Foreword
This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.
I sold off a large part of my stocks portfolio in September 2021, and have been mostly flat till now, only making temporary tactical trades. The idea was that I’d get back in when things look stable again. Today, it seems this strategy received some support from empirical evidence.
As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.
If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.
Flat as Nebraska
As noted in the May 12 update, I closed a large part of my stocks portfolio and went mostly flat, except for a few choice positions. As explained in My Personal Portfolio, I tend to be very risk averse and conservative. As such, whenever things look bumpy, I tend to flatten my portfolio or at least hedge a bit. When things are calmer, then I’ll slowly get back in again. I have no real reason to believe this strategy works well in practice, other than letting me sleep better at night. Until today…
Note: You see the positions and trades in one of my brokerage accounts (out of ~10) on StockClubs, an app that I’ve invested in.
Empirical data
Today, John Authers of Bloomberg posted an article in his daily column, which claims that my strategy apparently works, at least based on historical data:
Richard Bernstein Advisors LLC analyzed the returns of a hypothetical investor around major market bottoms. The returns for entering 100% into stocks “early,” meaning six months prior to a market bottom, were compared with holding nothing but cash until six months after the market bottom and then shifting to 100% stocks “late.”
…
“Not only does [being late] tend to improve returns while drastically reducing downside potential, but this approach also gives one more time to assess incoming fundamental data,” Dan Suzuki, the firm’s deputy chief investment officer, wrote Tuesday. “Because if it’s not based on fundamentals, it’s just guessing.”
John Authers, Bloomberg – https://www.bloomberg.com/opinion/articles/2022-08-19/-the-godfather-insight-oil-prices-have-been-driving-markets-all-along August 19th, 2022
While this doesn’t really change anything for me, it’s good to know that at least I’m not completely crazy.
Janky Thoughts 
The returns for entering “early” is defined as investing 6 months before a crash – this seems different than usual buy and hold where you could start earlier. Do you think the approach would also beat a strategy that buys and holds the index throughout some period of 20 years?
How would you define “late” in this environment? Once Fed announces that they’re done increasing rates? Or earlier when economic data like CPI, unemployment numbers etc. start looking good?
LikeLike