MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for the ‘Trading Strategies’ Category

“No human or strategy can consistently beat the market”

Monday, August 9th, 2010

James Altucher is one of the least arogant and most knowledgeable hedge fund managers I have come across. He is a great investor but has also started some great businesses like In addition, James has written several books on investing. The Kirk Report has just run a long interview with James:

“The only three things that are important are discipline, persistence, and psychology. Without those three things there isn’t a strategy in the world that will work for you. With those three things, just about any strategy will work.(…)No human or strategy can consistently beat the market. The best traders I know are some of the most humble guys out there and have no arrogance on their market opinions at all. They are able to switch opinions and strategies very quickly. I would say that over the years any arrogance I had about any strategy has probably disappeared and now I’m appreciative of just about any strategy out there as long as it comes with persistence, discipline, and positive psychology.”

Very  wise words, indeed.


Mutual Fund Investors Rarely Get It Right

Monday, April 12th, 2010

The New York Times reports:

“Mutual fund investors usually get the direction of the stock market wrong. Just before the market declines, they generally move money out of their bond funds and into their stock funds, and just before it rises, they shift their money in the other direction.

These are the findings of a new study that provides yet more evidence that most mutual fund investors would fare better if they didn’t try to time the market. And because so many fund investors try to do so anyway, the study suggests that these fund flows provide a new sentiment indicator for gauging excessive pessimism or optimism.”

I would add to these findings that, in many cases, the investors’ financial advisers have to take the blame for the wrong timing decisions. In a study MyPrivateBanking did on the quality of investment proposals of European private banks one of the major outcomes was that the banks proposed an extremely bearish portfolio to potential new clients just when the markets were at their lowest point in early 2009.

The New York Times comes to the conclusion that the decision making of mutual fund investors can be seen as a good indicator on future market moves:

“For several months before the beginning of the bull market in March 2009, for example, fund investors on average transferred money out of stock funds and into bond funds. It’s a common pattern. Little wonder, then, that the average mutual fund investor would be far better off if he never engaged in stock market timing.”

This is exactly the same pattern we have observed in the investment behavior of the big wealth managers’ portfolio management. It would be interesting to research to which extent the irrational behavior of private individuals has been influenced by the advise of their professional wealth managers. The bottom line of this study confirms again that market timing is mostly a trading-fee-generating strategy benefiting the banks rather than the investor.


Is This the Future of Investing?

Wednesday, October 21st, 2009

Recently two new platforms have gained a large followership on the Internet: It is kaChing and Covestor Investment Management. According to the New York Times, kaChing has 400,000 registered members. Both platforms work in a similar, simple way: Become a member, look at other investors (some of them professionals) and invest along them. You can see the track records, detailed portfolios and trades of other investors.

On both platforms you can automatically make the same trades as the investors you have chosen. In a way this is the Web 2.0 version of the mutual fund except for much lower costs to the retail investor. However, the same cautious rules apply: Before you bet on one of  the investing geniuses on either platform, make sure you have thoroughly checked their track record, investment strategy, risk profile and portfolio.

I can definitely see that these platforms can, over time, become a serious competitor to the less transparent, inflexible fund industry.


Is Buy & Hold Dead?

Tuesday, October 6th, 2009

Looking at the last 10 years the stock market has not made a lot of progress - despite big swings up and down. In conclusion “buy-and-hold” strategies are very much out of fashion right now and many wealth advisers recommend active market timing strategies (buy low - sell high, trade a lot) . But according to Wells Capital we might just enter a new period when a buy and hold strategy could become very attractive again (see page 12 of the linked document). It is striking how people have alsways felt positive about market-timing-strategies when it really made sense to buy and hold equities.



Sell in May and Go Away?

Monday, August 10th, 2009

You better have not followed this rule in 2009: Since the beginning of May the DJ Eurostoxx50 has gained more than 400 points and the DowJones more than 1000 points.

However, stock traders like to point out that there are many other rules, some of them very complex who supposedly have proven themselves. Well… I am not sure. There is an interesting piece in the Wall Street Journal on trading rules and data mining. Here is the short summary: math and stats wizards are analyzing millions of data points to detect patterns in the behavior of the stock market. Based on these historic patterns they create predictions for the future behavior of the market, so called trading rules. Unfortunately, in most cases these predictions don’t work very well. Actually, over the long term, almost none of them hold true.

There is one great example in the WSJ article: The annual butter production in Bangladesh explains 75% of the behavior of the S&P 500 index, a US stock market index. When you add US cheese production and the number of sheep in the US and Bangladesh as variables, you can explain the ups and downs of S&P500 with 99% accuracy. Isn’t that great? But better don’t bet on it for the future…

This blog has always recommended a long-term outlook, fundamental analysis and, for the most part, relatively simple index investments to grow your wealth. If your wealth adviser has other ideas - why don’t you confront him with this negative evidence on the success of most trading strategies?