Warren and John and me
. . . plus a Condemnation
How Price Beats Value--The Vast Importance of Timing
7.2 years June 21, 2002--August 28, 2009
Worldwide ETFs Portfolio--Hypothetical
Weekly
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Warren Buffett and John Bogle don't know me. I have never met either of them. But they have figured as icons of great stature in the investment world. So much so, that I have included in a non-linear bell curve a portrait of one of them among the first pages posted on this website ten anniversaries ago.
Both Mr. Buffett and Mr. Bogle
subscribe to the same philosophy--value investing. The antithesis is growth investing. The most complete antithesis is pure price trading, ignoring totally anything to do with information regarding the values of a company or its earnings growth rates. That's us, ignorant of information, but aficionado of price behavior. More on these gentlemen icons later.
The chart is a little messier than I would like it to be, but it can't be helped in order to convey the information I would like you to have.
Tight, periodic selection beats the market and its averages--the red curve vs. the blue and brown curves. The blue is a grouping of the four top-performing exchange traded funds in the Worldwide ETFs Portfolio from inception to the present. The red curve depicts the progress of selecting weekly the single best ranked fund to hold until replaced by the successor best ranked fund in a future week--so on, ad finitum.
This rank-selection process produces a total gain almost four times greater than just holding the four ETFs in the portfolio and accepting its (above average) return which itself beats the market (SP500) by 70%. The average return leaps from 5.9% to 29.1% per year.
But--and here's the rub, the selection methods do not avoid bear markets when they arrive. When the SP500 peaks and starts its descent from October 2007, red follows promptly, and blue, protected initially by diversification, follows in May 2008. To be sure, it recovers more rapidly than the market, but avoids the large volatility that the switch-system (red) undergoes from holding a single issue.
The mish-mash mural which is the bottom panel of the chart reports visually the presence of periodic switching as each candidate arrives at the singular top ranking level. The darker overlaid ranking curve is Ursa's* rank. It is our life vest when dangerous and durable bear markets arrive from on high.
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* Ursa is Rydex Funds' inverse (bear-market) mutual fund which is designed to produce dollar-for-dollar gains when the S&P 500 is producing losses in a decline.
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