Comments for Canadian Couch Potato

Comment on Build Your Own Pension-Fund Portfolio by Jas

Jas — Sat, 19 May 2012 23:26:13 +0000

I agree with Doug’s comment. Pension funds do not pay taxes. Thus, while they might be used as a model to build a retirement portfolio in nontaxable accounts like RRSP, the optimal allocation between Canada and the rest of the world is not so easy if one invest mainly inside taxable accounts.

In his book about professional corporations, Timothy Paziuk recommends business owners to invest only in Canadian equities because of their tax advantage. While this may seem a little extreme, it does seem reasonable to overweight canadian equities if you hold your portfolio inside taxable accounts.

Comment on Why I Have No Faith in Market Timing by Doug Cronk

Doug Cronk — Sat, 19 May 2012 16:59:57 +0000

Mike,
A rebalancing policy and reinvestment discipline can help minimize cash drag … but if you are going to be a market timer … you have to have cash available to take advantage of opportunities.

Comment on Why I Have No Faith in Market Timing by Mike

Mike — Sat, 19 May 2012 15:09:11 +0000

One big thing about this strategy that may be a huge alpha generator for some and a huge drag on the account for others is that is often has large components sitting in cash. With that cash one could trade and if they know what they are doing, increase their returns. On the flip side, if you are not a skilled trader this ability to trade with the excess cash may be a net negative.

Comment on Why I Have No Faith in Market Timing by Best of Blogs – Great to be home | Retire Happy Blog

Best of Blogs – Great to be home | Retire Happy Blog — Sat, 19 May 2012 04:27:00 +0000

[...] This week the Canadian Couch Potato wrote an honest post about Why I Have No Faith in Market Timing. [...]

Comment on Why I Have No Faith in Market Timing by Doug Cronk

Doug Cronk — Fri, 18 May 2012 19:22:52 +0000

Good question.
There’s theory and then there’s practical implementation.
Many Pensions rebalance monthly as part of their cash flow work. And they move in increments back toward the strategic mix … not all at once. And over the last few years, it’s added value. (Like 0.50% … ish).
For Individuals it might be less a function of time (when) and moreso a function of how much the market(s) have moved.
The trick, I think, for Individual Investors is to make the (too often) complex rebalancing discipline … practical. So rebalance with an RRSP contribution for example or quarterly after dividends, interest and/or rent has been received. (Reinvesting income is also a form of rebalancing). Again, rebalancing works best in a sideways market. Some could set ‘bands’ around the strategic mix … like 5% + or -. Or after a 10% market correction. Or as market PE hits 10. Or, for example, I might rebalance into REITs when yields hit 7%.
The default position for Individuals? 1/2 now. 1/2 later.

Comment on Why I Have No Faith in Market Timing by Canadian Couch Potato

Canadian Couch Potato — Fri, 18 May 2012 19:08:51 +0000

@Doug: Always great when you stop by with the institutional perspective! For readers who are interested, I have uploaded a PDF of the article Doug referred to. @Andrew: Thanks for the Norway Model link.

Comment on Why I Have No Faith in Market Timing by Andrew

Andrew — Fri, 18 May 2012 18:15:38 +0000

Doug
How often do you think rebalancing should be done? Bernstein in Investors Manifesto recommends every 2-3 years I think.
Pension funds do not play with money like some advisors do but they do tactically vary asset allocations within a range which is a form of market timing. For instance OTPP has been gradually increasing its exposure to inflation sensitive assets. They also use a number of alpha strategies.
Now the “Norway Model” sovereign wealth fund – the largest pool of money in the world is moving away from alpha strategies toward a kind of CP portfolio of a type of indexing, a long horizon, low fees and rebalancing. This paper describes it:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1936806

Comment on Why I Have No Faith in Market Timing by Doug Cronk

Doug Cronk — Fri, 18 May 2012 17:51:38 +0000

Hi, Dan.
Market volatility got you down … then up, then down again? The best defence is a rebalancing discipline. (aka. Buy Low Sell High Made Easy?)

The temptation to market time is no less in the Institutional Investing world. But it’s very much frowned upon. (Making ‘bets’ with pensioners money is, uhm, discouraged). A rebalancing strategy, however, can help overcome the behavioural biases of market timing.

Here’s one of my favourite quotes on the subject:
“Contrarian strategies [rebalancing] will outperform buy-and-hold strategies in markets that experience frequent reversals (so-called sideways markets). [The] rationale for frequent rebalancing is a belief that markets in the future will tend to move sideways more often than they trend.” Susan Trammell, Nov/Dec 2011, ‘Adaptive Asset Allocation’, CFA Magazine, Vol. 22, No. 6: 47-49.

Comment on Why I Have No Faith in Market Timing by Rick Coyle

Rick Coyle — Fri, 18 May 2012 15:58:14 +0000

What a great discussion with excellent points made by both sides. I have to admit that in the past I advocated buy and hold with annual rebalancing but after the major drawdown 2008-2009 I became more interested in technical analysis as a way to manage risk. I believe it does take discipline and nerve to implement a technical analysis strategy. I like the idea of reducing equity holdings by 50% when the indicators say sell and moving back to the target mix when they say buy. This way you are never completely out but you are reducing exposure. I have to admit that it is not always easy to confidently read the signals as I use moving averages as well as some oscilators for confirmation. I think that before you implement any technical analysis strategies that you do a lot of research and practice virtually because you have to be confidant in the moves you make, as just like in athletics you can’t be tentative. And remember that strategies that worked in the past may not necessarily work in the future so you can’t be 100% certain any pattern is going to repeat. Buy a respected text on the subject such as Technical Analysis: The Complete Resource by Dalquist and Kirkpatrick and you will quickly come to the realization that it is as much art as science. Hey there are no guarantees or certainties here.

Comment on Why I Have No Faith in Market Timing by Andrew F

Andrew F — Fri, 18 May 2012 15:00:14 +0000

I’m not convinced that Faber’s timing strategy is superior to buy-and-hold. But I am not convinced that it is worse, either. The analysis is pretty compelling. He has done plenty of out of sample testing. What remains is to develop a track-record in the real world. His ETF has had a less than stellar first 18 months, but that time frame is too short to make conclusive judgements. I do not invest in his ETF.

Any thoughts on Managed Futures as an asset class? It is also fundamentally a timing strategy, and has produced impressive real results.