Tuesday 24 March 2009

Is that the end of the tunnel, or an on-coming train?

I recently posted about a experimental market timing indicator I think may help me execute "dynamic asset allocation" in the future, rather than just employ a simple "buy and hold" investment strategy.

In response to that post, Chris has asked

"with the recent rally, are you getting close to a buy trigger?"

My answer is, yes, the data is getting close to my trigger conditions - today the market adjusted close was above the current trigger level of 3422 for the first time. According to my current version of the model, if it closes at or above 3422 for another four days in a row the bear market has bottomed out according to the "EW indicator" ;). I don't actually have any free cash to invest (unless I wanted to boost my margin loan LVRs back above 90%!), so all it will mean to me is that I dollar cost average my superannuation contributions into the Vanguard High Growth Fund as soon as they are contributed by my employer, rather than accumulating some cash.

I noticed that today Mark Mobius (a prominent investment manager with a cool surname) also "called" the start of the next bull market. I'll give it another four days to make sure ;)

It's funny how the market may have bottomed out just as I was dumping a large portion (around 25%) of my stock portfolio! I seem to have reasonably good "insight" into the market, but absolutely no ability to make profitable use of that knowledge.

Perhaps I just have an inordinate amount of "bad luck" when it comes to investing - if I'd rolled over my index put options back in Dec '07 and was now sitting on a pile of cash ready to invest close to the market bottom, I'd look like a genius. Instead, the average annualised ROI on my total investment portfolio (including non-stock investments) since 2003 is currently just under 0%pa!

Date Adj Close*
23-Mar-09 3,483.10
20-Mar-09 3,405.00
19-Mar-09 3,416.80
18-Mar-09 3,386.20

data from http://au.finance.yahoo.com/q/hp?s=%5EAORD

Subscribe to Enough Wealth. Copyright 2006-2008


Kimsta said...

As of 27/03/09, XAO = 3615.6 pts. So according to your model, market has bottomed out. If you were to start investing again, how would you determine which stocks to buy now? Do you also apply the same model to each stock?

enoughwealth@yahoo.com said...

Yes, with five days in a row more than 10% above the previous low point, my model indicates that this bear market is over, rather than this just being another bear market rally or 'dead cat bounce'.

So any dips could be viewed as a buying opportunity. As to which individual stocks to buy, I suggest looking at those listed in Roth's "top stocks 2009" and then picking a diversified portfolio of 8-12 of them to invest in. Personally, I don't invest much in individual stocks anymore, I just buy an index-linked investment. For example, the listed company CDF, or a low-cost unlisted index fund such as Vanguard (either Australian Index Fund, or perhaps the High Growth fund which is mainly invested in Australian and overseas stocks). I also use gearing, either directly via a Comsec, St George, or Leveraged equities margin loan account, or I've also got some money invested in the Colonial First State Geared Share Funds (Australian and overseas).

For the moment I'm going to just maintain my geared stock investments and invest more via my Self-managed Superannuation Fund. Once I've paid this year's $8,500 tax bill (I just got the 2008 SMSF tax return from eSuperFund and the superannuation tax payment is due on 15 May), I'll be investing my salary-sacrifice superannuation investments into the Vanguard High Growth Index fund each month. I may also look at investing a bit into a Colonial First State geared share fund via the SMSF, although I'll have to look at the fees again.

Anonymous said...

"I seem to have reasonably good "insight" into the market, but absolutely no ability to make profitable use of that knowledge."

Maybe it's not all within your power. Have you read Nassim Taleb's book "Fooled by Randomness"?

Kimsta said...

Hi again, I've read more on "dynamic asset allocation" since first hearing about it in your blog and the concept is very impressive.

It seems like this investment strategy is the best way to go, as money is constantly allocated to the best performing market sector according to economic conditions.

However, I notice you only invest in stocks and properties, and would need to have more asset classes in your portfolio (such as fixed interest, bond, etc) in order to be able to dynamically allocate your money between these asset classes in different economic situation.