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
See Comments below
Timing boosts the end value from 640% up to 732% and the compounded average return from 29.1% to 31.9% per year vs. the switch-system ranking-selection method alone. Over and over we see that timing is crucial to both superior results and serious risk avoidance.
The timing method here is simply to use the Ursa fund ranking itself. When it reaches the top rank, a bear market is in progress. Sell out and go to cash.
TABLE OF RESULTS
Best of Four Top Ranked Funds
With Timing over Seven Years
|
|
swtch |
SP |
swtch |
SP |
swtch |
swtch |
|
|
|
Price |
500 |
%P/L |
%P/L |
%P |
%L |
wks |
|
6/21/2002 |
start |
100 |
989 |
-- |
-- |
|
|
-- |
|
12/13/2002 |
Buy |
102 |
889 |
-- |
-10.1 |
|
|
-- |
|
1/24/2003 |
Sell |
110 |
861 |
8.0 |
-3.2 |
8.0 |
|
6 |
|
5/2/2003 |
Buy |
116 |
930 |
5.4 |
8.0 |
5.4 |
|
14 |
|
7/14/2006 |
Sell |
402 |
1236 |
245.3 |
32.9 |
245.3 |
|
166 |
|
9/1/2006 |
Buy |
389 |
1311 |
-3.3 |
6.1 |
|
-3.3 |
7 |
|
2/8/2008 |
Sell |
744 |
1331 |
91.6 |
1.5 |
91.6 |
|
75 |
|
4/25/2008 |
Buy |
721 |
1398 |
-3.1 |
5.0 |
|
-3.1 |
11 |
|
7/18/2008 |
Sell |
625 |
1261 |
-13.4 |
-9.8 |
|
-13.4 |
12 |
|
5/8/2009 |
Buy |
585 |
929 |
-6.3 |
-26.3 |
|
-6.3 |
42 |
|
8/28/2009 |
open |
732 |
1029 |
25.0 |
10.7 |
25.0 |
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
avg |
38.8 |
1.5 |
75.1 |
-6.5 |
39 |
|
|
|
worst |
-21.3 |
-33.5 |
|
|
|
Buy position is still open as of 9/14/2009.
Consecutive losses are compounded
to calculate worst loss.
The win/lose % ratio is 56 to 44.
The profit/loss ratio is 11.5.
The profit factor is 14.39.
Two things still bother me. Despite limiting losses in the switch-timing method to -21% vs. -34% in the market, I am unhappy with their magnitude and duration.
Neither I nor King Canute can do anything about the duration. Other powers control the cyclicality of crops and markets. The best we can do, if we are biased toward timing, is to anticipate them--and, for trading--identify them ex post facto as soon as possible.
As for magnitude of decline, I seem to be more and more headed toward the use of options to limit losses to a specific, predetermined amount. Set the dollar amount you are willing to lose. Divide it by four or five. Commit the quotient to call long-term call options. The most you can lose is only 20% to 25% of what you had decided you were willing to lose. And you will lose only a fraction of that if there is a loss due to mechanics of options valuations.
Back to Bogle, Buffett and me. As I wrote parts of this article two days ago, their names appeared in the media together as signatories among 28 "high-profile managers, investors, academics and others" who signed a statement organized by the Aspen Institute Business & Society Program’s Corporate Values Strategy Group (whew!) "IN BOLD CALL TO OVERCOME SHORT-TERMISM".
I was astonished to find these icons, among other icons of business and industry, espousing, even thinking, the invitation for government to step in and by regulation and 'motivational' taxation fix by law, rule, and mandate what they, the signatories, and many others, apparently perceive and articulate as a problem, as the problem which causes or aggravates the financial panic and crisis we as a country and as a world are now in.
But I am straying off message, which pertains to a short riff on the three of us. Idly, I wondered how Mr. Buffett's (and Mr. Bogle's--the S&P 500) market performances were standing up under the drubbing that managed and unmanaged funds have taken recently. This is what I found . . .
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