Episode 246: The Retirement Lie — Part 4

by producer on April 16, 2014

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In this fourth and final episode on The Retirement Lie, our guest host Scott Welsh begins with answering a comment from Brian. Then Scott and Jason the producer run the numbers to demonstrate a few possibilities for a nearby retirement, as well as a far off one. Scott discusses fear and what we could potentially achieve, depending on our risk tolerance. This series is now complete and has spanned from Episodes 243 to 246. Your regular host, Rob Booker, will return on Monday for Episode 247. But we’ve been grateful to have The Coach as our guest host for the past two weeks. Thanks, Scott! And thanks for listening to The Traders Podcast.

Links for this episode:

Scott’s Blog

E-mail Scott: ScotWelsh ( AT ) gmail ( DOT ) com

Scott on Twitter: @SWelsh66

Call and leave us a voice mail: (801) 382-8789

Rob on Twitter: @RobBooker

The Traders Podcast on Twitter: @TradersPodcast

TFL365.com

E-mail us! Producer@TradersPodcast.com

Trader Interviews.com

{ 4 comments… read them below or add one }

Brian Fortin April 17, 2014 at 1:56 pm

Scott and Jason,
I blame myself for sidetracking the discussion with this chicken vs. egg argument, because I’m the one that wrote that Scott gave a great presentation on the offensive aspects of trading. However on second thought, I could make a good case that he’s also a great defensive coach, because taking control of your retirement account is a much better defense than just trusting Buy and Hold.

However, I still think Scott needs to rethink the sports analogy. Trading isn’t like football or basketball where you can try harder and manufacture a win. It’s more like baseball. Hitting a baseball requires you to do things with a systematic approach. In fact, trying harder is the chief reason for striking out. Similarly, trying harder when you are losing money is a great recipe for racking up huge losses. The ironic thing about trying harder is it usually happens when you’re losing and market conditions don’t favor your type of offense. Rather than trying harder with the odds against you, it’s preferable to push harder when we are winning. Scott’s not wrong in his argument that you can’t win without both an offensive and a defensive game, but where we part company is any assertion that offense is inherently more important. I say this because of the reason most people lose. Traders MAKE defense more important because most traders fail in their defense.

It’s not true most traders lose. Except for the hopelessly inept, most win, it’s just that the majority of us end up giving back all those profits. Most of us focus almost exclusively on making money, not keeping it, and that’s the problem. There’s a thousand ways to make money trading. You only need to know one. However, there’s a thousand ways to lose money, and you have to plug all those holes in the hull or your ship or it will flounder. No edge or system is powerful enough to pump all those CULMULATIVE mistakes out of your balance sheet at the end of the year. This most definitely is not a criticism of systems writers. Actually, it’s a good argument to use an automated system and prevent those losses. So I guess the issue comes down to where you place those stupid execution issues, as a defensive problem, or an offensive problem. I label them as part of the defense, because when you change your offensive system, those problems still follow you. The ironic thing is traders refuse to recognize where their losses originate, and think they can out produce their mistakes. They purchase a system, and trade it like a gibbering monkey, ignoring money management rules, and keying in whatever spontaneous simian dreams flit about in their peanut sized brains. Then they blame the person who wrote the system for the results rather than themselves. No matter the offense, you can’t out trade stupid.

So I guess I focus so much on the defensive side of the game because offense is so preplanned and clear cut, except perhaps for the art of holding winners. On the other hand, defense isn’t clear cut, and there’s hundreds of ways to suddenly discover you are bleeding out profits. It’s easy to sneer at defense in favor of big trades and war stories, but every dollar preserved by defense is equal to every dollar you earn trading. Both have diminishing returns, but any money saved on defense is guaranteed. For example, it’s a lot harder to squeeze another $200 of profit out of my system this week, knowing that tinkering and optimizing might make it LESS profitable, than it is to find $200s worth of mistakes, commissions, slippage, and taxes that can be improved. Improving your offense MIGHT make you $200 better at trading, but improving your defense WILL make you $200 better at trading. Defense wins championships, both in baseball and in trading, because in a game where offense doesn’t involve effort, stubbornness, or willpower, once you’ve done what can be done with your offensive game, all that remains is to channel those things into your defense.

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fxCave April 18, 2014 at 12:03 am

Scott Alexander Welsh! (middle name? LOL) Warren Buffett!? You’re kidding, aren’t you??? Does anyone else listen to the opening of the Trader’s Podcast? “When you are a better person, you are a better Trader.” It’s one of the reasons I am a listener! Because I think there are good people here at TPC. So how did Warren become such a good trader? Maybe he used to be a good person. I used to have respect for Warren Buffett, because he is certainly a better trader than I am, but from the what he says and what he does, he shows us what a very unethical person he is. If you put aside his lie about his “secretary paying more taxes than he does”, and just look at his insider trading (David Sokol & Lubrizol Corp), Buffett is a champ at using his clout with politicians to make policy he can profit from ( ie blocking Keystone Pipeline, so CSX can carry N.dakota Bakken Oil instead is a just drop in the proverbial bucket). When Warren Buffet says to get out of gold, or oil, or real estate… you can bet it is because he wants to buy what everyone is selling. http://www.youtube.com/watch?v=tyv9uOozi7g Owns Standard & Poor who stamps Goldman Sach derivative products tripple AAA, but he owns a healthy portion of GS too. Is there a conflict of interest anywhere in here? http://www.youtube.com/watch?v=mr8kpSGI4SU#t=74 Too many billionaire conflicts for a non-billionaire to learn anything from and too many lies for me to have any respect for Warren Buffett anymore. http://www.youtube.com/watch?v=WVrorVdNgww

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Fred April 20, 2014 at 8:07 am

Has anyone else backtested the 800 day MA long and short strategies that Scott discusses? I am getting horrible results for both strategies. Some of the stocks that meet the entry rule for the long strategy (close < 0.5 x 800 day MA) continue spiralling downward in price. Scott provides a few examples of stocks that fell below 0.5 x 800 day MA and then rebounded but that is the weakest form of analysis possible. If I were to play that game, I would name many stocks that you would have bought based on the entry rule that are now down over 70%. I'd like to hear from anyone else who backtested the strategies.

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Ryan Herron April 22, 2014 at 11:23 pm

Scott,

Great mini series! thank you for filling in!

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