Personal Finance

POLL: Investing style

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  • Sep 22nd, 2009 1:27 pm
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Poll: Investing style

  • Total votes: 67. You have voted on this poll.
Buy and hold
 
36
54%
Buy, hold until stop loss
 
8
12%
Technical analysis all the way
 
13
19%
uhhh, style??
 
10
15%
Jr. Member
Aug 8, 2008
146 posts
40 upvotes

POLL: Investing style

Curious to know what your investing style is, and why. I used to be a buy-and-hold investor, but have lately been using moving stop losses (x% of recent high) for stock market investments. I guess this is a direct impact of being burned from the recent crash...

What about you? Do you believe that you have the right way to invest? Did the crash (and subsequent rise) change your style?
58 replies
Deal Addict
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Apr 4, 2005
2667 posts
122 upvotes
Toronto
i use pure technical analysis. I tried doing fundamental but I lost so much money
[QUOTE]there's no such thing as a stupid question unless it's a really stupid question - me[/QUOTE]
Deal Addict
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Aug 13, 2002
3307 posts
26 upvotes
I do whatever I think is right given the information I have. Don't limit myself to any specific style.
Deal Fanatic
Sep 4, 2009
6575 posts
726 upvotes
You shouldnt use some dumb poll in the middle of some non-financial site for the basis of figuring this out.

It should be very clear since 1 year ago to today that buy and hold is pretty much dead. Those who did the buy and hold on Citigroup, Wachovia, Fanny Mae, Bank of America, and thousands of other stocks can answer your question quite easily.

You could do the buy and hold, while keeping constant surveilance on the stocks you own for any negative news - that would work. Just doing initial DD on it 5 years ago and not looking at it every month is a disaster waiting to happen.

Knowing technical analysis will help you figure out if your stock is in a steep downtrend or uptrend, can you can use that as a basis for getting in or out of a stock. I think TA is necessary these days - the big players, including those analysts, play lots of games to pump up the stock then they get out at the high leaving the naive suckers to take the loss. That's how it's done these day.s TA will allow you to see exactly what's going on with the money coming in and leaving the stock.
Deal Addict
Jul 28, 2005
3237 posts
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rageking wrote: It should be very clear since 1 year ago to today that buy and hold is pretty much dead.
As someone who buys and holds index funds, I can assure you buy and hold is not dead. Anytime there is a crash, people always say the same thing, and always turn out to be wrong.

When I starting investing, I expected to go through 1 or 2 huge crashes during my lifetime and a number of medium size crashes. So nothing that happened over the past little while is unexpected or surprising.

And Sharpe has made a mathematical proof showing that index investors must perform better than the average active investor. http://www.stanford.edu/~wfsharpe/art/active/active.htm

So, I'm choosing an investing style where I know I'm going to outperform the average active investor. I'm not sure why that's a bad thing.

Knowing technical analysis will help you figure out if your stock is in a steep downtrend or uptrend, can you can use that as a basis for getting in or out of a stock.
Instead of technical analysis, why don't you look into astrology? They both have the same amount of evidence that they work.



And to go back to the OP. If the crash spooked you, it doesn't mean you should stop buy and hold. It means that your asset allocation was too aggressive. You need to increase the fixed income or cash portion of your allocation to become more in line with your true risk tolerance.
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Aug 18, 2005
21223 posts
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Burlington-Hamilton
My style is KISS.
Keep it simple stupid!
- casual gastronomist -
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Aug 13, 2002
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asdfvcx wrote: Instead of technical analysis, why don't you look into astrology? They both have the same amount of evidence that they work.
TA will work as long as there are enough people that think it works.
Deal Fanatic
Sep 4, 2009
6575 posts
726 upvotes
For those who are hostile against TA, and think it is just bogus, there are reasons why it does work.

You guys know that the large banks and hedgefunds use computer trading? Those programs used on those black boxes are based on TA. When you apply TA to a market volume that has a huge percentage that is computer generated, it does certainly work. For those who do ta, it can be applied even back decades before those black boxes became popular.

One shouldnt diss TA until at least you learn some of the basics.. Many of the candlestick patterns can foretell what is going to happen days or weeks before it happens, while nothing's 100%, it is far better than astrology lol

If the large brokerage houses have a seperate department for technical analysis, shouldnt you at least be getting educated about this stuff before you blow it off? ALL of the brokerages have TA departments. Wake up pls.
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Jul 28, 2005
3237 posts
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rageking wrote: When you apply TA to a market volume that has a huge percentage that is computer generated, it does certainly work.
Just because you say so, doesn't make it true. Provide evidence that it works.
If the large brokerage houses have a seperate department for technical analysis, shouldnt you at least be getting educated about this stuff before you blow it off? ALL of the brokerages have TA departments.
We nearly had a complete financial meltdown because some of the brokerage houses couldn't perform adequate risk management. Just because some brokerages use TA doesn't mean they know what they're doing.

If TA works, then someone should be able to show hard evidence that it works. Either a mathematical proof, or a study showing most TA users beat the market. I'm not aware of any such proof or study.
Deal Fanatic
Sep 4, 2009
6575 posts
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Im not going to provide any proof.

The brokerages, hedgefunds, investment banks including Goldman Sachs, Morgan Stanley all use TA for trading stocks, futures, currency. If that doesnt perk your interest in what TA is all about, then nothing will. These are Fortune 500 companies that have been using TA for decades - nothing about this is new, except to retail investors like ourselves.

The failure of the banks in the US has nothing to do with TA. How you even tried to lump the 2 together is interesting..
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Jul 31, 2007
1938 posts
3 upvotes
Earth
You forgot to include Fundamental Analysis in your poll.

Anyways, I believe in buy and hold, indexing and rebalancing. No, the crash did not alter my views. In fact, the crash was great for me, since I got to buy stocks at a discount and I got a nice return this year.
I'm not overweight, I'm undertall.
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Jul 31, 2007
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Earth
rageking wrote: It should be very clear since 1 year ago to today that buy and hold is pretty much dead.
Huh? Why? I am a buy and hold investor, who buys index funds and I have no intention to change. If anything, the past year has been good to me. I've made 26% return since I began investing 18 months ago. There are always people saying that buy and hold is dead, and they are always wrong.
You could do the buy and hold, while keeping constant surveilance on the stocks you own for any negative news - that would work.
Better yet, put your money in an index fund, turn the TV off and go do something fun.
Knowing technical analysis will help you figure out if your stock is in a steep downtrend or uptrend, can you can use that as a basis for getting in or out of a stock. I think TA is necessary these days - the big players, including those analysts, play lots of games to pump up the stock then they get out at the high leaving the naive suckers to take the loss. That's how it's done these day.s TA will allow you to see exactly what's going on with the money coming in and leaving the stock.
If you read Random Walk down Wall Street you'll see that TA doesn't give superior returns after expenses.
I'm not overweight, I'm undertall.
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Jul 31, 2007
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Earth
asdfvcx wrote: And to go back to the OP. If the crash spooked you, it doesn't mean you should stop buy and hold. It means that your asset allocation was too aggressive.
Or that he needs to learn more about investing and realize that crashes are part of life, and they are not something to get worked up about. Thanks to this market crash I made a tidy profit over the past 18 months.
I'm not overweight, I'm undertall.
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Jul 31, 2007
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Earth
Nyte wrote: TA will work as long as there are enough people that think it works.
Why? You need to substantiate that claim. I have no reason to believe it is true, and much reason to believe it is false. Assuming that the TA method is fundamentally sound and not just data mining, what you'll find is that the average TA investor will react too late. This is a mathematical necessity. The same is true for active investing in general. It is not possible for the average active investor to beat the market for the same reason that it is not possible to for everyone to have above-average income. Before fees, the return of active investors is exactly the same as the market (they ARE the market). After fees, the return of active investors is less than the market, and the difference is equal to the size of the fees. An index investor with lower fees will beat most active investors.
I'm not overweight, I'm undertall.
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Jul 31, 2007
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Earth
rageking wrote: When you apply TA to a market volume that has a huge percentage that is computer generated, it does certainly work. For those who do ta, it can be applied even back decades before those black boxes became popular.
You say back-testing, I say data-mining. Any TA method that did not survive "back testing" would have never become popular. By random chance you'll hit a formula that fits past data. Then you'll claim that it works because it was "back tested". This means nothing. A method only means anything if it continues to beat the market after it becomes popular.
If the large brokerage houses have a seperate department for technical analysis, shouldnt you at least be getting educated about this stuff before you blow it off? ALL of the brokerages have TA departments. Wake up pls.
If you prove to me that brokerages that use TA more tend to beat the market, I'll pay attention.
I'm not overweight, I'm undertall.
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Jul 31, 2007
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Earth
rageking wrote: Im not going to provide any proof.
How convenient. Maybe it is because you cannot provide proof.
The brokerages, hedgefunds, investment banks including Goldman Sachs, Morgan Stanley all use TA for trading stocks, futures, currency. If that doesnt perk your interest in what TA is all about, then nothing will.
I don't know for fact that all those companies use TA as you say, but for the sake of argument I'll take your word for it. So what? They were not able to predict the market crash and protect themselves from it. If TA worked so well and everyone uses it, why are we in a financial crisis right now? Why didn't all the big players get out before the market crashed?

EDIT: Incidentally, I do know several methods of TA. Please don't assume that I don't.
I'm not overweight, I'm undertall.
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DanielCarrera wrote: Why? You need to substantiate that claim. I have no reason to believe it is true, and much reason to believe it is false. Assuming that the TA method is fundamentally sound and not just data mining, what you'll find is that the average TA investor will react too late. This is a mathematical necessity. The same is true for active investing in general. It is not possible for the average active investor to beat the market for the same reason that it is not possible to for everyone to have above-average income. Before fees, the return of active investors is exactly the same as the market (they ARE the market). After fees, the return of active investors is less than the market, and the difference is equal to the size of the fees. An index investor with lower fees will beat most active investors.
Sure, it's pretty simple. All pricing in the stock market is based on transactions between people. Whenever someone buys or sells something, they have an effect on the overall market. For the individual, that effect is really small, but with enough people and/or institutions, the effect becomes noticeable. So taking a really simple case of technical analysis, say if a lot of these people using TA believe that if the stock hits $50, it will continue to go up. Well the moment it hits $50, all the other people doing TA will start to buy in (if they believe the price will go up from there) and in doing so drive up the price - it's self fulfilling.

Now I'm not arguing whether or not you can make above average returns using TA - I don't know the answer to that, but I would tend to agree with you that the answer is no for the average person. I'm just saying why the predictive abilities of TA work.
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Sep 4, 2009
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DanielCarrera wrote: How convenient. Maybe it is because you cannot provide proof.



I don't know for fact that all those companies use TA as you say, but for the sake of argument I'll take your word for it. So what? They were not able to predict the market crash and protect themselves from it. If TA worked so well and everyone uses it, why are we in a financial crisis right now? Why didn't all the big players get out before the market crashed?

EDIT: Incidentally, I do know several methods of TA. Please don't assume that I don't.

You know the methods, but have you actually taken time to hone the skills. This isnt a some dumb school textbook where you blindly apply the pattern to every setup you think you see. This stuff takes years to learn properly.

If you have a method that works well for you then keep it. It doesnt work for you - fine. Nobody cares. So long as it works for someone else, and for the traders who work for the large companies who are required to take TA training. I guess Goldman Sachs wasnt profitable enough for you in the last couple decades?

Oh, can you pls tell me why you think TA has anything do with this financial crisis. First of all why did you think this financial crisis happened. If you cant even answer that in a detailed manner and you're blaming TA for it, then that's just sad.

I love to hear this one from you. Go ahead, do your research then post back. I'll be waiting.
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Jul 31, 2007
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Earth
Nyte wrote: Now I'm not arguing whether or not you can make above average returns using TA - I don't know the answer to that, but I would tend to agree with you that the answer is no for the average person. I'm just saying why the predictive abilities of TA work.
If TA gives inferior returns to most investors who use it, the it doesn't work. Period. As an investor, there is only one thing I care about: Money. Whether a technique "works" or not is judged exclusively by whether it makes me money.

There is evidence that the market very slightly deviates from a true random walk. I could name a couple. But the effects are too small to profit from them after fees and taxes. Trying to take advantage of those deviations is more likely to make you lose money rather than gain money. Therefore, they "don't work".
I'm not overweight, I'm undertall.
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Jul 31, 2007
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rageking wrote: You know the methods, but have you actually taken time to hone the skills.
How convenient. "The method works, you just have to stick with it longer". That's the same thing that MLM scams say. Whenever I see a claim like that which impossible to prove or disprove it just screams "scam" to me. If TA works, why is it that none of the richest people in the world got rich by using TA?
Oh, can you pls tell me why you think TA has anything do with this financial crisis.
You say TA predicts stock prices, right? Stock prices crashed in 2008, right? You say that all the big companies use TA , right? Why didn't these companies predict the crash in stock prices? Oh, let me guess, "Y2008 was special". Is that what you are going to say? So basically TA always works except when it doesn't.
First of all why did you think this financial crisis happened. If you cant even answer that in a detailed manner and you're blaming TA for it, then that's just sad.
Did you actually read my post? I never blamed TA for the crisis. I'm saying that your line of reasoning is logically flawed. You claim that TA can predict the market and that the big financial centres use it, but we know that the big financial centres failed to predict the most important market event in recent history.
I'm not overweight, I'm undertall.

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