Lowell Miller's Books

Research on Safe Withdrawal Rates

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JWR1945
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Lowell Miller's Books

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hocus2004
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Post by hocus2004 »

"I have seen people on discussion boards ascribe quite a bit more generality to many academic findings than is justified.

Quote:

For years, academic researchers had been holding up technical analysis...as kind of a laughing stock....A number of academicians undertook studies to show the valuelessness of technical analysis, though upon closer inspection one could see that these studies were merely an exercise undertaken to get published...since no technical analyst of even intermediate skill would make use of the signals and patterns that the academics has "proven"￾ to be of no value."


I think you are making a good point here, JWR1945.

I personally do not possess the skill with numbers needed to make good use of technical analysis. My guess is that it would be extremely difficult and perhaps even impossible for most middle-class investors to use technical analysis tools to profit from short-term timing strategies. But I also think that it is possible that people like William Bernstein overstate the case a bit in rejecting technical analysis out of hand.

MannFM11 has posted here a few times, but his usual posting place is the board at PrudentBear.com. He often posts analyses employing Elliot Wave counts. He ALWAYS includes cautionary language, indicating that all that the counts show is probabilities of prices breaking in one direction or the other, not certain signals that they will do so. Most of what I know about Eliot Wave theory I know from reading his posts. I do not know nearly enough to say that there is any merit to Eliot Wave theory. But I will say that MannFM11 strikes me as being an intelligent and informed person, and I enjoy reading his analyses even though I personally do not make use of the tool.

I doubt that I ever will make use of technical analyses of the market. I think that short-term timing would be very hard to pull off, and that perhaps it really is impossible to do so profitably. But I also think it is so that some academics go too far in their claims as to whether there is really proof showing that it can never work. The truth is probably that a lot of technical analysis tools do not work, but that there may be some tools that can provide an investor useful insights from time to time. It never hurts to have an open mind.
unclemick
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Post by unclemick »

I freely admit I don't have an open mind - thirty years having left a few battle scars. I haven't read Lowell Miller (didn't read Bernstein's Four Pillars till this year).

One thing I've observed - perfectly good stocks/sectors will often drift into the 'value' range (however you define it) for no explicable reason and the technical cats will will often be the first to identify this. Micheal Burke comes free of charge via my Moneypaper which I use for my DRIP stocks and often identifies stocks/sectors to look into - with my Mergent's of course.

Bernstein (although he'd probably dispute this) could - with admitedly a huge stretch - timed me into REIT's with his 'falling REIT correlations' - considered an academic - not heaven forbide technical indicator.

Sometimes value and technical coincide.

It takes me 2-3 years to buy via DRIPs/DCA. And 7-10 years is a short term investment. Long term is when I put the stock certificate in the safety deposit box for the executor of my will.
JWR1945
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Post by JWR1945 »

Lowell Miller is a believer in having a lot of diversification. In The Perfect Investment, he identified ten stocks as the absolute minimum holding, preferring twenty or more to be comfortable. In addition, he recommended equal weighting by dollars.

From page 156 of The Single Best Investment:
If you don't want to hold the thirty or forty stocks that satisfy my personal comfort level, you can reduce that number...I think ten stocks are too few if you want to have adequate diversification among industries, cap size, and nationality. Fifteen to twenty carefully chosen stocks will probably provide enough diversification to achieve the goal of the SBI [Single Best Investment] program...
He proceeds to make this important remark.
Certain categories lend stability to a portfolio without compromising return, and I recommend that you include as much of these as you would include of fixed income in a "balance" portfolio. In other words, about half of your portfolio should comprise real estate, utilities and the highest-yielding industrial stocks that are also high-quality dividend-growth items....In any event, experience has taught me that positions should always be equally weighted since you never know in advance which will be the best and worst stocks.
Remember that John Bogle has suggested that individuals with sufficient capital create their own equivalent to a stock index fund (e.g., the S&P500) using fifteen carefully selected stocks. He made his suggestion on pages 292 and 293 of Common Sense on Mutual Funds. It was for tax reasons. He suggests weighting by capitalization.

Lowell Miller considers bonds to be significantly inferior to stocks, so much so that he recommends against holding any bonds whatsoever. He did not mention inflation-indexed securities such as TIPS and ibonds. They were still new in 1999. He mentioned only conventional bonds at a fixed interest rate. Nor did he mention the possibility of deflation, the one situation in which conventional bonds would stand out. It is also the one situation that the Federal Reserve Board of Governors tells us that they will never allow.

My favor quotes from The Single Best Investment involve asset allocation, starting from page 147.
In the investment world today, there is one buzzword (and by buzzword I mean "substitute for thought or analysis")....asset allocation.

The purveyors of this term will tell you that there are a broad number of different so-called asset classes, that these asset classes behave in different ways at different times, that we can never know ahead of time which...will be "the best"...and that the proper way to construct a portfolio is to acquire assets in all the classes in varying proportions....Risk is diminished...and returns will be good in an average sort of way.

Nevertheless, the asset allocation mentality is rather aligned, in my mind, with the gambler who bets every number.

...it's clearly possible to apply intelligence and eliminate certain asset classes...Blind adherence to asset allocation normally take little account of valuations either. Asset allocators will assert that you should have, for example, 50% growth stocks and 50% value stocks in the stock section of your allocation... without every bothering to discern...whether those two categories are especially cheap or dear at the moment.
One of the things that really undermines the concept here is that most asset allocators include fixed income as an asset class...Unless the world turns upside down in the next fifty years and all becomes opposite, you should not have any bonds in your portfolio.

I added TIPS to my holdings a couple of months ago.

Have fun.

John R.
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Post by JWR1945 »

unclemick wrote:Sometimes value and technical coincide.
This is in agreement with what IBM had concluded about software and what Lowell Miller found out about his technical indicators.
We tried again, this time attempting to employ a principle...[from] IBM: information is more valuable when it is reinforced by the same conclusion emerging from different algorithms...the moment in which multiple signals all come to the same conclusion and all arrive at the same time.

We finally got some good answers...some of the kinds of answers that we were looking for...
Have fun.

John R.
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Post by JWR1945 »

Lowell Miller started out as a hyperactive stock trader with a computer. At least, he leaves that impression.

In The Perfect Investment, copyright 1983, he talks about using a computer to find a hidden gem in an obscure corner of Wall Street. He looked at prices as telling us more about the people buying and selling a stock than about the companies themselves. He identified stocks that had crashed, dominated by emotional selling and falling to a level far below any reasonable valuation. He waited until after they had hit their bottom and begin climbing once more. He used historical results and statistics to reinforce the discipline needed to hold for the long-term. For him, the long-term was no less than one year and could last even as long as five years.

His approach undoubtedly worked well at the time, but the necessary conditions are not generally available today. They may return in the future, but only when price-to-earnings ratios of 8 and below are commonplace and when the price-to-earnings ratio of the overall market is 15 or lower.

His rules required you to limit yourself to stocks that had fallen to 20% to 25% of their previous 5-year highs with little, if any, reductions of earnings. Larger companies such as DOW stocks and more stable companies such as utilities did not have to fall as far. Companies had to have clearly identifiable assets. They had to show signs of life, a dividend reinstatement or increase being among the best. It had to be clear that the company's products were still in demand, not becoming obsolete. There had to be technical signs of a bottom and the start of an upward trend.

In short, he was looking to find conditions almost identical to those right after the crash of 1929. He made sure to buy only the survivors. Central to his approach is understanding the human factors as buyers and sellers overreact to their emotions.

Serious mispricings happen routinely, making bargains available even today, but not nearly so often as when valuations are very low.

Back in those days Lowell Miller did not consider dividends as anything more than a sweetener, a plus factor. He was interested in rapid price increases and rapid turnover.

Have fun.

John R.
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Post by JWR1945 »

I had intended to insert the following post here. Then I decided that it was important enough to be presented as a stand alone.

The Truth about High Dividends dated Mon Aug 16, 2004.
http://nofeeboards.com/boards/viewtopic.php?t=2886
Have fun.

John R.
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Post by JWR1945 »


unclemick
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Post by unclemick »

It's amazing how many - blank looks I have gotten over the last ten years when I tell people my fundamental stock technique is:

BUY HIGH, SELL LOW!

The eyes glaze over - when I start to explain I'm talking div. streams and div growth.

I appear to be general agreement with Mr. Miller. Although I watch taxes in selling and don't always sell promptly when they fall off the dividend trolley.

Then are the ones that really tick me off - Mr Market has a bad habit of sending stocks up after a big div cut (more $ for the business theory) almost always right after I sell - heh,heh - I try not to look back.
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Post by JWR1945 »

after a big div cut (more $ for the business theory)
This is one area in which the academics really blew it.

They thought that dividend increases were bad because they take money away from a company. It turns out that dividend increases are a great sign. The company is making so much money that management can afford to send more to the owners without hurting performance.

Any plus after a big div cut is limited to whether the company is likely to survive. It has to be in trouble for survival to be at stake. Forget about the first two to three months after the cut. Look again after two or three years to see what happened. Wall Street experts are known for outsmarting themselves.

Have fun.

John R.
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