It Sounds reasonable; have you checked it out for down turns
say since 1995. ?
In general there seems to me more material written about
the principles of calling tops , than calling bottoms.
The nature of market says tops are bound to be harder
to call than bottoms, yet we find very little written
on calling bottoms.
I'm just as guilty as anyone else on this, and me thinks
I need to focus and understand calling bottoms better
than I do, it's like putting the cart in front of the horse
to make understanding tops a priority. Yet I often slip into
that mind set myself, something is tugging at me mind in the
background saying get the bottom calling down pat first, as
it will help you know at least "when not to call a top."
----------
Ah That's the rub, at the track the pros if your lucky enough
to find an honest one, will coach you first on What races
to pass on, ie when "not to make bets" is key to understanding
the odds game. The entire thing is an odds game, it's paramutual
betting, at the track or in the market.
And the house is getting a cut, winning 1/2 the time is no good
unless you only bet when the payoffs will be better.
----------
Common sense says a stock can only fall to zero, but it can
and often does over double, the mechanics of that
make a top more difficult to call.
-----------------------
One thing I have found about broad market bottoms.
If we separate the BIG caps from the Smaller ones,
and lets say the market is already going south,
and we are looking for the turn back north.
A false turn is always given if the Smaller ones
turn first, a real turn up from a down trend,
will be lead by the former leaders and the larger caps.
If the thinner traded ones turn up first the rally will
fail. ( based on observations going back to 1995 )
---------------
CreemSpam talking in a non recorded ,
seeson to a nonexisting grope of investment bankers.
I'm reluctant to use to much historic data, and that is
almost a misnomer the way I said it, as it's so
hard to determine what is to much. Lets just say I'm
reluctant to use very much.
damm I'm starting to talk a "little" like GreemSpam
I'm reluctant to use very much historic data Because
of the undeniable fact that Dynamics change, and often
they change to a considerable degree.
Tracking and introducing all the changes in Dynamics
to adjust the historic data to reflect them, is not only a
monumental chore, it leaves open more opportunities to make
mistakes in over or under estimating the changes needed in the
data to account for the Structural changes made in the indexes,
and the gearing between various factors.
pause and takes a drink of water
Sometimes , no not just sometimes, but more often than not,
staying with simple models and using the more recent data
we have appears to work far better than complex models with data
that may or may not have all the adjustments needed to make
the underlying and controlling predicable in the models apply
apples to apples.
< i> smacks his lips
Some of the more complex problems arise when we look at data
over long periods of time to compare to the more recent
data, it is here we can easily introduce errors just by omitting
one or more signifate changes that effect the data today that did not
effect the data in the past, or the other way around.
I will give a simple example, it is over simple and just intended
to to show in a small way some of the complexities of looking at
data and a few of the adjustments needed.
produces a chart on IBM
quote.yahoo.com
Here you can see that IBM in August 1987 reached a spilt
adjusted high of $87.93 , it was almost 10 years before
IBM was to reach that high again. In August of 1997 it
had climbed to 109.43, and those long term investors were
rewarded with a 21% cumulative return on their investment,
or so it would seem
However if we introduce the rate of inflation, and inflation
my friends over the years works like compound interest
but backwards we can see that the original investment
made in august 1987 adjusted for inflation actually lost money in
that 10 year window.
To measure longer term actual market performance and to stay with apples to apples one must either go from one high to another high,
OR go from one low to another low. Going from high to low
or low to high does not give long term performance, that is
a slight of hand which can be easy skewed to make
data fit what ever curve a carmine may want.
Long term data must compare high to high, or low to low, and
then also be adjusted to the relative REAL value of the dollars.
takes another drink of water, investment bankers are beginning
to frown, one trys to ask a question hoping to side track the
apparent way this little talk appears to be headed, Spam smiles
and says he will get to that however it's not relative to
explaining why historic data can be so misleading
I just said that the Real value of dollars has to be considered
even when we use high points to high points, or low ones to
other lows, inflation can be tricky in as much that the compound
effect is inverted , so to offset or adjust for that we must
compare what this investment would bring if it were put
in government securities which is easy for us to track.
I did not bring the data with me, but if my memory serves me
reasonable well, and I think it does, 30yr bonds were over
8% about the time IBM made her 87 high.
Just as a ballpark exercises using the rule of 72, I can see
that the compound return on those bonds caused them to over
double in that time frame. So during the course of that 10
years; depending on how you wish to look at it the 21% cumulative
gain on IBM, amounts to almost an 80% loss had you placed the
money in bonds.
Further more we should then look beyond the end of our nose and
introduce the value of the dollar compared to the standard
set by the IMF know as SDRs ( Special drawing rights ) I do
not have that data handy, however I did look at it, and for
the purpose of this example it didn't amount to a hill of beans.
However it would in many other cases, also while I was looking
at it I notice rather wild swings, beyond what could be attributed
to any type of normal market correcting, currency values darting
about as if they a school of fish the way these are can only be
attributed to a market that is being rigged. Regular investors
even big ones can not move that much currency in such dramatic
up / down fashion , it's to unified for me to believe that
this is the results of supply and demand, as supply and
demand can not change that fast, and I ought to know,
as I am at the spigot, I'm not twisting it that fast but
I'm getting blamed for it, and I want to know what the
hell is going on.
-------------------------
< i> finishes his glass of water, smiles and throws the class
over his shoulder and into the wall behind him,
breaking it in the finest fashion ever done.
Jim
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