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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Richard Query who wrote (3415)	3/3/1998 9:12:00 AM
From: Paul Senior	Read Replies (1) \| Respond to of 78628

Richard: aieee. Putting 1/3 to 1/2 of trading portfolio at risk 30-40 times per year, each time for a 3% gain --- probably isn't going to gain too many adherents on this thread! Unless maybe trading portfolio is very small $$ absolutely and also relatively in comparison with investing portfolio. Sounds to me what you are saying is akin to taking a pile of money and betting it on the favorite to show. I like the reward part. It's the one time in 10 when the 1/3 or 1/2 gets whacked that hurts (-g-)

To: Richard Query who wrote (3415)	3/3/1998 9:35:00 AM
From: Honest Abe	Read Replies (3) \| Respond to of 78628

To the Traders: I can't argue with your logic that theoretically you can make much more money 'trading' than 'investing'. Obviously stocks move up and down from point A to point B, and if you can time the moves to some degree you can make more. And if you aren't in the market all the time because of these timing efforts, you can argue you have taken on less risk. But, with the thousands of mutual funds that operate as 'traders', why have none of them consistently outperformed? Your arguments make it sound as if it is easy, yet I have not yet seen an example of it even being consistently possible. With investing, you have to pick the company and an entry. When the story changes, sell. With trading, you have to pick the company, entry, exit, reentry, reexit, and are disadvantaged with commissions and slippage (though commissions are certainly becoming less of a factor these days!) as well as negative tax consequences. But MOST IMPORTANTLY, the point I find hardest to argue with: (I have seen these studies before - I found this info here: planretire.com "With the market showing more than the usual downside volatility recently, it is common and understandable to want to find a way to get out to side-step the drop, and then to re-enter in time to get all the recovery. Such a technique is known as "market timing". Such ability would be nice, but history shows it to be difficult at best and nearly impossible to pull off consistently. Here's why. From 1983 to 1992, the Standard & Poor's 500 achieved a 16.2 annualized return for those fully invested there for all 2,526 trading days. But if you had missed out on just the ten best days, your return would have been reduced to just 11.2%. Missing the best 20 days caused the return to fall to 8.6%. Failing to participate in the best 30 days whittled the return to just 6.0%. If one missed the best 40 days, the annualized return fell to a miserable 3.6%. Many of those "best" days came roaring out of the depths of the deepest drops, without time to observe a turn in the market in time to get in. Over the long haul, the risk of being out of the market is greater than the risk of being in. (These examples assume assets not held in stocks earned interest at the average rate of 30-day T'Bills over the same period.)" (I got the next example on a different web site, but lost the link...) "If you invested $100 in the stock market in 1926 and simply kept your money there through 1993, your investment would be worth $80,000. But if you tried to time the market and "missed" the 30 best months, your $100 would have grown to only about $1,200-the same return you would have received investing in U.S. government T-bills. "