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Trade the Bollonger Band Squeeze

Passive v. Active Selection

Chart Forum » Does Technical Analysis Really Work? » Passive v. Active Selection

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resillent1
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Wednesday, March 24, 2010 - 09:37 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Share market analysis, whether it is technical or fundamental does not in aggregate work.

It cannot work Ė it does not add anything productive to the pool.

The pool is the productive earnings by companies allocated to share holders.

If you want to earn a rate of return on your capital that is greater than the return for the underlying pool than you must do more than be passively exposed to the pool. You must be pro-active in some way. (timing or selection) You can only increase your return at the expense of others that are also trying to improve their return by being pro-active.

Being pro-active results in transaction costs to brokers and/or management costs (based on assets under management) if you hand the job over to a fund manager.

These ďprofessionalsĒ are the first pigs to the trough Ė they get their fees regardless of the outcome. In essence they feed from the productive earnings pool at the expense of the pro-active participants in the market. The result is a reduction in the pool left to the pro-active participants to carve up.

As a pro-active participant you need to recover your expenses at another active participantís expense, just too match the return of the passively held productive earnings pool. Because of expenses you are starting with a negative sum betting pool as the source for increasing your return.

90% or more of us seem to believe ourselves to be better than average but that canít be the reality. With the largest gains going to the best, even being moderately above average wonít provide much extra return.

If youíre going to be in the game of betting your skills/insights/predictions against all comers than you had better make sure you are truly a lot better than average.

Repetition will expose both luck and ability. Two things often confused in early days.

Most people would be better of investing passively over a long term in a low expense broad based index fund. This would ensure they receive as close as possible, the productive return generated by our companies and would free up their time for more productive or pleasurable activities.


Disclaimer: I am a pro-active participant in the market, mainly through stock selection. I donít practice what Iím preaching here, but it shapes my thinking.


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philr
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Wednesday, March 24, 2010 - 10:12 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



resillent1

I know what your saying about brokers. As I said to Peter in another post makes me nervous about a stock when I see brokers recommending it. Especially if it does not look positive on my charts.

I'm always suspicious that they are recommending it so that their mates can unload. If its so good why are they not buying most of it themselves or offering it to their top clients.

Maybe I'm just too cynical :-)







Phil

** Let blockheads read what blockheads wrote.
Warren Buffett

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colin_twiggs
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Wednesday, March 24, 2010 - 10:34 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Resillent,

I hope you don't mind me moving your post, but I feel it warrants a separate thread.

Regards,
Colin


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jaded
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Friday, March 26, 2010 - 12:01 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Read your most recent post in Daily Bread resilient and am 'pondering and formulating' some pertinent response beyond the following generalities.

It's a pity we at IC don't have last 10 posts facility so cross thread arguments/discussion could be picked up by our 'dear' casual readers.I reckon there should be more 'education' to such 'types' about the Search Function Last 1/3/7 day 'bit' for following this Forums Action.

I see why you wanted to post in Daily Bread your points,res[can i short ya tag to that?]Res you're a FA'er Predominately,hey?Yet you got "promoted' as Officer Material while I was reviled as a Dog for using ANY elements of FA whatsoever.

I don't agree with pilgrims trying to 'value'/price companies DIY against the "Industry".I don't see the application of FA models like Lincoln does as all that worthwhile On a DIY basis.I can go into why later but Res Infinite Life Intangibles Valuations?at least I know 'vaguely' what you're talking/worrying about but Please,it's very esoteric,Masters Degree Material.

Anyhow,if the general public/my pilgrims to Mammon HAVE to have FA High Degree Input to make their decisions for say their DIY Super,seems to me they should shell out for Lincoln and not penny pinch around 'trawling' over Annual Reports themselves,re-writing the Blessed Balance Sheet Intangibles Figure as a 'step'.

Let them Learn the drawbacks of Lincoln System and Stars[!!]while actually DOING not Researching on their own [me against THEY]

anyway,will be getting back to you on DTL and SRX.FAscinated to know what your Valuation Price is but not necessarily how you arrived at it.
I imagine you put Major Money [to me $50k+]in your choices?
That's not my league.

happy trading.


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jaded
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Friday, March 26, 2010 - 06:33 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Better get this 'debate' going before I gotta leave again.

I agree with your premise that Foretelling Market Moves is quite a useless endeavour.
That is Following some 'experts' opinion on such matters by TA,FA,Waves,Fibionnacci,whatever.
However one themselves must come to an opinion every day/week/month on General Market Conditions and it's possible effects on one's own Plan or Plot.

So Other's Opinions are merely Instructive while Your Own is Essential.
If you're doing it Active,that is.

That's the 'problem' with passive,handing your money over to the 'cleverer' than you [a Fund]agree,resillient?They follow experts advice to them that You pay for.

and I say that even low fee industry funds can be 'beaten' by the individual getting some clue,sophistication,Belief in their Own Abilities
but,as you point out resil,Risk Management/Know Thyself and Basic Market Psychology is very Paramount.

So can you be bothered to go on with this,resillient?or am I too 'petty' an 'opponent' to be bothered with?
it's IDGAS either way for me but i've had a few drinks so manana or even Sunday for me.

cheers.


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resillent1
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Saturday, March 27, 2010 - 02:11 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Jaded

The most diplomatic thing I can say about Lincolnís Stock Doctor is that I donít use it!

The point of the original post was not a recommendation to pay for somebody else to actively manage your funds or provide you recommendation etc.....

The point is that the index return beats the AGGREGATE active return by the amount of expenses that are incurred to play the game. It canít be any other way.

After all the expenses are paid the rest of the pool gets split man on man so to speak. I win Ė You lose, You win Ė I lose.

My view is that 10% maybe (professional and amateurs) are ultimately (long-term Ė beyond the reach of luck alone) successful. Ie they outperform the accumulation index over the long term. The other 90% pay for everybodyís expenses and the outperformance of the 10%.

Those 10% are also generally very exceptional and hardworking.

My advice is that if you donít honestly believe you can be one of those 10% or are not prepared to do all the years of hard work required than you would be better off investing in a LOW FEE, PASSIVELY managed, broad based index fund or ETF. (think Vangaurd as example)


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jaded
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Monday, March 29, 2010 - 10:31 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)




resillent1 wrote on Wednesday, March 24, 2010 - 09:37 am:

You can only increase your return at the expense of others



from this paragraph

resillent1 wrote on Wednesday, March 24, 2010 - 09:37 am:

If you want to earn a rate of return on your capital that is greater than the return for the underlying pool than you must do more than be passively exposed to the pool. You must be pro-active in some way. (timing or selection) You can only increase your return at the expense of others that are also trying to improve their return by being pro-active.




I think this is a false premise if you mean all profits/rate of return comes at the expense/loss of others.

You are proposing that to buy a share that goes up[profits] is 'caused' by the seller being a "Loser" to sell it to you with a further 'rider' that you are both Losers due to Broker Fees whatever.

That's what you're saying,isn't it resilient?

That all sharemarket transactions are between Winners and Losers.Wins=Losses less Brokerage and only 10% of 'players' are Winners.

This is Rubbish,IMHO.

A seller may have sold a share they were in Profit and you have bought it and now you are in profit and may be 'motivated' to sell to someone who will go into profit themselves in time and so it rolls.

do you regret,resillient selling a share that subsequently goes up further?
Do you only want to sell to buyers you consider Dills for paying your Ask?Consider them 'unsophisticated'/hoi polloi,that 90% are Losers in Share Market Transactions?

bit elitist isn't that?
Certainly not a valid take on the Reality of a Market/Buying and Selling/Trading.

You're Born to Lose if you feel 'guilty' or 'regret' doing transactions/business.
IMHO


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colin_twiggs
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Monday, March 29, 2010 - 10:42 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Jaded,

I think you have misunderstood what Resillient said.


resillent1 wrote on Wednesday, March 24, 2010 - 09:37 am:

If you want to earn a rate of return on your capital that is greater than the return for the underlying pool than you must do more than be passively exposed to the pool. You must be pro-active in some way.




This is not "If you want to win, someone else must lose" but "if you want to do better than the average, you cannot merely mimic what everyone else is doing". You see the distinction?


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ken
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Monday, March 29, 2010 - 10:44 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hello jaded, Dug,

I agree with resillient on this one and think you have misinterpreted what he wrote.

The key words are"greater than that of the underlying pool".

Irrespective of the performance of the market, if you are passive and hold an index fund for instance, you are not competing with anyone and you get the return of the market, "the pool".

If you are active, the sum of all the performances of all active participants is equal to that of the pool, less brokerage etc. So for you to beat the market, some other active participant has to lose against the market. It is less than zero sum game with respect to the performance of the market.


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colin_twiggs
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Monday, March 29, 2010 - 11:21 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



... it does, however, mean that for you to do better than the average, someone else must under-perform the average.


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jaded
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Monday, March 29, 2010 - 12:16 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



So it's the individual losing[or winning] against the Index/the Pool?
not the buyer being a "Loser" to the Seller or vice versa depending on what active 10% 'cream' trader does?

colin_twiggs wrote on Monday, March 29, 2010 - 11:21 am:

it does, however, mean that for you to do better than the average, someone else must under-perform the average.




the average is the Index,right?
Sorry I don't see the Indexes as all that indicative,important.Most of the shares I'm interested in aren't included in any Index.
I just can't argue/discuss 'advice' that one is 'better off' having a passive position in the general market unless of course you're one of the 10% etc as per resilient's opening post.


all too confusing to me.

When's the next installment on Momentum Trading coming out,Colin?


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resillent1
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Monday, March 29, 2010 - 12:22 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)




colin_twiggs wrote on Monday, March 29, 2010 - 11:21 am:

... it does, however, mean that for you to do better than the average, someone else must under-perform the average.



As Jack Bogle - the extremely intelligent gentleman that founded the Indexing Industry would often say.

"You can't overcome the relentless rules of humble arithmetic"


Jaded please see Ken's response - He summed it up, as I Intended the post to be read.


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colin_twiggs
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jaded wrote on Monday, March 29, 2010 - 12:16 pm:

When's the next installment on Momentum Trading coming out,Colin?




Wednesday

(Message edited by colin_twiggs on March 29, 2010)


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colin_twiggs
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jaded wrote on Monday, March 29, 2010 - 10:31 am:

This is Rubbish,IMHO.



This kind of rubbish will no longer be tolerated.


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jaded
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Tuesday, March 30, 2010 - 08:46 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)




jaded wrote on Monday, March 29, 2010 - 10:31 am:

That all sharemarket transactions are between Winners and Losers.Wins=Losses less Brokerage and only 10% of 'players' are Winners.

This is Rubbish,IMHO.




context? including the TWO previous posts on this thread?

I'm not too sure of the current market conditions.That's why I'm not doing scans with the IC programme and not coming up with much in the way of 'ideas' and thus posting much since the weekend.
I probably won't post much for the next few months.I certainly hope so.Got a lot of things to do.

I just 'resent' this Bully Rubbish that's being indulged in.I'm getting the 'feeling' it's being directed pretty much exclusively at me.Say it ain't so,Colin or admit it's been 'cooked' up by private emails?

Seems ingot and I have "issues".I post on a subject [the ball] and he comes in at d'Boy[ie me].
Frankly Colin I don't care for the opinion of my 'person' by an ex-Kingaroy 'inhabitant'.
Can't we leave it at that?
I talk worse than how I write in terms of coherence.Read your 'how 2 be a Bully" article.Want a picture of me?I really doubt you'll be 'reassured'.

Yes I read most every post on this site daily.It ain't that much of a chore,there's so few of them.

I read using the Blink Method.Fast,First Impressions not just sentences but Concepts.
I still think that this 10% Succeed "Gist" of resillient and all the 'mechanical' 'back testers' is Elitist,"Salespeople vs Craftsperson"Conceptual well,and just Rubbish.

Anyway,as stated above,I'm off hopefully from posting here til I find some shares of interest OR someone starts posting on subjects of interest sharemarket related.

just didn't want you[not only you Colin,plural you] to think that your 'theory' of crowd/bully control had worked on jr and i'd slunk away cowed.

all respect that attitude 'permits'
cheers


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colin_twiggs
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jaded wrote on Monday, March 29, 2010 - 10:31 am:

That's what you're saying,isn't it resilient?

That all sharemarket transactions are between Winners and Losers.Wins=Losses less Brokerage and only 10% of 'players' are Winners.

This is Rubbish,IMHO.




Jaded,
I don't think I mis-read this.

This is not a conspiracy and is not directed at any one individual, but is certainly directed at posts like the above. Disagreement is encouraged (otherwise we will be prone to behave like a flock of sheep), but it is not acceptable to describe someone's post/opinion as "rubbish".

Your research is respected, but try to show the same respect to others. We all contribute something. Even questions from newbies can afford us new insights into our own beliefs/assumptions. I think Will Rogers summed it up well: "We are all ignorant -- just on different subjects."







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resillent1
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Wednesday, March 31, 2010 - 11:11 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Jaded

It is not my proposition that 90% will lose in absolute terms, but in relative terms.

If the market overall makes 10% long Run and you make 9% than you underperform relative to the market but still do O.K on a absolute basis.

If you donít want to play the game of trying to outperform the market than the best you can do is buy the market average via the most broad based index fund you can find. The only thing you then control is the expenses you pay. The lower your expense the closer to the average you will get.

The 10% winners on a relative basis is my estimate. I could be wrong Ė it might be 5% it could be 20%. Mathematically though it canít be more than 50%. In fact it has to be less because somebody has to pay the expense of our massive financial industry. I also contend that a few do really well at the expense of the majority. Thatís the basis of my 10% estimate.

Now I donít want to dissuade anybody from having a go at outperforming the market Ė Just trying to point out the odds. Just like I wouldnít try to dissuade anybody from going to a casino Ė itís a free country Ė but pointing out the odds so people are properly informed, Iím all for.

Now this might placate you. Your nuts and bolts approach to really understanding a business is one of the few ways that I think people have a legitimate shot at achieving outperformance.

If Colin wants you to modify some aspects of your postings Ė take it on the chin and just complyĖ admit heís got a bloody hard job trying to keep a forum functional and we often donít help him. Donít run away or get yourself booted Ė I reckon a lot of your company oriented content is valued widely.

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