long term position trading -primarily etf's-

[sowterdad]

For those that are paying fees to have your investments/IRAs,Pensions etc actively managed-
this study suggests you may want to compare- after fees and expenses- how your returns actually stack up compared to a passive index type of approach- ( like Vanguard offers) .or investing through low costs ETF's in general.
There was a 10 year study released on active management vs passive management -
and it illustrates how active managers generally underperform the index - and that does not include the impact of the much higher expenses charged for the active manager .

http://www.cnbc.com/id/102500216

I saw some response to the study on CNBC- from several active managers- and now the selling point to still use active managers is that when the market goes into a big decline- the active professional manager could (possibly) take steps to protect one's portfolio on the downside-

Typically individual investors will go to a financial professional or firm (Like Edward Jones in my case ) who often will put the investor into actively managed mutual funds with a sales commission charge up front (5.75% class A shares commission charge.)
In the typical sales brochure, They illustrate how $10,000.00 would have grown over the past x number of years compared to the S&P 500 index (the benchmark) .

They point out that you cannot BUY the index - But you can buy a low cost etf like SPY with a very low annual expense ratio- and the trade commission cost would be $7.00 -$9.00 depending on your discount broker (scottrade, Tdameritrade , Schwab etc.
There is a disclaimer note in the literature :

Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely.

Returns shown at net asset value (NAV) have all distributions reinvested. If a sales charge had been deducted, the results would have been lower.

Returns with sales charge for Class A shares reflect payment of the 5.75% maximum sales charge.

THE GROWTH CHART OF HOW YOUR MONEY WOULD HAVE GROWN IS NOT THE REALITY ONCE THEY TAKE OUT THEIR SALES COMMISSION AND THEIR EXPENSES.

THE GROWTH CHART OF $10,000.00 THEY ILLUSTRATE- WOULD BE A SMALLER END RESULT- BECAUSE FOR THAT 10,000 YOU HANDED OVER, THEY TAKE OUT $575.00 FOR
THEIR SALES COMMISSION CHARGE- AND THEN YOU PAY AN ANNUAL EXPENSE RATIO-WHETHER THE ACCOUNT MAKES MONEY OR LOSES MONEY.

Vanguard has a calculator that compares their low cost funds against the higher expense funds- and low cost generally outperforms with more money in the investors pockets in the end. It really adds up in the long run to consider and compare- If you're paying for active management, and not getting the higher return an active manager should bring- And compare their performance to the SPY vs the S&P 500 index.

 

[sowterdad]

A chart comparing the AGTHX growth fund to the S&P 500 index tells a story of the growth fund outperforming the index significantly. What smart advertising!
When investment firms promote their particular product- they show a growth chart of how your investment would grow much larger compared to the benchmark index (S&P 500) .
They also note that you cannot actually buy the S&P 500 index.
What they do not compare their product to is the SPY ETF- the low cost exchange traded fund that duplicates the holdings in the S & P 500.
If you compare the attached chart, AGTHX- active management is slightly ahead of the passive SPY since 2012. by approx a total of 4% on price appreciation since that time.
But present price does not tell the entire story- because investment costs and charges are not included in this chart.
Let's be fair- The chart starts off starting in 2007- relatively equal value-
Active management out performance can be seen by the AGTHX green line outperforming in 2007 & 2008- and- notice that all of those early gains were not given back in the 2009 decline to a market low. AGTHX did give back a significant decline -51.7 % -almost as much as the market's % decline- but starting from a higher price level.
The 4 or so % difference was held onto during the recovery period of 2009-2011 when the fund gave back more than the SPY in that 15% market decline. For the next 2 years, SPY & AGTHX traded comparably on par- and the active manager started to pull away and gradually outperforming from 2012 to present day by 4% or so.
But what cost is associated with that outperformance- and if a similar decline occurs as in 2011- will active management perform better than they did in that period where it appears they declined more than SPY from their higher price.

 

[sowterdad]

A chart comparing the AGTHX growth fund to the S&P 500 index tells a story of the growth fund outperforming the index significantly. What smart advertising!
When investment firms promote their particular product- they show a growth chart of how your investment would grow much larger compared to the benchmark index (S&P 500) .
They also note that you cannot actually buy the S&P 500 index.
What they do not compare their product to is the SPY ETF- the low cost exchange traded fund that duplicates the holdings in the S & P 500.
If you compare the attached chart, AGTHX- active management is slightly ahead of the passive SPY since 2012. by approx a total of 4% on price appreciation since that time.
But present price does not tell the entire story- because investment costs and charges are not included in this chart.
Let's be fair- The chart starts off starting in 2007- relatively equal value-
Active management out performance can be seen by the AGTHX green line outperforming in 2007 & 2008- and- notice that all of those early gains were not given back in the 2009 decline to a market low. AGTHX did give back a significant decline -51.7 % -almost as much as the market's % decline- but starting from a higher price level.
The 4 or so % difference was held onto during the recovery period of 2009-2011 when the fund gave back more than the SPY in that 15% market decline. For the next 2 years, SPY & AGTHX traded comparably on par- and the active manager started to pull away and gradually outperforming from 2012 to present day by 4% or so.
But what cost is associated with that outperformance- and if a similar decline occurs as in 2011- will active management perform better than they did in that period where it appears they declined more than SPY from their higher price.
View attachment 150356

a FINAL CHART - cOMPARING AGTHX (mutual fund) with SPY
compares the costs of active management with the costs and returns of the low cost etf SPY-
which tracks the S&P500.
I used the given Expense ratio of AGTHX at .66- under a 1.00% and reportedly well below the reported industry average of 1.21% for similar types of funds. Expenses and charges vary widely between funds- and yes ETF's as well. . I did include the 5.75% load fee charged by an advisor to purchase this fund for you. Load funds vary in their costs-
You also have to be wary if You purchase a fund with a delayed load charge , as the expenses will generally be much higher and the charge could be much larger over time or when withdrawn. Most of us don't question the professional investment advisor sitting across the table from us willing to assist us in what seems to be a confusing and complicated endeavor- preparing for our longer term futures- We trust the individual is a professional ; Your company HR person likely recommends that we invest and take advantage of this advisor's basket of funds to select from- and it's foolhardy to not get an employer's full match of our funds. But, we need to know what the real costs are-
and not simply take the information presented as telling the entire story.
If you are being charged an upfront load charge (sales commission) How much is it-
and then what are the real expenses you will continue to be charged- The Expense Ratio , 12-b-1 fees- other expense categories- and turnover costs- where are they displayed
as a line item.

The prior charts gave some sense of the longer term chart performance, compared to the Benchmark Index - S&P 500. The investment advisor will have charts comparing how well this fund does in outperforming the index. AHH! this is why I am paying for experienced active managers! LOOK at how well they outperformed the index over time!
That adds up to a lot of extra gain in my account~ But- what if we go to the real world of low cost passive ETF's that replicate the index at a very low expense ratio?

In this 3 year period- 2012-2015- this fund shows periods of marking time with the SPY,
some periods of better performance- seen when the green line moves higher from the blue line. The overall view is that despite some periodic outperformance on the upside, there is a noticeable underperformance- greater decline in the 2012 market pullback- This is likely due to trying to use higher Beta stocks to outperform the index.

Since the SPY actually more accurately represents the index because it does include dividends- as does AGTHX in their "performance" charts- One should conclude that a chart comparing to the S&P 500 as the 'benchmark' index is not painting a realistic picture for investors- Substitute the index with the SPY would be my recommendation when making such comparisoms.
The expense ratio a fund lists are the obvious expenses, but I do not think they include
such hidden items as transaction costs- when they buy and sell shares of the companies they hold, the tax consequences due to making a capitol gain within the fund, is shared by owners of the fund even if they did not sell any of their shares.
Ultimately, the industry exists to promote and sell their active management.
http://www.cnbc.com/id/102500216
since the Study suggests that the majority of all active managers fail to outperform the benchmark index in all historical periods - both good and bad over the prior 10 years, and by substantial %, the odds of picking a fund with a consistantly outperforming management team is not likely.
And- as the disclaimer says- Past performance is no guarantee for future performance.
For someone who understands that investing is important, but does not want the involvement of picking stocks, or mutual funds- check out The Target Date funds offered by Vanguard- Automatically gives a diversified lower cost fund approach to market exposure- automatically rebalanced as part of the low expense ratio- can be set up to accept automatic withdrawals/investments. Worth looking into or recommending others consider as a pathway to low cost-long term diversified investing.

https://investor.vanguard.com/mutual-funds/target-retirement/#/

I think I did the calculations properly on this chart-
This particular fund normally would charge the up front 5.75% load fee- but that is waived
due to the combined net value held within the company emplees accounts- That is a savings of your money ALL going to work for you. - That makes a substantial benefit to those investing through a company sponsored fund- If you are being charged Sales loads- big commissions- Vanguard also does not charge loads on their funds-More of your money invested for your benefit- Not the financial institution.
As Time to invest for the past 2014 Calendar year will end Apr.15, the opportunity is there to put some investment dollars to work -as long as it occurs in the next 30 days.

 

[sowterdad]

Back to current trades-
On Wed I added 20 shares of Dug $57.05 to the 17 I had previously purchased $54.96 as a partial position. Total of 37 shares-getting close to a "full position". avg cost about $56.00
In placing the orders Wed morning- and trying to get out the door and headed to work-
I quickly entered my Buy-Stop orders- heading out at 6 am. possibly running a bit behind schedule-
With my orders, I typically attach a 'bracket order' which is what IB offers to expedite a trade order to include an attached limit sell and a stop-loss once the original buy order fills.
The bracket order has an auto-fill of $1.00 to stop- or to limit sell- and i usually plan to allow a trade plenty of upside so I generally set a high specific price with the initial order-and a specific stop-loss price based on the chart. I apparently screwed up, and failed to adjust the limit sell - and the entire position sold Friday $58.74 @ 9:40 am.
I got home just prior to the market close -, saw that I had unexpectedly sold DUG as price made a gap higher move and climbed the next hour- Sold $58.74- Price then rolled over a bit, declined some -below the open and into the gap. I watched it and repurchased at $57.93 - a lower price than my sell .
So, the sell captured a 4.9% gain-
Had I had my stop-loss set appropriately higher, My position would have not sold and i would have a smaller -on paper gain.
My expectation is that it sounds a s though OIL should go lower- they're laying off a lot of workers in the energy industry- but this has been an up and down chart over the prior months.
The attached candle chart includes a fast and a slower ema-
As a reference, it is a no brainer to not go long when price is declining & the fast ema is below the slower ema, and price is also lower. That pretty much indicates that price is trending DOWN at that moment in time. Waiting to consider a trade until Price closes above the upturning fast ema does not guarantee a successful trade- but it at least assumes price is -that day- headed in your direction. This is equally true on all time frames, not just this one. Discovering whether it is a bull trap or a start of a trend reversal - or consolidation- is what the next day's action price action may suggest.
The DUG chart is not a smooth multi-year trend. Over a period of a few months,
it has been a somewhat choppy and volatile UP and DOWN movement- Likely a money maker for more nimble traders- Not so much for EOD traders hoping to capture longer trends.
The 2 hr Renko with a fast 5 ema suggests a stop-loss at -1 atr $.70 @ $56.77.
That is too tight IMO viewing the candle chart. The 9 ema renko value -1 atr allows 4 renko bricks to form- This is too wide IMO- but perhaps it 'works' in that it allows price to make a red bar brick to form- and one could decide to tighten the stop-loss.

 

[sowterdad]

Friday I was also filled on HACK buy-stop $28.20
and XBI 228.74 .

As I reviewed the chart of Hack, several things come to mind- as they always do when the trade does not go as you anticipate- or hope for.
Was this a valid entry? Or was it impulsive and too discretionary?
Although I'm not pleased with the initial outcome- I think this is a valid tade- Several days prior, the decline paused, followed by a consolidation move with price closing up from the prior lows. I recognize this as a 1st noteable price reversal attempt- - and I think they have a higher failure rate - but sometimes they succeeed in becoming the resumption of the trend.
The day prior to my entry, price moved bullishly higheron the 2nd bar, solidly above the ema, with the 2 hr final bar closing bullishly- but not overly strong- I thought I had given enough room for a higher buy-stop- and just caught the very top of the opening bar at the high- followed by weakness.
Price did not exceed the prior swing low- and so the question becomes -Will this be a consolidation, will the swing low hold as "support"- do we break support- and notice there is no prior consolidation in Hack to give a floor to the present price. Still a valid trade-IMO
and so I will set my stop $.10 below the swing low- It's a partial entry, and potential loss of $32.00 at the stop- under 1% of port value.
What I did notice is the very similar price movements in Hack & SPY- they are almost holding hands here- both on the move up and on this move down- The difference is that Hack is moving much larger proportionately in % of price movement. My Bias suggests that HACK could provide a longer term gain than SPY as a sector that should be in demand- We will see if it develops any footing.
SPY - on the daily looks as though the 200-198 would provide a bottom and a good reentry as it has been 3x earlier in January- That's if the market chooses to not get too rattled by fed fears etc....

 

[sowterdad]

Trend traders perhaps prefer smoother trending periods, while volatility swings are for the more nimble day -short term traders.

The SPLV 500 is the ETF that selects from the lower volatility funds in the S&P-
When I think of the S&P, I incorrectly assumed that lower volatility Always means lower possible gains- I heard that the SPLV had outperformed the SPY over the past year-
Going back 6-12 months, that appears to be correct.
an investment 6 months ago in SPLV outperformed the spy 2:1
As An investment a year ago, SPLV gave a 9% return, SPY less.
Going back before that -over longer time periods, The SPY outperforms -
The 3 year performance was SPY 59% SPLV 55%.
The wider Swings of SPY may have shook out many "investors'- where perhaps the same would not have occurred as often with SPLV.
I haven't looked into this any further- but it's an interesting way to compare risk vs gain
in 2 etf's that track very similarly- but the one designed to be less volatile-
Something to consider perhaps when one desires a longer term position with fewer antacids
required.

 

[xandman]

Sowter, you are producing some good content but you are absolutely nuking your readers. Obviously, you are not a publisher but some guy nice enough to share information and insight.

My advice is this very detailed analysis can best be presented in a blog format and you can return to ET and provide us with summary information. You would then attract a following and a readership that could potentially be a source of revenue. Your already a prolific writer. Go for it.

 

[sowterdad]

Sowter, you are producing some good content but you are absolutely nuking your readers. Obviously, you are not a publisher but some guy nice enough to share information and insight.

My advice is this very detailed analysis can best be presented in a blog format and you can return to ET and provide us with summary information. You would then attract a following and a readership that could potentially be a source of revenue. Your already a prolific writer. Go for it.

Thanks for your constructive comments Xandman- It may well be that this thread/blog is not
particularly appropriate for most here on ET; There are many good active threads on ET for readers to select from, and they can certainly ignore this one- personal choice and all that. My postings here presently do have 2 purposes-
The first is purely selfish- It requires me to try to "step Up" and improve my personal trading-and by posting it here on ET I am saying- "I'm going to Improve as a Trader" and put it on the table- win or lose- I really enjoy the process- and learning to get the ability to do some analysis- unbiased- the method- the proof- the challenge- gives me a greater awareness of how totally unstructured (discretionary) my trading has been these past 15 years- I don't know what the end process's will be for me- likely not what i use presently
as I expect i will modify my approach as this year proceeds-
The second part is: While i may seem prolific in writing- I really need to become more prolific in profitable trading: That is the goal.......... I have a more than full time job - that pays me well... I have no interest in returning and attracting a readership that would be a 'potential source of revenue-'. That would mean I went to the mountain and returned with 'wisdom' or perhaps a tablet with a trading plan.LOL!.
HMMM- Interesting idea- Might fit the 5 year plan when retired and a successful trader with a solid 'proven' method!!! I'd love to work with this full time!- Cheap!LOL!

Presently, I simply share some of those ideas as they present themselves- and i do hope that some of what i present may give the reader a different perspective. Since trading is ultimately a solitary endeavor; We often become too rigid in our methods- expecting them to work -always- I hope I challenge that a bit. AS I explore different means and methods, I hope the reader will consider different ways to study their own methods and results. It is so easy to embrace aspects of TA that fit specific trends and work well- until they don't. 6 years of a bull market will leave some on the wayside-poorer than when they came.

Exploring the academic side has real world applications. One example- Many years ago, I would have quickly blown out my account had it not been for a couple of traders pointing out the importance of employing position sizing in my trading- It was a concept outside of my understanding at the time- but it worked- I survived- to fight another day-
I hope I Share and there is some benefit to some unestablished trader reading this thread by chance- that will assist them in surviving their learning curve- or the inevitable outcome of the Fed bull market.
Another point i hoped i shared- but it stands to be repeated- MY soap box here- Is that Trading can be the Siren song- It is so easy to do, so easy to believe that this is the path to long term financial freedom- It is so Friggin' irresponsible and desperate if one only relies on their trading account to provide for them in the future,,,,,My belief- does not have to be yours.
Fund the investment account first- and contribute to it often (Vanguard) .
This likely is not often said on threads on ET- Use the extra Los Vegas monies to fund your Trading account- and build your fortune there- all the while contributing to that Roth & IRA
fund separately. Thank me in 20 years.
I hope I caught the attention of 1 or 2 persons reading this thread- All of their monies tied up in their trading account- Brother- or Sister- Get your priorities in the right order-
Step back and see the forest for the trees folks! Studies say that that the majority of the study participants think they are above average- I guess that's why I buy an occaisional lottery ticket as well!
So, I know some of the stuff I present is too detailed for many to even 'bother' with-
Too academic-Even for my experience..... Give me substance- not theory- but it starts here-
Although i am anything But an Academic- And perhaps I touch on too large a subject matter- Mutual funds- Expense ratios- etc. It's all stuff i have gradually/slowly become aware of over the years- Stuff that has relevance to those that have "investments" - It is only recently that i learned how really deceptive the financial investment community really is- I hoped i shared that- and made the reader a bit wiser. I hope 1 or 2 have the balls to go question their HR establishment-
Thank you for posting Xandman- and for your suggestions- present and future.
I likely won't be blogging elsewheres-Unless the management here finds me intolerable. - but if there is a specific method that you would like to suggest I give some focus to, I would be glad to do so, as time allows-
Thanks - it takes character to be constructive.
SD

 

[xandman]

I don't think the management can have an issue because you provide legitimate content. In fact, it's appreciated.

Press on, man. Just remember, small digestible bits to foster discussion. You already have a franchise on the topic heading.

 

[Swift5]

SD, agree with Xandman - thank you for sharing information and insight.