Red Across the Board

IronWolf

It's not really across the board though. Oil & Gas has been hammered along with a lot of resources. Everything else seems to be ticking along nicely.

To invest now is to have faith oil will go back over $90 a barrel.

guymo

Ryan's "buy the gap" strategy doesn't seem very far removed from Value Averaging which has a certain amount of respectability, though of course not without its critics.

http://en.wikipedia.org/wiki/Value_averaging

I would be interested to know where Ryan picked up this strategy from though -- if there are studies out there it would be good to see them.

Ryan_Futuristics

JohnRo wrote: »

Have you tried to apply this theory to a real index?

Oh yeah, and it's not my invention - it's very similar to this technique, and this may be the more robust way to do it:

http://en.wikipedia.org/wiki/Value_averaging

Personally, it's something I bear it in mind when I'm unsure whether there's an opportunity or not ... it's a When In Doubt formula ... So it avoids being overly cautious or overly confident, and being able to make a simple logical decision


If I was a passive index investor, I'd probably use it because there isn't much downside

But I base decisions more on valuation - e.g. Italy being 2 or 3x undervalued, it doesn't make much difference whether I'm buying in a 10% dip or not ... The US overvalued, I'd be looking for a 50% dip at least

Mistermeaner

My lovely property fund is still green

Kendall80

More big falls today. I'm glad I voted for the lowest option on that FTSE @ xmas poll

ruperts

I've seen some Value Averaging models that rely on assumptions, but I've spent some time on excel trying to figure out an 'assumptionless' form of Value Averaging like Ryan's approach, and the trouble with it as far as I can see it is affordability.


If you've got a lump sum now, over a long enough time period you're always better off investing it now.



If you haven't got a lump sum now then to take advantage of dips in the future you have to put money aside on say a period by period basis. That money isn't invested, therefore doesn't attract as much interest, therefore when the dip comes, you haven't got enough money to take enough of an advantage to improve on what you could have earned by investing the money as soon as you could.


Over a long enough time span, as long as the market has generally risen, and you multiply your level of periodic investment based on any comparison between the value of the ftse at the time and any higher value, and the amount you have available to invest is the sum of the monies you previously chose not to invest, you always end up investing less money overall, because the money you didn't put in the market, is worth that much less than it would have been had you invested it when you could.


Ultimately it seems you're always better off investing as much as you can, as soon as you can, rather than holding back to put more in on future dips.


Even if you moderate the effect of the volatility of dips on your investment (by using for example the difference between the current index value and the top rate as a multiplier for your standard investment), then affordability is still the problem. The only way to get around it, is to leave another lump sum in a pot to deal with the times when you've ran out of your original pot. But then you have the same problem of the 2nd pot being worth less than it would have been had you invested it when you first had it. There's no way I can see of divorcing the concept of value averaging with the affordability problem.


I bet that made no sense. In summary, I can't see how any simple, 'assumptionless' form of value averaging can work over the long term.

JohnRo

I was contemplating a spreadsheet session to try and model various indexes and outcomes but not sure it's worth the time, beyond the entertainment, with so many variables.

Ryan can you give some criteria to model like a starting lump, minimum investment amount, maximum investment amount, etc. for your model just as a starter?

kangoora

IronWolf wrote: »

It's not really across the board though. Oil & Gas has been hammered along with a lot of resources. Everything else seems to be ticking along nicely.

To invest now is to have faith oil will go back over $90 a barrel.

Does anybody else think that the big oil companies are looking a bit cheap now? BP, Shell, Petrofac - maybe not Tullow

If I put my tinfoil hat on, with Russia relying so much on oil and gas exports for foreign currency it would be a squeeze on their economy for global oil prices to fall to a low point. Most of the OPEC countries have a big reliance on USA for stability/military support in that region and it's not like they don't have a bob or two in savings to get them through a lengthy period of low oil prices

Kendall80

kangoora wrote: »

Does anybody else think that the big oil companies are looking a bit cheap now? BP, Shell, Petrofac - maybe not Tullow

If I put my tinfoil hat on, with Russia relying so much on oil and gas exports for foreign currency it would be a squeeze on their economy for global oil prices to fall to a low point. Most of the OPEC countries have a big reliance on USA for stability/military support in that region and it's not like they don't have a bob or two in savings to get them through a lengthy period of low oil prices

Are you suggesting that the US increasing output and OPEC not responding to the price slide is a geopolitical act? Surely not? Russia and Iran being affected the most is surely coincidental?

TheTracker

guymo wrote: »

I would be interested to know where Ryan picked up this strategy from though -- if there are studies out there it would be good to see them.

It doesn't work.