Investment Strategies / Mechanical Investing
No. of Recommendations: 5
Quote from one of Dean Radin´s books:
Presentiment in the lab is one thing. Are these effects meaningful in the real world? A 2024 study published in the Proceedings of the National Academy of Sciences, one of the highest-impact multidisciplinary science journals, was entitled “Brain Activity of Professional Investors Signals Future Stock Performance.”[75]
The study published by Leonard Diederik van Brussel of Erasmus University in the Netherlands and his colleagues used a functional magnetic resonance imaging (fMRI) instrument to visualize the deep brain activity of thirty-six professional investors as they predicted future stock prices. Van Brussel and his team found that the investors could not consciously predict future market performance better than chance. But unconsciously they could. The portion of their brain associated with reward and motivation (called the nucleus accumbens) had higher activity for investment predictions that ended up overperforming in the market.
The article reported, “These findings remained robust, even when controlling for stock metrics and investors’ predictions…. Cross-validated prediction analysis indicated that [the nucleus accumbens’s] activity could significantly predict future stock performance…. Accumulating evidence does suggest that humans, including professional investors, may share a neural response to stimuli that is related to future market-level performance.”
This conclusion was followed by the not-so-subtle hint “suggesting to financial institutions the investment value of collecting such information.” In other words, the presentiment effect as observed in the laboratory can be, and most probably already is being, used to make money. That the most successful businesspeople rely on psi is one of those secrets, like magic, that is admitted only quietly among trusted friends after consuming three or more beers.
Don´t shoot the messenger :)
No. of Recommendations: 10
In a similar "behavioral" vein, but more persuasively if you ask me, the pseudonymous Jesse Livermore of Philosophical Economics proposed (2013)that the best predictor of future stock market returns is the share of equities in the average investor portfolio:
https://www.philosophicaleconomics.com/2013/12/the...This forecast, along with many others, is followed on the Allocate Smartly site.
https://allocatesmartly.com/10-year-stock-market-r...I don't know if the page is visible to non-subscribers, but as of now Average Investor Allocaton to Equities forecasts a 10-year return of -0.9%.
Baltassar
No. of Recommendations: 7
Thanks Baltassar for those links. I had seen allocatesmartly’s 10 year Stock Market Return Forecast but hadn’t realized the details of how they created it.
They backtest 20 different published forecasting methods from as far back as they can get data (180’s, 1920’s but most from the early 50’s). A short selection of excerpts from their description of their methods.
"”” We begin with all available indicator data (ex. quarterly CAPE Ratio values). For each of those data points, we determine how the stock market performed in the 10 years following (annualized, dividend-adjusted log return).
We create a simple linear regression for 10-year returns (y) versus the corresponding starting indicator values (x).
We then create a hindsight forecast for each indicator data point based on the slope/intercept from our regression. Forecasts are converted from log to geometric returns.”””
Of the 20 models only 5 end up meeting their positive predictability criteria. From them a weighted prediction is generated.
Impressive amount of work to make a 10-year market prediction but my question is how valuable is a 10 year forecast for an individual investor.
Like many others in the same boat, I have little choice but to try and outperform or at least match the market. Vanguard’s 10-year prediction have Developed markets ex-Us stronger than US but US value still strong.
No. of Recommendations: 4
I think the percentage of assets that are equities pretty much reflects the market price of equities. How many really rebalance their portfolio.
Start with a 60/30/10 (equities/bonds/cash) portfolio and then have the price of equities double , the portfolio becomes roughly 75/19/6. So after a strong stock rally, 10 year forward returns decline.
Aussi
No. of Recommendations: 6
my question is how valuable is a 10 year forecast for an individual investor.
An absolutely fair question. The truth is, if I'd paid attention to such things before now I'd be a lot poorer than I am. But my investing experience has been dominated by mechanical, trend-following strategies in tax advantaged accounts, plus an LTBH cash account in which I have not sold anything since 2009.
I am now of an age where 10 years is a long time. My financial skills need to be tilted a bit more toward risk management. This has been brought home to me by the scale of financial and political risk now playing itself out on a daily basis. Back in February I made my first non-mechanical investment decision since the GFC, when I sold everything in my tax-deferred accounts on the news that President Trump intended to build hotels in Gaza; and specifically when his aides tried to walk back the idea with the usual "He's not serious" story, and he replied by insisting "Oh yes I am." I got back in immediately when the TACO phenomenon appeared, but I know enough about investing to realize that good luck can be a bad sign -- in the same way that narrowly avoiding a car accident should make you less, rather than more confident about your driving skills.
A month later I subscribed to Allocate Smartly because it relies on the mechanical/back-tested investing discipline that I cannot do without at this point, using models that include non-equity assets. I have learned a lot, and if the rest of my life turns out to be a secular bear market, I think I will manage well enough.
Given all this, Allocate Smartly's composite 10-year prediction provides some ballast for what is, on my part, a subjective judgment that I need to become more cautious.
My $.02.
Baltassar
No. of Recommendations: 6
Unless you are buying an index fund, what relevance is the 10-year expected return of the index? We already knew that a small number of stocks give you all your return; why shoot to include other, mediocre stocks? We aren't a billion-dollar mutual fund that has to worry about diversification rules and avoiding buying the whole company because we have so much money.
https://gtr1.net/2013/?~Liquid_consolidators:s2024... 60% better CAGR than the index with higher sharpe and same beta. Worse drawdown -69% v. -60% (i.e. both bad).
https://gtr1.net/2013/?h60f0.1000::nas100.a:nenull...150% better CAGR than its index, with marginally better drawdown (still horrible), better sharpe, marginally worse beta.
I.e. the point of this board isn't to buy an index fund.
