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When should we get greedy?

Investment discussion for beginners. Why you should invest your money, get help getting started
tikunetih
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Re: When should we get greedy?

#356410

Postby tikunetih » November 14th, 2020, 9:38 am

tikunetih wrote:...US market up >20% since then and broken out to new all time highs...


1. I'm guilty of sloppy language there and jumping the gun

While it's true that the S&P500 price chart has just had both record high daily and weekly closes, that doesn't constitute a "breakout", which are processes not events, and require hindsight to properly identify. That's not something that's yet occurred in the S&P500, and if it does indeed occur it could be months before we can state it with confidence.


2. It's worth noting also that the recent market advance has caused bullish investor sentiment to become stretched and bearish sentiment to be compressed, meaning that the "fuel" for further advances in the nearer term is becoming limited as "everyone" has already been shuffling over to the same side of the boat...
https://pbs.twimg.com/media/EmqRUgIWEAE ... ame=medium


3. This all points to the broader issue, that of trying to second-guess markets in the short term, usually being a mugs game, and investors would generally be well advised to spend their time more fruitfully. Much mental energy is expended on micro-observation of markets and trying to see what might be around the corner (eg. 1 & 2 above!) even though the chances of reliably nailing these calls is low. It would be very nice to call each turn and always be optimally positioned but those attempting this are likely to find that the "perfect is the enemy of good", negatively impacting returns. Digression: On the other hand, strategies which are aimed at taking money from the people who are themselves attempting to make micro predictions can be lucrative! eg. spreadbetting firms, brokers, etc.

What's most important is simply to ensure that your positioning / asset allocation is (a) appropriate for your investing goals and time horizons and (b) appropriate for the general market environment we find ourselves in. Since your goals and investment horizons are likely to change only glacially, then the only real variable is the "general market environment". I'm of the mindset that this also changes much less than is generally perceived, with most of what occurs (and which causes investors to react, and chop and change) simply being "noise" to be ignored.

Things that aren't noise, and which require investors to take serious note and consider their asset allocations, are thin on the ground, contemporary examples being the Fed's massive intervention in late March (coupled with simultaneous govt's fiscal policy shifts) and also the Fed's announced policy shift in late August (rarely commented upon!) towards an "average inflation target". These two events may be the most important factors for markets that have occurred in years, and it may be years again until we see further such significant changes, with the corollary being that everything until that day can again be treated largely as "noise" to be dialled out.


4. "Perfect is the enemy of good" is a useful thing for investors to keep in mind. While it may sound highly unambitious I think that a realistic goal for an investor is for your future self to look back and simply say "what I did was reasonable and appropriate". If your plan and time horizons were sensible, that's probably all you need to do to secure a decent result, and it's an approach that requires hardly any effort - just some discipline and mainly inactivity!


NB this stream of consciousness isn't aimed at anyone in particular.

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Re: When should we get greedy?

#356423

Postby GoSeigen » November 14th, 2020, 10:27 am

TheMotorcycleBoy wrote:
By the way what's the difference between volatility and "implied volatility?" Also is VIX still high? I thought it'd settled down by now.

Matt


Implied Volatility is a specific term of art which refers to a value calculated from the price of an option which represents how much future volatility is being priced in by options traders. AEBE the higher the option price the higher the implied volatility. The VIX index tracks the implied volatility of S&P500 options.

Volatility is often used as a synonym for implied volatility, but it can also refer to the realized (historical) volatility of a market which can be measured in a variety of ways: I like standard deviation, also Bollinger Bands are a popular graphical representation of volatility.

VIX is still at 23, which is the sort of level only seen during bear markets or sharp market corrections. The majority of the time VIX is somewhat lower.

GS
EDIT: Sorry, I see dealtn has already covered this well.

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Re: When should we get greedy?

#356431

Postby Itsallaguess » November 14th, 2020, 10:50 am

tikunetih wrote:
"Perfect is the enemy of good" is a useful thing for investors to keep in mind.

While it may sound highly unambitious I think that a realistic goal for an investor is for your future self to look back and simply say "what I did was reasonable and appropriate".

If your plan and time horizons were sensible, that's probably all you need to do to secure a decent result, and it's an approach that requires hardly any effort - just some discipline and mainly inactivity!


Such sensible advice - we all really should have it written on a Post-it, permanently stuck to our monitors...

On a slightly separate note - your great posting style and eminently sensible advice reminds me of two great posters from the old Motley Fool UK days, who's name I can vaguely remember, but which I might need some help with to confirm or finesse - one was a poster who had his own board in the early days of the Motley Fool UK site, and who sadly died whilst the UK Fool boards were still going - Tortoise something or other, I think, and the other was a brilliant poster called, I think, something like SteveClarke, who might also have had a number after his user-name?

If anyone reading this can either confirm the above two TMF poster names, or refine them if I'm only partly correct, then I'd be very grateful. I'm hoping that anyone with a long membership from the old TMF days will remember them both, as they were both widely held in very high regard for many years...

Cheers,

Itsallaguess

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Re: When should we get greedy?

#356455

Postby TheMotorcycleBoy » November 14th, 2020, 11:39 am

GoSeigen wrote:Sorry, I see dealtn has already covered this well.

No probs. Thanks for yours.

dealtn wrote:Volatility is a somewhat "loose" term, so will depend on the context and what someone is attempting to say. Or is just a generic expression to say a "market" is moving more (usually in both directions, and in greater than normal magnitude).

Ok, thanks. So volatility is just the term for the historical value. I understand volatility quite clearly. In fact I could generalise and propose that if a stock price over time is just a ramp with a fixed incline (k), but (for volatility's sake) with a sinusoid superimposed (with period T and amplitude A) on it, then stock price (p) over time (t) starting at initial value I could be expressed as

p = I + kt * A * sinT

(sorry about the maths but I have been revisiting stuff here!)

So based on the above completely unrealistic formula, I could suggest that a highly volatile instrument (Hurricane Energy) would have larger A and smaller T compared with one of lower volatility (Unilever perhaps).

Implied Volatility is a mathematical term derived within the calculation for where options are priced. It is a tricky concept because it is in fact the "unknown"

A ha. That's the one where one needs a crystal ball. You just need a diary for the first.

Ok, another analogy. Some option pricing boffin has all the known ingredients when pricing a GOOG option. He uses his diary and refers to a previous period and figures out the MSFT's previous volatility was x. He's tempted to use that in the option pricing formula for implied volatility. But then he thinks, hmm... 1) Kamala Harris likes Tech so actually this will continue to grow very predictably 2) but Biden doesn't want them to exploit the advertising market so he might be mean on them and 3) Trump in exile may form an urban guerilla movement and attempt to steal all their money in order to build hotels in Greenland. Armed with these views, the analyst decides to play it safe and use an implied volatility of 1.3x.

Is that about it?

Historic Volatility is a backward looking equivalent of Implied Volatility

Hmm. I'm thinking that if what written I've above is close to the mark, then this statement is false. Since isn't implied volatility always only a prediction? In other words just guessing the outcomes for example of a coin toss? e.g. we predicted T H H T T (implied), but after the event we actually got H T H T H (now historic).

GoSeigen wrote:VIX is still at 23, which is the sort of level only seen during bear markets or sharp market corrections. The majority of the time VIX is somewhat lower.

Music to our ears, I guess.

Matt

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Re: When should we get greedy?

#356467

Postby PinkDalek » November 14th, 2020, 12:29 pm

Itsallaguess wrote:[On a slightly separate note - your great posting style and eminently sensible advice reminds me of two great posters from the old Motley Fool UK days, who's name I can vaguely remember, but which I might need some help with to confirm or finesse - one was a poster who had his own board in the early days of the Motley Fool UK site, and who sadly died whilst the UK Fool boards were still going - Tortoise something or other, I think, and the other was a brilliant poster called, I think, something like SteveClarke, who might also have had a number after his user-name?

If anyone reading this can either confirm the above two TMF poster names, or refine them if I'm only partly correct, then I'd be very grateful. ...


I believe the first was PlasticTortoise (https://boards.fool.com/profile/PlasticTortoise/info.aspx Fool Since: March 14 2000) and there was a specific TMF board entitled something along the lines of Inside Plastic Tortoise.

The second looks correct, name wise, but, as you say, may have had a number! Maybe https://boards.fool.com/profile/SteveClarke100/info.aspx (Fool Since: April 3 2002) but that a random guess.

Neither seem to have posted at TMF USA but the former is I think who you described.

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Re: When should we get greedy?

#356493

Postby Itsallaguess » November 14th, 2020, 2:34 pm

PinkDalek wrote:
Itsallaguess wrote:
On a slightly separate note - your great posting style and eminently sensible advice reminds me of two great posters from the old Motley Fool UK days, who's name I can vaguely remember, but which I might need some help with to confirm or finesse - one was a poster who had his own board in the early days of the Motley Fool UK site, and who sadly died whilst the UK Fool boards were still going - Tortoise something or other, I think, and the other was a brilliant poster called, I think, something like SteveClarke, who might also have had a number after his user-name?

If anyone reading this can either confirm the above two TMF poster names, or refine them if I'm only partly correct, then I'd be very grateful. ...


I believe the first was PlasticTortoise (https://boards.fool.com/profile/PlasticTortoise/info.aspx Fool Since: March 14 2000) and there was a specific TMF board entitled something along the lines of Inside Plastic Tortoise.

The second looks correct, name wise, but, as you say, may have had a number! Maybe https://boards.fool.com/profile/SteveClarke100/info.aspx (Fool Since: April 3 2002) but that a random guess.

Neither seem to have posted at TMF USA but the former is I think who you described.


Thanks PD - you're spot on with both - much appreciated.

Cheers,

Itsallaguess

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Re: When should we get greedy?

#356509

Postby GoSeigen » November 14th, 2020, 2:53 pm

TheMotorcycleBoy wrote:
Historic Volatility is a backward looking equivalent of Implied Volatility

Hmm. I'm thinking that if what written I've above is close to the mark, then this statement is false. Since isn't implied volatility always only a prediction? In other words just guessing the outcomes for example of a coin toss? e.g. we predicted T H H T T (implied), but after the event we actually got H T H T H (now historic).

Well, at any one time realised volatility is the outcome of price movements over a previous period, whereas implied volatility is the predicted (as you put it) volatility of a particular option contract up to its future expiration.

Or to put it another way implied volatility on purchase date Tp matches historical volatility at expiration date Te if the underlying price turns out to be as volatile as was predicted between time Tp and Te. Note that some (sophisticated) investors do the calculations roughly as you described, but much of the market will be happy to buy and sell options based on their needs/mood. So implied volatility can be calculated from time to time from the prevailing market price of the option contract.

Personally I don't sweat it too much, I used the calculated VIX value for the S&P and watch what realized volatility is doing too. e.g. if realized volatility is low on relevant timescales and markets have been bullish that is often a warning sign of overstretched markets.

To time writing and buying straddles I look at the term structure for hints of stress (inversion) which prompt me to buy straddles and a normal structure which IMO favours writing options. [Brief rationale: inversion typically occurs after a sharp fall. There are two likely reasons for inversion: irrational fear of large imminent market falls, in which case a strong bull run is likely, or a rational expectation of further falls, which are often precipitate because further declines amid already bearish sentiment trigger indiscriminate selling.]


GoSeigen wrote:VIX is still at 23, which is the sort of level only seen during bear markets or sharp market corrections. The majority of the time VIX is somewhat lower.

Music to our ears, I guess.


I hope so, but VIX can rise again. Hence I always try to look both ways.

GS

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Re: When should we get greedy?

#357153

Postby GoSeigen » November 16th, 2020, 7:49 pm

GoSeigen wrote:Quick update, as I'd covered my short puts earlier I reopened a short Nov slightly OTM put into yesterday's weakness. Just seemed more sensible than closing the calls with quite a bit of time value left and only a week to expiration.

GS


Added a short Nov strangle. Silly prices for expiration in 3 trading days. Might regret it come Friday though :-o

Expiration at 3600 or just below would be ideal.

GS

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Re: When should we get greedy?

#357333

Postby TheMotorcycleBoy » November 17th, 2020, 11:48 am

Now we have vaccines coming out of our ears, I'm very bullish long term on most things, except oil, banks and catering. If I wasn't constraining by Mel and I's ISA allowances I'd be buying the farm.

Matt

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Re: When should we get greedy?

#357350

Postby Padders72 » November 17th, 2020, 1:02 pm

TheMotorcycleBoy wrote:Now we have vaccines coming out of our ears, I'm very bullish long term on most things, except oil, banks and catering. If I wasn't constraining by Mel and I's ISA allowances I'd be buying the farm.

Matt

I think you mean betting the farm. Buying the farm is generally understood to mean falling off the perch!

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Re: When should we get greedy?

#357459

Postby GoSeigen » November 17th, 2020, 7:32 pm

TheMotorcycleBoy wrote:Now we have vaccines coming out of our ears, I'm very bullish long term on most things, except oil, banks and catering. If I wasn't constraining by Mel and I's ISA allowances I'd be buying the farm.

Matt


ISA allowances should not be any sort of constraint surely...

GS

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Re: When should we get greedy?

#357553

Postby TheMotorcycleBoy » November 18th, 2020, 7:48 am

GoSeigen wrote:
TheMotorcycleBoy wrote:Now we have vaccines coming out of our ears, I'm very bullish long term on most things, except oil, banks and catering. If I wasn't constraining by Mel and I's ISA allowances I'd be buying the farm.

Matt


ISA allowances should not be any sort of constraint surely...

GS

It is. It ain't big enough. It's fixed at 20k per individual for how many years? There is such a thing as wage inflation. :lol:

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Re: When should we get greedy?

#357557

Postby johnhemming » November 18th, 2020, 8:10 am

You can, of course, invest in your own name. You need to pay tax on dividends and capital gains, but that still leaves cash at the end of the process.

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Re: When should we get greedy?

#357558

Postby GoSeigen » November 18th, 2020, 8:14 am

TheMotorcycleBoy wrote:
GoSeigen wrote:
TheMotorcycleBoy wrote:Now we have vaccines coming out of our ears, I'm very bullish long term on most things, except oil, banks and catering. If I wasn't constraining by Mel and I's ISA allowances I'd be buying the farm.

Matt


ISA allowances should not be any sort of constraint surely...

GS

It is. It ain't big enough. It's fixed at 20k per individual for how many years? There is such a thing as wage inflation. :lol:

'
What's wrong with a non-ISA account?

GS

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Re: When should we get greedy?

#357681

Postby TheMotorcycleBoy » November 18th, 2020, 11:54 am

GoSeigen wrote:
TheMotorcycleBoy wrote:
GoSeigen wrote:
ISA allowances should not be any sort of constraint surely...

GS

It is. It ain't big enough. It's fixed at 20k per individual for how many years? There is such a thing as wage inflation. :lol:

'
What's wrong with a non-ISA account?

GS

Tax?

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Re: When should we get greedy?

#357690

Postby TheMotorcycleBoy » November 18th, 2020, 12:04 pm

johnhemming wrote:You can, of course, invest in your own name. You need to pay tax on dividends and capital gains, but that still leaves cash at the end of the process.

I might start to do that.

Thing is, I used to file tax records in the very early 2000s when I was s/w consultant. And when I went permie again, not having to do the returns was a breath of fresh air.

I need to check a things out with the US brokerage where my employee stock grants go. Currently I cash out my company stocks into GBP as soon as they vest, since at vest date, the necessary amount of stock is always sold first to settle my immediate tax obligation. However I need to double check that the odd smallish random lumps of USD that periodically appear in my ETRADE account are due to that process, rather than any sneaky lil dividends happening StateSide.

Another option, re. tax and spare cash, is just to give it to my eldest Daughter, whose now 18 and me and my Dad have already got her started on an iWeb ISA. It's probably best to that - her and her little Sis we get the lot anyway when me and Mel really do "buy the farm".

Matt

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Re: When should we get greedy?

#357707

Postby kempiejon » November 18th, 2020, 12:21 pm

TheMotorcycleBoy wrote:Tax?


SIPP?
Unsheltered Capital gains £12300 allowance each. Dividend income allowance £2000. These do not carry forward. Once the ISA and SIPP allowances are used I invest unsheltered. My tax planning is to sell to crystallise capital gains towards the end of the tax year and move that into the sheltered accounts and invest unsheltered for the next 11 months.

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Re: When should we get greedy?

#357711

Postby dealtn » November 18th, 2020, 12:38 pm

TheMotorcycleBoy wrote:
GoSeigen wrote:
TheMotorcycleBoy wrote:It is. It ain't big enough. It's fixed at 20k per individual for how many years? There is such a thing as wage inflation. :lol:

'
What's wrong with a non-ISA account?

GS

Tax?


So you feel better to be constrained and potentially earn 0% than invest in a non-ISA account, earn a "farm" sized return, but pay tax on it, only retaining most of it?

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Re: When should we get greedy?

#357785

Postby TheMotorcycleBoy » November 18th, 2020, 3:20 pm

kempiejon wrote:
TheMotorcycleBoy wrote:Tax?


SIPP?
Unsheltered Capital gains £12300 allowance each. Dividend income allowance £2000. These do not carry forward. Once the ISA and SIPP allowances are used I invest unsheltered. My tax planning is to sell to crystallise capital gains towards the end of the tax year and move that into the sheltered accounts and invest unsheltered for the next 11 months.

A ha.

So in theory can have both an ISA and a SIPP?

Do you know what's the maximum one can deposit per year into a SIPP? Do I need 1) discover how much I'm already paying into my company employee-contribution plan and then 2) deduct this from a total amount?

thanks for the suggestion
Matt

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Re: When should we get greedy?

#357978

Postby kempiejon » November 19th, 2020, 8:59 am

TheMotorcycleBoy wrote:So in theory can have both an ISA and a SIPP?

Do you know what's the maximum one can deposit per year into a SIPP? Do I need 1) discover how much I'm already paying into my company employee-contribution plan and then 2) deduct this from a total amount?


Max into a SIPP is usually the max including other contributions and tax relief of £40,000 or your total earnings for the year indeed less any other contributions elsewhere. Defined benefit pensions are treated differently. There are adjustments if you earn over £150K that I've not had cause too investigate further...
If you've not used your full contribution in previous years there's carry forward for I think 3 years.
Start here https://www.gov.uk/tax-on-your-private-pension there's a pensions board. viewforum.php?f=17


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