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Eh so this has been a really long business cycle, we haven't gotten rid of business cycles, stocks track the business cycle, I feel gross at this point for how much fake money my FI stocks have made, so I'm gettin' out and moving to 1/3 stock, 2/3 bond. The Fed's out of interest rate ammo, so I'm assuming this downturn they'll just increase inflation, especially with the large cash holdings of so many US companies. Going to try some of those inflation-protected bonds that yield basically nothing. I think next business cycle, I'm going to rebalance every month, linearly (?) proportional to being 3/4 bond and 1/4 stock at the 80-month mark after NBER declares the recession over. Can't time a recession beforehand, but you can time them in retrospect, and the longer you get from the bottom of the last recession, the riskier stocks become. The actual risk-optimized arrangement might be something like, 90% stocks for 2 years out of a recession, and then start ramping up the bond purchases. But who loving knows anything.
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Sep 3, 2017 12:24
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Why are you trying to time the market? Are you Janet Yellen? Because even if you're Janet Yellen you have no loving idea what's going to happen from one minute to the next and if you had any real aptitude for doing so, you wouldn't be sharing fail-safe strategies like "I feel like this should happen so I'm going to allocate capital in such a way that assumes that it will."
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Sep 3, 2017 17:13
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I'm not in the newsletter business. We're all drops in the bucket here. If you like the reasoning you are welcome to adopt this strategy  , or keep a steady allocation. It's your money.You're right that it'd be ridiculous to time the market to the day or week unless you have bank-level market power. But you can still make statements like "over 200 months, there are an average of 2 business cycles", I'm trying to reason from an observation like that. Our risk of recession rises the further we are from the last business cycle. I think it's a strategy that doesn't require you to time the market in advance, just requires you to notice after the market tanks, at which point you sell the bonds to a market that wants safe investments and re-buy stocks on the cheap. It's nice if you can make the big switch at the true market bottom, but you could hit it with 6 month precision and not lose more than say ~10% from your big stock buy's cost basis. I dunno we'll see, just walking through my reasoning. Fundamentally I'm satisfied/embarrassed by how well my FI investments are doing this business cycle and don't mind losing some returns in exchange for safety, even if recession is 2+ years away. We're less than a year out from breaking the business cycle duration record tho. Mofabio fucked around with this message at 21:36 on Sep 3, 2017 |
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Sep 3, 2017 21:33
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Mofabio posted:Fundamentally I'm satisfied/embarrassed by how well my FI investments are doing this business cycle and don't mind losing some returns in exchange for safety, even if recession is 2+ years away.
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Sep 3, 2017 21:35
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Why's it horseshit though? I might do this allocation strategy next go-around, seems like a way to tie stock allocation to risk of recession.
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Sep 3, 2017 21:38
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Because you don't really know whether or not your hypothesis is accurate or not. It is highly unlikely that you have the resources and expertise to support your claims with enough accuracy to be valuable. People with more resources and expertise haven't done it. Trying to justify your decisions based around a half-formed idea like that gives you ground later to continue making decisions justified by half-formed ideas. It may or may not pay off, but it's not justifiable, so don't bother trying to.
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Sep 3, 2017 21:42
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Well it takes the same evidence to say something is horseshit as it does to say it's gold, which is why I was asking why you think it's horseshit. Business cycle length isn't random, they last between 4 and 9 years. It's just a simple strategy that takes that observation into account, that stock risk isn't constant across a business cycle. Like let's take a simple 2-security portfolio of VTI and BND. With perfect foreknowledge, the ideal strategy would be to stay in stocks during the bull market, cash out at the peak, then rebuy them after the dip. We don't have perfect foreknowledge, but we have a rough idea that the dips are spaced 4 to 9 years apart. And we'll know when the dip is because it's all over the news. So in lieu of perfect knowledge of the dip in advance, but good knowledge in retrospect, we can start the business cycle with 90%+ VTI, gradually replace the risky VTI with the less-risky BND, say starting at year 3, ramping up to (again these are rough numbers) 90%+ BND at year 10. At some point during the ramp, there will be a crash, then you repeat the cycle. I guess I'm asking, is there something obvious I'm missing here?
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Sep 3, 2017 22:11
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Mofabio posted:I guess I'm asking, is there something obvious I'm missing here? Yes: even if you're right about the cycles (which is not something I'm willing to grant), acting according to this strategy may well underperform a simple buy-and-hold strategy with a fixed asset allocation. (If it didn't underperform already, you should expect that enough other investors would have figured it out by now to extract all of the available value.) Have you done any Monte Carlo simulations to figure out whether this is a good idea at all? Furthermore, every degree of freedom you grant yourself is one more way for your fleshy human brain to gently caress you over. Humans are, like, anti-optimized to have good intuitions in this setting; once your money is in the market, acting is generally worse than failing-to-act for an individual human investor. My allocation is set up not just to have good returns, but also to keep me from screwing up by acting unwisely.
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Sep 3, 2017 22:35
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Droo posted:My wife and I have paid just about 35% total tax in my life, including both parts of social security, property tax, state tax, federal tax and both sides of medicare tax. That's a full percentage point or two over what the average Swede is paying if we don't count capital gains.  Mofabio posted:I guess I'm asking, is there something obvious I'm missing here? That it's mostly pointless over the investment length that your FI savings are going for. You can always try to game the markets but unless you're really lucky you'd be better off just steadily investing in the average index fund without ever even looking at market movements at all. Holding out on the markets has an opportunity cost and that opportunity cost can dwarf whatever potential gains you'll get from investing in a down-turn. Calling recessions is difficult and calling the bottom-end of them once the crashing has started is even more so. The biggest danger when doing this kind of investment is that if you ever hit a liquidity crunch during the recession (mortgage renegotiation+job loss is the most common one) you can be forced into selling off assets at a steep loss if you don't have enough surplus cash. There's nothing fundamentally wrong with your investment scheme, but don't fool yourself into believing that what you're doing isn't speculation just because you have a scheme. The correlations you mention are all spurious and don't actually indicate causation like you seem to believe. Outsmarting markets is really difficult because markets are fundamentally irrational. Of course, if your investment horizon is shorter (less than 5-7 years I'd say) then there is nothing fundamentally wrong in reducing your risk by shuffling off capital into more recession-proof assets regardless of what your goal with it is.
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Sep 3, 2017 22:40
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The other thing to consider is that if it's so easy and obvious, it's already priced into the asset values because industry-level investors aren't stupid. Edit: To further clarify, I'm calling horseshit on your notion that you're changing your allocation because of deep insight into the market, not on the deep insight itself. The reason you're doing it is because you're realizing your risk allocation makes you nervous. Hoodwinker fucked around with this message at 23:08 on Sep 3, 2017 |
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Sep 3, 2017 22:59
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edit: ^^ you aren't wrong, my financial situation changed a year ago (quit my job), and I hadn't started re-thinking asset allocation until a few months ago. No job+90% stocks is a pretty lousy situation to be in when a recession strikes. Ok, thanks for the insights! My next step is to compare ramping strategies, using historical data, to buy and hold, to see how sensitive the strategy is to both the asset allocation ramp and IDing the recession trough. Figure this is more sound than putting it all on black or dogecoin or cat liver futures. It's apparently a pretty common strategy called (shockingly) business cycle investing. I'll have to look into it more, since I'm obviously not the first to walk this path. Thanks! Mofabio fucked around with this message at 23:27 on Sep 3, 2017 |
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Sep 3, 2017 23:24
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Mofabio posted:edit: ^^ you aren't wrong, my financial situation changed a year ago (quit my job), and I hadn't started re-thinking asset allocation until a few months ago. No job+90% stocks is a pretty lousy situation to be in when a recession strikes. This is a pretty drat important change (not working) and changing to a robust long term strategy for income and risk management makes a lot of sense. People heading towards FIRE often find it's good to eliminate debts including mortgage even though the interest may be cheap it adds an undesirable risk.
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Sep 3, 2017 23:55
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Mofabio posted:I guess I'm asking, is there something obvious I'm missing here? Devian666 posted:People heading towards FIRE often find it's good to eliminate debts including mortgage even though the interest may be cheap it adds an undesirable risk. Ralith fucked around with this message at 03:42 on Sep 4, 2017 |
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Sep 4, 2017 03:40
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Ralith posted:What risk are you eliminating by paying off a mortgage? You're never going to magically end up owing more money than interest, and interest is predictable (not to mention cheap).
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Sep 4, 2017 04:31
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Ralith posted:Yes, you're falling victim to the gambler's fallacy. A long run of good luck does not magically increase your odds of bad luck, no matter how short the average run of good luck is. The market may not be a series of totally independent events, but modeling it as one is still about the best we can do. Ha, you say that's the best model, but if we took a bet on when the end of this business cycle would be, I doubt you'd put the same money on 2023 as 2018. Even betting 2019 is a bet that this one will be the longest ever recorded.
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Sep 4, 2017 07:43
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Mofabio posted:Ha, you say that's the best model, but if we took a bet on when the end of this business cycle would be, I doubt you'd put the same money on 2023 as 2018. Even betting 2019 is a bet that this one will be the longest ever recorded. If you flip a fair coin and it turns up heads ten times in a row, that doesn't mean that the next time you flip it is more than 50% likely to turn up tails.
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Sep 4, 2017 08:07
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Gambler's fallacy doesn't apply here, because corporate profits and inventories and number of available workers and raw materials and wear on machines and interest rates and every component of the business cycle is historically dependent on the previous time period. It's only for independent discrete random events, none of which apply.
Mofabio fucked around with this message at 08:40 on Sep 4, 2017 |
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Sep 4, 2017 08:37
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Mofabio posted:Gambler's fallacy doesn't apply here, because corporate profits and inventories and number of available workers and raw materials and every component of the business cycle is historically dependent on the previous time period. It's only for independent discrete random events, none of which apply.
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Sep 4, 2017 08:42
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Love that attitude! Yikes. How tedious, just take the correction.
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Sep 4, 2017 08:45
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To be clear, I understand that the market is a hugely complicated, time-dependent system. I also understand that you're not actually acting based on a rigorous and novel analysis of "corporate profits and inventories and number of available workers and raw materials and wear on machines and interest rates," you're acting based on "gosh it's been a while since a recession." It's not the gambler's fallacy in the strictest formal sense, that's true; if someone has a more precise term, I'd be happy to hear it. Regardless, sincerely, I wish you good luck. A net win isn't impossible, even if your methodology amounts to acting totally at random. There have certainly been worse times to freak out and sell a bunch.
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Sep 4, 2017 09:05
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I thought it was a really interesting comment and it made me think. Sorry for being a little snotty. It being a gambler's fallacy, or not, is a totally core question. In a random market, where the biggest two factors are the age you enter and the age you exit, buy-and-hold will be optimal. Any movements you make in a random market will average to the market and will just cost commissions. But the market isn't random, it's just inscrutable. Bulk market events like recessions are regular. They're usually spaced 70 months apart, +/- 30 months. I'm changing my investment strategy to ramp to a max bond allocation at 100 months (or so), and max stocks within 6 months after the trough, as best as I can determine. I'm basically moving to a more conservative allocation, and I'm trying to have it both ways, to be conservative when the market is at its peak and risky in the troughs, zig when it zags. I appreciate all the feedback I got but especially yours, because it made me think the hardest about the assumptions I'm making, even if it ended up reinforcing the decision .
Mofabio fucked around with this message at 09:39 on Sep 4, 2017 |
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Sep 4, 2017 09:31
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You're clearly not going to change your mind on this, which is fine, but you really should take a step back and look at your very own post:Mofabio posted:I thought it was a really interesting comment and it made me think. Sorry for being a little snotty. It being a gambler's fallacy, or not, is a totally core question. In a random market, where the biggest two factors are the age you enter and the age you exit, buy-and-hold will be optimal. Any movements you make in a random market will average to the market and will just cost commissions. But the market isn't random, it's just inscrutable. Your last sentence of the first paragraph states that the market is impossible to understand or interpret, which you follow immediately by saying you understand it and are able to interpret it in such a way to time it well.
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Sep 4, 2017 15:59
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And to reiterate someone else's point: "I'm nervous that if there is a recession, it will hit me very hard, so I want to change my allocations to reduce that risk" is what you're doing, whatever you say, and that's a very, very valid thing to be doing with valid reasoning.
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Sep 4, 2017 16:07
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Yeah except OP has continued to insist that his move is resulting from the fact that he has been endowed with a clearer vision of the market than other investors ('but the business cycle!') and it has nothing to do with the way he feels which is such a loving face-palm that it makes it impossible to take him seriously. "I feel like my position is overexposed to risk and I might need some of this money, so I'm going to change my asset allocation" versus "I feel like the market is bound to take a turn, I want my money to end up ahead of other investors, so I'm going to change my asset allocation" Both result in the same outcome with this move, but if you're pulling your position back for the latter reasoning you're actually setting yourself up to make the same stupid mistake twice (from a long term outcomes perspective) by not just justifying one questionable asset reallocation but serial asset reallocations, each baking in the same fallacy - that you have insight into how the market will move that other investors lack.
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Sep 4, 2017 16:36
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EAT FASTER!!!!!! posted:Both result in the same outcome with this move, but if you're pulling your position back for the latter reasoning you're actually setting yourself up to make the same stupid mistake twice (from a long term outcomes perspective) by not just justifying one questionable asset reallocation but serial asset reallocations, each baking in the same fallacy - that you have insight into how the market will move that other investors lack.
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Sep 4, 2017 16:55
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Hoodwinker posted:YuuuuuuuuuuUUUUUUUUUUUUUUUUUUP True enough.
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Sep 4, 2017 17:31
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Mofabio posted:Bulk market events like recessions are regular. They're usually spaced 70 months apart, +/- 30 months. I'm changing my investment strategy to ramp to a max bond allocation at 100 months (or so), and max stocks within 6 months after the trough, as best as I can determine. I'm basically moving to a more conservative allocation, and I'm trying to have it both ways, to be conservative when the market is at its peak and risky in the troughs, zig when it zags. I appreciate all the feedback I got but especially yours, because it made me think the hardest about the assumptions I'm making, even if it ended up reinforcing the decision
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Sep 4, 2017 17:52
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Wow, everybody's taking this really, uh seriously. Buy-and-hold, 'can't time the market', low commission index funds, regular rebalancing -- I'm not insulting that strategy, it's the easiest, most gently caress-up-proof way to invest. 'Can't time the market' though isn't an absolute. Recession's more likely in the next year when you're 10 years away from the last one, versus 2 years. I don't think anybody, except maybe Ralith, disagrees with that. I'm reasoning from that premise. When I end up making a spreadsheet on this, with different allocation ramps, I will update the thread. I'll also update it if there's a recession in 2017 or 2018, with some cost-basis math to figure out whether this particular market move was wise. If that comes, sorry to any buy-and-holders who mis-appraised their risk tolerance  . Recessions suck for everyone.
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Sep 4, 2017 19:54
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Mofabio posted:Wow, everybody's taking this really, uh seriously. Buy-and-hold, 'can't time the market', low commission index funds, regular rebalancing -- I'm not insulting that strategy, it's the easiest, most gently caress-up-proof way to invest. Mofabio posted:I'll also update it if there's a recession in 2017 or 2018, with some cost-basis math to figure out whether this particular market move was wise. If that comes, sorry to any buy-and-holders who mis-appraised their risk tolerance It could be that you're totally right and it's a smart move to take money out now but then the market happens to climb and do really well the next few years. Unlucky. It could be that you're totally wrong and it's a dumb move to take money out now but the market does happen to tank by happenstance due to circumstances you could have never accurately predicted. Lucky. In neither of these cases do we get anything meaningful out of your sample size of 1 decision and 1 event. Basically, no one cares if you were right or wrong after 2018. If you were right, it could have just been luck. If you were wrong, maybe your decision was still correct on average. You have to be able to hypothesis whether the decision itself is correct at the time of making it, not after you already see the results of the decision. You also know clearly understand very little about this subject but go hog wild trying to out-smart the market if you hate money, I guess. Blinky2099 fucked around with this message at 20:25 on Sep 4, 2017 |
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Sep 4, 2017 20:20
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Sounds like somebody needs to 
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Sep 4, 2017 20:46
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Mofabio posted:Recession's more likely in the next year when you're 10 years away from the last one, versus 2 years. I don't think anybody, except maybe Ralith, disagrees with that.
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Sep 4, 2017 20:57
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Blinky2099 posted:As has already been mentioned, if everyone [except for Ralith] agrees, then it's priced into the market already. Recessions are priced into the market? That's an interesting perspective and I'd like to hear more. What do you mean?
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Sep 4, 2017 21:24
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Mofabio posted:Recessions are priced into the market? That's an interesting perspective and I'd like to hear more. What do you mean? If everyone expects something to happen then everyone is already acting on those expectations it and trading with that in mind. You're making the assumption that everyone knows something but isn't acting on it, or that you have some kind of unique insight.
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Sep 4, 2017 21:39
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But how are recessions already priced into the market? What instruments change price in anticipation of recession? People are hungry for stocks up to the day before the crash. People buying expensive stocks are trading with the crash in mind? edit: I don't wanna be misinterpreted, I don't think recessions are priced into portfolios in advance by most people, they come as surprises especially to the people who are still buying stocks when the S&P is 2500. People buy stocks for all sorts of silly reasons, if you share the insight that recessions become more likely the deeper you are into a business cycle, then yes your insight is not shared by everybody with investments. You can sell your expensive stocks today and some day-trader in Iowa will take the other end of the trade, because they haven't looked into it and believe in The Trump Market or whatever. That dude will probably be surprised if there's recession in 2018 and it'll be because his analysis was worse than yours. And obviously with simple recession-proofing like I'm proposing you're more likely to take the poo poo-end of investments if paired off against somebody who has spent their life studying investing, especially if it isn't tied to historical data. Enjoying looking into the assumptions that go into the common buy-and-hold wisdom, hope I'm not offending anybody. The person who made the point that the more variables you introduce into your system, the more chances you have to gently caress it up, I think that was really cogent and is centering how I'm going to tackle the problem. Apropos not really anything. Mofabio fucked around with this message at 23:12 on Sep 4, 2017 |
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Sep 4, 2017 21:55
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Mofabio posted:But how are recessions already priced into the market? What instruments change price in anticipation of recession? People are hungry for stocks up to the day before the crash. People buying expensive stocks are trading with the crash in mind? Also, as much as one data point doesn't mean anything and  is likely the least of what you're betting, toxxing yourself about a crash happening by the end of 2018 would be pretty great.
Ralith fucked around with this message at 23:09 on Sep 4, 2017 |
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Sep 4, 2017 23:06
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Ralith posted:You simultaneously think everyone agrees that a recession is likely in the very near future, but that none of them are trading on that knowledge? You are literally advocating not trying to time the market, even if you think a recession/crash is likely to happen soon, so there are certainly lots of people who think that a recession is near but aren't trading based on that premise.
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Sep 4, 2017 23:11
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Ralith posted:Also, as much as one data point doesn't mean anything and I'd rather bet somebody an archives account, if anybody wants to take the other end of it. To the rest of what you said: I think there are groups who believe this run will shatter all records, groups who are passive investors who check their Vanguards twice a year and don't care, groups who are passive and if pressed would basically agree with what I'm saying but don't want to risk making a wrong move, and groups like me who think the party's gone on for a while now and are actively trading on that assumption. Probably most people here are satisfied waiting out a down-market, and fit into the second or third groups. But if anyone in the first group wants to buy me archives, bet's on the table! :P Mofabio fucked around with this message at 23:28 on Sep 4, 2017 |
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Sep 4, 2017 23:14
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Droo posted:You are literally advocating not trying to time the market, even if you think a recession/crash is likely to happen soon, so there are certainly lots of people who think that a recession is near but aren't trading based on that premise. Mofabio posted:I'd rather bet somebody an archives account, if anybody wants to take the other end of it.
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Sep 4, 2017 23:34
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Sure sounds good. NBER dating? Winner reminds the other person? (odds are also good that I'm going to forget about this by end of next year).
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Sep 4, 2017 23:41
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Mofabio posted:Sure sounds good. NBER dating? Winner reminds the other person? (odds are also good that I'm going to forget about this by end of next year). 
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Sep 4, 2017 23:51
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