February 20 — The Problem With Intuitive Investing

Asset Class Overview:

Economic news was mixed, with first-time jobless claims coming in fewer than expected, but leading indicators and the Philadelphia Fed’s business outlook weaker than expected.

The Bloomberg Consumer Comfort Index’s monthly economic expectations gauge rose by 1 point to 54 in February, the highest since January 2011. The weekly index was at 44.6 in the period ended Feb. 15 compared with 44.3 the previous week, according to Thursday’s report.

The NASDAQ was helped by strength in online travel and other Internet stocks to a 0.4% gain. The tech-heavy index stretched its win streak to seven sessions, the longest in nearly a year. Meanwhile, the Dow Jones industrial average fell 0.2% and the S&P 500 slipped 0.1%. volume fell across the board.

OverviewOnly one of our eight asset class indexes rose today and that was not by much, a mere 0.12%.  Europe of course with all its economic problems has been hot!


Sector Watch:

Looking at my list of 14 major S&P sectors/Groups, note that 5 declined while 8 advanced. The big loser utilities once again, down 1.3%. Largest gainer of the day XLK plus 0.35%.


Sector/Industry ETF day, almost  and even day with 37 ETFs advancing and 39 ETFs on the downside.  Top Advancers:

Tkr ETF Name Close % Chg
Last Update Close of  2  / 19 / 2015
FDN First Trust Dow Jones Internet Index Fund ETF 65.68 1.58
XBI SPDR S&P Biotech ETF 211.7 0.86
IBB iShares Nasdaq Biotechnology Index Fund ETF 331.98 0.78
KOL Market Vectors Coal ETF 14.29 0.78
IGN iShares S&P GSTI Networking Index Fund ETF 38.17 0.58
PPA PowerShares Aerospace & Defense Portfolio ETF 36.97 0.54
QTEC First Trust Nasdaq 100 Technology Sector Index Fund ETF 44.33 0.54
FXL First Trust Technology AlphaDex Fund ETF 36.26 0.5

Bottom of the List:

IYR iShares Dow Jones US Real Estate Index Fund ETF 79.22 -1.91
VNQ Vanguard Reit Etf 83.8 -2.15
RWR SPDR Dow Jones REIT ETF 93.81 -2.24
GDXJ Market Vectors Junior Gold Miners ETF 26.25 -2.27
GDX Market Vectors Gold Miners ETF 20.54 -2.38
ICF iShares Cohen & Steers Realty Majors Index Fund ETF 100.43 -2.46
SIL Global X Silver Miners Etf 9.66 -2.91

Real Estate and Gold, could it be the expectation of higher interest rates on the REITs?

The Problem With Intuitive Investing

The following is copied and excerpted from an article on “A Wealth of Common Sense” blog. A Wealth of Common Sense is part of the PrudentTrader Reading room, Prudent Trader Favorites  Use the following login: ReadingRoom87@gmail.com PTreadingroom. Of course once in have your browser remember the sign-in,

Emphasis below is mine:

“Hundreds of studies have shown that wherever we have sufficient information to build a model, it will perform better than most people.” – Daniel Kahneman

Ray Dalio and Bill Ackman are arguably two of the greatest hedge fund managers in the business today. They recently shared the stage at an investment conference discussing their respective investment processes.

Dalio gave Ackman some interesting insights into his quantitative process at Bridgewater Associates during their discussion (courtesy of some notes from ValueWalk):

Dalio continued with the advice that you should write down your method so it can be back-tested, he feels that everything can be analyzed and quantified. 

99% of the time he agrees with his quantitative strategy, the 1% of the time when he disagrees with the machine he realizes in retrospect that  the machine was right 66% of the time.

Dalio is one of the most brilliant investors alive, but he’s wrong 2 out of every 3 times he tries to override his quantitative investing model. I think this is a great lesson for those investors that plan on using their gut instinct to make investment moves. The majority of the time following a rule-based approach is superior to making ad-hoc decisions.

In Thinking, Fast and Slow Daniel Kahneman discusses how study after study have proven that simple algorithms used for making decisions tend to beat experts that try to use their intuition in a wide variety of fields – medicine, business, investing and more. Experts are overconfident in their abilities, while models are not. Models are disciplined while the experts tend to let their biases blind them to potential errors in their line of thinking.

Greenblatt found the self-managed accounts slightly underperformed the market (59.4% vs. 62.7% for the S&P 500) while those accounts that were automated returned 84.1% after all expenses, handily outpacing the market. Adding a discretionary component to the model hurt the performance of the self-managed accounts for a few reasons…

Perhaps Greenblatt’s most interesting data point comes from the best-performing self-managed account. It didn’t do anything. After the initial account was opened, the client bought stocks from the list and didn’t trade again for the entire two year period. It seems even doing nothing outperformed all the other active self-managed accounts.

If this is of interest read the full article HERE! If you believe your discretion can outperform then do not.

The Problem With Intuitive Investing

Economic Reports and Earnings:

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