Timing the Market

 "Don't try to time the market" is some of the most frequently given advice to beginner investors. I decided to do some testing of the theory against a frequently discussed strategy: "buy the dip". I backtested investing in Apple from February 24, 2020 to February 8, 2021. I assumed that one investor (the anti timer) bought one share at the opening price every Monday, while a second investor (the dip buyer) bought one share at the opening price on the first day following a down day (a day with a closing price lower than the previous close). The logic here is that an investor might identify a stock they are bullish on over the weekend. The anti timer would simply buy as soon as possible, while the dip buyer would wait for the price to decline. If the Friday before that weekend was a down day, then I assume both the anti timer and dip buyer would buy at the Monday opening price. I ignored weeks with a market holiday, and weeks with an ex-dividend date. 

The anti timer outperformed the dip buyer in this analysis. The dip buyer paid a lower price in only six of the 39 weeks. The anti timer paid a total of $3,896.64, while the dip buyer paid $3,908.43 for the 39 shares. The close on February 12, 2021 (the final week of this analysis) was 135.37, making the 39 shares worth $5,279.43. Ignoring dividends, that is a 35.5% gain for the anti timer, and a 35.1% gain for the dip buyer. Not a huge difference. The logic against buying the dip is that equities generally increase over time, and the dips are unpredictable, so it is best to simply buy as early as possible. While this analysis confirms that, I wouldn't rule out the possibility that a more sophisticated dip buying strategy may be effective. This might be a topic for a future post. 

The six instances of the dip buying strategy paying a lower price are in bold.

Date	Monday Open	First Dip Open
Feb 24, 20	74.32	71.63
Mar 2, 20	70.57	70.57
Mar 9, 20	65.94	65.94
Mar 16, 20	60.49	61.85
Mar 23, 20	57.02	57.02
Mar 30, 20	62.69	62.69
Apr 13, 20	67.08	71.85
Apr 20, 20	69.49	69.49
Apr 27, 20	70.45	71.18
May 11, 20	77.03	78.04
May 18, 20	78.25	79.17
Jun 1, 20	79.44	79.44
Jun 8, 20	82.56	86.18
Jun 15, 20	83.31	87.85
Jun 22, 20	87.84	87.84
Jul 6, 20	92.5	94.18
Jul 13, 20	97.27	94.84
Jul 20, 20	96.42	96.42
Jul 27, 20	93.71	93.71
Aug 10, 20	112.6	112.6
Aug 17, 20	116.06	116.06
Aug 24, 20	128.7	126.18
Aug 31, 20	127.58	127.58
Sep 14, 20	114.72	114.72
Sep 21, 20	104.54	104.54
Sep 28, 20	115.01	113.79
Oct 5, 20	113.91	113.91
Oct 12, 20	120.06	121
Oct 19, 20	119.96	119.96
Oct 26, 20	114.01	114.01
Nov 9, 20	120.5	120.5
Nov 16, 20	118.92	118.61
Nov 30, 20	116.97	122.6
Dec 7, 20	122.31	122.31
Dec 14, 20	122.6	122.6
Jan 4, 21	133.52	133.52
Jan 11, 21	129.19	128.5
Jan 25, 21	143.07	139.52
Feb 8, 21	136.03	136.03
Total	3896.64	3908.43

Monopoly Strategy

 Most people think it is all about Boardwalk and Park Place, but designing an algorithm for winning Monopoly is fairly complicated. Listed below is every property along with its location on the board, price, rent, price/rent ratio, and intrinsic value, which is the price the property would cost to make the price/rent ratio equal 12.14 (the average for all properties). For the utilities, I assume the dice roll is seven (which should be the average when rolling two dice). The big caveat here is that I didn't consider the various ways of increasing the value of a property (getting both utilities rather than one, multiple railroads, monopolies, houses, and hotels). Some might argue that additional value should be assigned to Mediterranean, Baltic, Park, and Boardwalk because they only require two purchases to get a monopoly. 

Property	Location	Price	Rent	Price/Rent	Intrinsic Value
Mediterranean Avenue	1	60	2	30	24
Baltic Avenue	3	60	4	15	49
Reading Railroad	5	200	25	8	303
Oriental Avenue	6	100	6	17	73
Vermont Avenue	8	100	6	17	73
Connecticut Avenue	9	120	8	15	97
St. Charles Place	11	140	10	14	121
Electric Company	12	150	28	5	340
States Avenue	13	140	10	14	121
Virginia Avenue	14	160	12	13	146
Pennsylvania Railroad	15	200	25	8	303
St. James Place	16	180	14	13	170
Tennessee Avenue	18	180	14	13	170
New York Avenue	19	200	16	13	194
Kentucky Avenue	21	220	18	12	218
Indiana Avenue	23	220	18	12	218
Illinois Avenue	24	240	20	12	243
B. & O. Railroad	25	200	25	8	303
Atlantic Avenue	26	260	22	12	267
Ventnor Avenue	27	260	22	12	267
Water Works	28	150	28	5	340
Marvin Gardens	29	280	24	12	291
Pacific Avenue	31	300	26	12	316
North Carolina Avenue	32	300	26	12	316
Pennsylvania Avenue	34	320	28	11	340
Short Line	35	200	25	8	303
Park Place	37	350	35	10	425
Boardwalk	39	400	50	8	607
Average				12.14

People might be surprised that Boardwalk did not come in as the best deal, but is tied with Park Place and the railroads behind the best buys on the board: the utilities. I charted the properties by location and price/rent below.

The instinct that the deals improve as one moves toward the end of the board is generally true, but one ironic thing to point out: Mediterranean Avenue (by far the worst deal) is on square 1, so when playing with two dice it will actually on average take longer to land on than any other property on the board.

Buying Teslas with Bitcoin

 A brief comment must be made about recent predictions for bitcoin to become some kind of international currency standard. Personally, I've never managed to get excited about a nonproductive asset with no usefulness outside of its perceived value, but a lot of people have gotten excited about it, and made a lot of money with it. Tesla announced last month that it purchased $1.5 billion worth of bitcoin, and plans to start accepting it as payment. Below is a chart comparing bitcoin futures to the Euro/Dollar over the last year. 

What I'm trying to understand is the fact that predictions for bitcoin adoption seem to be tied to its increasing value. For normal currencies, deflation is usually seen as a cause for major concern. One could imagine that if everyone is buying their Teslas with bitcoin, Tesla will have to continually decrease their prices (as the value of bitcoin rises). This will cause buyers to hold off on purchases. Why pay 1 bitcoin for a Tesla this week if it will probably only cost me .9 bitcoin next week? Meanwhile, Tesla is further stressed from the other side of the equation as the price it is now trying to sell cars for is less than what it paid workers and suppliers to build them. By the way, I originally planned to chart a few other major currencies for comparison, but they appeared to have lines pretty much identical to the Euro. 

Housing Bubble?

 The chart below shows the yearly percent change in the Case-Shiller Minneapolis Home Price Index from 1990 to 2020 (using December to December numbers). The 10.2% increase in 2020 was big, but four of the 31 years analyzed had even bigger increases. The 2020 increase can still be viewed as unique, given that it happened during a recession. The other big increases happened in 2012, during the recovery from the Great Recession, and 1999 to 2001, around the time of the Dot-com bubble. The mean yearly change is 3.92%.

Meaning of The Killing of a Sacred Deer

This post contains spoilers for The Killing of a Sacred Deer.

Some have identified the meaning of Yorgos Lanthimos' movie The Killing of a Sacred Deer as detailing a tragedy of karmic fate. Steven caused the death of Martin's father; the movie has us watch the painful march toward an inevitable rebalancing of this transgression, despite all attempts to deny it or avoid it. In reality, the meaning is more complicated than this. The Killing of a Sacred Deer is about the hollowness of vengeance, and the search for meaning in familial relationships. The eating habits of the characters are key to demonstrating this. When we see Steven and Martin eating together at the diner, Steven asks Martin if he is going to eat his fries. Martin explains that he really likes fries and is saving them for last. Steven says that he does the same thing. Later in the movie, Martin is eating spaghetti, and recalls to Anna that he was once told that he eats spaghetti just like his father does. Martin explains that he later found out that everyone eats spaghetti the same way, and that he was even more disappointed by this realization than he was when learning that his father had died. Finally, at the end of the movie, we see the Murphy family eating at the diner while Martin sits at the counter. We see Kim eating her fries without a bite taken from her hamburger. It's easy to view Martin's role in the movie as a messenger from the karmic forces of the universe, but things might make more sense if we view him as more of a protagonist. Martin wanted Steven to replace his father. He took their commonality in the way they eat fries as a sign that such a relationship was warranted. Martin believed that with Bob dead, he would be able to take Bob's place in the Murphy family. The final scene illustrates the hollowness of Martin's vengeance. The family remains together, and Martin remains separate, sitting alone at the counter, and furthermore, vexed that Kim retains her place in the family despite the fact that she doesn't eat fries the way her father does.