Why aren't there more long term investors?

[mp6140]

who said anything about 'holding the market' as being the strategy of a trader/investor with longer time horizons?

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a longer timeframe "investor" WILL hold the market --- that is simply the nature and definition of what theyre doing.

if you daytrade or trade the long side and then switch to the short side you are NO LONGER considered a long term trader, but actually a daytrader as this happens twice a day in the 24 hour markets !

see my other explanation above

mp

 

[chump]

When we measure the real return from buy and hold and use Gold rather than depreciating dollars we find the returns from holding the market arent good,

Yes, but holding gold is certainly one way of being just too blood...y old to make any use of the inflationary 'gain' it might bring you..if you have got to have it ..buy some for your grandchildren and then forget about it....herein lies the problem with a buy and hold without reference to performance .....timeframe and cyclical nature of whatever it is you are holding ..if you're holding a good woman of course then the timeframe needs only to be matched to your failing eyesight.

 

[mp6140]

mp, read the whole thread. We had some confusion over the use of the word "investor" earlier and clarification was given.

nobel, zero correlation means it fluctuates about zero over time but stays within the -0.2 to 0.2 range. Inputs are noisy and so is the output. I'm not sure at all where data mining enters into the picture, though.

jj

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since i was only commenting on a question recently asked, appears the question has come up again.

as far as the rest is concerned, Im currency challenged and so simply do ONE currency at a time --- thats more than enough for my poor head !

mp

 

[Jack o'Clubs]

=================================================

a longer timeframe "investor" WILL hold the market --- that is simply the nature and definition of what theyre doing.

if you daytrade or trade the long side and then switch to the short side you are NO LONGER considered a long term trader, but actually a daytrader as this happens twice a day in the 24 hour markets !

see my other explanation above

mp

Not necessarily - at the moment for example, I've all my beta hedged out with short futures equal to my portfolio value, so generating relatively pure alpha on my holdings. When I believe the markets are likely to be strong again I'll close those futures and maybe also increase leverage to take advantage. In that sense my strategy isn't dissimilar to a day-trader making sure that they're only taking short-term positions in the direction of the longer-term trend.

 

[nobel_1101]

mp, read the whole thread. We had some confusion over the use of the word "investor" earlier and clarification was given.

nobel, zero correlation means it fluctuates about zero over time but stays within the -0.2 to 0.2 range. Inputs are noisy and so is the output. I'm not sure at all where data mining enters into the picture, though.

jj

Data mining in terms of statistical analysis of the daily returns data.

I'll have to take a look that type of diversification. Thanks.
Do you not find that there's an opportunity cost in trading a longer timeframe in which the amount you can leverage is more restrictive?

 

[Mathemagician]

Data mining in terms of statistical analysis of the daily returns data.

I'll have to take a look that type of diversification. Thanks.
Do you not find that there's an opportunity cost in trading a longer timeframe in which the amount you can leverage is more restrictive?

One can leverage quite aggressively using any style. This, of course, does not mean it is a good idea.

jj

 

[shadowninja]

Why aren't there more long term investors?

As far as i can gather from this site, most people aren't long term investors.

Suirely it's less demanding that day trading or holding a position just for a few days?

Weekly analysis would do the trick.

Easy answer: this is not Invest2Win.

Why aren't there many MGF owners on this forum?

 

[nobel_1101]

One can leverage quite aggressively using any style. This, of course, does not mean it is a good idea.

jj

Well going back to what I was saying earlier, you can't apply the same amount of leverage as you would in a short-term system due to the fatal drawdowns involved.
So are you saying that the benefit of this type diversification outweighes the opportunity cost of using less leverage?

 

[Mathemagician]

The notion that there are "fatal drawdowns involved" is a common misconception, at least for a properly designed long-term trading program. As I'd mentioned earlier, according to my studies of published returns of my own and others the risk-adjusted returns generated by each style are quite similar. Can you support your statement with evidence?

jj

 

[mp6140]

The notion that there are "fatal drawdowns involved" is a common misconception, at least for a properly designed long-term trading program. As I'd mentioned earlier, according to my studies of published returns of my own and others the risk-adjusted returns generated by each style are quite similar. Can you support your statement with evidence?

jj

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I could support my statements with chart after chart, which Im more than sure you are fully aware of (in fact, all over this site are my charts, showing just that) but the real problem, at least for the newb, is how the sl can remove equity from those holding thru the inevitable long term upside run --- GU alone can often drop 300 or more pips on a retrace before it then moves back up to continue its run, and thats just ONE currency.

 

[Mathemagician]

I'm not talking about chart after chart as contrived examples can be crafted to support any conclusion. I'm talking about a survey of real performance by a significant number of real traders over significant periods of time.

jj

 

[mp6140]

Not necessarily - at the moment for example, I've all my beta hedged out with short futures equal to my portfolio value, so generating relatively pure alpha on my holdings. When I believe the markets are likely to be strong again I'll close those futures and maybe also increase leverage to take advantage. In that sense my strategy isn't dissimilar to a day-trader making sure that they're only taking short-term positions in the direction of the longer-term trend.

LOL ---- then if you agree, why are we going yes, no, yes, no ????

anyone can alter the definitions of a "timeframe" hold, but if one wishes to stick to time honored and standard industry terms, what i have said, and what you have agreed to, appears to be correct

would it not be better to simply face the ultimate truths, that a CONTINUOUS hold over a long timeframe CANNOT make anywhere near what a trader, doing the simplest of going long during long periods, and short during short, will HAVE to make more than one who holds thru both long and short alike ---- youre simply losing half your trading abilities if you hold one position over a longer period of time ---- especially for a month or so !

 

[Mathemagician]

Uh, where did I say I didn't like you? I simply choose to favor broad studies over isolated examples. Proof by example is just not a valid technique for verifying a hypothesis. This has nothing to do with whether or not I like the provider of the examples, or even with the relevance of the examples. Sorry to have upset you.

jj

 

[nobel_1101]

The notion that there are "fatal drawdowns involved" is a common misconception, at least for a properly designed long-term trading program. As I'd mentioned earlier, according to my studies of published returns of my own and others the risk-adjusted returns generated by each style are quite similar. Can you support your statement with evidence?

jj

I disagree completely. Its a question of position sizing not what trading system you employ. I could go into the details of my system but it wouldn't be much use for this conversation since its only a short term system.

Can you explain to me, logically, how you can trade two identical trading systems (one for short term which uses daily bars, say, and one for long term which uses monthly bars) and apply the same amount of leverage without causing a bigger drawdown (with respect to initial capital) in the longer term system?

 

[Mathemagician]

I disagree completely. Its a question of position sizing not what trading system you employ. I could go into the details of my system but it wouldn't be much use for this conversation since its only a short term system.

Can you explain to me, logically, how you can trade two identical trading systems (one for short term which uses daily bars, say, and one for long term which uses monthly bars) and apply the same amount of leverage without causing a bigger drawdown (with respect to initial capital) in the longer term system?

In this case we agree. I'm not going to tell you how to build a long-term program with low volatility. It's one of those "if I told you, I'd have to kill you," things. In lieu of this, I'd suggest a survey of results published by professional money managers. Compare the risk-adjusted returns over a decade (or more) of a broad selection of managers who daytrade with a broad selection of managers who trade long-term diversified. You might be surprised by what you find.

jj

 

[nobel_1101]

In this case we agree. I'm not going to tell you how to build a long-term program with low volatility. It's one of those "if I told you, I'd have to kill you," things. In lieu of this, I'd suggest a survey of results published by professional money managers. Compare the risk-adjusted returns over a decade (or more) of a broad selection of managers who daytrade with a broad selection of managers who trade long-term diversified. You might be surprised by what you find.

jj

The comparison would be meaningless since
1. You wouldn't able to determine what kind of trading system each fund was using coz no-one's that transparent
2. It would be very unlikely that they would happen to be using exactly the same trading system but just on different timescales

I think you haven't fully understood how position sizing affects the profitablity of your system (with respect to initial capital).

What I mean is:
Say you are in a long-term trade (going long for argument's sake) and in month 2, the stock declines 15% say (which can happen to any normal stock during a year period). Would your system stop out before price fell 15%?

If it did stop out, then the system is probably not a long term system but more an intermediate term one. If that is the case then fair enough.

If it didn't stop out, then your trading account must be able to withstand drawdowns of this magnitude, in other words, by reducing the size of position so that a 15% fall in price only relates to a 2% drop in total capital, say.

 

[barjon]

......................would it not be better to simply face the ultimate truths, that a CONTINUOUS hold over a long timeframe CANNOT make anywhere near what a trader, doing the simplest of going long during long periods, and short during short, will HAVE to make more than one who holds thru both long and short alike ---- youre simply losing half your trading abilities if you hold one position over a longer period of time ---- especially for a month or so ..................

Oh, mp, you make it sound so easy :whistling. It's a theory I've been trying to prove to my longer term "active investor" wife getting on for 35 years. Unfortunately, she outdoes me most years and remains to be convinced Alright, I know, I must be a lousy trader, but you'd have thought I'd have got the hang of that simple "be long during long periods and short during short" by now .

good trading

jon

 

[Mathemagician]

The comparison would be meaningless since
1. You wouldn't able to determine what kind of trading system each fund was using coz no-one's that transparent
2. It would be very unlikely that they would happen to be using exactly the same trading system but just on different timescales

I think you haven't fully understood how position sizing affects the profitablity of your system (with respect to initial capital).

What I mean is:
Say you are in a long-term trade (going long for argument's sake) and in month 2, the stock declines 15% say (which can happen to any normal stock during a year period). Would your system stop out before price fell 15%?

If it did stop out, then the system is probably not a long term system but more an intermediate term one. If that is the case then fair enough.

If it didn't stop out, then your trading account must be able to withstand drawdowns of this magnitude, in other words, by reducing the size of position so that a 15% fall in price only relates to a 2% drop in total capital, say.

I'd suggest broadening the scope of your consideration to include the possibility that a long-term trader might be in more than one position at a time (and not simply in stocks), as well as the impact of reinvestment on drawdowns. It makes all the difference.

As an example, I've been long futures for metals, grains, energies, and several softs (e.g. cotton, coffee) for some time now. Each of these markets has experienced significant, sharp retracements nearly simultaneously:
Gold -18%
Silver -24%
Crude Oil -16%
Chicago Wheat -29%
MPLS Wheat -42%
Cotton -25%
Sugar -24%
Cocoa -25%
Coffee -27%

These are leveraged instruments making large percentage moves against my positions, yet somehow my portfolio has experienced only a 2.4% drawdown. A similar market event occurred last July/August, with a similar small impact on my portfolio. Either miracles are taking place or maybe, just maybe, there is something to what I'm saying here.

FWIW, a fund's offering memorandum or disclosure document typically lays out all but the most intimate details of their trading methodology. It's actually relatively easy to ascertain the style used by a manager. Most advertise it openly. This allows a straightforward comparison of risk-adjusted returns across styles for anyone sufficiently motivated to perform one.

jj

 

[nine]

Guys, Please kick the ball not the man. I don't have time to finesse the posts so I've just deleted a bunch of them. I will close the thread if it doesn't get back on track.

 

[damianoakley]

Ok - so correct me If i am wrong here but what i think you're saying is that when trading on a short term basis you will have far more trades.

And the more trades you do - the greater likelihood of your pre-determined expectancy being attained in a shorter time frame ?
As opposed to long term trading - given that you do so few trades, many moons could pass by before your long term ecpectancy is reached.

SO therefore - over the very very long term the long term strategy is fine - but in practice,waiting for teh very very long term to achieve your expectancy is too long for most.
Is that basically your point?

Hi Qwerty,

Wow - I've come back to this thread after 8 hours, and 5 more pages of posts have appeared!

From your post re-quoted above (from about 4 pages ago!) your understanding seems correct.

The opportunity factor can have a significant bearing on results in trading. Both long-term and short-term traders can make money, but the short-term trader will see his profits (or his losses) develop sooner, simply because he can cover 100 trades in a shorter time period than the longer term investor.

I should point out that short-term trading does not have to mean day-trading. I hold positions from anything from 1 day to 90 days and would class myself as a shorter term trader.


Thanks

Damian