Lessons from 2015
Trend-following is difficult. It is simple, actually, conceptually, but difficult to do emotionally. Admittedly this portfolio and technique is new to me, so I guess that I just have to gradually get used to it, like everything in life. The difficulty was perfectly demonstrated recently when there was a ‘buy’ signal generated in the investment trust that I use for investing in equities, and I didn’t take it, because it ‘looks to me’ (emotional) that stocks are set for a fall, and I could not bring myself to make the trade. Consequently, I currently have no exposure to stocks. Will they go up, or will they go down? Who knows. Anyway, the point of me using this technique is not for me to predict where things will go, but to follow where they lead.
Furthermore, trend-following is difficult in the short-term, because of false signals. For instance, a little while ago my property investment trust had signalled a ‘sell’ signal, followed a couple of weeks later by a ‘buy’ signal before turning south again and generating a further ‘sell’ signal, in which state it currently exists (just). Trend-following has its value in the longer-term, when significant gains may be made as prices rise. The point then, is to lock in that gain by exiting the trade when a ‘sell’ signal is generated, and then wait for the market to come back again. The much larger gains will, I think, much more than compensate me for the smaller losses that the false signals will accumulate.
Trend-following does not work for everything. It works best for assets that display over, and under, performance, where the price is well away from the mean, until it reverses and generates a sell signal. It does not work well for assets that tend to perform averagely, and spend a lot of time criss-crossing their moving average. This will apply to bonds, and possibly to some index-trackers, like the the iShares ETF: ISF which is an average of the UK top 100 companies. As a consequence, one has to choose carefully what to use for a trend-following style of investment, and sometimes one has to admit that it is not appropriate at all. I am on the verge of taking this decision with bonds….
Having a plan is better than not having a plan. I offer this up only as my humble opinion. No-one can predict the markets confidently, although many folk try. I feel that I want to draw a ‘line in the sand’ with my investments, and have levels at which I decide to exit or enter a trade. This involves taking a reasonable view of the markets and accepting that they go up and down and attempting, within reason to use that to my advantage, rather than be a hostage to it. Other investors prefer to ‘buy and hold’, which is not stressful if one doesn’t look at the balance of the account each year and compare it to a year ago, but it can be stressful to look at the statement and see that the account has reduced in value by 50%. I also suspect that one problem with a ‘buy and hold’ approach is that one might not actually follow it, and could end up selling at just the wrong point, the lowest point’ due to fear of the investment vanishing! Personally, I think it makes sense to have a pre-determined plan about how to exit an investment, rather than to try and make a decision at a moment of stress.
Keep it simple. During the past couple of years I have been all over the place in my trading style. Consequently, I have taken my eye of the ball with some of my investments in different accounts. As a result, I have a number of holdings (mostly commodity-related) that have slipped below their previously-decided stop-losses and are floundering at lows and are very much in the red. These holdings will take quite a long time to turn around and come back to profitability. I had too many pots, on the boil, I think, with the benefit of hindsight. 2016 will be a year of a more simple approach to investment for me.
In my asset allocation, with timing, portfolio, the classes stand as follows:
Shares: Currently in ‘BUY’ mode’, although I am not invested, as discussed above. Graphs here and here.
Bonds: Currently in ‘SELL’ mode. Graph here.
Property: Currently in ‘SELL’ mode. Graph here.
Commodities: Currently in ‘SELL’ mode (although I own a ton of them, as discussed above). Graph here.
Gold: Currently in ‘SELL’ mode. Graph here
Video here. (6 mins).
As always, this information is presented for your entertainment only, it is not advice. It is simply what I am attempting to do. If in doubt, see my disclaimer.
Furthermore, trend-following is difficult in the short-term, because of false signals. For instance, a little while ago my property investment trust had signalled a ‘sell’ signal, followed a couple of weeks later by a ‘buy’ signal before turning south again and generating a further ‘sell’ signal, in which state it currently exists (just). Trend-following has its value in the longer-term, when significant gains may be made as prices rise. The point then, is to lock in that gain by exiting the trade when a ‘sell’ signal is generated, and then wait for the market to come back again. The much larger gains will, I think, much more than compensate me for the smaller losses that the false signals will accumulate.
Trend-following does not work for everything. It works best for assets that display over, and under, performance, where the price is well away from the mean, until it reverses and generates a sell signal. It does not work well for assets that tend to perform averagely, and spend a lot of time criss-crossing their moving average. This will apply to bonds, and possibly to some index-trackers, like the the iShares ETF: ISF which is an average of the UK top 100 companies. As a consequence, one has to choose carefully what to use for a trend-following style of investment, and sometimes one has to admit that it is not appropriate at all. I am on the verge of taking this decision with bonds….
Having a plan is better than not having a plan. I offer this up only as my humble opinion. No-one can predict the markets confidently, although many folk try. I feel that I want to draw a ‘line in the sand’ with my investments, and have levels at which I decide to exit or enter a trade. This involves taking a reasonable view of the markets and accepting that they go up and down and attempting, within reason to use that to my advantage, rather than be a hostage to it. Other investors prefer to ‘buy and hold’, which is not stressful if one doesn’t look at the balance of the account each year and compare it to a year ago, but it can be stressful to look at the statement and see that the account has reduced in value by 50%. I also suspect that one problem with a ‘buy and hold’ approach is that one might not actually follow it, and could end up selling at just the wrong point, the lowest point’ due to fear of the investment vanishing! Personally, I think it makes sense to have a pre-determined plan about how to exit an investment, rather than to try and make a decision at a moment of stress.
Keep it simple. During the past couple of years I have been all over the place in my trading style. Consequently, I have taken my eye of the ball with some of my investments in different accounts. As a result, I have a number of holdings (mostly commodity-related) that have slipped below their previously-decided stop-losses and are floundering at lows and are very much in the red. These holdings will take quite a long time to turn around and come back to profitability. I had too many pots, on the boil, I think, with the benefit of hindsight. 2016 will be a year of a more simple approach to investment for me.
In my asset allocation, with timing, portfolio, the classes stand as follows:
Shares: Currently in ‘BUY’ mode’, although I am not invested, as discussed above. Graphs here and here.
Bonds: Currently in ‘SELL’ mode. Graph here.
Property: Currently in ‘SELL’ mode. Graph here.
Commodities: Currently in ‘SELL’ mode (although I own a ton of them, as discussed above). Graph here.
Gold: Currently in ‘SELL’ mode. Graph here
Video here. (6 mins).
As always, this information is presented for your entertainment only, it is not advice. It is simply what I am attempting to do. If in doubt, see my disclaimer.
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