Rory Gillen's free book: "A guide to sound investing"

Discussion in 'Investments' started by Brendan Burgess, Nov 21, 2016.

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  1. dub_nerd

    dub_nerd Frequent Poster

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    Wikipedia cites a claim that the Coppock Indicator is useful in bear markets less than half the time. In general, isn't the use (or even existence) of technical analysis at odds with the efficient market hypothesis? (i.e. any advantage that could be gained through its use would already be priced in).
     
  2. Duke of Marmalade

    Duke of Marmalade Frequent Poster

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    This thread has been an interesting read this Christmas Eve:rolleyes:

    A few observations. I bought the original book, Three Steps and I got the booklet free through the post, from Davys I presume. I didn't read the booklet but I kept it on the shelf beside Three Steps. I think there was an AAM thread one time on Three Steps itself and I seem to remember being a strong critic of several aspects. In particular I was skeptical of the "Buy The Cheapest 15 (by PE) and Rebalance Each Year" system to beat the market; that it historically appeared to deliver proved nothing IMHO. I also in general have no time for chartist type predictors like Coppock. This thread made me give the booklet a quick skim and it doesn't seem to suffer from these pretentions.

    I was particularly interested in the "discussion" between Wollie and Rory. As seems to be inevitable online it got a bit tetchy but I think it would be unfair to accuse either of overstepping the mark into abuse. I think the fact that the REITs stand at a discount to NAV is a comfort to buyers though I note that Wollie has had personal experience that it by no means guarantees you are getting good value.

    I am firmly bought into the narrative that we are sitting on a massive asset bubble inflated by QE. Thus, for example, I have maxed out on Prize Bonds yielding 85bp tax free:oops:. However, Rory's reminder that dividend yields are 2.5% p.a. and that there could be a reasonable expectation of future growth of say 3.5% p.a., shows that there is still quite a bit of headroom over 2% bond yields. The problem is Rory seems to accept that a correction is likely so on a, say, five year view its hard to be confident on equities.
     
    Last edited: Dec 24, 2016
  3. Rory T Gillen

    Rory T Gillen Registered User

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    Since 1970, if one had bought the S&P 500, for example, on each Coppock signal, the average 1-year returns were 19%, 3-year returns 42% and 5-year returns 91%. These returns were before dividend income which, of course, would be material over the 5-year horizon. There have been just 12 signals since 1970; that's 12 signals in 46 years. That can hardly be classed as trading or speculating in markets.

    I am not saying using Coppock beats a 'Buy & Hold' approach, which I favour, but they are solid facts on which to base a decision should you follow such an indicator. You could, for example, add to a position at such a time. In a bear market, it is impossible to know where the bottom will be put in. Better, perhaps, to wait for the turn and the 'Coppock Indicator' has proven itself to be a useful indicator in that regard. Not perfect, but useful.

    In March, April and May 2009, the Coppock Indicator gave a serious of 'Buy' signals when most in the investors were shell-shocked. What it actually signaled was that the (professional) buyers had returned despite the media headlines, which were still universally apocalyptic at the time. And this is the most important point....such indicators can assist you to see clearly through the fog to what the market is 'doing', not what everyone is 'saying'. They assist you deal with the biggest bogey of all in markets, your emotional responses to poor media headlines.

    In March, April and May 2009, professional fund managers were buying not selling and the 'Coppock' indicator strongly hinted that a turn was in. The same occurred this summer (2016) with a series of 'Coppock' buy signals first in the emerging markets, then the UK FTSE 100, then Asia Pacific, the S&P 500 and so on. Reading the media heading would have led you to different conclusions perhaps, but it was fairly clear from 'Coppock' that the average investor was buying not selling.

    You can ignore such information and buy only when you see solid value in easy-to-understand companies or funds. But I find 'Coppock' and other such medium-term technical indicators useful tools in the investment bag.

    How you calculate the 'Coppock Indicator' is in an Appendix in 3 Steps to Investment Success. So, it's open to anyone to check those 'facts'. There's also a fascinating history behind 'Coppock' for anyone with an interest in stock market history.
     
    Last edited: Dec 28, 2016
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  4. Rory T Gillen

    Rory T Gillen Registered User

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    Yes, we understand your opinions, but it would be nice if you did not mix them up with the facts, which is one of my basic criticisms of many on this website. In the above response to 'dub-nerd', there are facts provided on Coppock. In addition, these same facts were initially outlined in 3 Steps to Investment Success, published in late 2012. A different approach perhaps, but hardly 'pretentious' simply because you don't accept the facts!
     
  5. Duke of Marmalade

    Duke of Marmalade Frequent Poster

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    It is a FACT that on each occasion that Saturn has been aligned with Jupiter the Fiji stockmarket has shown a bounce, so what?

    I think AAM contributors can decide whether the Coppock Indicator is pretentious based on the following explanation.

    Three Steps helpfully explains the theoetical basis for this formula. Apparently Mr. Coppock asked the church how long was the recovery time after bereavement. He was told between 11 and 14 months and naturally he concluded that 11 month and 14 month growth rates would be key inputs into his indicator. However, despite its impressive ecclesiastical origins I am not convinced of its infallibility.:rolleyes:
     
    Last edited: Dec 28, 2016
  6. Duke of Marmalade

    Duke of Marmalade Frequent Poster

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    Ok, Boss, I have read the booklet from cover to cover. Overall a good read and much sound advice/comment but and there is a but which I will come to later. First the good things.

    At the end of the day one is left wondering just what to invest in and that is not a criticism, that is how it should be, there are no silver bullets in this booklet.

    We are in absolutely unprecedented financial conditions. I for one can see no possible reason for investing in long government bonds at these yields even within a balanced fund. The booklet almost agrees with this.

    I was nearly persuaded by the comments on REITs. I do like that these are openly traded and their tax treatment is attractive (especially if you have past bank share losses:oops:) - perhaps more emphasis should have been given to the taxation aspects.

    The only definitive "advice" seems to be that anyone embarking on long term asset accumulation, say for a pension, should think equities and even I, the incurable equity skeptic, can't argue with that. Though he should have emphasised more the role of inflation in past statistics.

    My favourite exhibit is the Coca Cola one. This is my hobby horse. The stockmarket is a second hand market. It is the price that will decide the value not the quality of the good. Coca Cola has been shown to be an excellent company but its inflated price meant that it was a poor value investment.

    Of course he is right in advising investors to steer clear of Financial Spread Betting and CFDs.

    He has a swipe at Guaranteed Tracker Bonds, are these still available at these interest rates?

    For the But I will dedicate a separate post - why oh why did he include that ultimate pretension Euro Cost Averaging? 9 outa 10 without that but barely scrapes a pass with that included, I hope he drops it from future editions.
     
    Last edited: Dec 30, 2016
  7. Duke of Marmalade

    Duke of Marmalade Frequent Poster

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    Euro Cost Averaging:(

    Pound Cost Averaging was the ubiquitous tool of the early Unit Trust salesmen esp. in the UK. It served them in several ways:
    1. It argued that regular savings systematically provided a "free lunch" in that when prices were down you picked up more "extra" units than the "shortfall" when prices were up.
    2. It made a merit of falling prices - the main downside to the ordinary investor comparing with bank savings.
    3. It made them sound clever.
    I thought that in these days of high regulation this tool had been disgarded even by this constituency.

    In academic circles Pound Cost Averaging was always dismissed as a mere demonstration of the arithmetic tautology that the Arithmetic Mean is greater than the Harmonic Mean (Google it). It conferred no economic substance whatsoever.

    Rory will no doubt argue that Table 6.3 of the booklet is Fact. The Table demonstrates that over this time period and for this market a system of investing a regular money amount was 3.6% better than a system of investing a regular number of units (aggregate money investment equal). This will tend to be the case in rising markets because the former invests the money earlier than the latter.
     
  8. Rory T Gillen

    Rory T Gillen Registered User

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    I think the real strength of euro-cost averaging is the discipline it brings to the table. Volatility in markets can be scary at times and it can knock many a saver off course, but by pre-committing to a programme - like many do with their monthly pension contributions - it is somewhat easier to ensure that you don't just buy when things are on the up.

    Of course, euro-cost averaging exclusively into equities is no use if a market is in a sustained decline (as opposed to a cyclical bear market i.e. temporary decline), like can occur in a deflationary environment, and did occur in Japan from 1990 to 2012 in both equities and property. So, for euro-cost averaging to assist, you need to make the assumption that equity markets will continue to make progress over the long-term. That's the glass-half-full attitude discussed in the booklet, and in that context, yes, Table 6.3 is fact. If an investor doesn't accept that equities are headed higher longer-term then he/she has the alternative choice of investing using a balanced approach - investing in both risk assets and non-risk assets alike or, indeed exclusively into non-risk assets.

    Overall, however, good to see someone post a comprehensive review. I'm not sure why you favour opinion over fact regarding Coppock, but I've said my bit and I will leave it at that. On the FTSE 100 P/E approach, just to clarify, it's not simply the lowest 15 p/e stocks in the index, it's the lowest 30 P/E stocks from the top 75 stocks in the FTSE 100 Index, with a stock from each 'industry' selected from this basket of 30 to give a portfolio of somewhere between 12-15 stocks diversified across sectors or industries. But, enough said on that topic also!
     
    Last edited: Dec 30, 2016
  9. Fella

    Fella Frequent Poster

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    I don't really think euro cost averaging is that bad , its just regular investing , most people don't have huge lump sums to invest in the stock market and any habit of regularly topping up your investments in bad times and good times is to be encouraged. It's one thing knowing the right thing to do but its another thing doing it. I've invested a good portion of my savings but I found it mentally tough to put money in when the markets where going down. I invest a bit more each month now taking from my savings and adding to my investments , I may be losing out slightly long term but for me if there is a small loss its worth it anyway. Most people don't earn money in blocks anyway so its just like regular savings . If you've 500k in cash and decide you want to invest it in the stock market my advice would be maybe put in 200k and then drip in the rest over x years.
     
  10. Duke of Marmalade

    Duke of Marmalade Frequent Poster

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    Fella regular investing is a good thing, as good as motherhood or apple pie. I'll give Rory the benefit of the doubt that that is all he meant. But the more pretentious version goes as follows: It is better to buy two lots of units priced at 0.5 and 1.5 with equal investments of 1 than to buy them priced both times at the average of 1. The former buys 2+2/3 = 2 and 2/3rds units whilst the latter buys only 1 + 1 = 2 units. That is an arithmetic truism just as valid as saying you buy twice as many units than if the prices had been double what they actually were. It is a classic "so what?" There is no economic substance to the arithmetic tautology. Said quickly, it sounds very clever and a bit of alchemy to generate a free lunch, salesmen loved it:p.
     
  11. Rory T Gillen

    Rory T Gillen Registered User

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    Last edited: Dec 31, 2016
    I wouldn't be put off by the 'Duke's' theorising. For many investors, regular investing is a critical part of sound investing as it assists with the emotional side of investing. It was no coincidence that I outlined the benefits of euro-cost averaging in the section in the booklet dealing with 'How to Mitigate the Risks', for there's no doubt in my mind that the markets' volatility is a risk to the extent that it creates fear, which then stops people investing when prices are lower and values better.

    We run three regular investing portfolios on the GillenMarkets website, investing real money each month, to assist subscribers make decisions. That's the purpose to an investment newsletter. When markets dive - as they did in Jan 2016 - we tend to bring forward the monthly contributions to make the point that lower prices offer better value if you know how to assess the risks in the stock or fund you are buying. A mistake we all made in 2008 - myself included - was not to have understood banks and leverage well enough. I well recall being extremely bearish on Irish property from 2003 onwards, but somehow I did not read the consequences of a likely decline in property prices into bank bad debts. I made the naïve assumption that the scale of losses would be like past cycles. We live and learn.
     
    Last edited: Dec 31, 2016
  12. Odenwald80

    Odenwald80 New Member

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    As an experienced investor in certain sectors of the market, I found Rory’s book a short simple and useful back to basics guide and helped me start a reassessment of my strategy. Always useful to start at a new point from time to time”.
     
  13. Brendan Burgess

    Brendan Burgess Founder

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    I presume nothing new is being added to this thread in recent pages.
     
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