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combining classic investment strategies

 
 
dumbstruck
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      07-08-2011, 02:10 AM
Is there any reason you shouldn't combine investment strategies? If
you consider Value, GARP, Mean Reversion, or Momentum... how about
pairing them up?

For example, Value or Mean Reversion strategies alone probably will
eventually pay off, but for how many years or decades can you afford
to wait (witness 1970s)? How about pairing GARP with Mean Reversion so
that the (growth at a reasonable price) will filter your M.R.
candidates down to those already showing earnings improvement? Less
dead time. Or you could pair Value candidates with Momentum under the
same principle.

What I like pairing Momentum with "skeptical sectors". Not sure how to
name the latter - not the dogs or the disdained since they may be
appreciated, but they are knee-jerk under-appreciated. So they don't
get overbought by momentum players and crash, but ascend in a medium
speed that just keeps going and going.

This seemed true for years in emerging stock markets, which many
investors just stereotyped as banana republics with poor accounting.
Now that sounds more a description of the developed world, but anyway
roaring E.M. stock markets finally priced in their great economies and
have hit a pause.

Lately I have applied that principle to GLNG which profits from the US
pushing away logical energy choices in favor of subsidizing looney
popular alternatives. GLNG ships clean energy from under-appreciators
to countries where logic still rules. Caveat: not a current
recommendation. You could have bought it cheaper when I mentioned it 3
months ago (up 30% since then, 150% in last 6 mo, or 300% in 12) but
now better to find something cheaper on your own.

So to ape the GARP acronym... how about MOSS for Momentum Of Skeptical
Sectors? I would rather hit an etf sector rather than a volatile stock
- maybe someone has special knowledge of one being held back by a
popular false assumption?

Another crazy idea is MVOV Mean Reversion of Volatility. Isn't
volatility (such as measured by VIX or VIXY) more cyclical in a
pronounced way vs stock prices? Not upward biased:
http://finance.yahoo.com/q/bc?s=%5EV...&q=l&c=%5EGSPC

 
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dapperdobbs
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      07-09-2011, 12:23 AM
On Jul 7, 10:10*pm, dumbstruck <(E-Mail Removed)> wrote:
> Is there any reason you shouldn't combine investment strategies? If
> you consider Value, GARP, Mean Reversion, or Momentum... how about
> pairing them up?


"Security Analysis" is really the Bible of investment. As with other
great works, it sparked 'schools' of thought which are actually just
parts of the original. SA spends all of one page to mention
diversification as a means of mitigating the possibility of errors in
analysis (or natural disasters or acts of God), for example, yet that
one notion has been developed into a vast school of averaging expected
returns with equations it takes a super-computer to run (and which are
according to their own authors, impractical).

Yet SA focuses on real investment: proper deployment of capital
resources to the most productive sectors, with an expectation of
reasonable returns. It is based on ANALYSIS. "Value" investing and
GARP, that you mentioned, fall into this category.

Some other 'styles' you mention are based on probabilities or market
movements, and are thus by definition not investing, but gambling on
the odds. Granted, SA refers to Mr. Market, and advises to gauge his
moods, but if you like CLNG and under-appreciated sectors, please
consider that you're looking at a method of finding companies that are
worth analyzing, then possibly investing in (at attractive prices) if
the analysis reveals a solid business.

I hope my comments offer a useful discussion. If I've misunderstood
your meaning please reply to that effect.

 
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dumbstruck
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      07-09-2011, 10:33 PM
On Jul 8, 2:23*pm, dapperdobbs <(E-Mail Removed)> wrote:
> Yet SA focuses on real investment: proper deployment of capital
> resources to the most productive sectors, with an expectation of
> reasonable returns. It is based on ANALYSIS. "Value" investing and
> GARP, that you mentioned, fall into this category.


Garp intrigues me, sort of like combining the best of Value and Growth
for a more nuanced view. It's a natural progression to assemble
components you know into larger systems that would otherwise be more
confusing and labor intensive to build from scratch. So I'm looking
for additional workable combinations of strategies.

But analyzing individual securities takes too much work relative to
the potential returns in a semi efficient market. They are examined
too well by others and are subject to too much risk (esp now
regulatory) so I look for something that applies to chunks/sectors/
etfs. Not something tied up in a bow like the Garp poster child
Fidelity Magellan fund, because something so visible gets arbitraged
or peters out.

Maybe it has got to include the realm of investor sentiment, perhaps
what you call gambling the odds. With the madness of crowds effect,
some investors can simply arbitrage against faulty mass psychology
(which doesn't always equate to contrarian) and find at times it's
like shooting fish in a barrel. I think many here feel obligated to
warn against such experimentation for newbies, and I would agree. Try
them as thought experiments over 5+ years, and only commit real money
to such approaches if it has been killing you how many actual
successes you missed by sticking to the John Bogle mainstream approach.

 
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dumbstruck
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      07-13-2011, 03:03 AM
On Jul 7, 4:10*pm, dumbstruck <(E-Mail Removed)> wrote:
> Another crazy idea is MVOV Mean Reversion of Volatility. Isn't
> volatility (such as measured by VIX or VIXY) more cyclical in a
> pronounced way vs stock prices?


Craziness confirmed: that strategy appears to be impractical using
ETNs due to futures rollover/contango issues, but in the discovery of
that I found you can actually get on the other side of that trade and
benefit from rollover/contango: http://etfdb.com/2011/inverse-vix-etns-free-money-2/

I don't propose this as a valid strategy, but as an emerging
curiosity. It gave many times the return of the SP500 in the last 6-12
months, and the article outlines how this can happen even when SP500
stays flat. It alludes to pitfalls, but I want to see it in operation
in the charts as such ETNs mature:
http://finance.yahoo.com/q/bc?t=1y&s...iv%2Civo%2Cxxv

 
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