No. of Recommendations: 12
For me it's much simpler. I've been doing MI for about 25 years and I have the battle scars to show for it. In hindsight, none of the drawdowns, bear markets, or whatever, matter. They are all forgotten squiggles in the past. In my mind drawdowns are not risks if they don't lead to permanent loss. If I had to do it all over again, there would be two simple choices, the method I've used and evolved over time, or setting it all in SPY and forgetting it (or some other index ETF, your mileage may vary). And the only measure of success is whether I'm richer today with one method or the other. Market timing has turned out to be a frustrating and distracting effort. There were two or three notable market downturns during the period. I tried to time two of them, in 2008-2009 and in 2020. Both times I got out of the market with reasonable timing, and ended up getting back in way-way too late. Overall, those were badly losing experiences. The bottom line for me is, do I have a better than 50-50 expectation that I can beat SPY by using MI screens? As long as I think I do, and have fun doing it, I'll keep doing it. Nothing else matters.
In fact I was going to cite your own results (in particular 6/3 work) as an example of a portfolio which has enough history under its belt that there is a clear conclusion: it works. (or to be more conservative, it worked).
My whole reason for the thread was to muse on how rapidly one can approach a reasonable level of confidence with a much shorter amount of history...what can you tease out of the numbers to date to get the highest level of certainty of your evaluation of whether it is "working"? As you come up on 25 years of experience, that is no longer a concern: as you note, at some point CAGR tells you everything you need to know, and other metrics are either useless or worse than useless.
I say "worse than useless" because a lot of people go to a lot of trouble to get a smooth ride, and hurt themselves thereby. As the old saying goes, a lot more money has been lost trying to avoid bear market losses than has ever been lost in bear markets. After all, a smooth ride won't get you any higher standard of living the day you retire: only the portfolio balance matters. There is no point at all in seeking a low-volatility, low-drawdown, or low-stress portfolio **EXCEPT** the barest minimum of those features that will allow you with your real-world foibles to stick with the strategy which will ultimately in real life get you the highest CAGR with the highest confidence. There is nothing wrong with a smooth ride per se, but one should not pick a strategy with a lower likely return in order to get it. Unless you absolutely know in your heart of hearts that the higher return/certainty portfolio choice is not one you will be able to stick with, solely because of its squiggly nature.
I'm convinced that the reason that so many funds exist (there are way more equity funds than stocks in the world, which makes no sense) is because those buying the funds don't see that they own stocks that are crashing all the time...the fund result, being an average, hides the real and large squiggles that the investor's money is experiencing. So one might argue that the biggest benefit of index investing is that it's easier to stick with it than buying individual stocks because it looks nicer, even though the purchase of a broad slate of individual stocks is almost certain to have a higher long run return than a typical cap weight index fund.
Jim
