Thursday, March 22, 2007

Brick by Brick, Dr. Steenbarger

Read Dr. Steenbarger's article on A Mechanical Strategy That Has Produced Consistent Stock Market Profits. Awesome! Just awesome!

Wish I would have read it before I posted my Quote of the Week this week. Cause it illustrates my points about Buy and Hold better than my scatterbrained comments ever could. Some great tidbits from Steenbarger's posting...

"Buy and hold over the course of a 25 year investment career has never lost money going back to the start of my historical data in 1901."

"How many in-and-out traders, over the course of a 25-year career, can achieve such consistency and returns? How many actively managed funds can boast of such a record?"

" investor needs to tune out the many, many "sky is falling" jeremiads that were issued over those years, as market commentators became convinced that market meltdowns were in the offing. Consider the fact that, for the career investor, those cries of doom have never been vindicated. Never."
And finally...
"If we were to trade in and out of careers every time we became fearful of our current career progress or every time another career looked better, we'd wind up with a lifetime of unfulfilled promise."

Later Trades,



Anonymous said...

If you give me the latitude, I can pick any asset class and show similar positive performance as long as I can choose the time frame.

Oh yeah, and "never lost money" is different than having a good return. How would you feel if you made 1% over the next 25 years by buying the Dow today and ignoring it? That's the implication.

Read Unexpected Returns by Ed Easterling if you think Steenbarger was good. Easterling will blow your mind.

-Jason G.

Mike Taylor said...


I appreciate your comments and truly wish I agreed with you and Mr. Easterling. I have read his book...and at one time thought it was fantastic. That was before I spent the last 6 years undergoing a variety of market timing tests proving so many things that sound "right" and completely be untrue.

That is the thing that frustrates me so. There are so many smart people out there sharing so many "sound" and logical ideas. What truly blows my mind is that almost all of them prove untrue when tested on the market...both in backtesting and in real-time.

Then of course, there are all the ideas I have generated over the course of 10 years of market trading/investing that have proven untrue as well.

Sure, there are the investors/traders that succeed with the various approches out there in the marketplace. I'm just not smart enough nor lucky enough to make them work.

I'm not kidding you...I have probably logged over 10,000 hours testing every possible thing and have found just a few very simple ideas that really work...really prove true. Of course, one of these simple ideas is buying and holding stocks as long as possible...only selling when a trailing stop is hit.

Another simple idea that hurts me everytime I write about timing doesn't help your returns. On any test I have done...trying to add logic to skip a few bad years or even several...does not help your returns over an investment career. In fact, it becomes just a blip on the radar.

You might ask...well what happens on a Japan type scenario with decades of stock market decline? Well, sad to say...buying over the long-term works better than anything I've tested with that type of market environment as well. Crazy to believe even shorting a market like Japan that has declined for 18 years doesn't produce better returns than buying and holding stocks in that same market.

Want to know an even more frustrating thing? Doesn't even matter what stocks you buy. Don't even bother to pick out which ones will and won't succeed. Cause you'll be so surprised at the ones that make the money versus the ones that do nothing.

You know, I became so enamored with stock market cycles that I created all kinds of charts, graphs, theories for it. It was one of the things I really truly believed in. Heck, you might even find a few of those things on this blog a few years back. In fact, when my bubble was burst on this cycle theory...I almost gave up trading/investing.

Okay, probably more than you asked for. Sorry, just...just heard in your post a vibe that I had at one time. And wanted to share my reasons for avoiding such great logical and sound ideas as Mr. Easterlings.

Enjoy your weekend. And please don't take my word for any of this. Mr. Market is the only place to learn such things.