tag:blogger.com,1999:blog-7366878066073177705.post8459135017866387102..comments2024-02-09T18:16:45.614+00:00Comments on The Psy-Fi Blog: Your Self-Inflicted 6% Trading Taxtimarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7366878066073177705.post-33379785699570917982012-04-28T21:08:00.135+01:002012-04-28T21:08:00.135+01:00OK 13% for ten years is really at the high end of ...OK 13% for ten years is really at the high end of the spectrum, and I can agree that it's not very likely. Thankfully by now there should be few players with expectations at those levels. And of course I agree high costs are never a good idea.<br /><br />On rates, I disagree that they "must" rise within a decade. There are various very credible scenarios for the status quo or them going further down for another decade or two, or more (you can build a model where zero is the perpetual equilibrium). Of course I'm not saying it's certain, just one of the credible paths. If you have a strong argument to the contrary, please post! And in this case too your belief is actionable: you can lock in handsome returns by making direct rates bets, which would have a high chance of being more profitable than a proxy rates bet via an equity bias.cighttp://commentisglee.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-1759318889954713072012-04-27T07:43:08.524+01:002012-04-27T07:43:08.524+01:00Hi cig
I wasn’t saying a bull market was impossib...Hi cig<br /><br />I wasn’t saying a bull market was impossible but I was arguing that anyone investing in the expectation of an early resumption of the 13% per year growth of the 1990’s – equivalent to quadrupling your money over the decade – is likely to be disappointed. Historically times of high debt and increasing interest rates – and rates surely must rise in the next decade – mean lower equity market returns. If the author quoted above is right, and has his book lays out, if investors can’t keep their costs well below 6% that’s likely to lead to disappointing returns. If you can keep from overtrading then shares will probably be the best place for your money.<br /><br />So while I can see your point about expressing this view with “excessive certainty” I didn’t intend to imply that everyone should sell their shares and head for the hills! Quite the opposite, in fact.timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-9280655892413323022012-04-26T21:04:01.872+01:002012-04-26T21:04:01.872+01:00Well it seems to me your wording has too much cert...Well it seems to me your wording has too much certainty. A bull market is certainly not a given, but is it really "highly unlikely"?<br /><br />For example, if we look at the prediction implied by the SPX option prices, assuming I didn't get my back of the spreadsheet calculations wrong, we get gross annualised returns probabilities from now to December 2014:<br /><br />- 1/3 chance of > 5%<br />- 1/5 chance of > 9%<br /><br />Of course matching numbers to unquantified prose is perhaps a bit disingenuous on my part ;-), but I feel that those numbers are incompatible with your statement, that is if you're right, the options market is mispriced, while I think it's broadly fair value.<br /><br />(The methodology used is to look at the ratio premium/interval for the series of adjacent call spreads, which is effectively an approximation of a binary bet on which side of the strike you will end up at expiration time. The gross returns are without dividends, which underestimates, and without inflation, which overestimates, but given that inflation and SP500 dividends are sort of nominally close these days, the real return numbers should be in the same vicinity. I used this date as the furthest expiration quoted, if you got options priced further away, I'd expect broadly similar values.)cighttp://commentisglee.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-63291736024209668202012-04-26T13:02:46.690+01:002012-04-26T13:02:46.690+01:00Hi cig
I'm a bit surprised that you, of all p...Hi cig<br /><br /><i>I'm a bit surprised that you, of all people, are getting into the business of making predictions. Has some guy from zero hedge hacked your account?</i><br /><br />Ouch! I didn't say "ever", though, all I'm saying is that the exceptionally returns generated in the 1990's are highly unlikely to recur <b>soon</b>. As predictions go I don't think it's up there with urging people to go long/short/mad with the latest and greatest stock or sector. <br /><br />On survivorship bias that's right: the problem is normally with the databases that track the indexes, which often are impacted by it. I think I read somewhere that this problem is reducing over time as well. What does matter to indexes is <a href="http://www.indexuniverse.com/docs/magazine/2/2011_192.pdf#page=37" rel="nofollow">selection bias.</a>timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-30806997587646357362012-04-26T12:12:50.899+01:002012-04-26T12:12:50.899+01:00Also, on the statement that highish stock returns ...Also, on the statement that highish stock returns are not gonna happen ever again: will you compensate your readers who invest all their savings in selling long term out of the money index call options, because you're telling them it's a certain way to riches, if your prediction turns incorrect?<br /><br />I'm a bit surprised that you, of all people, are getting into the business of making predictions. Has some guy from zero hedge hacked your account?cighttp://commentisglee.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-38162940395933343382012-04-26T11:59:16.056+01:002012-04-26T11:59:16.056+01:00Survivorship bias doesn't really apply to repu...Survivorship bias doesn't really apply to reputable indices: either a stock exits because it's not satisfying the index criteria anymore and is accounted for as a sale at the market price, or disappears via a corporate action whose cash flow can be observed and accounted for, or is delisted, this is the trickiest case but you can also account for that. Index implementers pay the index providers to get that right, and get very upset if they get unreplicable indices, so it's generally done.<br /><br />You are more likely to find it in academic or marketing studies, where the incentives/manpower are much weaker.cighttp://commentisglee.wordpress.comnoreply@blogger.com