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Posted by Jerry on May 18, 2007, 3:37 pm
ETFs and mutual funds have a turnover rate - some over 100%. One can always
make more bucks by buying low and selling high versus buying and holding
forever IMO.
Jerry
>I think this has a major relevance to strategies employed by large
> market players today and is an underlying part of market psychology.
>
> One thing really strikes me when looking at ETF history and stocks:
> the American markets have been so strong in the last quarter century,
> that if you base your technique (and computer software) on this recent
> "relevant" information then the only strategy that makes sense is to
> buy the dips and never to sell! I've tried many other approaches in
> back testing, but I'm finding I really can't blame them for adhering
> to buy the dips, as it is hard to justify anything else as a long term
> investment approach ... but that's if you only look at the last
> quarter century.
>
> This shouldn't really be a surprise, since with the exception of
> 2001-2002, the US market has had amazing (historically unprecedented)
> performance in the last 20 years or so. And I doubt that anyone looks
> before the 90s since that's when Sir Alan Greenspan brought his new
> brand of monetary policy. Greenspan-style central banking has become
> associated with markets that only go up, therefore, with Bernanke at
> the helm everyone assumes markets can only keep going up. (This isn't
> Volcker and the 80s).
>
> Is there anyone working in the financial industry today who is old
> enough to have lived and traded through the turbulance of the 70s and
> 80s (prolonged bear markets)? A quick calculation shows that the only
> people old enough to have experienced that back in their professional
> days are now over 60 years old - obviously there are few people in
> their 60s working in the industry today. Especially in the current
> hot areas like computerized trading algorithms including derivatives!
> That's where my 20-something friends are employed.
>
> In summary: anybody looking at historical market data, who ignores pre-
> Greenspan era, naturally arrives at the conclusion that markets can
> only go up and that assets never deflate. Furthermore, the only
> financial professionals who experienced inflation/stagflation and bear
> market in the 70s/80s have now retired and no longer influence the
> strategies of large market participants such as banks and hedge
> funds. Conclusion: the financial industry today is making zero
> provisions for declining markets. There is no expectation of a bear
> market or deflation, and there are no plans in place to handle such a
> condition.
>
> What happens in software when you encounter a condition for which
> there is no provision?
>
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