Tuesday, April 17, 2012

Changing market strategy?

Some people follow a market strategy of being a contrarian. This means that if others are buying, then you will be selling and vice versa. I think this makes a lot of sense, at least in theory. The hard thing is not about the theory itself, but deciding when the theory is applicable. If you look at a snapshot of all the available market theory, they will work in particular situations but not in others, hence to a beginner who is bombarded by a thousand and one market strategy, he will only get more confused after reading all these.



I am saying all these because it seems like people are trying out new strategies almost like changing new clothes. Try a bit of value investing, try a bit of momentum trading, try a bit of this and a bit of that. I'm quite sure some of the advice for a particular school of thought is completely opposite to other schools. I'm also quite sure that all of them work in certain situations. Hence, while it takes intelligence to understand what the theory and market strategy is all about for the different schools of though, it'll take wisdom to know where and when to apply it and more importantly, temperament to know if that particular strategy suits your personality.



But how do you know if a particular method is suited for you or not? Haha, seems like we're going back to square one. Perhaps that's why some people are trying out the new methods to see if it suits their temperament. Talk so much still goes back to the same point, haha :) Actually will checking one's XIRR to see if your method is effective works? I'm not so sure. First of all, when is the right time to say your current strategy sucks? 6 mths? 1 yr? 10 yrs? I'm quite sure for value investing to work, at least a few years (or market cycles) needed to be put in in order to ascertain a certain degree of confidence. What if one changes strategy at the critical point before it starts to work and therefore drawing the wrong conclusion? I don't know.



I've done my searching and circling in the past. I think I've found a method that works pretty well for me and suits my temperament as well. I'll be sticking to that :)

9 comments :

Anonymous said...

Careful, LP, Uncle cw8888 is going to be offended because of the XIRR comment.

Cheers

V

Singapore Man Of Leisure said...

LOL!

Not everyday we see brother "poking" brother!

Since we are having fun, let me join in by saying technically, we should use the term CARG (compound annual growth rate) instead of XIRR.

XIRR is merely a spreadsheet function - a tool to help calculate CARG.

Paper/pencil and/or calculator can also calculate CARG ;)

I use double-ended poke!

LOL!

Singapore Man Of Leisure said...

LP,

Jokes aside.

It is indeed tough to know whether one's method is working without a fixed time frame.

For full-time traders it's easier. We use monthly and annual time frames. No need CARG - just Simple Return will do.

No make money; can't survive. Game over.

But for part-time "investors", what time frame to use especially if we are investing for the long term? Eh...

And there's another spanner! Do we calculate fresh funds added into the portfolio and/or opportunity funds waiting on the sidelines?

They have a big boost on the excel XIRR if we exclude them ;)

That's why I prefer to count in money. Like cash flow on company statements - harder to manipulate!

la papillion said...

Hi V,

I think we're past that kind of shooting here and there :) I'm not worried :) Thanks for the warning though, even though it's no intended to shoot anyone at all. I'm, as usual, running through the things I had in my mind and jotting them down in the blog. No intending to start a flaming war :)

Hi SMOL,

Well, you're right :) But then again, we 'google' unknown words, we 'SMS' each other, 'email' to another and we 'youtube' an interesting clip. The words that describes the function becomes a verb instead, much like XIRR :)

Createwealth8888 said...

Track, Measure and Visualize your investing performance.

- Multi-years XIRR trending pattern over investing cycles

- Multi-years Portfolio value trending pattern over investing cycles

- Net worth contribution from investing activities.

With the above graphs, we should be able to visualize our investing performance.

Real-time graphing can't lie!

Createwealth8888 said...

In our workplace we know that any activities that are measured and rewarded according will show good improvement over time.

So start measuring our investing performance; but ever get confuse "tracking and moniotring" as measuring.

Many retail investor may still blur on this fine line.

la papillion said...

Hi bro8888,

Thanks for the reply. I'm not saying that measuring one investing strategy by tracking and monitoring isn't going to be useful. I'm just wondering if it's not good, when is the right time to change to a new strategy. Do we have to track over a few market cycles before concluding that the current investing strategy doesn't work? Wouldn't that be at least 5-10 yrs of time wasted? If it's not that long, would it be premature to conclude that it doesn't work?

I've no answers to these.

Singapore Man Of Leisure said...

We had fun!

Although it may seem on the surface LP, CW, and me are questioning each other, we are actually on the same page.

(OK, I see LP and CW moving away from me now. What!? I got shower lah!)

Me - CARG is meant for "Compound Annual"... Is this the right tool if your trading time frame is less than a year?

CW - Reminding us that tracking and monitoring is not measuring.
(Do read his excellent post on this topic)

LP - Challenged how long must we wait by using XIRR before realising we were moving in the right or wrong direction? 6 months? 1 year? 10 year?

This is the killer!!!

Are we patient and disciplined enough to wait and not change method?

la papillion said...

Hi SMOL,

Thanks for the summary of all the posts so far, you're good!

Exactly...are we patient and disciplined enough to wait for our method to work out or are we going to change methods like changing new clothes everyday? That's well said (asked, rather, haha).

Don't know about you, but before I changed any strategy or method, I start to doubt myself and ask if I should wait a little longer to see how it pans out. Am I being impatient or just feeling the inertia?