[2020] A little stock market sense

[TolmiePeak]

I sold my 3 oz Au and 40 oz Ag for 90% of spot yesterday. That seemed fair. He has expenses, and has to make a living. He has to carry a gun all day long for pete's sake.

10% cut is outrageous. Why pay someone $250 per ounce to sell gold.

 

[ScoopKona]

10% cut is outrageous. Why pay someone $250 per ounce to sell gold.

Because that someone sells the gold to the company that actually does the melting and reselling. And that company doesn't do business with the public -- only with the "we buy gold" people. The last one we visited had a big box of silverware and goldware that eventually would be melted. In the mean time, that's a lot of inventory to hold onto -- and every person with a spoon collection (or more likely an heir to the massive spoon collection) was paid on the spot.

If someone inherits a bunch of otherwise worthless metal, it's a way to turn dead weight into something useful.

 

[letsgobobby]

It seemed very reasonable to me, unless you have a cheaper way in mind.

 

[RENTER]

subject your "system" to a professional audit and include bid-ask spreads, fees, and taxes on short term capital gains. then compare it to an approrpriate, risk-adjusted benchmark.

then i'll start caring about anything you post.

In a Roth so no short term capital gains. Been there since 1997 when Roths vs started. But keep trying to impress people how smart you are with all your complicated procedures. I will simply own everything, sell my winners and buy my losers.

 

[RENTER]

The only people that should be mocked are those that claim they can time the market or have a "system" that works to beat the market. Both claims are complete nonsense. The only people making money with a "system" are those selling training courses on how to use such system.

Owning everything in slices to match the total index is not trying to beat the market. It is trying to match the market without suffering the 30% to 50% drop. A simple approach which I do not understand why people do not get it.

 

[Ralph Sir Edward]

Owning everything in slices to match the total index is not trying to beat the market. It is trying to match the market without suffering the 30% to 50% drop. A simple approach which I do not understand why people do not get it.

I am trying to get it. I need more working details, not generalities.

Question 1

By taking a 10% profit, or a 10% loss, you mean that you sell your position down by 10% (in dollar terms). Is this correct.

Example: One holds a $100 dollar position in a S&P 500 long fund, and a S&P 500 short fund (unleveraged) The S&P 500 goes up 10%. The long fund goes up to 110, and you sell down the balance by $10 (10%), bringing the cash value of the holdings back to $100. At the same time, the short fund should go down by $10 (dropped 10%) and you sell 10% (100%? - the amount is not clear from your posts). However much, these go to a holding position (see next question). Question: how much is sold by the losing fund at the 10% loss mark?

I know your do this over many matching funds, I used just one for a buy/sell explaining example.

Question 2: How do you allocate the cash received? You mentioned cash, bond ETF, and buying the losers of the system. How do you decide which, and how much of the cash, to put into each choice. If this is a system, there should be a clearly defined system for determining this issue. You have not described it in detail.

As for tax reporting, if one does this system in a Roth IRA (which happily allows ETFs), there is no tax aspects to consider.

 

[TolmiePeak]

Owning everything in slices to match the total index is not trying to beat the market. It is trying to match the market without suffering the 30% to 50% drop. A simple approach which I do not understand why people do not get it.

You realize that teaching others how to do this is far more lucrative. Selling books and seminars is very lucrative.

 

[rapmarks]

Owning everything in slices to match the total index is not trying to beat the market. It is trying to match the market without suffering the 30% to 50% drop. A simple approach which I do not understand why people do not get it.

This works if you have good quality. But does good quality drop 30 to 50%. You said you buy the losers, but they must be not really losers , just holdings that are not appreciating as fast.

 

[TolmiePeak]

This works if you have good quality. But does good quality drop 30 to 50%. You said you buy the losers, but they must be not really losers , just holdings that are not appreciating as fast.

It works if you can get others to believe that it works and then you can sell your system to others.

 

[RENTER]

This works if you have good quality. But does good quality drop 30 to 50%. You said you buy the losers, but they must be not really losers , just holdings that are not appreciating as fast.

Not all sectors go up. Some drops. Those are the one's I call the loser. I bring the winners which are above my baseline back to the baseline and bring those below the baselines back up to the baseline. Eventually the cycle will turn and they will be the winners.

As for the nitpickers who enjoy spending hours during research, they will whine about short term gains. First if it is in a Roth, it does not matter. Even in a regular IRA it does not matter but you will be paying ordinary income taxes down the road on them.

However if it is in a non-retirement account, usually there is no short term gains. Because for most it takes over a year to get to 10% above the baseline to sell. But even then, with 83 investments to choose from I can wait out the year by selling those first which hit the 1 year mark.

Now if you really want to get into it, since you are going to have losers so you can harvest tax losses and sell them to create a loss and buy them back in 31 days.

Off course the nitpickers who will argue with you about the color of the sun will have a problem with this. They will spend hours doing the research checking charts and balance sheets and listening to Cramer.

I on the other hand will spend 5 minutes.
1. signing in
2. sending my 2 factor code
3. clicking on my positions page
4. going to market value and clicking on higher to lower
5. take the 10% profits if any
6. go back to market value and click on lower to higher
7. take those 10% profits and put them into what is below the baseline the most or cash and dollar cost average into those below the baseline.
8. sign off.

 

[rapmarks]

Roths started the year I was planning to retire. Income ineligible . Never had earned income from 2000 on. Wish I had rolled over into Roth, but was never mentioned in those days right after I retired.
but I do fine. About 60% of my portfolio is unrealized gains and another part is reinvested dividends,which I haven’t tracked.

 

[letsgobobby]

Roths started the year I was planning to retire. Never had earned income from 2000 on. Wish I had rolled over into Roth, but was never mentioned in those days right after I retired.
but I do fine. About 60% of my portfolio is unrealized gains and another part is reinvested dividends,which I haven’t tracked.

we have been income ineligible for Roths for twenty years but in 2006 when Congress and the IRS allowed backdoor Roths beginning in 2010 we started making non deductible contributions to traditional IRAs and converted annually beginning in 2010. it has definitely added up over time especially with higher contribution limits starting with the Bush tax cuts.

otherwise we plan to take advantage of the lower income years between retirement and taking SS (65 and 70) and especially RMDs (73) to convert traditional IRA to Roth up to the top of the 24% bracket.

 

[Ralph Sir Edward]

Not all sectors go up. Some drops. Those are the one's I call the loser. I bring the winners which are above my baseline back to the baseline and bring those below the baselines back up to the baseline. Eventually the cycle will turn and they will be the winners.

As for the nitpickers who enjoy spending hours during research, they will whine about short term gains. First if it is in a Roth, it does not matter. Even in a regular IRA it does not matter but you will be paying ordinary income taxes down the road on them.

However if it is in a non-retirement account, usually there is no short term gains. Because for most it takes over a year to get to 10% above the baseline to sell. But even then, with 83 investments to choose from I can wait out the year by selling those first which hit the 1 year mark.

Now if you really want to get into it, since you are going to have losers so you can harvest tax losses and sell them to create a loss and buy them back in 31 days.

Off course the nitpickers who will argue with you about the color of the sun will have a problem with this. They will spend hours doing the research checking charts and balance sheets and listening to Cramer.

I on the other hand will spend 5 minutes.
1. signing in
2. sending my 2 factor code
3. clicking on my positions page
4. going to market value and clicking on higher to lower
5. take the 10% profits if any
6. go back to market value and click on lower to higher
7. take those 10% profits and put them into what is below the baseline the most or cash and dollar cost average into those below the baseline.
8. sign off.

Once again, how do you determine which of the choices to put the raised funds into.

 

[RENTER]

This works if you have good quality. But does good quality drop 30 to 50%. You said you buy the losers, but they must be not really losers , just holdings that are not appreciating as fast.

I failed to mention in my response to you is that I also have short ETF's. So I will always have losers.

 

[RENTER]

Once again, how do you determine which of the choices to put the raised funds into.

The 11 sectors of the 500 index and 37 subsectors. Then international, emerging market, gold, Bitcoin, each of the magnificent 7 and Treasuries ranging from 1 month to 30 years and any bear funds that exist to hedge against them

 

[RENTER]

You realize that teaching others how to do this is far more lucrative. Selling books and seminars is very lucrative.

Why do I have to teach it. It is a simple easy inexpensive process others can do for themselves. It should take them 5 minutes to learn after giving them the idea. If they want to pay me, they are fools who do not belong in the stock market.

Plus look at all the crap I take here for sharing it with people. Getting attack for telling people not to try to guess the market and own everything with an equal amount in each to reduce the roller coaster ride by cherry picking the winners.

No thanks. I am not money hungry. Just freedom hungry and the stock market buys me my freedom whereas I do not have to worry about crashes to lose that freedom.

 

[Ralph Sir Edward]

The 11 sectors of the 500 index and 37 subsectors. Then international, emerging market, gold, Bitcoin, each of the magnificent 7 and Treasuries ranging from 1 month to 30 years and any bear funds that exist to hedge against them

My question is not what choices one has, but how does one select among them. You must have some way to determine which way you choose to re-allocate the raised money any particular time. Does one place it in say - Treasuries - vs. bear funds, or bitcoin, or gold, or one of the other choices? What tells you what to choose at any particular time?

 

[TolmiePeak]

No thanks. I am not money hungry. Just freedom hungry and the stock market buys me my freedom whereas I do not have to worry about crashes to lose that freedom.

It doesn't matter how simple it is. I would teach your system to others. That is where the real money is.

 

[WaikikiFirst]

I am reminded of Rod Serling's intro to The Twilight Zone.
There is nothing that compares to reading / listening to a bunch of people who know little about The Stock Market discussing The Stock Market or 999 different things related to The Stock Market. Nothing.

 

[WaikikiFirst]

Once again, how do you determine which of the choices to put the raised funds into

I've only skimmed it but I think he said that. What hasn't been asked is one of the most obvious questions.

 

[WaikikiFirst]

I also have short ETF's. So I will always have losers.

Which raises another question, but never mind.

 

[WaikikiFirst]

I just realized I said I would write something here about the Russell 2000, from 2 angles
1) why would I not buy a R2000 ETF? ... other than as a short-term trade which I would definitely keep my eye on
2) from another thread where I showed some of Ed Yardeni's charts, why would Yardeni stick to the SP600 rather than the R2000?
AND NOT SURPRISINGLY, THE TWO ARE RELATED ...

1) You don't actually get the "innards", stats-wise, that you think you're getting with a R2000 ETF. Guess: how many companies in R2000 are not profitable?
Answer: > 40% of them. Russell 2000 criteria does NOT include a profitability requirement, and so unprofitable companies recently accounted for 41% of the index. And if the economy weakens that % would be likely to rise toward 50%. Overall, through good times and bad, that % has doubled since 2006. Problems:
1a) R2000 is a much riskier index than any diversified index of larger stocks. This is evident by its greater volatility. Here we see one of the reasons: unprofitable companies can face MAJOR problems in a recession.
1b) It is a fallacy to claim the R2000 is “cheap”. People who do that get there by simply IGNORING all the unprofitable stocks. Those stocks are in there, but they just get IGNORED in widely-repeated calculations. Take IWM. In March, Morningstar quoted IWM’s PE @ 11.7x, (by ignoring almost half the population, but the PE was 27.1x once you add those back). The PE ratio rose by about 150% and became greater than that of the SP500 at the time. This is how it has been with IWM for years now, and how it is with all those comments you hear about how cheap small-caps are.

2) Yardeni, being a solid #s guy, wouldn't use R2000 for his yr-after-yr-after-yr stats, for the simple reason that Mathematically-speaking, the Russell 2000 will not provide “Robust” statistics. Why? There is no standard way to deal with that 40%+ of unprofitable companies, wither across time or across different "market commentators / calculators". Even if everyone agreed to "just ignore them" the fact that the % has doubled from 20%+ to 40%+ in just 20 years means the stats are a mirage.
Suppose there were only 10 profitable firms in the R2000; would you buy a R2000 fund that includes all 2000 and pretend the PE you were quoted really represented what you had bought?
When the R2000 outperforms, it is because the stock market is going thru a "flight to trash".

So, anybody who has bought a R2000 ETF:
1) how many stocks were in it?
2) how many were profitable?
3) do you think you really know what the PE of the ETF was / is?

 

[RENTER]

I play the long short game with the following indexes and stocks. That means I have a bull and bear. Dow, 500, Nasdaq, Small Cap, Mid Cap, International, Emerging Market, China, Energy, Financial, Gold, Real Estate, Financial, Retail, Arkk, Bitcoin, Apple, Amazon, Google, Meta, Microsoft, Tesla, Nivida, High Yield Bonds, Long Term Treasuries and Immediate Treasuries.

Since I already have energy, financial and real estate covered, that leaves the other 8 sectors of the 11 in the 500. So I have those 8 plus the 37 different subsectors I have chosen. I hedge them against treasuries of floating rate, 1 month, 3 month, 6 month, 1 year, 2 year, 5 year, 7 year, 10 year, 20 year, 30 year and Tips.

My portfolio will always be green and red. At any time I will have something up that I can cherry pick from.

What is a sub sector? In financial you will have insurance, brokers, large banks, regional banks

In health you will have bio tech, medical devices, pharmaceuticals

In the Reits I have discussed before, you have warehouse, data centers, communication towers, medical offices, apartments, storage

I cover as much as the economy I can and let the market tell me what to buy and sell. I do not look at balance sheets, I do not look at charts. I do not use stop orders, I do not use limit orders, I do not use options. I do not listen to experts. I keep it simple and just use what is above or below my baseline.

This works for me. Gamblers do not like it because it is to boring for them. i share it to help to others because it may work for them. i mention I use the stock market for freedom. That means never having to worry about running out of money like many have done and had to return back to work in the senior years.

But that freedom is at risk if others fail in the stock market or never learn it. Because people never accept the responsibility of their actions and mistakes. So if they gamble with the stock market and lose, they will blame the system and accuse it of being rigged for the rich. Thus, they will vote for communism and socialist ideas.

My system takes the gambling out of the stock market. Automatically forces you to sell high and buy low. With all I have, for me to lose everything, that means the planet has been destroyed by an asteroid. I do not have an ETF that covers asteroids striking earth.

Again, it may not be for everyone. But anyone who attacks me for it, is just an egotistical nitpicker who loves to hear themselves talk by trying to impress people by making things complicated.

 

[VacationForever]

@RENTER If you simply buy one Total Market ETF and one International ETF, you are pretty much covered in terms of automatic rebalancing. You are making your life way too hard and busy and not even do better than the market in the long run.

 

[WaikikiFirst]

pretty much covered in terms of automatic rebalancing

but Renter is not "rebalancing". It is far more than that, and in more than 1-dimension. Heck, there is a 4 word math term to describe the type of strategy Renter described. 4 simple words. Math. Anyone got it?
ps: the "strategy" of quite a few well-known investors boils down to the same 4 words at the core. When they discuss any individual idea at any length, it becomes clear. 4 words. What Renter described is simply getting right to the core, brushing aside all the fancy clothing.

The whole thing would drive me crazy. Not that I believe it works, but whether it does or not seems to me to depend on a few core parameters, which nobody has even asked about.