In case you missed it, Reader Paul posted a comment last week that he was a little discouraged with his investment results. He had this to say:
Your post “Absolute Returns” really helped me emotionally. Yesterday, I was a little disappointed when I compared my 2009 returns to my benchmark returns. After reading your post today, I decided to combine my 2008 and 2009 returns. I discovered that I am much better off by using a trend following strategy!
Still following the trends…
This brings up an important issue. Once you decide to use an investment discipline, such as trend tracking, you need to be aware of its strengths and weaknesses by looking at the big picture when evaluating its results.
It’s an unfortunate fact that investors have very short memories and seem to live by the mantra “what have you done for me lately?” Of course, the media supports this type of thinking, which is why the focus of investment returns has been the rebound of 2009 while the effect of the market disaster of 2008 (or the decade for this matter) has been shoved on the back burner.
To evaluate your returns, you need to combine the good with the bad as Paul has done and not just focus on one exceptionally positive or negative period. That is what I mean by keeping the big picture in mind.
There are some investors who got caught in between. They decided to switch gears late in 2008, after the market drop, and adopted trend tracking. Obviously, their main motive was to make up losses, which may not have worked out to their satisfaction.
The reason is that, once a severe market drop occurs, Trend Tracking lags before it gets us back in the market as we’ve see last year. Our domestic TTI not signal a buy until 6/3/09. While it simply takes time for long-term trends to re-establish themselves, I realize that it did not help those with the urge to quickly regain what was lost in 2008.
Everyone else, who got out in June of 2008, had no problem patiently waiting until a new buy was generated. If you are in the camp that would have liked to have done better in 2009, combine your returns of 2008 and 2009 and you may find, as reader Paul did, that you are ahead in the game compared to simply having held on through the past two roller coaster years.
Comments 3
Ulli,
Today was a very good blog message. I agree about looking at the big picture. I have beaten the buy & hold strategy by a huge percent. If I had not been using trend following over the last many years I would be in a world of hurt today. I believe trend timing is the only way to go. I believe the buy & holders will lose all the gain they have enjoyed since the March, 2009 bottom when the next major downturn occurs because they never learn from their past, they say it is different this time, yea right that is what they always say and got miserable results over the past decade, some even paid a manager a fee to lose money for them over the past decade. I agree that during the 1982 thru 2000 bull market that the buy and hold crowd did well and that is the problem as they believe all periods in the future will yield that kind of gain, but it doesn't. It is true that nobody can time the market very well by saying it will do this or that by any certain date, but one can follow the trend such as your TTI up or down or be in cash during sideways markets.
Thanks Ulli for sharing all your thoughts with us.
So True!
I had done this and was surprised that my decisions were ok since I got
out of the market reasonably soon.
Important to get out of a burning house quickly. I can wait for the house to be pretty far along in rebuilding before reenter.
Bookmarked this. Thank you for sharing. Definitely value my time.