When does market timing make sense?

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rocko
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When does market timing make sense?

Post by rocko »

These are turbulent times.

I have significant funds in cash ready to be put to work. Rather than act now I thought I'd wait for a significant sell off in stocks (5% or so) before adding to VTSAX and conversely, wait and see if a rate hike materializes before adding to VBTLX.

If neither occur by June, I'll act and fully invest in both funds.

Since these are long-term, core investments and the risk of doing nothing is only 90 days of no-growth in cash holdings, I don't see the harm. But then again, perhaps I am wrong to delay.

Please advise.
livesoft
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Re: When does market timing make sense?

Post by livesoft »

I would not wait to buy on a dip, but I would rebalance on a dip and, in particular, if a Really Bad Day (RBD) happened.

You will soon come to realize that these are not turbulent times. These seem to be pretty normal times to me.
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rocko
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Re: When does market timing make sense?

Post by rocko »

^ A really bad day? As defined by...?
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Sbashore
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Re: When does market timing make sense?

Post by Sbashore »

I agree. These times do not strike me as particularly turbulent. If you wait the 90 days you are just reinforcing the idea that it's a beneficial thing to do. I'd rather just take that particular gamble off the table. And that's all it is - gambling. Having said that I agree with Livesoft. If I looked at my AA and saw I was due for a rebalance, and a particularly down period presented itself, I'd take advantage of that, actually I have.
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JupiterJones
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Re: When does market timing make sense?

Post by JupiterJones »

"When does market timing make sense?"

When you know exactly what the market will do in the future and exactly when it will do it.

But since that's something you never really know--despite how much you might feel like you "know"--it follows that market timing never makes rational sense.

(Unless you're a Time Lord, of course.)
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Twins Fan
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Re: When does market timing make sense?

Post by Twins Fan »

When does it make sense.... only after the fact and IF it worked. :D

Say you wait until June, there is a 5% drop between now and then, and you jump in.... there is then another 5% drop after that. How do you feel then?

Unless your significant funds in cash came from a recent windfall, you have probably been sitting on cash for quite some time. The time to jump in was 2009 or anytime since then. You missed it already. :wink:

And, waiting to see if a rate hike materializes? Good luck with seeing and timing that.

I do agree that putting the cash in now or in June probably makes little difference in the long run. Some now and some in June maybe?... Or, some now, some in June, some in September, and some in December... Wait, what do we call that? :)
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Toons
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Re: When does market timing make sense?

Post by Toons »

rocko wrote:^ A really bad day? As defined by...?
I perceive it as a Really GOOD Day when stocks go into declining mode .It eliminates the "negative connotation.
It is a Good Day,,more shares for your money . :happy
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rocko
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Re: When does market timing make sense?

Post by rocko »

^ That's exactly my point.

Wait for a really bad day to buy more with my cash which turns it into a really GOOD day.

I think we're saying the same thing. Right?
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Sbashore
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Re: When does market timing make sense?

Post by Sbashore »

rocko wrote:^ That's exactly my point.

Wait for a really bad day to buy more with my cash which turns it into a really GOOD day.

I think we're saying the same thing. Right?
It might turn it into a really good day............................or not. Flip a coin. :happy
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Re: When does market timing make sense?

Post by Grt2bOutdoors »

When you are given the closing numbers in the days leading up to the actual event. However, that is totally illegal if proven factual.
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Re: When does market timing make sense?

Post by pkcrafter »

rocko wrote:^ A really bad day? As defined by...?
As defined by livesoft... I guess.

Anyway, it seems to me that you are letting your emotions get in the way to an extent that it might will cause you to make a costly behavioral mistake. I suggest you read this and then forget about timing, RBDs, etc.

http://www.bogleheads.org/wiki/Behavioral_pitfalls

If you worried about high valuations, then invest 50% now and 50% in a few months. As I mentioned earlier, your AA is low enough to handle downturns. If that happens, you just withdraw from bonds and let the equities recover. Think of it this way. A market downturn produces a loss in value of your equity shares, but it does not reduce the number of shares, so if you leave them alone, they will recover the value. If you sell in a drawdown, you lock in the loss because you don't have the shares any longer.

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rob
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Re: When does market timing make sense?

Post by rob »

JupiterJones wrote:When you know exactly what the market will do in the future and exactly when it will do it.
Insider trading and various market manipulation tactics work great BUT are illegal for regular people.... so either put it in and forget about it or break into x pieces and do over y months and forget about it.
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Clearly_Irrational
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Re: When does market timing make sense?

Post by Clearly_Irrational »

For normal markets and normal contributions it doesn't. All the evidence we have suggests that it doesn't work consistently over the long term.

If you are doing some sort of huge one time investment, then maybe it might be worth a little effort to pick the right day even though your chances of doing so are far less than perfect. Though even then you're probably better off just spreading it out over a few months if you're that worried about it.

There is maybe, possibly a way to predict when markets aren't "normal", in which case there could be a small loophole for market timing in those conditions. Even if true, it would be very challenging for most people to take effective advantage of the situation due to emotional decision making.
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rocko
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Re: When does market timing make sense?

Post by rocko »

pkcrafter: fantastic article on behavioral pitfalls. Thank you.
I never really considered that my psychology was the most critical factor in investing. I have. And it is.

Having owned up to that, I still am confused about the issue of market timing. I assumed MT meant trying to predict the future. But waiting to buy on a down day is analogous to waiting to buy a television this is on sale. It is a concrete event, no guess work.. and a wise buy.
Twins Fan
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Re: When does market timing make sense?

Post by Twins Fan »

It is guesswork in that, what if it goes up 10% before you see the 5% drop you're waiting for... or what if you get your 5% drop and then it drops another 5 or 10%. You don't know when the peaks or lows are until after the fact.

My personal opinion is, if we're only talking a few months time frame to put this money to work it will matter very little 10 years from now whether you put it to work in March or June of 2015... or even buying on the dips or whatever.

Which ever way you're more comfortable with probably matters more. Peace of mind and all.
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Re: When does market timing make sense?

Post by rkhusky »

rocko wrote:These are turbulent times.

I have significant funds in cash ready to be put to work. Rather than act now I thought I'd wait for a significant sell off in stocks (5% or so) before adding to VTSAX and conversely, wait and see if a rate hike materializes before adding to VBTLX.

If neither occur by June, I'll act and fully invest in both funds.

Since these are long-term, core investments and the risk of doing nothing is only 90 days of no-growth in cash holdings, I don't see the harm. But then again, perhaps I am wrong to delay.

Please advise.
Since the stock market rises on average over time, it is more likely that it will be higher in June.

Rather than cash, you should at least be invested in bonds - some fraction could be in short bonds. But you should really be invested in your asset allocation, then rebalance if stocks rise or fall significantly.

Here is one place to use market timing: you are invested in mutual funds, it is 3:45 eastern time and you notice that the market has dropped by 2%, you are currently overweight in bonds according to your AA, sell some bonds and buy stocks at 3:55.
RCL
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Re: When does market timing make sense?

Post by RCL »

Twins Fan wrote: Say you wait until June, there is a 5% drop between now and then, and you jump in.... there is then another 5% drop after that. How do you feel then?
I guess i need to go back to Boglehead school; in the above scenario, I would think I got lucky and only experienced a 5% drop and not a 10% drop of my investment by waiting. Would a 5% difference on a buyin have much effect on a portfolio in the long run? Probably not.
I have always bought on dips from $$ that are sitting in a .99% (currently) Ally acct. especially if I am near a re-balancing point.
leonard
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Re: When does market timing make sense?

Post by leonard »

Never.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Twins Fan
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Re: When does market timing make sense?

Post by Twins Fan »

RCL wrote:
Twins Fan wrote: Say you wait until June, there is a 5% drop between now and then, and you jump in.... there is then another 5% drop after that. How do you feel then?
I guess i need to go back to Boglehead school; in the above scenario, I would think I got lucky and only experienced a 5% drop and not a 10% drop of my investment by waiting. Would a 5% difference on a buyin have much effect on a portfolio in the long run? Probably not.
I have always bought on dips from $$ that are sitting in a .99% (currently) Ally acct. especially if I am near a re-balancing point.
Yes, you do. You were waiting to buy on a dip and bought at a 5% drop when you could have bought at a 10% dip... if one could actually time these things. Or, kept sitting in cash waiting for a dip and missing all the rises before the dip.

Of course, had you not partial quoted me you would have just agreed with me where I said it likely matters little in the long run and if buying on the dips makes one more comfortable... :wink:
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Re: When does market timing make sense?

Post by LLTF1836 »

I would advise you to be more concerned about missing out on the good days than trying to avoid the bad days. Take a look at this old article for some startling information on what happens when you miss out on a few good days:

http://www.businessinsider.com/cost-of- ... 500-2014-3
livesoft
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Re: When does market timing make sense?

Post by livesoft »

LLTF1836 wrote:I would advise you to be more concerned about missing out on the good days than trying to avoid the bad days. Take a look at this old article for some startling information on what happens when you miss out on a few good days:

http://www.businessinsider.com/cost-of- ... 500-2014-3
Ha! Ha! The JP Morgan note did not say what is well known: Missing the 10 worst days is even better than not missing the 10 best days. Here's an old thread on the subject: viewtopic.php?f=10&t=60207
and this: http://mebfaber.com/2008/03/27/noise-the-10-best-days/
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ResearchMed
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Re: When does market timing make sense?

Post by ResearchMed »

livesoft wrote:
LLTF1836 wrote:I would advise you to be more concerned about missing out on the good days than trying to avoid the bad days. Take a look at this old article for some startling information on what happens when you miss out on a few good days:

http://www.businessinsider.com/cost-of- ... 500-2014-3
Ha! Ha! The JP Morgan note did not say what is well known: Missing the 10 worst days is even better than not missing the 10 best days. Here's an old thread on the subject: viewtopic.php?f=10&t=60207
and this: http://mebfaber.com/2008/03/27/noise-the-10-best-days/
That may be (and I haven't gone to the link), but it is *definitely* easier to "not miss the 10 best days" [just stay invested] than "missing the 10 worst days" [action plan is what??]

:happy

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livesoft
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Re: When does market timing make sense?

Post by livesoft »

ResearchMed wrote:That may be (and I haven't gone to the link), but it is *definitely* easier to "not miss the 10 best days" [just stay invested] than "missing the 10 worst days" [action plan is what??]
Any money I had in a bond fund would miss a worst day in equities. That leads to an action plan.
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ResearchMed
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Re: When does market timing make sense?

Post by ResearchMed »

livesoft wrote:
ResearchMed wrote:That may be (and I haven't gone to the link), but it is *definitely* easier to "not miss the 10 best days" [just stay invested] than "missing the 10 worst days" [action plan is what??]
Any money I had in a bond fund would miss a worst day in equities. That leads to an action plan.
"Yes, but..."

Bond fund monies also miss the 10 best days.

Apples and oranges.

Money in a piggy bank or tin cup also does that.
That's not the only reason you are using a bond fund, to miss the worst 10 days.
Presumably you also want to miss the long downward slides, right?

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mmmodem
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Re: When does market timing make sense?

Post by mmmodem »

If you are concerned with the turbulent times of today. What makes you think you will feel better about the turbulent times of June? If putting in all your money today makes you feel queasy. Consider that you will feel the same in June plus you would've wasted 3 months. You might want to stop finding out what is the wrong thing to do or what is the right thing to do. Why not do what makes you feel better instead of what is best for the money and dollar cost average?
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Re: When does market timing make sense?

Post by ShiftF5 »

Buy Low -- Sell High.

It sounds sooooooooooo easy in theory.

It's a bit tougher in real time.
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Re: When does market timing make sense?

Post by Aptenodytes »

rocko wrote:pkcrafter: fantastic article on behavioral pitfalls. Thank you.
I never really considered that my psychology was the most critical factor in investing. I have. And it is.

Having owned up to that, I still am confused about the issue of market timing. I assumed MT meant trying to predict the future. But waiting to buy on a down day is analogous to waiting to buy a television this is on sale. It is a concrete event, no guess work.. and a wise buy.
But buying TVs and buying stocks present very different risks.
Image
I don't mind waiting for the TV to go on sale, but I don't wait for stocks to go on sale.
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Re: When does market timing make sense?

Post by swaption »

rocko wrote:the risk of doing nothing is only 90 days of no-growth in cash holdings, I don't see the harm.
What if the market goes up 10%, then you have lost 10%. Seems like a risk to me.

Problem is many will often view risk in asymmetric terms. A few years ago, when everyone was still stung by the financial crisis, there were often posts about people being in no hurry to buy a house. Be it 3 months or 3 years, that cash became very expensive as the market kept running away from people.
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Re: When does market timing make sense?

Post by MathWizard »

I'm not sure it ever makes sense, unless re-balancing on huge drops in the equities market,
per my IPS is considered market timing. (I can't say that this is ideologically pure re-balancing.
Though I am re-balancing, I do think of it as buying stocks "on sale".)

My definition of turbulent times (in the US):

1861-1865 (and beyond for the south)

1929 through the 30's

1939-1945

Much of the 60's: protests, assassinations, Berlin wall going up, global thermonuclear war seemed imminent

Sept 11,2001 through early 2000's

Oct 2008-2009

Now is not so bad.
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Re: When does market timing make sense?

Post by HomerJ »

Twins Fan wrote:Say you wait until June, there is a 5% drop between now and then, and you jump in.... there is then another 5% drop after that. How do you feel then?
Say you wait until June, and the market goes UP 5% between now and then, and you finally jump in... and then there's a 10% drop after that... How do you feel then?
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HomerJ
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Re: When does market timing make sense?

Post by HomerJ »

rocko wrote:^ That's exactly my point.

Wait for a really bad day to buy more with my cash which turns it into a really GOOD day.

I think we're saying the same thing. Right?
Except the market may rise another 5% over the next 2 months, and then that 2% one-day drop isn't really that good a day for you. To use your analogy about TVs... What if TVs go up 20% in price over the next few months while you are waiting, and then FINALLY, there's a 5% sale... Not a great deal then.

Markets go in spurts... It may rise 15% over the first 6 months, then drop 5% over the next 6 months, and everyone will say... "Hey that was a pretty decent year... We're up 10%".... but not you... You're down 5%. You may have missed the whole 15% rise.

You say... "There's no real harm sitting out a few months", but there could be a full 15% difference in how much money you have at the end of the year.
Last edited by HomerJ on Wed Mar 11, 2015 3:49 pm, edited 1 time in total.
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rocko
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Re: When does market timing make sense?

Post by rocko »

I bow to the crowd.

I just put 50% of my cash to work.
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Re: When does market timing make sense?

Post by Twins Fan »

Nicely done... and hey, it was even a little bit of a down day! :happy
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Re: When does market timing make sense?

Post by Caduceus »

I have a great knack for market-timing, which is why I have stopped doing it. Let me explain.

You might think it is rare, but I once placed a limit order for $0.10 less than the trading price for VGK, thinking that the chance of it forever going up from that price was slim. Well, I happened to call the market bottom, except I was off by the $0.10 in my limit order! The next 7 months, I didn't have another chance to buy in at that same price.

So, my potential gain was $0.10 x 100 shares, and my actual "loss" was $1.37 x 100 shares + any lost interim dividends.
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Re: When does market timing make sense?

Post by ogd »

rocko wrote:I bow to the crowd.

I just put 50% of my cash to work.
We're with you rocko. Not just in spirit but in money -- if any of us thought stocks or bonds will ever become available at a lower price, the only reasonable thing to do would be to sell them right now, taxes be damned.

We might be one step further actually -- I'm not selling 50% of either asset just in case, either, but the behavioral benefits of splitting investments gradually are hard to dispute.
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