Investing

Trading idea- Based on Graham (TSX)

  • Last Updated:
  • Nov 22nd, 2020 3:20 pm
Tags:
None
Deal Fanatic
Mar 24, 2008
6005 posts
2274 upvotes
Toronto
rodbarc wrote:
Getting hard to find value with core Graham principles only.

Rod
Hey Rod,

I don't understand so please help me... in the last 5 years, your model has made -9.45% vs XIC and has had more volatility. I could have made ~9.5% more without buying/selling or any of this aggravation. I believe it's a decent amount of time and your dividend model probably did better but I am sure there are people who've followed this model and you mention that it's "hard to find value using Graham"... what gives? Are people better off with holding XIC vs these shenanigans? Not to mention, this has been some of the easiest time in history to make money in stocks.

Image
Illegitimi non carborundum
Jr. Member
Jan 1, 2008
100 posts
22 upvotes
Pure value factor models based on low p/e or p/b has also has done poorly in the US/CA markets in this time frame but studies show that this isn't out of the norm. See the video:


That not to say the same thing is occurring with this model since it's not the same model as the one discussed in the video although this model probably has a high value factor portion to it.
Deal Fanatic
Mar 24, 2008
6005 posts
2274 upvotes
Toronto
^ I am sorry, why would we put in effort if we can do better by just buying and holding? My BILs portfolio is so much better, is anyone interested, It'll be $1000/tip. Grinning Face With Smiling Eyes
Illegitimi non carborundum
[OP]
Deal Fanatic
User avatar
Dec 14, 2010
6125 posts
7032 upvotes
ksgill wrote: Hey Rod,

I don't understand so please help me... in the last 5 years, your model has made -9.45% vs XIC and has had more volatility. I could have made ~9.5% more without buying/selling or any of this aggravation. I believe it's a decent amount of time and your dividend model probably did better but I am sure there are people who've followed this model and you mention that it's "hard to find value using Graham"... what gives? Are people better off with holding XIC vs these shenanigans? Not to mention, this has been some of the easiest time in history to make money in stocks.

Image
First, the model has made 27.1% since inception. The active return (-9.45%) is the comparison to the benchmark, which is pointless because the model doesn't attempt to compete with the index. The model uses market timing, the index doesn't. The model takes quality and valuation to invest, the index doesn't. The model might be in cash or partially invested, the index doesn't. This is a model focused on trading based on Graham principles. It's doing exactly that. The index look great when overvalued like now. It makes any value model look bad. But we are trading / investing according to a set of rules, and the performance reflects these sets of rules when the market is overvalued.

There are other models that are outperforming the market now, which is also an invalid comparison, because these portfolios are built with different principles than the index.

Is one better off buying an index, which contains different levels of quality and valuation? That's up to each investor / trader to decide. The difference between Indexers and active investors (factor-based) is that the latter believe in the merits of stock selection and come up with many different sets of detailed factor-based rules in an effort to point them toward issues with characteristics they believe will be associated with superior risk-return characteristics. It's an approach that focus in the presence or absence of particular characteristics and/or on how a stock ranks for a characteristic on a best-top-worst scale.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
[OP]
Deal Fanatic
User avatar
Dec 14, 2010
6125 posts
7032 upvotes
ksgill wrote: ^ I am sorry, why would we put in effort if we can do better by just buying and holding? My BILs portfolio is so much better, is anyone interested, It'll be $1000/tip. Grinning Face With Smiling Eyes
Look at the performance from 2015 to 2018. You do better with index when it's overvalued. The cycle will repeat. This is more of an active investing model than pure trading. And they shouldn't be compared because these are 2 different products constructed with a different set of criteria.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Fanatic
Mar 24, 2008
6005 posts
2274 upvotes
Toronto
rodbarc wrote: First, the model has made 27.1% since inception. The active return (-9.45%) is the comparison to the benchmark, which is pointless because the model doesn't attempt to compete with the index. The model uses market timing, the index doesn't...
Wait, what? The benchmark has made more than 27.1% since inception. You have a model that did not intend to even beat an dumb index, in fact it didn't beat the dumb index in the 5 years and you still think it's a good idea. Wow, it must be a religion.

I remember you saying that it was easy to beat TSX with Graham principles... Come clean and tell everyone how did this experiment of yours really do. .. would you follow this model or XIC if you wanted best performance for minimal input.

Did you not know that the index was overvalued? If so, just investing in the index would have been better, does Graham not teach you that?
Illegitimi non carborundum
[OP]
Deal Fanatic
User avatar
Dec 14, 2010
6125 posts
7032 upvotes
ksgill wrote: Wait, what? The benchmark has made more than 27.1% since inception. You have a model that did not intend to even beat an dumb index, in fact it didn't beat the dumb index in the 5 years and you still think it's a good idea. Wow, it must be a religion.
It beat for longer than it underperformed. But that's not the intent. My growth portfolio and some trading portfolios on the website are meant for that. A value portfolio is meant to invest based on value. Why would I build a model based on market cap if I can simply buy the index for that? The platform is used to automate different financial ideas. Not to replicate or compete with the index. The whole point of individual investing or trading is to understand what you own and why you own it.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Fanatic
Mar 24, 2008
6005 posts
2274 upvotes
Toronto
rodbarc wrote: It beat for longer than it underperformed. But that's not the intent. My growth portfolio and some trading portfolios on the website are meant for that. A value portfolio is meant to invest based on value. Why would I build a model based on market cap if I can simply buy the index for that? The platform is used to automate different financial ideas. Not to replicate or compete with the index. The whole point of individual investing or trading is to understand what you own and why you own it.


Rod
My intent is to get an optimal return with minimal effort. If you can't beat a dumb index perhaps you should re-evaluate your strategy... especially if you have a following of people who aren't sophisticated enough to understand returns or methodologies. Having 4 different models and having 2 of them outperform is ok as long as people understand what they are investing in.
Illegitimi non carborundum
Deal Fanatic
Mar 24, 2008
6005 posts
2274 upvotes
Toronto
"You do better with index when it's overvalued". Did you not know that the index was overvalued? Didn't Graham principles teach you that? BTW, TSX has underperformed for a very long time. If you were that smart you would have invested elsewhere, just saying.
Illegitimi non carborundum
[OP]
Deal Fanatic
User avatar
Dec 14, 2010
6125 posts
7032 upvotes
ksgill wrote: Wait, what? The benchmark has made more than 27.1% since inception. You have a model that did not intend to even beat an dumb index, in fact it didn't beat the dumb index in the 5 years and you still think it's a good idea. Wow, it must be a religion.

I remember you saying that it was easy to beat TSX with Graham principles... Come clean and tell everyone how did this experiment of yours really do. .. would you follow this model or XIC if you wanted best performance for minimal input.

Did you not know that the index was overvalued? If so, just investing in the index would have been better, does Graham not teach you that?
Why are we comparing index with this? First, investing with Graham principles is the base of my dividend investing approach. This is an automated trading portfolio, based on quantitative rules. It's mechanical. Not the same level of analysis that an investor do like I do on the dividend growth thread (this portfolio on this thread is meant for trading).

I follow my other models to have a better performance than XIC, as they take momentum and other criteria into account. And I follow this model to have a trading system based on Graham principles.

The index has been overvalued for sometime, but this model doesn't care how the index do.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Fanatic
Mar 24, 2008
6005 posts
2274 upvotes
Toronto
^ because most returns are compared with indices. That's how the world works and you can't tell anyone not to compare. S&P500 outperforms 90% of funds/ETFs over 5 years. If you say, we will not compare but investing a dollar in XIC has produced a better return than your model. /QED

PS: only invest in stocks that go up, if it doesn't go up, don't buy it. I was hoping Graham taught that lesson...sigh.
Illegitimi non carborundum
[OP]
Deal Fanatic
User avatar
Dec 14, 2010
6125 posts
7032 upvotes
ksgill wrote: My intent is to get an optimal return with minimal effort. If you can't beat a dumb index perhaps you should re-evaluate your strategy... especially if you have a following of people who aren't sophisticated enough to understand returns or methodologies. Having 4 different models and having 2 of them outperform is ok as long as people understand what they are investing in.
The whole principle is not to invest in past performance. It's to invest in the idea that resonates to the financial idea that one wants to automate. These models take little effort too, that’s why it's automated. Index is for investing. This is trading. Different models perform differently at different stages.

It's useless to compare performance without comparing risk, specially when the comparison is from 2 distinct strategies. Trading is meant to complement investing, not replace it.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Fanatic
Mar 24, 2008
6005 posts
2274 upvotes
Toronto
rodbarc wrote: The whole principle is not to invest in past performance. It's to invest in the idea that resonates to the financial idea that one wants to automate. These models take little effort too, that’s why it's automated. Index is for investing. This is trading. Different models perform differently at different stages.

It's useless to compare performance without comparing risk, specially when the comparison is from 2 distinct strategies. Trading is meant to complement investing, not replace it.


Rod
The worst part is that this model does not exceed in past or future performance. I automated my investments 10+ years ago and I haven't looked back. Numerous studies back what I am saying here, not sure what the fuss is about. It's your money, do what you want people.

Don't tell me that my 7000+ global stocks are riskier than your 10-20 in Canada.
Illegitimi non carborundum
[OP]
Deal Fanatic
User avatar
Dec 14, 2010
6125 posts
7032 upvotes
ksgill wrote: "You do better with index when it's overvalued". Did you not know that the index was overvalued? Didn't Graham principles teach you that? BTW, TSX has underperformed for a very long time. If you were that smart you would have invested elsewhere, just saying.
I invest in dividend growth stocks + growth stocks and I trade algorithmic trading models based on different set of ideas + options. The index is a basket of stocks sorted by market cap. Different strategies and ways to build wealth. The index doesn't work for me because I don't want to be invested in some of those companies nor I want to pay market price for everything. That doesn't mean that index is bad. It's just not suitable for my investing principles.

Graham doesn't teach index valuation. We evaluate a business at the time, not 500 or 60 at once.

Not sure what is your point to compare this trading model with an investing strategy. Happy to discuss Graham principles and its rules and ranking. This is what this thread is about. Not to compare passive investing with active trading. If you don't see value in the model, then don't follow it. The idea and intent is clearly described and adds value to many people.



Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.

Top