Werewolves of London

I am back from my unintentional hiatus which included a jaunt across the pond to London town. Some thoughts and pictures follow:

• Definitely an amazing place worth many a return. So much to see. So much history. 
• An international city, which is not the same thing as a foreign city by any means.
• We left runway number nine in Houston about 6 pm and touched down about 10 am at Heathrow--a tremendous airport, very efficient, clean, accommodating, . . . oh, and it is privately owned for profit . . .  weird how that works. 
• The formula for eastern-bound international travel was in effect--sleep as much as you can on the plane and then hit the ground running. Don't stop to rest much less sleep or you'll never recover. We followed this advice taking the train to Paddington Station then the Tube to Waterloo Station finished with a short walk to the hotel to check in and then get out on our way. 
• The three of us, me plus April and 10-year-old daughter Eva, made our way across the Thames to Parliament, "Hey look kids, there's Big Ben", grabbed sandwiches "to take away" by Westminster Abbey, ate in St. James Park watching the locals, strolled up to Buckingham Palace to gaze at the nonsense that is royalty, went up The Mall to Trafalgar Square, down Whitehall to the horse guards, continued on to Churchill War Rooms, did a loop on the London Eye, then back to the hotel to freshen up before dinner. We fancied a dip in the pool and sauna for a bit before calling an evening of it. A smashing first day. 
• Day two was a train ride to Bath. The Abbey was an incredible history lesson especially aided by the conversation with the volunteer guide. The Abbey has been in use for over a 1,000 years. Of course, if you want really old, you just have to go next door to the Roman Baths which date from 836 BC. There were many more things to see in this quaint town including the Pulteney Bridge, fine restaurants like Hall & Woodhouse where we ate, and a grocery store where we bought contraband. 
• Day three was limited since that is when the CFA conference began for me. We had a slightly eventful breakfast at the hotel where the manager was "being advised that" I was to eat breakfast with the conference downstairs while my "wife and daughter are quite welcomed to enjoy breakfast here in the restaurant". This polite little charade went on for a bit until he kindly relented, made sure I knew he was fine with the decision, curtsied, and left us to be. We had just enough time to take in Harrods. This place has everything including now my facial hair--I treated myself to a royal shave in the men's department. The rest of the day was conference for me, Hyde Park and Notting Hill for the girls. 
• Day four was solid conference for me. The girls took in Windsor Castle and environs. My evening did come with a gala event at the British Museum of Natural History. Dining under the diplodocus was interesting, but the tour getting there on the double-decker bus was just as good. 
• Day five was Saturday. The conference ended at noon. The three of us then made our way east along the Thames to Borough Market and past the Globe Theater and then Tower Bridge, which is not London Bridge. The new London Bridge is fairly nondescript and a few blocks away. Of course, the original London Bridge is in Arizona. I am one of what must be a small number of people who have been on both bridges within a three-month span. I can report confidently that neither is falling down. We walked around the Tower of London (lines were too long to get in), but we did get to see the impressive memorial (pictured below) that is on display using ceramic poppies to represent every British or Commonwealth soldier who died in WWI. We began a slow return through the financial district with an intermediate stop at Ye Olde Cheshire Cheese, which has been going strong since it was rebuilt in 1667. Since that pub didn't have WIFI, we headed toward some other options with hopes to watch the OU-Tulsa game, which would start at 5 pm local time. Luckily, we walked right in to find it on the main screen in the third pub we came to. There I sat and watched it with the British doppelganger of Marshall from HIMYM. 
• Day six was a car ride to, have I told you how awesome Heathrow is?, where I was treated to a very well prepared and free Bombay and tonic. Gotta love to shop at the duty free shop. 

Other thoughts:

• I heard more cussing by strangers on the street than any trip I could remember. We walked in front of a particularly saucy group of teens in Bath (in school uniforms and all) who must have just discovered the F word. 
• The eighties are back in Britain--at least the clothes are. Lots of stockings and hose, denim, guys who look like they are about to be saved by the bell, and sheer. Everything is sheer. 
• They don't understand coffee. 
• They are somewhere confusingly between automatic gratuity added and tipping voluntary. The level of service didn't seem to correlate (it wasn't noticeably better in tipping-voluntary situations) nor did it rise to a level bloody-well deserving the automatic gratuity in those situations.
• They are a very orderly, rule-based culture and they expect you to follow the rules. For example, I noticed a distinct lack of car honking despite the congested, confusing roadways.
• We had several English to English translation problems. In their defense many of those came from what are probably not first-language English speakers. Nevertheless, it was amusing to see how many people couldn't understand me despite us speaking the same language. American idioms like answering a waiter's question "Can I be of any further service" with "I'm good" resulted in a blank stare. At breakfast we never quite got the egg orders right despite numerous morning attempts. Related to the rule-based item above, trying to get made-to-order scrambled eggs was quickly and kindly met with a corrective reply that scrambled eggs were available on the buffet line. Problem was we didn't want those watery eggs. I restrained myself from having a full-blown "Five Easy Pieces" moment by politely asking for an omelet with nothing on it. Just an egg.
• We flew home on a 787 Dreamliner. The window tinting technology is awesome. No window shades. Just an adjusting dial with an up and down button. There are six settings ranging from full transparency to nearly full opacity (it made broad daylight look like a moonlit night). I want this in my home. I want this in my office. No more dusting blinds or drapes.
• We didn't get to visit an ancient race of people called the druids, which is to say we left a lot undone for another time.

Point of No Return

As Burton Malkiel points out in this article, popular sentiment is growing that the stock market is reaching or has passed fair value. As he also points out, beware your attempts to "time" the market--selling out to buy back in after the "inevitable" dip.

The stock market will go up and down and up and up and down and up and down and down and up and . . . Of course, history shows that those downs don't fully counter the ups. The composition of ups and downs in both frequency and magnitude matter. Historically it has been the case that the rides up are slower and longer while the trips down are sharper and shorter. I've discussed this before. While that pattern isn't always followed, the strong historical trend has been an upward bias in returns--the long-term trend in the stock market is positive.

Add to that the fact that the market is very efficient, and you are left with virtually no reason to try to time the market. Yet, many are not convinced. They still feel compelled to sell out with the belief (hope) the market will decline allowing them to buy back in cheaper. My advice then comes in the form of a question: What if you're wrong? What is your contingency plan for that?

It better be to find a point to throw in the towel and get back into the market. Of course, you'd like to know how to recognize you were in fact wrong. After all, just because the market has risen from where you exited doesn't mean it won't come down still.

Here is perhaps a little guideline. Looking at the monthly total returns for the S&P 500 since January 1970 through June 2014 (44.5 years or 534 months), I isolated all of the drawdowns for the index. I then ranked them and calculated the implied percentage gain for each. This last figure would be the amount the index would need to increase in order to overcome the drawdown. For example, if the market declines 25%, it would then need to increase 33% to get back to even. A 50% decline requires a 100% increase from that new low point. Here are all 36 drawdowns for the period charted:

Your reentry point might be once the market has gained some threshold amount above the point in which you sold out. Because the general trend is for the market to grow, you would want to buy back in once that threshold of growth has been achieved no matter how difficult it feels to do so. And it will feel difficult--you sold out at a lower point for a reason. Your complaint might be that just when you thought you were out, the market pulls you back in.

To give you some comfort, though, notice how rare very large drawdowns are. Couple that with the fact that over this time period (January 1970 to June 2014) the S&P 500 increased over 8,300%. Like I said, are you sure you want to time the stock market? If you do, consider that once the S&P 500 has increased about 20% from your exit point only five times in the past 44 years has it dropped so much that it would return to your exit point. And that drop needs to happen ASAP. The index's average growth over this period was about 10.4% per year or about .83% per month. You risk being left behind for good.

When it comes to beating the market, market timing as a strategy isn't even on the map. The implication is discipline beats (mythical) exceptional skill--most value added by professional financial advisers (perhaps as much as 90%) comes from simply finding appropriate asset allocations, fulfilling it with appropriate (not sensational) investments (styles and classes are more important than particular names and issues), and KEEPING with it in good times and bad.