Couch Potato Rebuttals

Couch Potato Rebuttals

I know what I have given you. I do not know what you have received.

~Antonio Porchia, Voces, 1943, translated from Spanish by W.S. Merwin

Well, it took about two weeks, but the Couch Potato cabal piled on all at once in response to my post on Why This Is No Market for Couch Potatoes. Unfortunately, they did so on the day I was out of town with my son for his follow-up surgery so I wasn’t (and to some extent still am not) in the best condition to comment. I’m still busy with post-op pain management and preparing to move, so I’ll have to make this quick, and therefore less thorough than I’d like.

While some fine points were made, I was fascinated by the number of people who commented and attributed a point of view to me that I didn’t think I had put forth. I congratulate Dan Bortolotti (The Canadian Couch Potato) for keeping the discussion more or less “constructive” in his article. Whenever I get email questions from people wanting to learn more about passive investing, I usually tell them that an all-passive approach is not for me, and then I recommend Dan’s site for more information on the details of the approach.

Two Rebuttals, One Day

Two Money Sense bloggers posted rebuttals to my article: Canadian Couch Potato and Canadian Capitalist wrote about it on the same day. You can read both articles and decide for yourself where you stand on the debate and to what extent they addressed the issues I raised.

The Canadian Capitalist article quoted the crux of my argument on how secular cycles could account for the lower than expected Potato returns over the past ten years. Then he described how not all Potato investors are 100% invested in stocks, which is not a claim I made in my article. He went on (in the comments section) to suggest I was “smoking” something in reference to my follow up post in response to a reader question.

For the record: 1) I don’t smoke – anything. 2) It was not my intention to “beat up on” anyone, nor do I think that characterization captures the true tenor of my article. 3) The options I outlined in the follow-up article were not meant to be blanket recommendations, but ideas to consider once valuations come in – and they came in pretty nicely on Wednesday. The point of that second article was to control your risk by controlling your exposure to various asset classes – not to instruct readers on where to put their money at this moment. I’m sorry if that wasn’t clear.

I saw nothing in the CC article to address the data on secular cycles. Rather, Mr. Capitalist cautioned that Potatoes should expect some years of modest returns and suggested that those who outperform the market are just lucky.

The Couch Potato article, which I thought was quite well done, hinted that I thought CP investors were lazy. That’s not true. The intent of my article was to show that Couch Potato investing can be a good strategy, but that it’s wise to fully understand its limitations before employing it.

On Secular Cycles

For those who are interested in learning the facts about secular cycles, please take some time and check out the information on the Crestmont Research site. There are charts, data, and detailed explanations on what a secular cycle is and how valuations affect subsequent investment returns. While there is ample historical data to support the type of ultra-long term returns Potatoes hope to garner, there is also plenty of data to show that taking valuations into consideration can help boost those returns further. Standing aside (even if only partially) when markets are overvalued is another approach that makes sense.

You can also take a look at some of Robert Shiller’s work, which Rob Bennett recently summarized very nicely in a post at Out of Your Rut. It runs along the same lines and is backed by Shiller’s empirical evidence. These are not fortune tellers. These are people using the same rationale (historical data) as Potatoes to invest – with a different twist. For the record, I am somewhat more skeptical of the reliance on historical data than either the Potatoes or the valuation-informed investing contingent for reasons that I can hopefully outline in a future post, but which are at least partially articulated in the quote contained in the next section.

Where We Agree

I agree with Potato arguments that we can’t predict future market direction accurately and that we need a probability-based approach as a result of that. I guess the difference is in which data we look at to arrive at our probabilities, and perhaps in the probabilities we arrive at after we examine the data.

I don’t think all Potatoes are lazy, dim-witted or Pollyana-ish. In fact, I admire the discipline that goes hand in hand with the strategy. I do think that some of them can be very dogmatic. Trying to make something that is essentially an art into a science seems unproductive, and dismissing every other approach as ridiculous is somewhere between inaccurate and arrogant.

It’s easy for novice investors to stumble on the Couch Potato approach and swallow it whole without fully digesting its limitations. One comment summed up some of the challenges and critiques pretty well:

“I think that it is ironic that CCP says: “we cannot predict the future”, but then goes ahead and predicts it by saying that the future is rosier with passive index investing then anything else based on empirical evidence from the past! I think that CCP correctly indicates that one’s investment strategy must be based on determination of personal risk. I think that the risk of expecting the future to unfold like it has in the past is the major weakness of the couch potato passive investment strategy and requires incredible faith! When you are young this type of faith is easier but when you are older you will have found that evidence based research is only valid for today and may not hold for tomorrow which may unfold differently. Many of us believe that the market has changed significantly and that older studies looking at passive index investing may now no longer be valid going forward necessitating a valuation investing strategy.”

I am one of those who believe that the market has changed. Clearly, some agree with me on that, and some don’t. That’s what makes a market.

What’s the Alternative?

A lot of the critiques of my article went along the lines of the following: “Do you think you can do any better?” “What’s the alternative strategy?” If you’ve read this blog for very long, you know that I don’t like to advocate one particular approach over another. There are lots of ways to make money in (and out!) of the market. Not all styles fit for all people.

My aim here is to showcase investment and macroeconomic information that I find compelling and let readers make informed choices for themselves. If your choice is the Potato philosophy, I hope you find it satisfactory. If it’s not, I wish you well with that too.

I think the incorporation of other tools like technical analysis and macroeconomic information can be helpful as part of your overall strategy – if you have the time/inclination to stay informed. In terms of the active vs. passive debate, I still don’t understand why it has to be one or the other. It’s perfectly valid to choose both if that suits your age, risk tolerance and knowledge level.

As for the question Dan put back to me regarding “What if you’re wrong?” I can see that he’s not a regular BJ reader. I ask that question all the time here and I’m never ever sure I’m right. That’s why I like to look at lots of options and let people make their own choices.

For those who are only interested in one side of the story, there are plenty of blogs out there that deliver just that on a daily basis. I try to make this blog a place for discussion rather than instruction. As I’ve said before, I don’t have all the answers, but I try to ask the important questions.

Your comments are welcome.

Written by Kim Petch

24 Responses to Couch Potato Rebuttals

  1. I’m going to vote for you for President, Two Cents (I mean of the United States — this will probably require another move on your part). You have a way of being fair enough to both sides to achieve at least small progress in helping all of us to see the other fellow’s or gal’s point of view.

    The Coach Potato People are on to something very important. They are smart and good people who have made important contributions. I obviously believe that their ideas could be improved in very significant ways. I wish that instead of Coach Potato People talking only to other Coach Potato People and Valuation-Informed Indexers talking only to other Valuation-Informed Indexers, we could all be talking to each other and learning from each other. We all want the same thing — to invest effectively. And we all have happened as a result of our particular sets of life circumstances to have picked up on different pieces of The Great Big Investing Puzzle. Instead of sniping at each other, let’s join forces!

    I think that is going to happen. It HAS to happen — so it will. I believe that your brave and kind efforts are helping bring the wonderful day when that happens a bit closer with each post you put up.

    I very much look forward to reading your post about why the historical data is not as good a guide to what will happen in the future as I believe it to be. I am highly confident that I will learn important things by reading it.

    Rob

    • Thanks so much Rob. One move every 10 years is more than enough for me! :)

      I really tried to keep this response as balanced as possible, avoiding the low road at all costs. The fact that the market is tanking this morning based on some of the debt issues I’ve been highlighting since the inception of this blog is of little satisfaction to me. I really wish we had fixed these problems a decade ago when the damage might have been more contained.

      I look at historical data a lot when I’m studying the markets. It can be very useful. But I think it can be dangerous to only look in the rear view mirror. At least being aware of what’s right in front of you has to be factored in as well. More on that later.

      I hope you keep writing about this too. I commend you for remaining a gentleman while others choose the low road.

  2. Though Dan and I write under the MoneySense banner, I had no idea that he was going to post on the same topic on the same day (and vice versa). There was no intention to “pile on” and I can assure you that I’m not part of any “cabal”.

    It was impolite on my part to have said you were “smoking something”. It’s not a nice thing to say and for that I apologize.

    I don’t apologize for the point I was making though. I find it contradictory to say valuations matter and suggest (a) gold (an asset class that is impossible to value) and (b) REITs (an asset class that is in many ways overvalued today).

    “While there is ample historical data to support the type of ultra-long term returns Potatoes hope to garner, there is also plenty of data to show that taking valuations into consideration can help boost those returns further.”

    As I wrote in my post, this is the crux of my disagreement. I’d like to see data. Show us studies of real world investors (adjusted for survival bias) who are doing better than their benchmarks by moving in and out of asset classes. On the other hand TAA mutual funds that promise excess returns by switching asset classes have posted dismal returns:

    http://www.canadiancapitalist.com/david-dreman-on-tactical-asset-allocation/

    Anyone can look at a chart and develop a strategy that would have beat the benchmarks in the past. It is much trickier to boost returns in real time.

    • I’m not sure how carefully you read the follow-up post. I did not suggest that either gold or REITs were a good investment. I was answering a reader who directly asked me to comment on those 2 asset classes. I actually said that I have never been in gold and that I have never acted on my temptations to buy it. I also explained why.

      As for REITs, I gave a quick take on Canadian and U.S. real estate prices but did not recommend buying REITs. In fact, I try not to recommend anything specific because I would not presume to know better than anyone else what a given investor should do. I make observations and let people do with them what they want. I invest according to my principles, but I don’t try to get others to follow them or suggest that I know best. I’m still learning and I probably always will be.

      If you want data, the Crestmont site is crawling with it.

      I only deal in real time and today was a great day to have the right tactical asset allocation. I made some money and I’m going to sleep very well tonight. My attention to macro events means today’s sell-off was no surprise and I was in a position to profit from it. I’ll quote Barry Ritholtz:

      “I’ve said this hundreds of times, but it bears repeating again:

      • During a secular bear market, an investor’s job is to preserve capital and manage risk.
      • During a secular bull market, it is to maximize return.”

      If there’s a solid risk management component to passive investing, I don’t see it. That’s why I don’t use the strategy. If others feel it delivers the risk-reward balance they’re looking for, I wish them well.

      Thanks for the apology CC and thanks for stopping by.

      • “If there’s a solid risk management component to passive investing, I don’t see it.”

        Perhaps, you should have looked closer. The risk management component is called rebalancing, which calls for adjusting the portfolio to changes in asset values. In a market advance, it would mean selling bonds and buying stocks. In a market decline, it would mean an investor moves a bit of money out of bonds into stocks.

        I haven’t seen any evidence so far that shows TAA at work in the real world. I haven’t even had an answer on how your own portfolio compares to a benchmark. I have little interest in pursuing this discussion further. I wish you all good luck.

        • What happens when stocks and bonds are highly correlated as they have been for the most part over the past couple of decades? I would rather have a solid exit strategy than hold forever on the assumption that my money will grow no matter what.

          My benchmark is zero. I’m above that. I don’t care how I perform compared to an index that might be negative from one year to the next.

          I can see why you might have little interest in pursuing this discussion. Clearly, we measure just about everything by very different standards. I wish you all the best as well.

  3. Wade Pfau (Associate Professor of Economics at the National Graduate Institute for Policy Studies in Tokyo, Japan) has done some amazing research on Valuation-Informed Indexing. I invite all my Coach Potato Investor friends to take a look at these three links:

    1) Valuation-Informed Indexing beat Buy-and-Hold in 102 of the 110 rolling 30-year time-periods now in the historical record:

    http://wpfau.blogspot.com/2011/01/valuation-informed-indexing-preliminary.html

    2) Long-term timing provides comparable risk and the same average asset allocation as a 50/50 fixed allocation strategy but with much higher returns:

    http://wpfau.blogspot.com/2011/03/long-term-conservative-investors-and.html

    3) A super thread on Pfau’s research at the Bogleheads Forum (I am banned from the forum on grounds that my posts are “inflammatory” but I offer my best wishes to any of the many good friends I made while I was able to post there who may be listening in here today):

    http://www.bogleheads.org/forum/viewtopic.php?t=75585&postdays=0&postorder=asc&start=0

    The good news is that each time prices fall our willingness as a society to listen to new ideas increases. I’ve seen that at every board and blog at which I participate. I can tell you as someone who has spent nine years studying and developing and promoting the new ideas, we are someday all going to look back at the reluctance we evidenced re these ideas and wonder what the heck we were thinking!

    My best wishes to you, CC.

    Rob

    • At first glance, I find this interesting. It is a little bit thin to hang your hat on, don’t you think? The author himself says that the research is preliminary and he has to test a wide variety of assumptions before he can confidently say he’s not data mining. Also, the strategy outlined here does not take higher expenses and taxes into account. Any competing strategy to buy-and-hold should be adjusted for real world expenses because a strategy (such as January Effect) that beats the benchmark before expenses but lags after expenses would simply be an interesting but impractical anomaly.

    • Thanks for chiming in Rob. You are much more knowledgeable on the research behind valuation informed indexing than I am. ;)

      (I fixed the typo.)

  4. Somewhat new reader here… I’m just wondering if you have regular posts sharing what you’re doing in your portfolio? I’m sure that would be of interest to a lot of readers!

    • I haven’t done that, partly because I haven’t been very active as an investor for several years now. I can tell you, as I’ve mentioned on the site many times, that I am mostly invested in GICs (Canadian version of CDs) for a number of reasons that I’ve outlined before.

      However, I’ve been trading a small position in HIX – a single inverse ETF that goes up when the TSX falls. I’ve done well with it lately, as you might imagine, but have been selling some off as the market falls to lock in gains. I’m left now with only 25% of my original position. (The original position was only about 4% of my portfolio.)

      I do plan on becoming a little more active once I have more time – and once some of the economic morass clears. In the meantime, I’m following the markets and honing my strategies. I don’t have a set system that I use yet, and I expect my approach will evolve as I learn more.

      I would hesitate to provide real-time moves even if I did have a more exciting portfolio because I’m afraid others might construe that as an invitation to do what I’m doing.I don’t consider myself an expert, so I wouldn’t want anyone else to lose money if I made a mistake – and I’m sure I will.

      Still, if I become more active in the market, I’ll try to give a rough idea of what I’m doing and why.

      Thanks for reading Value Indexer! :)

        • Gotcha. I’ll do my best. Yikes. TSX down about 450 as I write this. I’m happy with my asset allocation today, but sad to see this crash – not surprised, but sad just the same. :(

          • By the way, Jim Otar’s Unveiling the Retirement Myth has a lot of great analysis. Instead of using forecasts or historical averages, he tests many different strategies and parameters by figuring out the average and range of outcomes for how they would have performed in the last 70 years and then defines lucky, normal, and unlucky outcomes so you really get a better sense than a single number. He analyzes the US, Canada, UK, Australia, and more and shows how they differ. It’s a very interesting perspective on adjustments to the standard “couch potato” model.

  5. At first glance, I find this interesting.

    Thanks, CC. That’s kind. People who are skeptical of these ideas obviously respond to such studies differently than someone like me who has been a true believer for years. I’m more likely to learn from the reactions of someone like yourself than from my own reactions, which are obviously influenced by a strong bias. So I take some comfort that you find some tiny appeal in the ideas (I certainly understand that you are by no means endorsing them and maintain [properly so, in my assessment] a strong skepticism).

    It is a little bit thin to hang your hat on, don’t you think?

    Yes and no.

    Do I think we need lots more research and lots more discussion of the research? Yes. Obviously.

    But what are my practical options here?

    You either adjust your stock allocation in response to changes in valuations or you do not. It’s a yes or no. There is no possible middle ground (if you adjust your allocation only moderately, you are timing the market and that makes you a moderate Valuation-Informed Indexer and excludes you from the Buy-and-Hold club) The case for Valuation-Informed Indexing needs to be strengthened with more research and more discussion. We are in 100 percent agreement. But the case for Buy-and-Hold does not exist, according to my assessment. You can’t expect me to go with that over VII, can you? And I don’t have any other options available to me in the real world.

    You will have a hard time accepting that I truly believe that there is no case for Buy-and-Hold. But I can assure you that I am 100 percent sincere in saying that. You don’t see it because you believe (you are sincere too, of course). I have a different view because I believe that all of the research that supports Buy-and-Hold was rooted in a mistake. There was a time when many, many smart and good people really believed that the market is efficient. But if that were so, Shiller’s research couldn’t have showed what it showed. My view is that Shiller’s research showing that valuations affect long-term returns negates all of the research that once was thought to support Buy-and-Hold. So Buy-and-Hold has nothing supporting it and VII at least has common sense going for it (price matters in every area other than stock investing) plus 140 years of data plus a good (but, no, not big enough to justify perfect confidence) number of very well-done studies.

    It could be that work will be done in the future that will persuade me that VII is the worst strategy ever concocted by the human mind. I cannot rule out the possibility. But I must today do something with my money. Given what I believe about the two options available to me, I have to go with VII.

    The single biggest problem that comes up in these sorts of discussions (I have participated in tens of thousands of them) is that Buy-and-Holders view their position as the default position. Their view is that, if you don’t have absolute proof that something else works, you must go with Buy-and-Hold. But why? The idea that we don’t need to take the price of stocks into account when setting our allocations defies common sense. How did this idea that defies common sense ever become the default belief for so many?

    I think it’s because Fama’s research on the efficient market theory came before Shiller’s research showing that valuations affect long-term returns and thereby revealing the efficient market as a myth. It was just an historical anomaly. Had Shiller’s research come first, I don’t think there would be one Buy-and-Holder today. It’s just that millions came to believe in Buy-and-Hold before there was academic research supporting VII and now we are going through a difficult transition period in which we need to persuade those millions of people to take a second look at things.

    That’s hard when you have believed in something with your heart, mind and soul for many years. I get that. I like Buy-and-Holders and I feel for them. But I don’t see it as a act of kindness for me to pretend that I agree with them when I believe with my heart, mind and soul that they are following investing strategies that are going to destroy their retirement hopes. Friends help friends when they see them getting into trouble. I wouldn’t want a friend who wasn’t willing to stick his neck out for me a bit when I messed up (or when he believed me to be messing up).

    We’re on the same side, CC. We’re all trying to do the same thing — obtain a good return on our money without taking on excessive risk. The two sides need to find a way to communicate with each other in a way that helps people on both sides learn over time. Learning is one of life’s true free lunches.

    I cannot learn what I need to learn by myself. I need to have the input of people who disagree with me to make my ideas sharper and better informed over time. You need that too. We all need to be working together. I hope you see where I am coming from. I like you, CC, and I hope that perhaps you can come to like me a bit. Despite our differences about what works in stock investing (which are just the result of us having traveled different roads and having experienced different sets of life circumstances). So long as our disagreements are friendly, they are life-affirming (I am not saying that this particular interaction has not been friendly, but making reference to many interactions that I have had with Buy-and-Holders over the years that ended up being less than friendly, to my great dismay).

    Thanks again for the helpful and constructive and positive (and downright friendly!) back and forth.

    Rob

  6. The Couch Potato strategy was summarized by Scott Burns when in 1987 as financial writer for the Dallas Morning News he suggested that investors simply put half their money in an index fund that tracked the stocks in the S&P 500, and the other half in an index fund that tracked the entire US bond market. Every year, he said, rebalance the portfolio so it’s once again 50% stocks and 50% bonds. “You need to pay attention to your investments only once a year,” he wrote. “Any time it’s convenient. Any time you can muster the capacity to divide by the number 2.” A very simple approach and I like simple!

    Unfortunately, this type of investing practically means sometimes buying high and sometimes selling low in order to “once a year” rebalance the portfolio. This goes against common sense for many of us!

    Now Canadian Capitalist (CC) above introduces a twist: passive investing with “risk management” where he calls for “rebalancing”. But unlike Scott Burns above who calls for “anytime” rebalancing CC introduces a rebalancing technique which calls for adjusting the portfolio to changes in asset values based on market timing of sorts i.e. quoting CC: “In a market advance, it would mean selling bonds and buying stocks. In a market decline, it would mean an investor moves a bit of money out of bonds into stocks.” CC’s twist to rebalancing appears different from CCP’s annual ‘rebalancing’ which follows Scott Burns’s approach.

    Obviously, passive investing is evolving and presenting other flavours so it seems to me. Now, I think this is a good thing!

    • Yes. CC’s method of rebalancing isn’t quite the same as the original Potato program. I suspect he would argue that it doesn’t constitute “market timing” because he doesn’t rebalance according to market events. (I’m pretty sure market timing is not something he supports.) If I understand him correctly, he rebalances when he adds money to the portfolio – so that is a twist on the original idea of rebalancing according to the calendar.

      I tend to think of risk management in terms of limiting losses via position size and a strict stop loss discipline. Everyone has their own way to invest. There doesn’t have to be one right way. I’m sure there are huge variations among those who consider themselves passive investors just as there are among active investors – and every type in between. As long as you’re happy with your risk/reward ratio and your results, vive la différence! :)

      Thank you for your observations Jon!

  7. This is a good and interesting post, but I’m not sure it works as a rebuttal. What’s missing from your argument is any concrete alternative proposal to passive investing. The couch potato people are saying: active strategies can’t outperform passive strategies. And you’re saying: we have no guarantee past returns will persist into the future, and my benchmark is therefore zero. But that doesn’t respond to the core point of the couch potatoes: regardless of whether past returns persist into the future, active investors generally can’t outperform passive strategies.

    • There isn’t just one concrete alternative, but a whole host of them. There are so many ways to invest with almost infinite combinations of investment vehicles to buy and sell at different times. It’s impossible to study this empirically. There are too many variables.

      The fact is, Couch Potatoes have a lot of data because the strategy is simple and therefore measurable. Active investors will make so many different choices over the course of their investment lives that it’s impossible to pin them down and study them en masse. Some of them will do better than Potatoes and some will do worse. Active investors can outperform passive investors. The fact that academics haven’t documented it doesn’t mean it doesn’t happen.

      There’s an interesting piece in the Globe this morning on an investor who has only been in GICs since 1980. He says he’s done the math and he’s about even with S&P 500 returns based on his investments – and he’s probably slept a lot better than many equity investors.

      This type of strategy may not suit everyone, but this gentleman is happy with his returns and his retirement lifestyle. They are comparable to what he could have earned as a Potato. Who are we to say he should have invested differently? My point is not to say that Potatoes are wrong, but to point out that there are a lot of other vegetables in the garden and we should be free to give them a try – especially in a secular bear market where passive strategies will underperform.

      Thanks for reading and contributing Viscount! :)

      • It’s funny that you mention the all-GIC guy, because that’s exactly the strategy my father used because he was very risk-averse. Unfortunately, my father completely missed the 20 year bull run for stocks from the 80s and ended up running out of money quite early into his retirement (and had to take a reverse-mortgage on the house to stay afloat).

        I am strongly suspicious of that guy’s math — I suspect he made the same mistake the Beardstown Ladies made in calculating his overall returns. Most of the references I’ve seen suggest that investing in long bonds would have come pretty close to stock market returns over the last 20 and 30 years (e.g. see here: http://www.researchaffiliates.com/ideas/pdf/fundamentals/Fundamentals_Mar_2011_The_Biggest_Urban_Legend_in_Finance.pdf ), but I strongly doubt GICs would have. There’s also the issue that in any taxable investment account, the GIC strategy would have been clobbered.

        • I’m sorry to hear about your father’s experience. The 20 year secular bull market would have been a great time for passive investors.

          I can’t vouch for the math of the gentleman in the Globe article. For the same reason, I can’t say he’s wrong either. Who knows which GICs he bought, when he bought them, and in what quantity?

          I’m not sure whether he had these GICs in an RRSP or a taxable account, so I can’t comment on that either. He did mention that he was able to retire when many of his colleagues were forced to put it off because of a serious market downturn. His advice to other investors:

          “don’t be swayed by advisers who warn GICs can’t keep up with inflation and taxes – they want you to buy stocks and mutual funds because that’s where they get their fees.”

          Whether he’s right or not, the title of the article says he has no regrets.

  8. Will some active strategists beat passive strategies, going forward? Yes.

    In the past, have most active strategists (mutual fund managers, hedge fund managers, pension fund managers and endowment fund managers) beaten passively rebalanced indexed strategies? The evidence suggests, no.

    There will be those who can beat a passive, indexed approach. But the statistical odds of someone deciding that they want to be among them–ahead of time–and succeeding, are pretty low. Those who want to try, will go for it. Some of them will succeed. Would I succeed? Almost certainly not. So I choose to commend the effort of others, but skip the ride.

    Have the markets changed? Well…that’s what every generation says. I love reading old finance books because they sing a rhyming tune, whether they’ve been written in the 40s, 50s, 60s or 70s, 80s, 90s, or the beginning of the 21st century. I have read hundreds of them: plus ca change, plus ca la meme chose.

    • I’ve seen some of the data on actively managed funds too, and I suppose that’s one reason I ditched mutual funds quite a few years ago – that, and the fees. I really like ETFs.

      Your point about active investing not being for you is kind of what I’m getting at. Some folks will do fine with passive investing because they trust the strategy and will therefore stick to it. Others can’t stomach the losses that will happen some years and might end up inadvertently buying tops and selling bottoms. Still, I think there’s another crowd – the educated traders – who truly understand risk management and have a system that works for them. The idea is to educate yourself and find a strategy that works for you.

      It’s funny that you mention history rhyming. I just wrote an article for Monday on that topic. I suppose I should be writing about the U.S. debt downgrade, but I just don’t have any idea what will happen on Monday morning – and my money is positioned in such a way that I don’t really need to be too concerned about it one way or another.

      Thanks for stopping by Andrew! :)

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