Bad timing

DOUG By Guest Blogger Doug Rowat

Brad Barber and Terrance Odean. Know of them? Perhaps not, but you should.

Mr. Barber and Mr. Odean were researchers at the University of California who conducted a landmark study of investor behaviour during the 1990s. They looked at the trading activity of roughly 78,000 households at a large US discount brokerage over a six-year period. What they discovered was revealing.

Households that traded their stock portfolios the most had, by far, the worst performance. The highest turnover portfolios had an average annualized return of 11.4%, but the lowest turnover portfolios had a significantly better return of 18.5%. (If these returns seem impressive, it’s because it was the bull-market years of the 1990s.) The annualized blended-benchmark return (buy and hold) was roughly 18%. A conservative stock portfolio might have annual turnover of 20%—the highest turnover portfolios in the Barber and Odean study were realizing this every MONTH.

So what were these frequent traders doing wrong? The mistakes were numerous. Certainly overestimating their ability to determine market direction, an enormously complex task, was a key factor in their underperformance. Overconfidence led them astray, essentially. But there were other errors. They also traded emotionally. For instance, they held stocks that had recently underperformed the market and sold their winners, which was “consistent with the evidence that individual investors tend to hold their losers and sell their winning investments”. Our experience with our own clients is similar. When a client wants to raise money from their portfolio, often they suggest selling only the positions that have performed well, ignoring the fact that positive fundamentals are likely the reason for the strong performance and that it could easily continue. Repeatedly selling your winners usually only serves to blunt momentum.

Another amazing revelation of the Barber and Odean study was how poorly diversified most of these stock portfolios were. The mean household in their study held only 4.3 stocks! Recall the blog post I wrote a few months ago (http://www.greaterfool.ca/?s=hail+marys) highlighting that the odds of any one stock suffering a catastrophic loss (a 70% drop) is about 40%. If you have only a four-stock portfolio, you’re living dangerously.

Much of what Barber and Odean concluded has been supported by other analysis. For instance, Blackrock notes that you only need to miss a handful of strong market days to absolutely cripple your long-term portfolio performance (see chart). Over thousands of trading days do you believe that you’ll be able to accurately determine the few strongest market days and, by corollary, the few weakest days? Get over yourself.

Investment of $100,000 in S&P 500 (1995-2014): Market Timing is Pointless.

Source: Blackrock

Interestingly, Barber and Odean also determined that men trade 45% more often than women. And, lo and behold, underperformed women in terms of net returns. Sadly gentlemen, overconfidence once again gets the better of us. As Barber and Odean describe it

Overconfident investors believe more strongly in their own valuations, and concern themselves less about the beliefs of others. Overconfident investors…hold unrealistic beliefs about how high their returns will be and how precisely these can be estimated.

Put another way, even though your buddies have advised you that you’re an ugly slob, you still decide to ask Scarlett Johansson out on a date. You can, of course, do this, but just be aware that she’ll tell you to get lost every time (or call the police).

I don’t highlight the Barber and Odean study to suggest that portfolios should never be traded. They should. It makes sense, for instance, to periodically rebalance your portfolio and also to subtly shift asset and geographic weightings in response to broad changes in economic conditions or interest-rate outlook. But having 200% portfolio turnover because you view yourself to be a human algorithm? This is a poor strategy.

Dial it back, flash boys.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

100 comments ↓

#1 cecilhenry on 04.22.17 at 2:38 pm

18% years??

What a dream. Hard to believe it.

Its like ancient history, with dinosaurs.

#2 For those about to flop... on 04.22.17 at 2:56 pm

If I was a betting man ,I would guess that photo was taken in Australia judging by the colour of the soil.

I see one of the bosses targets, the Trivago Guy, seems to have be content to job share with a person from down that way as well…

M42BC

#3 Bryan on 04.22.17 at 3:07 pm

Good article Doug – don’t know how anyone can time the market (consistently). Do you know of any studies analyzing a flat/negative yield curve and subsequent returns?

#4 LP on 04.22.17 at 3:08 pm

Put another way, even though your buddies have advised you that you’re an ugly slob, you still decide to ask Scarlett Johansson out on a date.

Unless, of course, he’s great stock picker! ;>)

#5 JRH on 04.22.17 at 3:29 pm

You sell your winners @ buy the losers when rebalancing ?

#6 MagnumMTL on 04.22.17 at 3:38 pm

“if you have a four stock portfolio you are living dangerously”

– just ask Bill Ackman!

#7 Penny Henny on 04.22.17 at 3:45 pm

#170 Paul on 04.22.17 at 12:49 pm
Question.

Can rrsp’s be transferred to your spouse/common law partner

///////////////////////////////

Answer. Yes. When you’re dead.

Seriously though if spouse has no income then withdraw RSP and in same year contribute to spousal RSP.
Wait three years and spouse can withdraw at very low tax rate.

#8 Penny Henny on 04.22.17 at 3:49 pm

For instance, they held stocks that had recently underperformed the market and sold their winners, which was “consistent with the evidence that individual investors tend to hold their losers and sell their winning investments”.
///////////////////

Umm, excuse me Doug. But how does that differ from re-balancing?

#9 For those about to flop... on 04.22.17 at 3:56 pm

Pink Pollen falling in Surrey

I will do a double banger to try and stay out of Robax’s way.

Both these guys have a little bit of wiggle room after their latest reductions, but with the average sale price in Surrey down 11% and for one a lot of time to soak ,you know this shallow correction still has their attention.

These guys paid 800k and had it back on a few months later.

8933 149 Street, Surrey

Oct 9:$899,000
Apr 20: $869,000
Change: – 30000.00 -3%

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDA3ODg0Qw==

These guys paid 900k last spring

13523 79 Avenue, Surrey

Mar 13:$1,025,000
Apr 20: $999,900
Change: – 25100.00 -2%

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDA3N001Nw==

These types of houses shouldn’t be struggling to sell in a robust market being below a million, albeit in Surrey…

M42BC

#10 Stock Picker on 04.22.17 at 3:59 pm

Stocks Rule!!!!!

#11 Tony on 04.22.17 at 4:15 pm

The mid 1990’s turned into a circus sideshow overvaluations were stretched to the limit yet it took all the way to the dot-com crash for the market to finally crash. The way I read the market today is we still are in a long term bear market dating back to the dot-com crash but presently are in a bear market rally and the next market crash will be much, much worse than the Lehman debacle Lower lows to follow.

#12 Tony on 04.22.17 at 4:19 pm

Re: #5 MagnumMTL on 04.22.17 at 3:38 pm

It all averages out over time unless you go bust first and never recover.

#13 Dan.t on 04.22.17 at 4:31 pm

Hehe, pretty informative and amusing post Doug. Moral of the story- Be invested at all times! At least I think that is the moral of the story.

#14 Highest Turnover, Worst Performance on 04.22.17 at 4:48 pm

“So what were these frequent traders doing wrong? The mistakes were numerous. Certainly overestimating their ability to determine market direction, an enormously complex task, was a key factor in their underperformance. Overconfidence led them astray, essentially. But there were other errors. They also traded emotionally.”

Hey, traderJim! How frequently do you trade? You genius, you!

#15 westcdn on 04.22.17 at 5:05 pm

Okay, I am ready to fight. Calling me a fool is mistake. I can burn you. I will take you on when it comes to investing. To suggest peoples are fools without your help is silly. I am just waiting for Garth to announce the sale of his business to you.

#16 Doug Rowat on 04.22.17 at 5:15 pm

#7 Penny Henny on 04.22.17 at 3:49 pm

For instance, they held stocks that had recently underperformed the market and sold their winners, which was “consistent with the evidence that individual investors tend to hold their losers and sell their winning investments”.
///////////////////

Umm, excuse me Doug. But how does that differ from re-balancing?

Rebalancing should be occasional not every five minutes. And it differs from rebalancing because they weren’t adding to their losers.

–Doug

#17 Fish on 04.22.17 at 5:19 pm

so if a reality lot drops from the sky to you, hang on to it
Maybe even put a tiny home on it, because
I’m not signing a rental lease, just a thought,

#18 Lost in Space 2 on 04.22.17 at 5:20 pm

Repeatedly selling your winners usually only serves to blunt momentum.

Interesting opposite of what I would have thought

#19 crowdedelevatorfartz on 04.22.17 at 5:27 pm

Where the hell was that photo taken?
Australia?

#20 common sense on 04.22.17 at 5:42 pm

With the central banks worldwide buying everything likely forever, just buy any dips, place ALL money in stocks and enjoy the ride.

Nothing can take this baby down for long – Trump, Brexit, nuclear war, etc…

The road goes on forever, the party never ends.

Who needs financial planners when your back is covered? Really?

#21 Terrific article on 04.22.17 at 5:48 pm

Of course there will be outliers , they r few and far between

Is it a matter of time till Buffet throws in the towel and does what he preaches ? Buy index funds

#22 Dave on 04.22.17 at 6:21 pm

The Vancouver panic is real. Where the hell were all of these people living before standing in line to rent one place?

https://betterdwelling.com/city/vancouver/renting-in-vancouver-just-turned-into-the-hunger-games/

#23 Long-Time Lurker on 04.22.17 at 6:24 pm

Bad Timing – Blue Rodeo!

#24 oldwrinkley on 04.22.17 at 6:25 pm

Doug,
I have a question regarding how do you and the group consider for purposes of US/Can ratio allocation stocks like enb. or trp. or bam.a which are all TXS listings but have large USA asset holdings. I do not want any proprietary info just what is your attitude towards them, Can. or US or a split in accordance to the asset holdings.
Thanks for your reply,

#25 SWIB on 04.22.17 at 6:32 pm

So selling high or winners (too often?) with investing, not good.

Selling high and buying low in terms of housing or real estate, good.

Still could use some clarity on rebalancing. Maybe Doug, Ryan or Garth could do this in future?

#26 dakkie on 04.22.17 at 6:41 pm

House price growth in Toronto poses quite a problem for Canada
http://investmentwatchblog.com/house-price-growth-in-toronto-poses-quite-a-problem-for-canada/

#27 For those about to flop... on 04.22.17 at 6:46 pm

crowdedelevatorfartz on 04.22.17 at 5:27 pm
Where the hell was that photo taken?
Australia?

//////////////////////

Hey Crowdie,Robax could have used this one instead…

M42BC

https://m.imgur.com/gallery/VAuMB

#28 Flopper Fan (still) on 04.22.17 at 6:53 pm

#19

Mario sends this sign he saw while travelling through South Africa. It is advertising an emergency telephone which is 174 kilometers away.

#29 Doug Rowat on 04.22.17 at 6:55 pm

#20 common sense on 04.22.17 at 5:42 pm

With the central banks worldwide buying everything likely forever, just buy any dips, place ALL money in stocks and enjoy the ride.

Nothing can take this baby down for long – Trump, Brexit, nuclear war, etc.

Nuclear war? Unless you’re John Connor, you’re in trouble.

–Doug

#30 Nonplused on 04.22.17 at 7:09 pm

#181 A Dollar is a Dollar is a Dollar (yesterday)

“Tax all dollars equally.

However the money is acquired, same tax rate.

Simple.

Fair.”

That sounds a lot like Preston Manning’s flat tax proposal. Were you a Reformed Party member?

By the way a flat tax increases taxes on the poor and decreases them on the rich compared to a “progressive” tax policy, but I’m ok with that. Last time I checked the poor were still all driving their cars to the protest rally on the roads I paid for.

Still, I think all this discussion does highlight how we have descended into a “blame” society based on jealousy and misunderstanding. Right now the rich in Canada pay darn near 50% of their income in taxes, and that rich guy is your doctor who has to charge you more so he can come up with the money, whereas the “poor” don’t pay any taxes at all. How much more fair do people think this can get?

Capital gains taxes, originally designed to tax windfalls, are a horrendous idea when applied things like houses or farms or even blue chip stocks, because they amount to capital taxes. The price of a house or farm is just an accounting fiction that relates the value of the house or farm to other houses or farms, it’s not real in any sense of the word. So taxing the change in this accounting measure is really just confiscating a portion of the house, which they already do amply enough with property taxes.

Also, notice they only tax things that go up in value with inflation? How come you can’t write off depreciation of your car and computer? Those are very real costs for something you need but they are strangely excluded (unless you are a corporation, where they are considered a “cost of business”, which they are).

All of this talk of “taxing residential capital gains” will go away nicely the next time there is a housing correction because the flip side is people will be able to claim their capital losses, enabling them to bear a lower sales price. It’s an idea only suited to the times.

I find especially with millennials that they fail to grasp the fact that the previous generations already spent a great deal of time making the tax codes as “fair” as possible, there are multiple reasons why things are as they are, and there isn’t a lot more blood to be squeezed from that stone without adverse impacts. Every nation in the western world has grappled with these questions and arrived at about the same results. It’s been looked at. Thoroughly.

This is also why the “Social Justice” movement is such a laughing stock. Yes, dear millennials, social justice is important. That is why discrimination based on gender, preference, race, or religion is illegal in all advanced nations. Been there, done that. You are fighting a battle that is already over. Thank your mother and especially your grandmother for winning that battle for you, don’t denigrate their sacrifice by pretending it didn’t happen. It’s like pretending WWII didn’t happen, the veterans accomplished nothing despite their sacrifices, and Nazi Germany is still waging war in Europe. It’s insulting.

#31 Smoking Man on 04.22.17 at 7:19 pm

Timing is everything Doug. It’s not for the faint of heart.

You put too much weight into schooled opinions. Look at how many phds got 2008 wrong. All had the same lessons taught to them.

When are the schools going to start teaching Herdonomics. Hum, yeah, no qualified sobar teachers around.

Dr Smoking Man
Pre drinking.
Reporting live from Pulse Night Club in NF NY. 1 hour and 45 minutes till the go go girls hit the floor.

#32 Smoking Man on 04.22.17 at 7:30 pm

Marine Le Pen in a landslide.

Bet Accordingly.

#33 Keith in Calgary on 04.22.17 at 7:43 pm

Central banks and governments are nothing more than bubble blowing machines. Price discovery has all but disappeared, as asset values are, for the most part, totally fraudulent.

The way to beat the system is to leave the system. And that is something that us already happening as the individual retail investor has gone into the witness protection program.

#34 Doug Rowat on 04.22.17 at 7:43 pm

#25 oldwrinkley on 04.22.17 at 6:25 pm
Doug,
I have a question regarding how do you and the group consider for purposes of US/Can ratio allocation stocks like enb. or trp. or bam.a which are all TXS listings but have large USA asset holdings. I do not want any proprietary info just what is your attitude towards them, Can. or US or a split in accordance to the asset holdings.
Thanks for your reply,

We don’t buy individual stocks only ETFs. We keep roughly 2/3 of our equity weighting outside Canada. Remember 2015? Oil can be challenging and add to your wrinkles, wrinkley.

–Doug

#35 Jungle on 04.22.17 at 8:04 pm

Would have loved to been apart of massive run up in the 90’s. However how would you be so sure to achieve the s&p500 return with no index ETFS? Also I thought there were studies that said 85% of mutual funds underperformed the benchmark?

Anyway, REALLY REALLY good article thanks for the input.

I am going to sell all my stocks now and invest 100% passive.

#36 Gasbag Boomer on 04.22.17 at 8:04 pm

Go-go girls? Smokie where are you living, 1968?

Age alert: I do recall visiting the Playboy club circa 1973…

#37 Ponzius Pilatus on 04.22.17 at 8:20 pm

#14 Dan.t on 04.22.17 at 4:31 pm
Hehe, pretty informative and amusing post Doug. Moral of the story- Be invested at all times! At least I think that is the moral of the story.
—————-
The moral of the story is:
Unless you got 500k to invest you are on your own.

#38 bigtowne on 04.22.17 at 8:28 pm

Boomers never imagined zip return on their GIC’s. Mutual Funds with fees equivalent to a low single digit return. Credit card interest rates on average are 19%.

Apparently the financial sector employs 250,000 workers in Toronto. The robots are whispering in our ears as per the educated politicos in Ottawa. Be careful. Cuidado amigo.

#39 wallflower on 04.22.17 at 8:42 pm

no dogs
no humour
no real estate
hhhhhhhhhhhhhhmmmmmmmm
it must be Saturday

#40 Stock Picker on 04.22.17 at 8:52 pm

Hey Doug, how many stocks do you have In your portfolio?
Thanks

#41 Kootenay Hippie on 04.22.17 at 8:57 pm

Excellent blog post again Mr. Rowat.

A few years ago, Fidelity ran an internal performance review of its accounts to determine which type of investors received the best returns between 2003 and 2013.

First place: Dead people.
Second place: People who forgot about their account.

http://theconservativeincomeinvestor.com/2015/05/26/fidelitys-best-investors-are-dead/

#42 S.Bby on 04.22.17 at 8:58 pm

#9 Flop
As in Burnaby, nothing in deepest darkest Surrey should be listed over assessment b/c it’s not selling over assessment.

#43 Smoking Man on 04.22.17 at 9:04 pm

#37 Gasbag Boomer on 04.22.17 at 8:04 pm
Go-go girls? Smokie where are you living, 1968?

Age alert: I do recall visiting the Playboy club circa 1973…
….

Gas bag. Woman look way better with a bit of clothing on. Mabey it’s the writer in me. Who wants to rush to the second last chapter without a full ride in any story.

#44 For those about to flop... on 04.22.17 at 9:17 pm

A couple of a people complaining that there’s not much going on so this article should keep you occupied for five minutes.

It compares the price of bread ,wine ,petrol and cigarettes around the world.

Have a look..

M42BC

https://howmuch.net

#45 VS on 04.22.17 at 9:18 pm

#33 Smoking Man on 04.22.17 at 7:30 pm
Marine Le Pen in a landslide.

Bet Accordingly.
====================
She is gonna bring too much trouble to the system; I do not think the country is ready for the big change. so now there will be another guy, just my thoughts

#46 Smoking Man on 04.22.17 at 9:40 pm

Do I write to drink or drink to write.

Figure that one out Shakespeare.

#47 Common sense on 04.22.17 at 9:47 pm

#30 Doug

If nuclear war no one will have to worry.

#48 Ronaldo on 04.22.17 at 9:51 pm

”Rebalancing should be occasional not every five minutes. And it differs from rebalancing because they weren’t adding to their losers.”
—————————————————————–
I knew someone who kept selling his winners to buy Nortel on dips. All the way down to zero.

#49 Cyrilix on 04.22.17 at 9:55 pm

Rebalancing and timing in broad-based ETF portfolios and stock portfolios is significantly different and must be approached differently.

In ETF portfolios, there is never a “deal” so you don’t go and pick up an ETF for a 15% discount. When there is such a discount, it’s usually due to a huge market crash. Otherwise, how can you expect there to be a deal? You buy the entire market so the entire market is either up a bit, down a bit, or flat. With stocks, there are always deals if you look for them, stocks where with no change in fundamentals since last earnings might be high or low based on hedge fund activity and other non-events in the market. You cannot time ETFs on any presumed micro events with any reliability, you can do an allocation change based on overall weightings when certain macro economic factors are in play (say, for instance, relatively expensive market might cause you to shift 80/20 equity/bonds to 70/30). This doesn’t kill your returns, just optimizes your risk-taking. With stocks, you can always expect pullbacks, day-to-day volatility. If the one specific stock you are looking for doesn’t pullback, then look for a different stock. I run a portfolio of 12-20 stocks (weighted 90%) and 10% S&P500 ETF. There’s a very good chance within the entire course of a month, that one of my 12-20 stocks is available for purchase at a fair price. If all of them have simply run away from me, then I’m doing really well — maybe it’s time to find another good company with excellent management and strong growth potential. Hence, as you can see, the dynamics of timing with broad-based market ETFs (they MUST be broad-based, not sector, or algorithmic) and individual stocks must be explored separately. The other thing to note is that for you to be able to select a stock that is fairly priced, you need to diversify. That means not to go all in on 1-5 stocks. You need more! I recommend 10-20 because 20 is testing the limits of your due diligence capabilities, and 10 is testing the limits of lack of diversification.

#50 Lee on 04.22.17 at 11:31 pm

#49 Ronaldo,

We all know that guy.

#51 Smoking Man on 04.22.17 at 11:34 pm

When a writer finds a voice

https://youtu.be/tAGnKpE4NCI

#52 Doug Rowat on 04.23.17 at 12:04 am

#49 Ronaldo on 04.22.17 at 9:51 pm

”Rebalancing should be occasional not every five minutes. And it differs from rebalancing because they weren’t adding to their losers.”
—————————————————————–
I knew someone who kept selling his winners to buy Nortel on dips. All the way down to zero.

This is concentration risk. A story for another day.

–Doug

#53 Prime Time on 04.23.17 at 12:04 am

Went to the Belfountain store today and sadly Garth was nowhere to be found. I was told he was upstairs giving Bandit stock tips. The store had a wonderful atmosphere and the staff was very helpful which caused me to buy even more goodies …the one lady who seemed to be more in charge chatted with my partner and I for a bit she was great… the whole experience was nice maybe with a few more tips Garth I will be able to take up residence on forks of credit road…. I will be making the hour and half track from Brooklin again in a few weeks hopefully I will see you next time…Enjoy your new digs in Caledon…

#54 Doug Rowat on 04.23.17 at 12:12 am

#50 Cyrilix on 04.22.17 at 9:55 pm

That means not to go all in on 1-5 stocks. You need more! I recommend 10-20 because 20 is testing the limits of your due diligence capabilities, and 10 is testing the limits of lack of diversification.

To eliminate non-systematic risk you need 50-60 stocks. Not practical for most investors.

–Doug

#55 Selling newspaper on 04.23.17 at 12:40 am

http://montrealgazette.com/news/local-news/buy-now-or-risk-saying-bye-bye-to-affordable-montreal-home-ownership/amp

#56 T-Rev on 04.23.17 at 1:05 am

#31 Nonplussed- Amen.

#57 Stock Picker on 04.23.17 at 1:11 am

True enough…. There are occasions in a good companies history where forces beyond their control smack down their stock…..not because they did anything really wrong….but because a moron like a Trudeau or collusion between an Obama and a Saudi will do evil deed against honest people for no particular reason.

With a good company, they’ll come back because they’ve never been off target….so…selling…is not always best….unless there’s a direct tax adavantage for the rare time you might sell a great company at a great profit or be taken out when cash is an option superior to taking untaxed stock in exchange. Don’t ever pay a dime in tax or a fee unless you’re forced to.

Buy good companies that pay dividends…..refocus that cash on new aquisitions or adding to the already great story. I have so many stocks that others were excited to sell on news…..instead I’ve held and watched them double and triple again.

Diversify throughout the 5 major segments of the economy and forget about it. Remember oil is a great hedge on a falling Canadian dollar …making Canadian energy stocks a great fit in every portfolio.

Buying the world isn’t a great strategy while we have only two economically developed regions in the world….everything else is idle speculation.

If you have to pay tax on any trade….push yourself away from the table and think again.

It is true you can overtrade yourself back to neutral….we call that the hot hand. The Hollywood version of the floortrader screaming for more is mostly myth. Buy good companies that pay dividends and turn the TV off.

#58 Raising prices on 04.23.17 at 1:19 am

When they are done with one market, just move to another. They are significant contributing factor along with cheap interest rates in this madness of real estate

http://www.nationalpost.com/m/wp/news/canada/blog.html?b=news.nationalpost.com/news/canada/meet-the-mysterious-tycoon-at-the-centre-of-half-a-billion-in-b-c-property-deals

#59 Spectacle on 04.23.17 at 1:28 am

-Regarding-
#47 Smoking Man on 04.22.17 at 9:40 pm
“Do I write to drink or drink to write.

Figure that one out Shakespeare.”
————————————-

Actually people drink because Alcoholism is a “Poor substitute for legitimate living”. There are usually 3 cor more components to the addictive or self destructive lifestyle. The drinking gets in the way of the writing. So what would Shakespear do….

The Boozy Bard: Shakespeare on Drinking by chartwell books — Reviews, Discussion, Bookclubs, Lists – Goodreads

#60 steerage steward on 04.23.17 at 1:46 am

https://www.youtube.com/watch?v=Vc_4eoSHwK8

I was a captain of industry, feared by man, adored by women.

Let’s be honest, you payed for the women

#61 Ponzius Pilatus on 04.23.17 at 1:54 am

#50 Cyrilix on 04.22.17 at 9:55 pm
Rebalancing and timing in broad-based ETF portfolios and stock portfolios is significantly different and must be approached differently.

In ETF portfolios, there is never a “deal” so you don’t go and pick up an ETF for a 15% discount. When there is such a discount, it’s usually due to a huge market crash. Otherwise, how can you expect there to be a deal? You buy the entire market so the entire market is either up a bit, down a bit, or flat. With stocks, there are always deals if you look for them, stocks where with no change in fundamentals since last earnings might be high or low based on hedge fund activity and other non-events in the market. You cannot time ETFs on any presumed micro events with any reliability, you can do an allocation change based on overall weightings when certain macro economic factors are in play (say, for instance, relatively expensive market might cause you to shift 80/20 equity/bonds to 70/30). This doesn’t kill your returns, just optimizes your risk-taking. With stocks, you can always expect pullbacks, day-to-day volatility. If the one specific stock you are looking for doesn’t pullback, then look for a different stock. I run a portfolio of 12-20 stocks (weighted 90%) and 10% S&P500 ETF. There’s a very good chance within the entire course of a month, that one of my 12-20 stocks is available for purchase at a fair price. If all of them have simply run away from me, then I’m doing really well — maybe it’s time to find another good company with excellent management and strong growth potential. Hence, as you can see, the dynamics of timing with broad-based market ETFs (they MUST be broad-based, not sector, or algorithmic) and individual stocks must be explored separately. The other thing to note is that for you to be able to select a stock that is fairly priced, you need to diversify. That means not to go all in on 1-5 stocks. You need more! I recommend 10-20 because 20 is testing the limits of your due diligence capabilities, and 10 is testing the limits of lack of diversification.
——————–
Bang on bro!
Even Smoking Man could not have stated the obvious more clearly.
Garth, you gotta hire this genius.
And fire the two graph charting boring underlings.
The world needs more go getters.
Y

#62 A Reply to #47 Smoking Man on 04.23.17 at 6:35 am

“Do I write to drink or drink to write? Figure that one out, Shakespeare.”

“Why, sir, for my part I say the gentleman had drunk himself out of his five senses.”
— The Merry Wives Of Windsor: Act 1, Scene 1

#63 Bezengy on 04.23.17 at 7:27 am

Hindsight is 20-20 for sure when it comes to investing. There is no doubt is my mind that an advisor can help you make better decisions, but I guess that presumes you have a good advisor. I remember one of my balanced mutual funds from a reputable firm dropping 50%. Another balanced mutual I had dropped only 10%. I think the main point here is that good investing isn’t just about numbers, but psychology plays a huge role in success.

#64 Hessie McFortune Shea on 04.23.17 at 8:27 am

Hi Doug, why not just buy the 3 or core ETFs and never rebalance at all? I think the “re-balancing” makes people feel scared. In reality the rebalancing happens automatically in those etfs. How much will rebalancing affect you anyways? (Topic for next weeks blog?-Households that reblance vs those that don’t)

#65 eddy on 04.23.17 at 8:29 am

Shakespeare did not write the plays attributed to him:

https://en.wikipedia.org/wiki/Edward_de_Vere,_17th_Earl_of_Oxford

http://radiofetzer.blogspot.ca/2011/11/james-norwood.html

#66 jess on 04.23.17 at 8:48 am

Incorporating the Rentier Sectors into a Financial Model
ABSTRACT

Current macroeconomics ignores the roles that rent, debt and the financial sector play in shaping our economy. We discuss the Classical view on rents and policy responses to the rentier sector in the 19th century. The finance, insurance & real estate sector is today’s incarnation of the rentier sector. This paper shows how financial flows can be conceptually and statistically studied separately from (but interacting with) the real sector. We discuss finance’s interaction with government and with the international economy.

==================
2. Finance is not The economy

…”In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. Banks lend to buyers of real estate, corporate raiders, ambitious financial empire-builders, and to management for debt-leveraged buyouts.”…

http://michael-hudson.com/2012/09/incorporating-the-rentier-sectors-into-a-financial-model-3/

#67 Penny Henny on 04.23.17 at 9:09 am

Hey Smokie. When is offer night?

http://www.julierosshomes.com/Property/Toronto-Ontario/7742682-57-James-St-Toronto-Ontario-M8W1L4-W3769119

#68 Penny Henny on 04.23.17 at 9:21 am

Mr. Saretsky, who often speaks out against his own industry, says it’s common that offshore investors get first dibs on presale purchases.

http://www.theglobeandmail.com/real-estate/vancouver/vancouvers-presale-condo-market-reaches-fever-pitch/article34771425/

#69 Doug Rowat on 04.23.17 at 9:28 am

#58 Stock Picker on 04.23.17 at 1:11 am

Buying the world isn’t a great strategy while we have only two economically developed regions in the world….everything else is idle speculation.

You don’t need a perfect economy to make a region investable. The world’s best performing market this year? Spain.

–Doug

#70 paul w on 04.23.17 at 9:29 am

Great post, very interesting. Thanks Doug

#71 Doug Rowat on 04.23.17 at 9:33 am

#65 Hessie McFortune Shea on 04.23.17 at 8:27 am

Hi Doug, why not just buy the 3 or core ETFs and never rebalance at all? I think the “re-balancing” makes people feel scared. In reality the rebalancing happens automatically in those etfs.

You have to have weightings to rebalance back to. Determining these weightings is an active process and requires a market view, which (in part) is what we’re paid to do.

–Doug

#72 Deplorable communications on 04.23.17 at 10:16 am

#47 Smoking Man on 04.22.17 at 9:40 pm

Do I write to drink or drink to write.

Figure that one out Shakespeare.
..
Hope you didn’t quit your day job!

#73 For those about to flop... on 04.23.17 at 10:42 am

17 at 9:28 am
#58 Stock Picker on 04.23.17 at 1:11 am

Buying the world isn’t a great strategy while we have only two economically developed regions in the world….everything else is idle speculation.

You don’t need a perfect economy to make a region investable. The world’s best performing market this year? Spain.

–Doug

////////////////////////////

Hey Robax, India must be right up there this year mustn’t it?

As for Spain,I don’t mind the wine but they can keep the bulls testicles…

M42BC

#74 jas on 04.23.17 at 10:57 am

Some reading for the weekend.

Legendary technical investor Robert Prechter is awaiting a depression-like shock in the U.S.

http://www.marketwatch.com/story/legendary-technical-investor-robert-prechter-is-awaiting-a-depression-type-shock-in-the-us-2017-04-21

#75 conan on 04.23.17 at 10:59 am

N Korea should be back in the news this week. That aircraft carrier armada is now done with their Australian stop over to pick up coffee and snacks. Who knows what other assets have been moved into play.

Least we know the right leader is in place.

https://www.youtube.com/watch?v=TOsGt4bEUyU

#76 Gasbag Boomer on 04.23.17 at 11:14 am

Re. #68, Penny Henny

It’s usually Tuesday evenings around here when the bids get opened. But, who knows how they handle a Nictonite.

#77 Cyrilix on 04.23.17 at 11:22 am

Doug,

You’re right in that 50-60 stocks is too much to follow. Some people try anyways. I don’t pretend that I can. Following individual companies is quite fun, and if you enjoy listening to conference calls like I do, it feels like the highlight of your day is when a company is reporting earnings!

My point, however, is that I feel an individual investor can reliably do better than the markets with 10-20 stocks, in the long run, while taking on more volatility and more risk as well, because of a higher equity weighting. That investor, if passionate about what he does, will also learn a lot more in that time period and will ask boatloads of excellent questions that can only help him with future investing. To me, volatility and risk both exist, but they’re not to be confused with each other. I would define risk as permanent impairment of capital, while volatility is when nothing changes fundamentally except for the price action.

I don’t like the idea of paying a hedge fund manager because I believe that the 2/20 fees will hurt your long-term returns — some funds even charge more. If you do it yourself, you also don’t have to compound billions of dollars of money. Most people are probably only compounding anywhere between 10,000 to 2,000,000, which is significantly easier because the smaller opportunities that may not be enough to move the needle for a large fund can be winners for you. Fund managers also have reputations and targets to hit, which put their careers on the line. You only have your personal targets to achieve, and if you’re rational about it, you can both appreciate the difficulty of market-beating returns while also appreciating how many opportunities there are to beat the market.

#78 Livin Large on 04.23.17 at 11:31 am

Every day that I read the comments here the more realize how my late father was correct. “Hire someone smarter and more experienced than you and let them do their damn job”. Something else he drilled into me is, if you have a winner, let them win. I.e keep your hands off the good stuff.

To be honest, he was a little unorthodox in his attitude to making money. He also taught me never to use real money on any game of chance unless your skill level can at some point give you an advantage…his way of saying, if you’re going to gamble then pay Blackjack. At least with blackjack you have betting signals and non betting signals.

Oh and his most successful advice to me if I wanted to gamble was to go to Woodbine, bet on Sandy Hawley and double down every time he lost a race. Hawley won over 60% of the races he ran so statistically you wouldn’t lose. I am bored with the ponies but I can tell you he walked out of the races virtually every Sunday more than a grand up…for years.

Selling your winners for the cash rather than the losers just stikes me as stupid.

Dance with the one that brung ya.

#79 Stock Picker on 04.23.17 at 11:40 am

There are two posts attributed to “Stock Picker” which are not written by myself. Only post # 58 is written by myself…..the others show an incredible lack of imagination…..to say the least.

Doug….I have developed a suspicion of political collusion in regards to the growth being announced in the Eurozone and in support of EU bourses. It seems coincidental that the numbers only started to show up positive after the EU in Bruxelles found itself under threat from ‘populist movements’ …..prior to that the EU showed negative growth.

The reason EU issues trade at a discount….IMHO….is that they lack growth in GDP and profits. I am 100% invested in North America…..I believe the growth we see is not a political illusion as in Europe.

#80 Or on 04.23.17 at 11:43 am

Hi Doug, why not just buy the 3 or core ETFs and never rebalance at all? I think the “re-balancing” makes people feel scared. In reality the rebalancing happens automatically in those etfs.
……….

buy a proven balanced mutual fund. They balance for you . I know, i know…mutual funds are evil in this blog, :)

Mawer Balanced

15 yr average- 7.64%
Index ( 60% MSCI World, 40% BC Glo Agg)- 5.10%

you got incredible alpha, too, :)

anyway, balancing etf’s is simple. The annoying part is dividends are not re-invested, as done in mutual funds. Demands more time. Fortunately, thanks to etf’s ‘D series’ funds have evolved. And of course, the Mawer’s and Steadyhand’s do exist. MF’s are adapting; thank you etf world, :)

#81 traderJim on 04.23.17 at 11:48 am

#15 Envious guy

I used to trade extremely actively, holding positions for minutes or even seconds, rarely more than 24 hours.

I made my living as a pro trader, retired at age 47.

Now I trade far less frequently, and my big trade, documented on many posts here, is to have been short the loonie, 7 figure position.

I seem to be doing ok.

#82 TurnerNation on 04.23.17 at 11:48 am

Gated communities? You know people are paying 1m for a SFH in a core area so they needn’t deal with this in the wilder burbs:

https://www.reddit.com/r/toronto/comments/672b3x/jane_and_eglinton_tim_hortons_altercation_video/

#83 traderJim on 04.23.17 at 11:56 am

I should clarify, I was and am a currency trader. I have been a long time fan of Buffett and fully agree with the post that stocks should be held for the long term, as much for tax reasons as anything else.

In currency markets, a few days is long term. I have been short the loonie for 2 years now.

Now, I must get going, it’s a beautiful day and I have lots to do to prepare for building my Muskoka cottage.

As Smoking Man mentioned, water’s high, most docks are under water, including mine, even though I built it deliberately high. But this is the 4th year in a row of high water, so everyone up here is prepared for floods. We all know to keep everything in the boathouse at least 2 feet off the dock.

#84 Renter's (Rentier's?) Revenge! on 04.23.17 at 12:03 pm

#67 jess on 04.23.17 at 8:48 am
Incorporating the Rentier Sectors into a Financial Model

If the guy can’t work the “buy all the things” meme into his model, then it’s not legit.

#85 westcdn on 04.23.17 at 12:10 pm

I don’t know why I write things I know better to say. Apologizes sting me.

Things can strike me such as the women in Guatemala. The ones I met when installing stoves were hard workers. I could not get over them balancing babies on their back while cooking or the loads they could carry on their heads. I was usually thrown into the wilds without their help. But one day I had a convoy of gals carrying bricks on their heads and an interpreter. The interpreter ran into a sugar cane field and cut a stick with her machete. I asked one of the English speaking gals what she was doing – dogs.

In my travels I find English to be common. It didn’t work for me in Italy but the people were great. I was on a bus trying to figure where to exit. The people came up to point out where I was and all I could say was gracious. They nearly cheered when I got off for the Vatican. Italy is a beautiful country.

I like to tell stories. It is my father’s influence. My cat, Katy, had a territory as big as farm. I would catch her patrolling at night. She would bring “gifts”. She usually ate what she killed. I got nasty mail from the couple who lived across the street and fed birds. One night I caught her hunting a stunk. I run out and grab her. I asked what is wrong with you. We had stare downs – meow.

I had another cat thanks to my daughters. One day I hear shouts of Dad. I run upstairs to find my wife and eldest daughter standing on the couch. They were pointing at Mabel. She was dull but she caught a bird. The bird must have been incredibly stupid. Mabel was confused. I felt sorry for her.

There was gal at work covered in freckles and from Saskatoon. Naturally I took a shine to her. She had three cats at her family farm. One was declawed. She would go outside on the back porch and find a bird, mouse and a grasshopper.

#86 Hessie on 04.23.17 at 1:03 pm

#65 Hessie McFortune Shea on 04.23.17 at 8:27 am

Hi Doug, why not just buy the 3 or core ETFs and never rebalance at all? I think the “re-balancing” makes people feel scared. In reality the rebalancing happens automatically in those etfs.

You have to have weightings to rebalance back to. Determining these weightings is an active process and requires a market view, which (in part) is what we’re paid to do.

–Doug

Hi Doug, In reality though what % difference does it make over the long term? Does it really make a significant difference and what do the statistics say for like a 10 year period?

#87 Marlene from Victoria on 04.23.17 at 1:19 pm

“And, lo and behold, (men) underperformed women in terms of net returns.”

Huh, men underperforming women?

What else is new, Doug?

#88 Doug Rowat on 04.23.17 at 2:06 pm

#87 Hessie on 04.23.17 at 1:03 pm
#65 Hessie McFortune Shea on 04.23.17 at 8:27 am

Hi Doug, why not just buy the 3 or core ETFs and never rebalance at all? I think the “re-balancing” makes people feel scared. In reality the rebalancing happens automatically in those etfs.

You have to have weightings to rebalance back to. Determining these weightings is an active process and requires a market view, which (in part) is what we’re paid to do.

–Doug

Hi Doug, In reality though what % difference does it make over the long term? Does it really make a significant difference and what do the statistics say for like a 10 year period?

A significant difference. Morgan Stanley is as good as any showing a straightforward rebalancing strategy:

http://www.morganstanley.com/articles/rebalancing-effect

–Doug

#89 crowdedelevatorfartz on 04.23.17 at 2:17 pm

@#86 westcdn
“I don’t know why I write things …..”
*******************************************

You should have stopped there…..

#90 crowdedelevatorfartz on 04.23.17 at 2:23 pm

@#88 Marlene from Victoria
“Huh, men underperforming women….”
********************************************
Dont be too smug
Your investements rank third behind dead people and Alzheimers sufferers.

Re
#42 Kootenay Hippie’s comment/link

A few years ago, Fidelity ran an internal performance review of its accounts to determine which type of investors received the best returns between 2003 and 2013.

First place: Dead people.
Second place: People who forgot about their account.

http://theconservativeincomeinvestor.com/2015/05/26/fidelitys-best-investors-are-dead/

#91 A Reply to #76 conan on 04.23.17 at 2:38 pm

Conan, did the Commander of the U.S. Pacific Fleet just ignore Trump’s directive to divert the USS Carl Vinson to North Korean waters? What’s the story? Is Trump no longer Commander in Chief? Or was he ever?

Hilarious video, by the way!

#92 Hessie on 04.23.17 at 3:28 pm

https://www.forbes.com/2007/10/25/rebalancing-portfolio-stocks-pf-ii_dw_1025retire_inl.html

An alternative view to rebalancing. Rebalancing is only necessary for smoothing volatility, not enhancing returns according to the article.

#93 Contrarian Coyote on 04.23.17 at 5:02 pm

Active trading = gambling at the casino
Passive investing = investing in the casino

Seems like a good strategy. I can see that active trading is tempting because you ‘could’ hit that one trade out of the park. I’m boring though, and am all about the passive investing strategy. Almost like a fire-and-forget missile…on to the next target!

#94 crossbordershopper on 04.23.17 at 5:12 pm

millionaires talking about their position. other people talk about other positions.

#95 TurnerNation on 04.23.17 at 6:55 pm

Index futures Big gap up boys. Stay long and strong.

(Gold kaput)

#96 Tony on 04.23.17 at 9:01 pm

Re: #96 TurnerNation on 04.23.17 at 6:55 pm

I would have had better luck on the Titanic than being long this market and the woman and kids got the lifeboats.

#97 crowdedelevatorfartz on 04.23.17 at 10:07 pm

Damn!
Sorry Doug
We ALMOST made it to 100 comments…….

#98 Ponzius Pilatus on 04.23.17 at 11:42 pm

#98 crowdedelevatorfartz on 04.23.17 at 10:07 pm
Damn!
Sorry Doug
We ALMOST made it to 100 comments…….
———–
100. congratulations Doug.

#99 crowdedelevatorfartz on 04.24.17 at 8:24 am

@#99 Ponzi

Loooooooooser.

#100 Sec8 on 04.24.17 at 5:20 pm

This sounds interesting. What does this mean for the housing market. I admit, Im not quite well versed in speculating and the debt instruments to understand potential outcomes. Any thoughts?http://www.financialpost.com/m/wp/fp-comment/blog.html?b=business.financialpost.com/fp-comment/this-new-way-to-buy-and-sell-risk-in-canadas-hot-housing-markets-might-help-cool-them-off