Timing the market

BritishInvestor

Prism said:

BritishInvestor said:

jamesd said:

BritishInvestor said:

jamesd said:

BritishInvestor said:

"Regrettably, your view does not seem logical, for it's deciding in advance, not with hindsight, that is the challenge. Someone has to make the decisions about which factors, weightings or whatever to use, before the future unfolds."

That's what I said - maybe I didn't make myself clear enough.

You proceeded to use hindsight to determine that it would have been possible to match the results using a range of factors, without giving any apparent weight to the difficulty of picking those factors without the benefit of hindsight. Anyone can match or beat a past market by knowing what worked.

It'll normally be the case that with hindsight past performance can be matched, but hindsight isn't available when making the decisions. If choosing active, you're choosing a person and team based on their ability to do this (and often, rejecting lots of others based on their demonstrated lack of such ability, which greatly narrows the range of candidates).

"without giving any apparent weight to the difficulty of picking those factors without the benefit of hindsight."

I think I've given plenty of weight when I said anyone that is able to do this consistently would be one of the richest people in the world. And they'd be unlikely to be giving away any of their profits/secret sauce to us mere mortals.

Yet funds which do consistently outperform exist and have existed repeatedly for long enough to exploit this.

There's a class that matters: those who are good at fund management in whatever team they are in and whatever part of the market who can do quite well out of that particular skill set but maybe not so well individually.

While looking at factors may determine some or even all of how they did or do manage their work, that still leaves them with the higher performance.

"Yet funds which do consistently outperform exist and have existed repeatedly for long enough to exploit this."

If you are able to continually identify genuine outperformers ahead of time you have a rare and valuable skill. Professionals running Discretionary Fund Management (DFM) offerings struggle to do this. To be fair this might be because they don't want all their eggs in one style basket which is working now (but might not work in the future).

I'm not sure how rare that ability to pick a decent active fund ahead of time is. I think its fairly clear that the average investor does underperform to some degree but those (rare) stats include all of the investors who try and assess individual stocks to hold alongside or instead of funds and all of those investors who simply use the default fund in their pension or platform.

I honestly know of no research that has ever asked the question of how well does an active investor do when they try and pick a fund that will perform well in the future. The other unknown is that does that strategy increase or reduce some form of risk - thats a very personal trait. So all 'evidence' for and against is anecdotal - hence these types of debate.

Just to bring back in the original topic, some people say that timing the market is very possible and they have done very well from it.  

"I'm not sure how rare that ability to pick a decent active fund ahead of time is"

See my comment on the real-world performance results of full-time professionals that attempt this. Whilst they don't tend to be at the hedge fund level of ability (or else they'd run one), they're still smarter (in terms of financial markets) than many other participants.

https://www.assetrisk.com/research/performance-indices/private-client-indices/

"some people say that timing the market is very possible and they have done very well from it.  "

Whilst others (that pull enormous sums of money from the market by exploiting short term inefficiencies using complex strategies that are beyond what >99.99% of the population (including me) can comprehend) say it's not (other than potentially at the very short time scale when playing with order book flow - e.g. market making/HFT- humans wouldn't get a look in here.

MK62

So, how do you decide when to invest and how much to invest?

jamesd

BritishInvestor said:

Yet funds which do consistently outperform exist and have existed repeatedly for long enough to exploit this.

There's a class that matters: those who are good at fund management in whatever team they are in and whatever part of the market who can do quite well out of that particular skill set but maybe not so well individually.

While looking at factors may determine some or even all of how they did or do manage their work, that still leaves them with the higher performance.

"Yet funds which do consistently outperform exist and have existed repeatedly for long enough to exploit this."

If you are able to continually identify genuine outperformers ahead of time you have a rare and valuable skill. Professionals running Discretionary Fund Management (DFM) offerings struggle to do this. To be fair this might be because they don't want all their eggs in one style basket which is working now (but might not work in the future).

I don't think it has to be particularly rare, since it mostly relies on:

1. eliminating the consistent bad performers, and there's seldom much disagreement that underperformance persists. That can be due to closet tracking for tied audiences combined with higher than normal charges or just poor active decisions. By eliminating the worst you've shifted the probability of even a random selection from the rest being better than average.
2. not sticking around when there's a substantial change in management team. Performance tends not to continue to persist when a named human leaves, changes in unnamed humans won't usually be announced and seem to matter less. Changes in fund house seem to be more like human managers leaving but not always.
3. looking at whether there has been past outperformance and how that has gone and whether the team is the same.

Nothing that I've outlined above is particularly hard.

Prism

I doubt any of us expect the 39% annual returns of the quant driven medallion fund. My aims of outperformance are far more modest - maybe 2-3% per year with lower volatility.

BritishInvestor

Prism said:

I doubt any of us expect the 39% annual returns of the quant driven medallion fund. My aims of outperformance are far more modest - maybe 2-3% per year with lower volatility.

Compare the returns of Medallion with their funds that take positions over the longer term. It gives you an idea of how much harder it seems to be to outperform using strategies that have a reasonable holding period.

https://www.institutionalinvestor.com/article/b1q3fndg77d0tg/Renaissance-s-Medallion-Fund-Surged-76-in-2020-But-Funds-Open-to-Outsiders-Tanked

Perhaps you should email RenTech and offer some advice

BritishInvestor

jamesd said:

BritishInvestor said:

Yet funds which do consistently outperform exist and have existed repeatedly for long enough to exploit this.

There's a class that matters: those who are good at fund management in whatever team they are in and whatever part of the market who can do quite well out of that particular skill set but maybe not so well individually.

While looking at factors may determine some or even all of how they did or do manage their work, that still leaves them with the higher performance.

"Yet funds which do consistently outperform exist and have existed repeatedly for long enough to exploit this."

If you are able to continually identify genuine outperformers ahead of time you have a rare and valuable skill. Professionals running Discretionary Fund Management (DFM) offerings struggle to do this. To be fair this might be because they don't want all their eggs in one style basket which is working now (but might not work in the future).

I don't think it has to be particularly rare, since it mostly relies on:

1. eliminating the consistent bad performers, and there's seldom much disagreement that underperformance persists. That can be due to closet tracking for tied audiences combined with higher than normal charges or just poor active decisions. By eliminating the worst you've shifted the probability of even a random selection from the rest being better than average.
2. not sticking around when there's a substantial change in management team. Performance tends not to continue to persist when a named human leaves, changes in unnamed humans won't usually be announced and seem to matter less. Changes in fund house seem to be more like human managers leaving but not always.
3. looking at whether there has been past outperformance and how that has gone and whether the team is the same.

Nothing that I've outlined above is particularly hard.

The many, many DFMs that attempt this seem to find it very hard. Impossible is probably a better word!

Prism

BritishInvestor said:

Prism said:

I doubt any of us expect the 39% annual returns of the quant driven medallion fund. My aims of outperformance are far more modest - maybe 2-3% per year with lower volatility.

Compare the returns of Medallion with their funds that take positions over the longer term. It gives you an idea of how much harder it seems to be to outperform using strategies that have a reasonable holding period.

https://www.institutionalinvestor.com/article/b1q3fndg77d0tg/Renaissance-s-Medallion-Fund-Surged-76-in-2020-But-Funds-Open-to-Outsiders-Tanked

Perhaps you should email RenTech and offer some advice

Maybe they should stop trading and start investing

BritishInvestor

Prism said:

BritishInvestor said:

Prism said:

I doubt any of us expect the 39% annual returns of the quant driven medallion fund. My aims of outperformance are far more modest - maybe 2-3% per year with lower volatility.

Compare the returns of Medallion with their funds that take positions over the longer term. It gives you an idea of how much harder it seems to be to outperform using strategies that have a reasonable holding period.

https://www.institutionalinvestor.com/article/b1q3fndg77d0tg/Renaissance-s-Medallion-Fund-Surged-76-in-2020-But-Funds-Open-to-Outsiders-Tanked

Perhaps you should email RenTech and offer some advice

Maybe they should stop trading and start investing

A good quote here

"The more I learn about finance and investing and markets, the more I realize how little I really know. And I’ve seen people who are wildly smarter than me, they’ve dedicated their entire lives, every sinew, every iota of their being to beating the market, delivering the fabled alpha, and they still struggle."

https://qz.com/2093749/how-index-funds-humbled-the-financial-masters-of-the-universe/

(But ignore the title and first sentence, it's rubbish).

MK62

BritishInvestor said:

Prism said:

BritishInvestor said:

Prism said:

I doubt any of us expect the 39% annual returns of the quant driven medallion fund. My aims of outperformance are far more modest - maybe 2-3% per year with lower volatility.

Compare the returns of Medallion with their funds that take positions over the longer term. It gives you an idea of how much harder it seems to be to outperform using strategies that have a reasonable holding period.

https://www.institutionalinvestor.com/article/b1q3fndg77d0tg/Renaissance-s-Medallion-Fund-Surged-76-in-2020-But-Funds-Open-to-Outsiders-Tanked

Perhaps you should email RenTech and offer some advice

Maybe they should stop trading and start investing

A good quote here

"The more I learn about finance and investing and markets, the more I realize how little I really know. And I’ve seen people who are wildly smarter than me, they’ve dedicated their entire lives, every sinew, every iota of their being to beating the market, delivering the fabled alpha, and they still struggle."

https://qz.com/2093749/how-index-funds-humbled-the-financial-masters-of-the-universe/

(But ignore the title and first sentence, it's rubbish).

I've read this claim numerous times, but, as I see things, its not supported by the evidence. If true, you'd expect index funds to be at or near the top of their sectors, especially over the longer term, but in most cases they aren't........why is that?
I'm not bashing index funds, I invest in a few myself........but the thread has sidetracked from "timing the market", which you can do (or attempt to do if you prefer) with either active or passive index funds, to another "active v passive" debate......
My own view is that "timing the market" is possible, but does carry some risk.....very unlikely you'd get it right every time either, but then do you need to?
You also need to define exactly what "timing the market" means to you (imho there are different degrees of this), and you also need to define success and failure, and thats not as easy as it sounds either...if I "time the market" and sell some assets, which then go on to rise 5%, is that a failure?.....what if the assets I bought with the proceeds make 10% over the same period?.....of course, the reverse is also possible....there's that risk again. All that said, what is the alternative?.....ignore everything, and throw money into the market randomly?....or as soon as you have it available?.....how do you then decide when to sell or switch, should you feel the need?
Ultimately, every investor times the market anyway, whether consciously or not.....if I decided, for example, that the timing was right to invest in a certain fund, and at the same time another investor did the same, but took no view on the timing, the end result is the same....

BritishInvestor

MK62 said:

BritishInvestor said:

Prism said:

BritishInvestor said:

Prism said:

I doubt any of us expect the 39% annual returns of the quant driven medallion fund. My aims of outperformance are far more modest - maybe 2-3% per year with lower volatility.

Compare the returns of Medallion with their funds that take positions over the longer term. It gives you an idea of how much harder it seems to be to outperform using strategies that have a reasonable holding period.

https://www.institutionalinvestor.com/article/b1q3fndg77d0tg/Renaissance-s-Medallion-Fund-Surged-76-in-2020-But-Funds-Open-to-Outsiders-Tanked

Perhaps you should email RenTech and offer some advice

Maybe they should stop trading and start investing

A good quote here

"The more I learn about finance and investing and markets, the more I realize how little I really know. And I’ve seen people who are wildly smarter than me, they’ve dedicated their entire lives, every sinew, every iota of their being to beating the market, delivering the fabled alpha, and they still struggle."

https://qz.com/2093749/how-index-funds-humbled-the-financial-masters-of-the-universe/

(But ignore the title and first sentence, it's rubbish).

I've read this claim numerous times, but, as I see things, its not supported by the evidence. If true, you'd expect index funds to be at or near the top of their sectors, especially over the longer term, but in most cases they aren't........why is that?
I'm not bashing index funds, I invest in a few myself........but the thread has sidetracked from "timing the market", which you can do (or attempt to do if you prefer) with either active or passive index funds, to another "active v passive" debate......
My own view is that "timing the market" is possible, but does carry some risk.....very unlikely you'd get it right every time either, but then do you need to?
You also need to define exactly what "timing the market" means to you (imho there are different degrees of this), and you also need to define success and failure, and thats not as easy as it sounds either...if I "time the market" and sell some assets, which then go on to rise 5%, is that a failure?.....what if the assets I bought with the proceeds make 10% over the same period?.....of course, the reverse is also possible....there's that risk again. All that said, what is the alternative?.....ignore everything, and throw money into the market randomly?....or as soon as you have it available?.....how do you then decide when to sell or switch, should you feel the need?
Ultimately, every investor times the market anyway, whether consciously or not.....if I decided, for example, that the timing was right to invest in a certain fund, and at the same time another investor did the same, but took no view on the timing, the end result is the same....

"I've read this claim numerous times, but, as I see things, its not supported by the evidence. If true, you'd expect index funds to be at or near the top of their sectors, especially over the longer term, but in most cases they aren't........why is that?"

Can you pick a particular example and we'll compare it against published data - obviously we'd have to adjust for index fund tracking error.

https://www.spglobal.com/spdji/en/research-insights/spiva/

"My own view is that "timing the market" is possible"
I know a number of people that would pay good money for your skills.