DISCLAIMER

PLEASE READ THE DISCLAIMER AT THE BOTTOM OF THIS PAGE WHICH APPLIES TO ALL CONTENT IN THIS BLOG AS WELL AS ANY OTHER MATERIAL FROM WE ARE FUTURES TRADERS LLC. READING ANY CONTENT BELOW CONSTITUTES AN AGREEMENT BY ALL READERS THAT THEY HAVE READ AND AGREE TO ALL THAT IS SET FORTH IN THE DISCLAIMER AT THE BOTTOM OF THIS PAGE.


Thursday, May 18, 2006



Todays Topic - Phony Baloney on CNBC

I have to admit that at times I tune in to CNBC in the mornings. Occasionally, in the midst of all the wall street shills, they have a Bill Fleckenstein type of person on. Bill and others of his caliber are worth listening to.

Most of the others are either completely dishonest, or clueless. I am not sure which is true. Yesterday they had these twin brothers on who have been money managers for a number of years. They were extolling the virtues of buy an hold. They displayed a graph that showed something along the lines of returns from 2000 to present buying and holding the S&P 500.

Their pitch was that there is not much of a difference between buying and holding and "timing" the market. As a result, the average person should not be trying to do it. Too bad, they did not mention that it also helps their management fees when funds are not going in and out often!

The table displayed above shows the results of buying the S&P 500 futures contract on the first trading day of November each of the years, and selling it the following first trading day of April. The only caveat, is that the commercials need to be long the market, on that first day of November. If they are not there is no entry.

This is very simplistic, but just proves a point. These two brothers had indicated that buying and holding the S&P 500 during that period (2000 to date) , gained a smidge over 2%. My math shows that buying on the first trading day of 2000, and holding through yesterday, yielded a smooth -22% return, not a 2% gain.

So compare the -22% to the above +15% with that very simple plan, and tell me that timing has no impact on returns. Even if you set aside the lie about the 2%, and accept that as accurate, you can clearly see that basic timing, far outperforms buy and hold.

Make no mistake about it, trading is an insiders game. Here is more proof of it. It is unfortunate that people like this all allowed to perpetuate this fraud on the public. Further, this inaccurate information dispersal, is condoned by a major cable network. However, it is what it is, so just be aware of it. Do not listen to what these people say PERIOD!

4 comments:

powayseller said...

There's a guy on the piggington site saying we should all buy and hold. Perhaps you can post your chart over there. This is the biggest fraud perpetuated by Wall Street. We need to understand their motive: they make moore money when they manage more money. They gain when they convince people to dollar cost average (yeah, just buy more shares when they are overpriced) and hold for the long term. They don't like it when people pull money out.

And then individuals muck up their returns because they jump in on the momentum and sell in fear when the market goes down. So instead of buying low and selling high, they buy high and sell low.

This is why I sold my equities postiions. It's high now, and I am waiting for a low.

Chris Johnston said...

I would love to do that, but I do not know how to technically. I have asked Rich if it can be done, and he says he does not think so.Why don't you post a message on the blog to go to mine and see this.

I will do it later, I am just a tad bit busy at the moment.

Chris Johnston said...

Rich, thanks for that link. I just read that. Good stuff. I believe that real estate is even more like stocks than previously, due to technology enhancements. Zillow, and other types of things like that, are going to make it more liguid, and hence more prone to price swings.

RE will never be as liquid as stocks, futures, etc.. But now we can get alot of information so much more quickly than before about values, neighborhoods, etcc.

If we couple this with more efficient transactions such as cheaper commissions, things may change alot. What if it cost 3% total to sell instead of about 9%?

I think alot more people, would go in and out of housing in shorter time spurts.

Chris Johnston said...

To address the question of stocks and their valuations, I do not think that stocks are highly overvalued in a historical context right here.

In keeping my models as simple as I can make them, I try to zero in on a few components that are the most significant.

Interest rates have been the biggest driving factor in stock market moves historically. They have been diverging negatively with stocks. Go to my post from 5/10 and look at that chart. For my purposes this is all I need to stay away from stock long postions right here.

You can play the dollar decline straight up with either futures or options on futures. It is the best pure play there is.