the money you started with. Makes you wonder about the claims people make. As for the I Will Teach You To Be Rich guy, that claim he'll teach you to be rich, there's no lie there, just remember that some people teach by example. Now I'm kind of curious if "36 years from 1970 to 1986" made it into the book.
Wednesday, July 8, 2009
Epiphany
I've been listening to The Snowball: Warren Buffett and the Business of Life lately and I had an epiphany when it came to discussing the efficient market hypothesis. While it may be difficult to beat the market average, what if I don't want to? Everyone is focused on gaining money. However if markets really are rational and efficient and everything drives toward the average, not only can you not beat the market it must also be difficult to loose money or hold steady. It is a fact that things average out. It is also a fact that losers must be offset by winners, otherwise the average is misstated.
I wonder if it's worthwhile to try to develop some sort of philosophy about the investment market rather than just view my little corner of it.
I wonder if it's worthwhile to try to develop some sort of philosophy about the investment market rather than just view my little corner of it.
Saturday, May 9, 2009
Stunningly surprised
I bought artis at 5.75 on March 8 and yesterday it closed at 7.86 add $0.18/unit of distributions in that time. I suppose this should be pleasantly surprised, though it is puzzling. I hate sudden large and unexplained price changes. Mainly because they show that prices aren't rational and it forces me to question my ability to predict things. Granted, my decisions regarding SFK pulp and Nortel outright told me that I suck. When I don't see an apparent trigger for something like this, I worry that it won't last.
Monday, May 4, 2009
March called off, market recovery
Before I forget, 69 Days down, 73 by week's end...
Well, it seems that this round of overtime is likely going to be limited to a two week affair. I managed to get two shifts out of it. $300 isn't too bad.
Also, seems we're in a market recovery. I'm not sure how this changes my plans, previously I was pouring money in almost as fast as I could get it. I suppose that isn't changing much. Though can I still be as optimistic? Many of my previous estimates were based off getting more money in before things started recovering much. I wonder if I can substitute growth in as my source of optimism, it does feel better to have things improving rather than stagnating.
Well, it seems that this round of overtime is likely going to be limited to a two week affair. I managed to get two shifts out of it. $300 isn't too bad.
Also, seems we're in a market recovery. I'm not sure how this changes my plans, previously I was pouring money in almost as fast as I could get it. I suppose that isn't changing much. Though can I still be as optimistic? Many of my previous estimates were based off getting more money in before things started recovering much. I wonder if I can substitute growth in as my source of optimism, it does feel better to have things improving rather than stagnating.
Friday, March 20, 2009
Buy, Sell, Diversify
Well, I suppose I was extremely lucky to buy two weeks ago before the stock market shot up. Earlier today, I was looking at a $1200, or almost 15%, gain on my previous purchase. I guess it's only about $950 now. However, earlier today, I was wondering if it was a good idea to sell and buy back later, though I still feel that it is probably undervalued. So, do I buy more instead. Then again, it's also about a third of my small investment portfolio so maybe I should buy something else instead.
It's hard to make investment decisions when when you buy has such a large influence over returns. Timing is so much more complicated that deciding which businesses will probably do ok. Earlier, I was wondering if I should put some money into the horizon beta pro for the stock market going down. Notably, if the money was available at the time, and I wasn't so timid, I'd probably still have lost money at this point. Things went higher than expected. I'd probably have posted about that if it weren't for work.
undervalued. It's hard to make investment decisions when when you buy has such a large influence over returns. Timing is so much more complicated that deciding which businesses will probably do ok. Earlier, I was wondering if I should put some money into the horizon beta pro for the stock market going down. Notably, if the money was available at the time, and I wasn't so timid, I'd probably still have lost money at this point. Things went higher than expected. I'd probably have posted about that if it weren't for work.
It's hard to make investment decisions when when you buy has such a large influence over returns. Timing is so much more complicated that deciding which businesses will probably do ok. Earlier, I was wondering if I should put some money into the horizon beta pro for the stock market going down. Notably, if the money was available at the time, and I wasn't so timid, I'd probably still have lost money at this point. Things went higher than expected. I'd probably have posted about that if it weren't for work.
undervalued. It's hard to make investment decisions when when you buy has such a large influence over returns. Timing is so much more complicated that deciding which businesses will probably do ok. Earlier, I was wondering if I should put some money into the horizon beta pro for the stock market going down. Notably, if the money was available at the time, and I wasn't so timid, I'd probably still have lost money at this point. Things went higher than expected. I'd probably have posted about that if it weren't for work.
Wednesday, February 18, 2009
Timid, but shouldn't be
The recent sell off has me tempted to shift my savings into my trading account, but part of me is reluctant to. I get the feeling that now is a good time. Illogically though part of me wants to wait till I have more money in front of me, so that I can buy in a preplanned spreadsheet specified fashion with a minimum of transactions. Though commissions are low enough that it'll probably cost me more to wait, unless the market takes a more serious tumble.
Friday, November 28, 2008
Markets
First Friday off in some time. It was nice being able to watch the markets again and boy did they put on a nice show. I gained more than two weeks of pay in today's trading session. Unfortunately, since I didn't know that I was going to have today off, I wasn't able to get any more money in. For some reason, I'm not fond of placing orders when I can't watch them. Anyway, I don't particularly have a plan for where I want to position money right now. Everything has been bouncing around so much, it's hard to tell what is a good deal right now. I'm told that this past week the tsx was up 11%, today makes it 17%. I wonder if that means that I can declare the last slump over.
Three options were tempting me lately
1) buy everything. The whole index was heavily discounted and it was hard to tell what was going to be a better deal at the time. I like index funds, so why not jump in heavy?
2) focus on financials. I watch the financials closely since I have the feeling that they're probably battered more than anything else. Whether or not that actually true or just a perception, I'm not sure.
3) Follow the original REIT plan. I still think that's probably a good approach to achieving my short term investment goals, which may or may not need to be redefined. Personally, I think the valuations have been tossed around enough that they should be re-evaluated and I should come up with a new allocation plan. I'm considering a simple equal-weight portfolio of a few favorites. My quirky index is down roughly 39%, compared to 32% for the tsx REIT index.
Anyway, got too much cash piling up, I want to get more money into the market sometime.
On another note, there's also the credit markets. The big BCE buy out deal fell through and I'm kind of half celebrating that. I'm not sure what ramifications it has for everyone right now. Somehow I don't think that the across the board drop in mortgage rates follow the fall through is entirely co-incidence though. Dropping that deal frees up a lot of credit that can be used by other people. There no telling what people would have done with money they got from the BCE buy out though. I'm sure some market would have been given a boost by that money, be it the real goods, equities, debt, commodities. Maybe this is one of those zero sum net gain moves.
Three options were tempting me lately
1) buy everything. The whole index was heavily discounted and it was hard to tell what was going to be a better deal at the time. I like index funds, so why not jump in heavy?
2) focus on financials. I watch the financials closely since I have the feeling that they're probably battered more than anything else. Whether or not that actually true or just a perception, I'm not sure.
3) Follow the original REIT plan. I still think that's probably a good approach to achieving my short term investment goals, which may or may not need to be redefined. Personally, I think the valuations have been tossed around enough that they should be re-evaluated and I should come up with a new allocation plan. I'm considering a simple equal-weight portfolio of a few favorites. My quirky index is down roughly 39%, compared to 32% for the tsx REIT index.
Anyway, got too much cash piling up, I want to get more money into the market sometime.
On another note, there's also the credit markets. The big BCE buy out deal fell through and I'm kind of half celebrating that. I'm not sure what ramifications it has for everyone right now. Somehow I don't think that the across the board drop in mortgage rates follow the fall through is entirely co-incidence though. Dropping that deal frees up a lot of credit that can be used by other people. There no telling what people would have done with money they got from the BCE buy out though. I'm sure some market would have been given a boost by that money, be it the real goods, equities, debt, commodities. Maybe this is one of those zero sum net gain moves.
Tuesday, November 25, 2008
Royal Bank Earnings Pre-Release
I suppose there's one more thing I can talk about, Royal Bank's earnings are down 15%. Relative to other financial institutions I hear about, it's pretty darn good to still be turning a profit. It makes me wonder what sort of p/e the tsx is really trading at once the updated figures are in. According to TMX money's site, the composite is at 9.9 right now. If earnings drop 15% across the board, we'd be at 11.6. Adds a bit of suspense to an already tense situation.
Tuesday, November 4, 2008
market dip over?
Has the overshoot ended? Is this the next support level for the indexes? I don't know, but I wouldn't be surprised if things stayed around this level for a while. Granted, the only outcome that would really surprise me at this point is if stocks were to go on a sudden week long surge upwards. Sadly, I didn't get the chance to put any new money into the markets. I should be getting my money back out of the family holding firm by the end of the year though. Kind of disappointed that all my resources were tied up and I was unable to act. If it wasn't, I'd at least be able to question whether or not I did the right thing and learn a bit more about my temperment.
I did learn a different interesting thing though, the more money I build up, the more attractive broad index funds look instead of picking one or two favorite stocks at the moment. For the moment, I'm still trying to figure out how I want to position my money next. A lot of attractive looking options out there, but I wonder if it's being bold or foolish. Only time will tell.
I did learn a different interesting thing though, the more money I build up, the more attractive broad index funds look instead of picking one or two favorite stocks at the moment. For the moment, I'm still trying to figure out how I want to position my money next. A lot of attractive looking options out there, but I wonder if it's being bold or foolish. Only time will tell.
Monday, October 13, 2008
DOW up 11%
I've probably beaten this issue to death already but if you had left the market completely on Friday doing all your trades at the end of the session and ignored today, you'd have missed out on a bit 11% increase. The actual mechanics of doing that only really works with a really small portfolio though.
Declaring Victory
I'll declare an early victory here. Canadian Markets are closed, but the DOW, S&P500 and NASDAQ are all up over 6% right now. One of the best days of the year, and when did it happen? After what'll hopefully be the worst decline of the year. Or at least I hope there isn't a bigger one. I like that everything is cheaper now, but I'm kind of worried about unemployment and economic collapse.
Also, this hardly makes up for the losses, but who knows maybe the markets will surge another 12% before closing, or shoot upwards for the rest of the week. Anyway, those one day blips are little more than curiosities.
Also, this hardly makes up for the losses, but who knows maybe the markets will surge another 12% before closing, or shoot upwards for the rest of the week. Anyway, those one day blips are little more than curiosities.
Friday, October 10, 2008
A Handful of Days
"Recently, a group called Dimensional Funds studied the performance of the S&P 500 from January 1970 to December 2006, during which time the annualized return of the market was 11.1%. They also noted something amazing: Of those 36 years from 1970 to 1986, if you missed the 25 days when the stock market performed the best, your return would have dropped from 11.1% to 7.6%, a crippling difference.
Now, if only we could know the best investing days ahead of time.
"
I keep running into this quote, verbatim including the 36 years from 1970 to 1986, which is actually a 16 year time frame, so I assume they mean 2006. I also assume that it's no longer recent, after all who would do a study that abruptly stops at the most significant economic event in recent history. Anyway, I suspect that there's a touch of insanity and twisting of the facts at work here. I'm not going to study 36 years, but I have kind of noticed something about the best investing days and I think we're missing something very important here.
Year to date, there have been four days when the TSX went up more than 400 points. Those four days amount to a total of 2371.58 points. That's a very impressive sum. Even if you compare it to the peak of 15073.13, which happened on June 18, 2008 instead of today's close of 9600.18 it is still impressive.
I put forth the assertion that yes we do know when these days are but no, it doesn't make all that huge of a difference.
And for another good quote, "Please excuse the crudity of this model, I didn't have time to build it to scale or to paint it." Shown here are the best four investing days of the Toronto Stock Exchange in the year thus far. When do they occur? They occur during downward trends when the "Gee, things are getting cheap" people are joined by the "Wait a sec, we're really over reacting" group. One and four are perhaps the best examples of this due to my arbitrary cropping. I'll take a wild stab in the dark and assume that over the last 36 years the very best of the best have also happened like this. My hypothesis is partially based on the largest of the bit ones in my ever so limited time frame study, #3 at 848pts, is huge compared to all the day to day movements I can remember. Unless you're an ultra agile day trader who can move a fortune in minutes, you realistically can't avoid the best trading days. So if you were to miss them, maybe you'd be out of the market for at least a week. You also wouldn't be back in the very next day. In addition to missing the best day, you'd miss a huge drop and a bit of the settling down afterwards (and I regret not leaving enough to show whether that was generally upwards or downwards). Counter-intuitively, you'd probably get a better return trying to miss the best days rather than moving money into the market in anticipation of the best days.
Of course, this being the end of one of the worst weeks that I can recall, I'll have to say that maybe if we focused on a longer time period like months or years, this would have some meaning.
To toss one more thing out there, one of my other observations about the market is that the intraday swings can be quite powerful as well. If we did a study on cutting the best one hour stretches of trading from an index's multi-decade return I'm sure it would have some ridiculously disproportional impact as well and people would be quoting it out of context and talking about it as if it held some profound meaning.
Now, if only we could know the best investing days ahead of time.
"
I keep running into this quote, verbatim including the 36 years from 1970 to 1986, which is actually a 16 year time frame, so I assume they mean 2006. I also assume that it's no longer recent, after all who would do a study that abruptly stops at the most significant economic event in recent history. Anyway, I suspect that there's a touch of insanity and twisting of the facts at work here. I'm not going to study 36 years, but I have kind of noticed something about the best investing days and I think we're missing something very important here.
Year to date, there have been four days when the TSX went up more than 400 points. Those four days amount to a total of 2371.58 points. That's a very impressive sum. Even if you compare it to the peak of 15073.13, which happened on June 18, 2008 instead of today's close of 9600.18 it is still impressive.
I put forth the assertion that yes we do know when these days are but no, it doesn't make all that huge of a difference.
And for another good quote, "Please excuse the crudity of this model, I didn't have time to build it to scale or to paint it." Shown here are the best four investing days of the Toronto Stock Exchange in the year thus far. When do they occur? They occur during downward trends when the "Gee, things are getting cheap" people are joined by the "Wait a sec, we're really over reacting" group. One and four are perhaps the best examples of this due to my arbitrary cropping. I'll take a wild stab in the dark and assume that over the last 36 years the very best of the best have also happened like this. My hypothesis is partially based on the largest of the bit ones in my ever so limited time frame study, #3 at 848pts, is huge compared to all the day to day movements I can remember. Unless you're an ultra agile day trader who can move a fortune in minutes, you realistically can't avoid the best trading days. So if you were to miss them, maybe you'd be out of the market for at least a week. You also wouldn't be back in the very next day. In addition to missing the best day, you'd miss a huge drop and a bit of the settling down afterwards (and I regret not leaving enough to show whether that was generally upwards or downwards). Counter-intuitively, you'd probably get a better return trying to miss the best days rather than moving money into the market in anticipation of the best days.
Of course, this being the end of one of the worst weeks that I can recall, I'll have to say that maybe if we focused on a longer time period like months or years, this would have some meaning.
To toss one more thing out there, one of my other observations about the market is that the intraday swings can be quite powerful as well. If we did a study on cutting the best one hour stretches of trading from an index's multi-decade return I'm sure it would have some ridiculously disproportional impact as well and people would be quoting it out of context and talking about it as if it held some profound meaning.
Monday, September 29, 2008
Still Sliding
Does this count as two market blips or just one with a breather in the middle? It looks like it'll be a while before I can really do a comparison of market drops for the year. There sure have been a lot of them.
It looks like pretty much everything is down across the board. Since I tossed together my own index and seeded it with values from sept 23, it's down 6.01%, the s&p tsx capped reit index is down 5.95%, so I'm not doing any better, though it's only been a few trading days, and both those are ignoring yield. Not that it really means anything right now other than I seem to be matching the day to day market fluctuations. No clue if I'll do better in the long run, though off hand, I have better yield by 0.9%. Though that doesn't matter either since I can easily be out grown 0.9%. It's tempting to update my spreadsheet and see if there's a better way I can allocate the cash I'm assuming I can save up by the end of next year. Who knows, maybe this will actually wind up being more than a recreational exercise.
Also reminds me that I haven't written down anything about how I decided on actual share amounts. Maybe I should decide on a methodology for how I'm going to use the data to actually go about investing. Though that'll have to wait for another night. Late and tired, and being depressed doesn't help either.
It looks like pretty much everything is down across the board. Since I tossed together my own index and seeded it with values from sept 23, it's down 6.01%, the s&p tsx capped reit index is down 5.95%, so I'm not doing any better, though it's only been a few trading days, and both those are ignoring yield. Not that it really means anything right now other than I seem to be matching the day to day market fluctuations. No clue if I'll do better in the long run, though off hand, I have better yield by 0.9%. Though that doesn't matter either since I can easily be out grown 0.9%. It's tempting to update my spreadsheet and see if there's a better way I can allocate the cash I'm assuming I can save up by the end of next year. Who knows, maybe this will actually wind up being more than a recreational exercise.
Also reminds me that I haven't written down anything about how I decided on actual share amounts. Maybe I should decide on a methodology for how I'm going to use the data to actually go about investing. Though that'll have to wait for another night. Late and tired, and being depressed doesn't help either.
Friday, September 26, 2008
Playing with My Own Index
I decided to make my own REIT index since it seems like a good way to get some more income and I wasn't really happy with my current options in that sector. The iShares ETF tracking the S&P TSX REIT index gets a lot of talk for a lot of things. One is for having very few securities, 12 reits and t-bills. The other is for having roughly 25% of it's funds in Riocan and what used to be about 15% in H&R, or about 40% in two securities. Granted, it's not the number of ticker symbols you have in your fund, it's really about what they represent. I can justify having a large position in Riocan simply because it's hard for me to think of a place I lived where they didn't have a very nice looking property nearby and they were always pretty much fully rented out. H&R is also another big name, though they don't proudly post their name on every property they own. In terms of spreading investment dollars amoungst sqft, the two of them do a fairly good job.
One critism that I don't hear all that often is that its holdings aren't adjusted to remove what may not be considered REITs anymore after the big "let's kill off the income trusts" tax change. There's some worry going on over whether or not things like senior's housing and hotels where much of the money comes from the services provided as opposed to the lending of the property. I would like to stick to what is definately going to still be considered a REIT afterwards and still an income trust/mutual fund investment trust.
So, why build my own index? Well, I'm not going to deny that fun is one of the reasons. Also, while those two REITs might spread money over large amounts of rental area, they do not spread money around different management styles, and acquisition philosophies. They're also still only two ticker symbols, so I should be able to reduce volitility with a larger basket. Granted in the bigger picture it's like saying that you don't feel the waves as much, but you're still stuck in the current. So in hopes of getting better returns, I started going about deciding how I'll setup my indext.
XRE is based off an index that uses market share weighting. I am interested in returns and it tends to be a bit of a pain to calculate total returns. Complexity is not something that I'm interested in, keeping things simple is one of the general philosophies of indexing. I decided on a simple scoring process involving yield plus a four year average growth rate. The general idea being if I had a two percent higher yield, I can simply reinvest the difference and wind up with two percent better growth rate, so the two are really interchangable, at least in a taxless world. Four years was kind of an arbitrary decision. The current year is included and counts as a full year even though it's not over, this advantages reits that don't wait till the end of the year to adjust distributions. It's a fudge I'm ok living with. Also many REITs are less than four years old. So I did a simple average of whatever the distribution growth rate was over the age of the REIT. Notably absent is any capital appreciation. I'm less concerned about capital appreciation than I am income. So I now have a MK1 Return Rated REIT index.
It's also getting late, so I'll stop now and leave this post nicely about what I did and follow up tomorrow with a post on what my spreadsheet suggests I do.
One critism that I don't hear all that often is that its holdings aren't adjusted to remove what may not be considered REITs anymore after the big "let's kill off the income trusts" tax change. There's some worry going on over whether or not things like senior's housing and hotels where much of the money comes from the services provided as opposed to the lending of the property. I would like to stick to what is definately going to still be considered a REIT afterwards and still an income trust/mutual fund investment trust.
So, why build my own index? Well, I'm not going to deny that fun is one of the reasons. Also, while those two REITs might spread money over large amounts of rental area, they do not spread money around different management styles, and acquisition philosophies. They're also still only two ticker symbols, so I should be able to reduce volitility with a larger basket. Granted in the bigger picture it's like saying that you don't feel the waves as much, but you're still stuck in the current. So in hopes of getting better returns, I started going about deciding how I'll setup my indext.
XRE is based off an index that uses market share weighting. I am interested in returns and it tends to be a bit of a pain to calculate total returns. Complexity is not something that I'm interested in, keeping things simple is one of the general philosophies of indexing. I decided on a simple scoring process involving yield plus a four year average growth rate. The general idea being if I had a two percent higher yield, I can simply reinvest the difference and wind up with two percent better growth rate, so the two are really interchangable, at least in a taxless world. Four years was kind of an arbitrary decision. The current year is included and counts as a full year even though it's not over, this advantages reits that don't wait till the end of the year to adjust distributions. It's a fudge I'm ok living with. Also many REITs are less than four years old. So I did a simple average of whatever the distribution growth rate was over the age of the REIT. Notably absent is any capital appreciation. I'm less concerned about capital appreciation than I am income. So I now have a MK1 Return Rated REIT index.
It's also getting late, so I'll stop now and leave this post nicely about what I did and follow up tomorrow with a post on what my spreadsheet suggests I do.
Monday, September 22, 2008
Market Dips Year to Date
Heh, I was plotting a post about how different sectors performed in the various market drops so far. Though after looking at today's closing market figures and I must say this one isn't over yet. While I haven't really looked at the data yet, but I think there's been a change. I'll see what I find when it's over.
Wednesday, September 17, 2008
Real-estate risk/Random speculation
What do you get when you combine lack of experience with a lack of formal background into the subject? Well, I'm not sure, though some thoughts going through my mind since I originally decided that I like REITs and would like to have a significant portion of my portfolio in them. I can see the damend for office space dropping as financial services shrink. This will probably result the price of office heavy REITs falling/yield increasing, along with slower growth rates and possibly a small decrease in distributions in the short term. Part of me expects that things will become oversold and open up opertunities to invest.
I can't really see industrial property moving very quickly. Yeah, we're loosing car plants, which means that all the connected stuff is going to suffer a bit. I'm tempted to whimsically remark that all the parts for anything these days come out of China anyway so it'll stay contained. In all practicality though, it's a bit of a toss up in my mind over whether or not closures will out pace exsisting escallation clauses in the continued leases.
Retail, I have a hard time seeing a decline in high quality retail properties, however, I don't think they'll grow as fast as they would otherwise.
Finally, with regards to residential properties, I'd expect population trends to change slowly. Granted, rents are probably going to have to come down, or stay the same when unemployment goes up. I don't expect a major hit.
So in summary, these are the rantings of someone who knows nothing, spent next to no time studying the situation and absolutely no track record. I expect overall slower growth, and offices will take a significant beating, but there'll be an overshoot period where they'll represent a good buy.
When will it all end?
Today, I found myself asking when all this turmoil in the market will end. It set me along the train of though that, the reason why credit is tight is because people are concerned with the viability of financial institutions. Those financial institutions are on rocky grounds because the income they once enjoyed from securitization is gone and mortgages are defaulting, further hampering their revenues. Of these two, I'd say that the shock from the first one should probably be over already. The second one though, I don't think we're through the peak of the foreclosures yet. Beyond that, I don't know what will happen. I'd like to say that things will be over, but lets face it, some things lead, some things lag. At this point, I'll say that would be step one. After it becomes blatantly obvious that part of it is over, I'll start wildly stabbing in the dark about step two and hopefully one of a couple hundred guesses will be correct.
Thursday, August 28, 2008
Big Up Day In The Markets
Well that was quite a surprise when I got home today. Big market movements and I'm up nearly 5% in one day. That's over $1000 in my fledgling portfolio. Granted, there's down days as well and overall, it's hard to see the way things are heading from all the day to day ups and downs. Though it is easy to see that some things are considerably cheaper on some days.
The big thing I care about though is income and long term growth, which I then view as something I can convert into income. Q3 earnings are in. I haven't really reviewed my holdings yet, but that's on my to do list.
The big thing I care about though is income and long term growth, which I then view as something I can convert into income. Q3 earnings are in. I haven't really reviewed my holdings yet, but that's on my to do list.
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