John Hussman of Hussman funds on trends, averages, technicians and much more.
One of the questions we often receive is why we don’t simply lift our hedges when the market advances above some moving average or another, and replace them when the market breaks below those moving averages. Certainly, when one looks a chart, extended market advances always break above various moving averages, and extended market declines always break below various moving averages, so simple trend-following strategies seem utterly self-evident. Unfortunately, if you actually take that strategy to historical data, the results typically aren’t nearly as compelling. Moreover, once any amount of slippage or transaction costs are taken into account, the most widely-followed strategies generally underperform a passive buy-and-hold strategy over time, and often don’t even manage downside risk particularly well.
The charts below feature a variety of moving-average crossover strategies using the S&P 500. The darker blue line tracks the total return of the S&P 500, and the others track a variety of strategies that are long when the S&P 500 index is above the given moving average, and in T-bills otherwise (the moving averages are exponential – giving a weight of 2/(N+1) to the most recent observation, and the rest to the prior value of the MA, where N is the length of the MA). The moving average lengths are Fibonacci numbers, which is a common practice among technicians.
A must listen to interview on HFT Trading by one of the “fathers” of HFT. From Planet Money.
Thomas Peterffy’s life story includes a typing robot, a proto-iPad, and a vast fortune he amassed as one of the first guys to use computers in financial markets.
On today’s show, Peterffy tells us his story — and he explains why he’s worried about the financial world he helped create.
Good interviews with Keith Fitz-Gerald on black swans, mispricing of risk and much more.
“If you’re rich you get a bailout. If you’re poor you get a handout. And if you’re middle class you get left out. ” That’s not a sustainable way to run the system, exclaims investment strategist Keith Fitz-Gerald.
A cancer at the core of our current economy is the magical thinking, “no pain, all gain” philosophy, pursued by those running it. They are doing all they can to remove the consequences of failure from the system — blind to failure’s essential ‘waste-clearing’ function in a healthy free market.
Full interview click here.