Investing General Discussion

Pops said:

It was crazy like this in 1999. Strippers and the bouncers day trading. GD virus slowed down the melt up, but it's back.

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except we are no where near that level of participation, we'll get there eventually. Each generation gets to learn the lesson and we are probably about 10-13 yrs from Millenials hitting peak earnings and they can drive us up to ridiculous levels and finally bring the secular bull run to an end.

Because of demographics and secular trends. I don’t think waxing on decade long trends is “making predictions” at least in the way I mean them when discussing current investment decisions.

Don’t have time tonight to explain right now I’ll respond to you tomorrow it’s important concept to understand the difference

Khane said:

You've bemoaned that type of thinking in this very thread. Specifically in reference to "antiquated" methodologies like the ones Sanrith has talked about here. For the most part I agree with your methodology and even envy your portfolio, especially when it comes to commercial real estate. But as soon as someone acts clairvoyant and pretends historical trends mean more than precisely jack and shit, especially considering our current market, I start to wonder. History doesn't mean anything when historical regulation has been dissolved and wall street is essentially the wild west.

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Your post takes a rather extreme position and you do it from a position of such assurance it’s hard to wonder what a productive response would be. I’m not going to respond to your assumptions here as it would likely be unproductive but I will respond to the miss understanding in regards to my stance and process.

Like anyone else probably more so than those here I have opinions and ideas on what is likely to happen with the market in the near term. The key difference is how we use information. As we have seen quite a few times one may post.

“I see us at a near term top so I sold”

now I rarely make such a post but occasionally I might say .

“I see us at a near term top”

Then we have your question of why do I take issue with post 1 but not my own. The particulars to my strategy it would appear based on lines of your post you will assuredly disagree with but I’ll lay them out anyway because you asked.

The Past:
I have studied and continue to study weekly the entire post war market history, I have looked at every zig and zag of the s&p along the way , In particular I study it from the context of large secular trends and trying to learn characteristics of behavior of the boom and bust cycle.

I don’t use this to predict the future but to help me keep an open mind to all possible outcomes, to help me see what is normal and to be expected. It is critical to never marry an idea and then let that bias control your decisions.

This is very hard for humans to do myself included. Successful investing is like waging a never ending war but not with algos or balance sheets but with your human nature. We are driven by fear and greed. Strong emotions that are often not helpful to our financial decision making as most think.

Properly understanding the past it what helps discern if statements like yours “that this time is different “ are true or coming from a place that lacks sufficient perspective.

So the past sets the table in my mind to understand possible outcomes and what they might look like from a market technical point of view . But action must be taken and without emotion so what do? I trade what is, meaning I trade the trend that is happening if it changes I will change with it. The moment you let go of the idea of getting out at the top it gets a lot easier. Most people know the truisms they just aren’t good at following them. ”the trend is your friend” “don’t fight the tape” “strength begets strength”. People who understand these things are often successful experienced professionals those who ignore are retail investors who flounder for years upset about the rigged markets.

I follow a vast assortment of technical and fundamental data what I will often refer to here as the weight of the evidence. It’s how I could see pops was wrong over a thousand S&p pts ago and 500pts ago for sanrith, and yet I don’t even disagree with their assertions in regards to troubling data pts.

I look at credit spreads , moving averages, stock to bond ratios, breadth indicators, fund flows , financial ratios, jobs data, sentiment indicators and many more. I then make a decision based on the weight of that evidence even if it goes against what I feel have a hunch or predict might happen.

the more you do this you quickly learn how fear was controlling you and how often on a Friday afternoon with scary headlines scrolling by we can be driven to a mistake.

Sometimes current data will flash warning signs of caution and i respond then sentiment can change quickly (lately 2016 & late 2018 this has been driven by a Fed pivot) and you must go where the data takes you . This is another stumbling block for investors even if they understood the whole first part and made the choice for the right reasons we have trouble reversing course. Our hestitation to take action in the face of new information results in poor performance.

We just lived this dec 2018 short term trend strength was weak and long term trend threatened. It warranted strong caution . Fed pivot occurs and the data responds , very strong bullish indictors flashing in January 2019. It is very hard for us to then increase exposure but it is what separates the winners from the losers.

Being cautious wasn’t wrong it’s prudent for anyone who understands the magnitude of declines that could follow a break in the trend. Secular trends are so strong and lasting We must adopt behaviors that help us capture the lion share while avoiding the greed that says you have to get it all or the fear that stops you from participating.

The market can humble anybody and it requires constant discipline and checks and rechecks to make sure we don’t go astray it has made me millions making me and likely my children financially independent for the rest of our lives.

I know certain posters here are amateurs and there is nothing wrong with that, I think they are intelligent and astute people. I see my own mistakes in their posts and I want to be helpful. I do this for a living most are left to try to do the best they can with the time and inclination they have . My advice changes based on the person. Most don’t have the time to do what I do not to mention they lack the wealth for it even to matter that much.

A greater piece of advice than any market strategy is LIVE BELOW YOUR MEANS. Save As much of your earnings and you can work to become debt free succeed at that and you can tell the market and it’s endless mindfuck to get bent.

I could go on quite a bit more as I love this stuff but as anyone can see by my post count I don’t feel the need to post a lot for my own sake. If someone wants to me elaborate on something I’ll do so but not really interested in an argument at least in the style often indicative of this forum.

I will say that some here would benefit more by a post that says “guys I’m seriously concerned about monetary policy stance and leaning bearish do you guys think there is bullish evidence that I might be underweighting or missing?” that is probably asking too much of some but I don’t think so for a few.

eXarc said:

Blazin, do you own/work for a firm or group?
Strictly curious if your mindset has been molded diligently through self examination and basically being an autodidact or if you have had peers and influence along the way.

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I currently manage my own money, but the answer to the second is a strong both. Self examination would be the title of the book of my trading career. Most will make a wrong decision and have the market go against them and instead of figuring out why they missed the signs they make excuses "the market is rigged". Good mentors are really hard to find in finance there are so many charlatans and even more numerous those who understand the basics but never really have the breakthrough in thinking. I interact regularly with three professional money managers who I respect greatly from a variety of backgrounds and expertise. One is a short term scalper who taught me a lot about technicals, another is a private wealth manager for a few very wealthy families. He is in his 60s and has been doing this his whole adult life and like my story it's experience that really chiseled the edges. The third is a gen X'er. He also manages money. I have been pushed many times to start my own shop but I lack the drive for it. I don't need others money and I don't care to be much wealthier than I am, driven more just by passion at this point.

I really want to teach, it is what brings me pleasure to see someone I know has potential and help them be better, but I'm not sure that proper investing discipline can be taught. It can be guided but real experience, real mistakes, seem to be a necessary ingredient otherwise the psychological aspects, which are the real hurdle, can't be properly understood.

grats man hitting 7 figures is awesome especially for people who had to get there from nothing. I respect the dedication, and love hearing another example of how simple living is a great partner to wealth building. Going to hang up the hat at 55 when you get access to 401k funds?

These are my personal gains since 2002. I bought my first stock in 1994 but sadly I lost my prior to 02 financial data in a hard drive failure that still pains me to this day. Easy enough to overlay it against the S&P and see that plenty of times I have under performed the index but beating it has not been my goal for a good number of years. My goal has been to get the best risk adjusted return I can. The pain of the GFC is obviously there as well, being the worst time frame of my career, but I'm quite proud of how I navigated that period. Then look at last year and see how clearly someone who sat an index outperformed me, though their result lines would have a lot more peaks and valleys than mine. The price of reduced vol. is reduced upside that is the nut of it. The early crazy return years I traded nothing but options. Making $5000 option trades didn't scare me when I was making $200k in salary, at this stage I will say 100% unequivocally luck played a roll. I may have been more disciplined than the average retail trader but didn't take me long to see the dangers of continuing to push that game.

I seek to even out the bumps and consistently meet my goals. If you looked at a graph of my portfolio vs my goals it becomes obvious I'm a slave to that goal. Not uncommon for me to reduce risk upon success not because I turn bearish but because the goals are what drives me and I view the market as a means to an end. I benefited from silly risk taking in my youth. I was earning a good living and had time and income on my side, but as those early years drove the portfolio higher my current income began to be dwarfed by net worth and I slowly became cautious knowing that recovery from a significant decline would become more difficult.

Sanrith Descartes said:

I have been analyzing equal weight vs cap weight SP 500 index ETFs. Specifically SPY and RSP. My reasoning is I am concerned with the SPY having the big ten companies continue to grow their influence on the SPY. I see it an a self-perpetuating circle. More money goes into the SPY (and its clones) which proportionally increases the big 10 market cap and they get a larger weight in the SPY.

One concern I see with RSP is sector diversity due to the number of small/mid caps getting an equal weight.

Thoughts anyone?

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The same dynamic driving them higher due to market cap will play out during outflows, and feeling an over exposure to 5 names is completely reasonable concern. Not sure equal weight index is the right path however. The bloated companies have been the ones growing quickly their success created the problem. It's success you want to participate in, indexing works because it naturally gives your more interest in the winners while a declining interest in losers. What I have personally done because of this issue is switch off of SPY and use QQQ, which is even more concentrated with those same names. This allows me to focus and control that exposure then use a dividend s&P index plus mid and small cap indexes to diversify. There are certain companies that end up missed and so I add them and invest in them individually. Even with the tinkering I have calculated my apple exposure to be a little higher than I would want for any single name. What we need is an S&P index minus apple .

Equal weight can be dangerous overtime in fact the world index equal weight has still not recovered from 2000 highs. You don't want to strangle yourself by holding all the no growth losers to a higher share because of the few successful ones clogging up your portfolio.