have there ever been crashes that don't crescendo?

[Yodean]

*****

The general message from these two quant studies is that it's far more important to try to avoid the big drawdowns (by missing the ten worst days) compared to almost anything else, on a long-term basis.

[nicolas]

*****

The general message from these two quant studies is that it's far more important to try to avoid the big drawdowns (by missing the ten worst days) compared to almost anything else, on a long-term basis.

I agree with the benefit of avoiding large drawdowns at the portfolio level (though not necessarily at the position level) for superior long-term returns.

These analyses removing the 10 best/worst days sound great in an article. Their dramatic-looking charts have what it takes to get shared widely. However, they miss something important: volatility clusters.

The big daily moves up or down tend to happen in close proximity to each other. For illustration, one can remember the succession of +/- 10% days for the SPX in March 2020.

Meaning, you can't really have a trading system that filters out the worst days without throwing away the best days as well.

You probably can find a system that keeps you out of the market during these volatility clusters, in which case I imagine you'd get something close enough to the 5th column of the above table. Better than the base case, but far less dramatically so than the imaginary "excluding worst 10 days" scenario. The boring chart wouldn't be worth sharing.

Also, I think looking at daily moves is too short to have practical value. The same analysis with the best/worst months or quarters would give a better benchmark for what a fine-tuned investment process might achieve. Though of course, it wouldn't tell you how to actually do it...

[Yodean]

Also, I think looking at daily moves is too short to have practical value. The same analysis with the best/worst months or quarters would give a better benchmark for what a fine-tuned investment process might achieve. Though of course, it wouldn't tell you how to actually do it...

Agreed. It's more to emphasize the point that over the long-term, it's not necessarily how many terrific years you have that determines your overall success in the markets, but rather how few terrible years (drawdowns) you have.

The natural inclination for equity markets to go up over time will take care of the rest.

All the great investors/traders I've studied over the years seem to more or less follow this pattern, to a surprisingly large degree:

-when they're young in their careers, they take big chances to generate a ton of alpha (in order to prove something to their peers and bosses), at the expense of outsized beta; a lot buy a Porsche or Ferrari with their profits;

-it works for awhile; months, even years ---> they become increasingly confident in their skills/methodology, get promoted/somewhat famous, etc., and leverage up;

-Ms. Market smashes them down - at this point, many become insolvent/bankrupt, and their divorce rate goes up; the good ones take a hard look at what happened, eliminate all excuses, and improve their methodology; the others disappear into the night, and are never heard from again;

-the ones who survive this process and become successful again in the markets usually start emphasizing "risk management," "asset allocation," and so forth; it costs them some alpha, but they no longer care about squeezing every bit of profit out of a particular trade;

-several cycles of the above may be necessary to produce the next Druckenmiller or Buffet;

******

How to avoid big drawdowns? My3c:

-asset allocation w/ some knowledge of correlation between different stocks/assets classes (for example, having 66 small-cap tech stocks isn't going to give you any true diversification, likely better off with qqq and some non-correlated sector assets);

1) positioning of real money (always hard to determine, but measures like cot data, put:call ratio, reverse repo./money market funds positioning, Fed balance sheet assets, etc. may be helpful);

2) quant data (just background rates of what tends to happen); a few examples:

*if you had bought a fixed number of shares of the SPX every day last year when the SPX went down that day, you'd be up pretty significantly by now. Crazy, eh?

*another interesting one I ran across: since 1956 (don't know why this date was chosen) on any given day, there is a >75% probability that exactly a year from that day, the SPX will be _up_ (median gain 11%).

And of course, you've prolly seen some of the stuff I've posted recently about the POTUS cycles, seasonality, etc. (these could be considered quant studies as well).

3) sentiment data (surveys, certain mainstream financial pundits, etc.)

4) technical analysis (for me, generally just horizontal support/resistance lines, occasionally parallel channels, divergences);

5) trend analysis (e.g. nuclear energy will be needed for bogus Green revolution, barring nuclear accident);

6) "funny-mentals" (fundamentals) - generally price leads fundamentals, and the typical retail investor won't be able to know all the fundamentals of a particular stock, generally-speaking (unless insider trading);

[harryg]

It's all interpretation and that's what makes a market.

I have posted and looked at that study a fair bit and I find it to be very interesting and useful. For me, the take-away isn't how much you would make by missing the worst days (col 3) [however tempting that scenario might be], but how much you would lose by missing the best days (col 4).

It you believe it, it's telling you that missing the best 10 days every 10 years (not many days), makes the entire exercise of investing in the stockmarket utterly futile.

[SOL]

In hindsight, we could all appear to be geniuses, but the devil is in the details. Take a look at the chart below.



Upon initial examination of the chart, it appears that one could simply wait for the indicator to enter the red zone and then purchase stocks. This might seem like an easy and profitable strategy. However, upon closer inspection, it becomes evident that, in many instances, the market trends lower after the signal is generated. If this occurs, one may begin to question the efficacy of the indicator, particularly if they are already feeling nervous about their investments. And one could easily be spooked into bailing out (Point 1)

Furthermore, one must ensure that they have selected the appropriate stocks, as there are instances where the market may trend higher, but certain stocks may not perform well. One potential solution to this issue is to invest in index funds, but this would bring us back to the initial point

[outof thebox]

I and my friends have experimented with using such beautifully crafted charts/ data over the years. At first glance, it seems simple, but once you begin, you experience a host of potential problems, primarily driven by your emotions of fear and doubt. These charts with their stories are excellent for morale but have little impact on improving investment returns. Nicolas expresses this very effectively in his post.

Interestingly, my Boring portfolio, where I aimed for no more than a 25% return over the past seven years, has outperformed all my other portfolios in the long run. Looking back, I wish I had invested ten times more in it.

I am looking forward to participating in Sol's B&B portfolio in this area as it will simplify the process of implementing this strategy. However, I will limit my maximum gains to 30%.

I spent over 3 hours making a belt out of herbs, but in hindsight...
it's just a waist of thyme.

[Yodean]

I am looking forward to participating in Sol's B&B portfolio in this area as it will simplify the process of implementing this strategy. However, I will limit my maximum gains to 30%.

For me, the initiation of the B&B portfolio was yet another sentiment indicator that a significant bottom was placed in October '22, when the JBS was triggered.

Of course, Jesus of Nazareth rules all signals, but the timing of the Bread and Butter Portfolio - e.g. "low risk" - was yet another confirmatory sentiment indicator.

Investors tend to become more conservative near or after market bottoms.

https://youtu.be/W9Va70aCnD4?t=1

Long-term CAGR is the gold (or btc) standard.

Waiting for Judas to appear on the horizon, but haven't seen him yet. He could be hiding in the shadows, waiting to strike.

[Budge]

Waiting for Judas to appear on the horizon, but haven't seen him yet. He could be hiding in the shadows, waiting to strike.

Judas I think I can handle, it's that big bastard with the scythe I worry about.

[bpcw]

Waiting for Judas to appear on the horizon, but haven't seen him yet. He could be hiding in the shadows, waiting to strike.

Judas I think I can handle, it's that big bastard with the scythe I worry about.

And the black hoodie, we call them teenagers!

[outof thebox]

For me, the initiation of the B&B portfolio was yet another sentiment indicator that a significant bottom was placed in October '22, when the JBS was triggered.

Of course, Jesus of Nazareth rules all signals, but the timing of the Bread and Butter Portfolio - e.g. "low risk" - was yet another confirmatory sentiment indicator.

Investors tend to become more conservative near or after market bottoms.


Long-term CAGR is the gold (or btc) standard.

Waiting for Judas to appear on the horizon, but haven't seen him yet. He could be hiding in the shadows, waiting to strike.

CAGR is overrated, like any statistic it can be manipulated. Over 90% can barely achieve a 15% annually over a 5 year or 6 year span. I know several players who brag about their gains, but over 5, 6, 9 years, they are either down or barely break even due to stupidity or Greed


To be fair I, along with several others, have been requesting something along the lines of the B&B portfolio for some time. I in particular, have been gently prodding Sol for over a 15months

While I am willing to take high to very high risks with Futures, international real estate, etc when I feel the odds are stacked in my favor. I also want a portfolio that I don’t have to spend much time on. Enter the order, get filled and put in the sell order, then sail away kind of thing, allowing me to allocate more time to the riskier trades
One miscalculation on these higher risk trades and you can lose several 100K quite fast.

On a more interesting note, I have relinquished my US citizenship; no easy feat, they make it sound easy but its not. On the positive side I am no longer obligated to pay any capital gains tax. This development means that I should be able to reach my second target of 11-12 million at a faster pace.

[Cinnamon]

Waiting for Judas to appear on the horizon, but haven't seen him yet. He could be hiding in the shadows, waiting to strike.

Judas I think I can handle, it's that big bastard with the scythe I worry about.

One promising aspect of AI, is that we might get to live longer a lot faster. After the last AI Trend Trader update. I started to look into 3D organ printing and life extension technologies and it appears that progress is being made quite rapidly. So the Hooded beast with the scythe might have to wait a lot longer.

[Yodean]

CAGR is overrated, like any statistic it can be manipulated. Over 90% can barely achieve a 15% annually over a 5 year or 6 year span. I know several players who brag about their gains, but over 5, 6, 9 years, they are either down or barely break even due to stupidity or Greed

I was talking about long-term CAGR - i.e. >10-15 years. Short-term CAGR - short-term anything, really - can of course be manipulated.

Every top-notch investor I have studied (Druckenmiller, Buffet, Jason Shapiro with whom I still communicate, etc. the dudes in the Market Wizards books) will say long-term CAGR is the gold standard of an investor's success, when push comes to shove.

Those who don't respect long-term CAGR haven't been in this investing game long enough.

Talk's cheap - I've been doing this since 2004. I can tell you haven't.

Let's talk again when you have at least a 15+ year CAGR under your belt. If you're still around, and A.I. hasn't replaced you. Lol.

Gotta develop your own style, and not just follow somebody else's methodology, if you're going to survive this long-term.

I'll be waiting.



https://youtu.be/hQ-HTvB6mfA?t=6

[outof thebox]

I was talking about long-term CAGR - i.e. >10-15 years. Short-term CAGR - short-term anything, really - can of course be manipulated.

No mention of this was made in the last 2-3 posts or I missed it, but in the last few posts you just mentioned CAGR. As for what other top traders have done, it does not matter. Most will never replicate them. However there is a lot of truth in this statement Gotta develop your own style

Talk's cheap - I've been doing this since 2004. I can tell you haven't.

Overconfidence is one of the deadliest sins, especially when it comes to the investment arena. Despite what I may post here, you practically know nothing about me. So on that call you are not even remotely close. I have been in the markets longer than you by at least several years. And like you I am financially independent. I concur Talk is cheap indeed. I have seen a lot of people go big and then vanish. I have hit all my targets set so far. Only two are left the 2nd and the 3rd. The third I admit might be tough.

Gotta develop your own style, and not just follow somebody else's methodology, if you're going to survive this long-term.

Couldn't have said it better Son

Investing in real estate outside of the US, and doing so successfully, is no easy feat. The same can be said for playing futures or trading in currencies. However, I am willing to wait patiently for extreme setups in these areas.

The Yen or the Lira are not trading at the extreme levels I would like so I will wait. Palladium bullion is looking interesting

[Yodean]

Overconfidence is one of the deadliest sins, especially when it comes to the investment arena. Despite what I may post here, you practically know nothing about me. So on that call you are not even remotely close. I have been in the markets longer than you by at least several years. And like you I am financially independent. I concur Talk is cheap indeed. I have seen a lot of people go big and then vanish. I have hit all my targets set so far. Only two are left the 2nd and the 3rd. The third I admit might be tough.

Well, I wish you the best. I haven't done a forensic audit of your posts, but from memory all you do is basically quote TIT stuff and paraphrase what Sol has said, even when he is wrong.

Your posts the last few days are more original, so kudos.

You realize - and I know this is curve-fitting to a certain degree and represents objective criticism of certain strategies, not the specific people behind them - if one had done the _exact opposite_ of every trade in TrendBlazer, MU, and AITT in 2022, one could have made a killing in 2022 in the markets in aggregate?

It was a tough year for many bull-focused publications, so I am simply saying what a lot of us here don't want to say publicly. Once again, I say this as a critique of methodology, not the people behind them.

Sol Palha remains an interesting specimen. My alien handlers have requested that I continue to monitor his progress, as it appears he is on the right track. Something about wanting to download his brain into their A.I. system.

Let's meet up in a few years and have a pissing contest with our 25-year-CAGRs - drinks on me. Any location on Metaverse Earth with a five-star hotel and doesn't require a vax pass. Bring the cis-wife.

https://youtu.be/jZNlBi3q18c?t=1

[bpcw]

Overconfidence is one of the deadliest sins, especially when it comes to the investment arena. Despite what I may post here, you practically know nothing about me. So on that call you are not even remotely close. I have been in the markets longer than you by at least several years. And like you I am financially independent. I concur Talk is cheap indeed. I have seen a lot of people go big and then vanish. I have hit all my targets set so far. Only two are left the 2nd and the 3rd. The third I admit might be tough.

Well, I wish you the best. I haven't done a forensic audit of your posts, but from memory all you do is basically quote TIT stuff and paraphrase what Sol has said, even when he is wrong.

Your posts the last few days are more original, so kudos.

You realize - and I know this is curve-fitting to a certain degree and represents objective criticism of certain strategies, not the specific people behind them - if one had done the _exact opposite_ of every trade in TrendBlazer, MU, and AITT in 2022, one could have made a killing in 2022 in the markets in aggregate?

It was a tough year for many bull-focused publications, so I am simply saying what a lot of us here don't want to say publicly. Once again, I say this as a critique of methodology, not the people behind them.

Sol Palha remains an interesting specimen. My alien handlers have requested that I continue to monitor his progress, as it appears he is on the right track. Something about wanting to download his brain into their A.I. system.

Let's meet up in a few years and have a pissing contest with our 25-year-CAGRs - drinks on me. Any location on Metaverse Earth with a five-star hotel and doesn't require a vax pass. Bring the cis-wife.

Competition in the graveyard, I'll probably have to work until I'm old, I'll be the one digging the holes, singing this little light of mine, I'm gonna let it shine!