Red Across the Board

ruperts wrote: »

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

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.

Well lump-summing tends to work quite well using recent market data, and keeping it to western, developed markets ...

But if you look at different periods, and different markets, you can hit these 20-30 year bears where you'd have been waiting a long time to make back losses

My pessimism is more that we may find ourselves in prolonged sideways markets ... Whether capitalism's reached optimum efficiency is one question, but we know the west is faced with an ageing demographic, and we see how difficult it is to spur any real growth in markets today even with unprecedented levels of stimulus


A lot of people don't realise that even now, after the US has ceased its QE program, it's still injecting billions into the economy in bond reinvestments

So for many it is difficult to see where growth is meant to come from in the future - strategies like value investing and value averaging are things which should work well in sideways markets (and the UK's effectively been in a sideways market for 15 years already ... another 15 years of that and you'd probably be better off in fixed income)

Ryan_Futuristics wrote: »

I think what you meant to say was according to that paper, and using that implementation, value averaging *might* bias the IRR

The version I described doesn't involve selling - and I deliberately use debiased market data (a triangle wave)

Mine's really a weighted drip-feed, the only competition it has is the greater compounding from lump-summing - but there's still much more inherent risk in the later

No, it's not what I meant to say. Here is a direct link to the paper. Impatient readers may wish to skip to the conclusions on page 28. "Value averaging does not boost profits, and will in fact suffer substantial dynamic inefficiency. It also imposes additional direct and indirect costs on investors as a result of its unpredictable cashflows. The strategy thus has very little to recommend it.”

The scientific method has it that you may rebut such a peer-reviewed paper with one of your own, subject to the same peer review process. Do let me know when it is available and I'll be first in line to read it, and first in line to congratulate you on proving what has so far proven unprovable.

TheTracker wrote: »

The scientific method has it that you may rebut such a peer-reviewed paper with one of your own, subject to the same peer review process. Do let me know when it is available and I'll be first in line to read it, and first in line to congratulate you on proving what has so far proven unprovable.

I don't see any evidence that this paper has been peer reviewed. In fact the author has no peer reviewed papers to date as far as I can tell.

This doesn't mean a damn thing for whether or not the study and its conclusions are interesting or valid, whatever high-falutin' claims about the "scientific method" you may make. By the way, peer review is a relatively recent methodology, and not something that e.g. Einstein was comfortable with.
http://scitation.aip.org/content/aip/magazine/physicstoday/article/58/9/10.1063/1.2117822

guymo wrote: »

I don't see any evidence that this paper has been peer reviewed. In fact the author has no peer reviewed papers to date as far as I can tell.

Journal of Financial and Quantitive Analysis, v. 49 no. 1, pp. 249-269 Date: 2014-02-01

Abstract. "Hindsight Effects in Dollar Weighted Returns", Simon Hayley.

Fulltext. Possibly a draft, it is not the journal copy and is heavily predated.

EDIT: The Fulltext link may not work now due to deep link prevention "SSRN's Data Integrity System has observed an unusual download pattern either from this computer's IP address or for this paper."

TheTracker wrote: »

"Extraordinary claims require extraordinary evidence". The burden of proof is on the claimant to prove "it does work" not "it doesn't work".

I make no extraordinary claims. The financial market is tracked by indices and I invest in a collection of those indices. If it goes up, as it has by most long term measures for most long term periods, I'll make some money. If it doesn't, I'll lose a bit on the investment. Meanwhile, I work hard and make a lot of money in my day job, where as it happens a large part of it is to hold opposing views in my head. If that makes me religious then so be it.

You make extraordinary claims. You divine algorithms that appear in some hindsight back tests to work better than average. Thus you claim to hold more wisdom than the collective of the financial industry. You search for the golden goose, the end of the rainbow, knowledge in the tea leaves, or the financial equivalent of e=mc2. If you're right, you'll make a fortune. If you're wrong, you'll lose money. Meanwhile, you don't appear to have a day job, other than algorithm hunting.

It's the fact you think there's anything extraordinary about Value Averaging - it's as well researched as 60:40 portfolios, it was developed at Harvard ... Which you'd know if you'd searched "Value averaging studies" without the words "wrong", "hokum" and "phooey"

The reason you think things like this are extraordinary is because you've got this one idea (which incidentally most the financial industry doesn't follow - it represents a tiny fraction of investments in the UK) and you're basing your worldview on being able to find support for it (peer-reviewed or straight out of someone's PDF-maker on a personal webpage)

Re: "collective wisdom of the financial industry" ... In Wall Street there's a saying "Bears make money, Bulls make money, but Sheep just get slaughtered" ... The risk of being in the market isn't whether you beat the index or not; it's that markets can drop 90% and take 30 years to recover ... When markets actually agree on something, the only thing you'll find is a bubble