Bogleheads

[djw]

While I was soaking in the bathtub this evening (as Archimedes did many centuries ago) I got to thinking about how much stock index funds have risen from their March, 2009 lows. I decided it might be fun to compare this to what happened after the last major market bottom in 2003 (coincidentally, also in March).

What I discovered was that each of my stock index funds (VIVAX, VIGRX, VISVX, VISGX, VGSIX, VEURX, VPACX, and VEIEX) rose in nearly a straight line almost exactly as much percentage-wise in 2003, and then they leveled off.

In 2003 it took about 8 months to make a recovery which was similar to today's, while it's only taken 3 months this year for the same percentage bounce off the bottom. In other words, the current price recovery is more than twice as steep in 2009 as it was in 2003.

In 2003, each of these funds leveled off for about 8 months before it resumed climbing at a more gradual rate until it reached pre-crash levels.

Go ahead and lecture me about why I should ignore this analysis, leave my investments alone, and go read a good book or take a walk. However, while I'm not confident enough in this analysis to sell everything on Monday and wait 6 months before I consider getting back in, I am contemplating selling some percentage of my stock index funds, perhaps as high as 50%, to lock in my current gains off the bottom.

Worst case scenario is that 6 months from now the fund prices will be much higher and I'll have given up half of my potential gain. If prices are about the same as today, no loss. If prices are significantly lower at some point during the next 6 months, I'll be able to buy back in at a lower price, perhaps 10% less, 20% less, or even lower compared to now.

Several financial commentators whom I respect have been talking about a "W"-shaped recovery. When I contemplate the steepness of the recent up trend and consider the huge uncertainties which are perhaps momentarily forgotten but still lurking beneath the surface, the possibility of another down leg in stock prices isn't difficult to imagine...

[bigH]

If your time frame is long and you believe that markets trend upwards, why not rebalance if the market does drop instead of selling then buying back? If it doesn't drop you win!

I never understood why people don't see rebalancing as an easier and proven way to manage risk than market timing.

[MekongTrader]

[spam]

You did not mention the destination of your transaction. This signifies the difference between a negative and positive movement. In one, you are escaping, or moving away from an event like an explosion. In the other you are moving towards a specific destination. Attraction vs repulsion? You get the idea.

Anyway why not research the destination a bit. I recently rebalanced to a dollar value (not a percentage) which pushed more money into fixed income. Of this I bought a stake in TIPs, a Global Bond Fund (7%), and Junk (9%) because the yields were high. If inflation resumes, this money will be destined for TIPs. Meanwhile, the bulk of it is enjoying higher yields until then.

Another play might be to investigate ways of benifiting from reflation. I did this by buying energy and leveraged mid-caps in March.

Moderation is the safe word for me. Why not visualize a plan where you rebalanced to a specific dollar amount (say taking 20% off the table) and then simply maintain that dollar amount over the next calander year. You could work it as an inflationary hedge.

[jeffyscott]

Worst case scenario is that 6 months from now the fund prices will be much higher and I'll have given up half of my potential gain.

If you do sell and that "worst case" occurs, what do you do then?
_________________
Jeffy

press on, regardless - John C. Bogle

[Tramper Al]

[bigH]

[neverknow]

I have noticed the similarity with 2003, also.
I also manage equities to a constant dollar amount, rather then a percentage.
Selling is no sin - as you say, you are capping potential gains, as well as potential losses.

However, that said, I think it is also true, that you sell, when the reason you bought in the first place is no longer true. Does this apply, to what you are thinking about?

Sure, a person could make a reasonable guess that we have seen the capital gains, and perhaps the market at best will lay flat for 6, 8, 12 months - and then dive or soar. No one knows the future, but this seems as reasonable a guess as any other, to me.

Why did you buy those funds that you did? What is the goals for that money, over what time horizon? What does the risk/reward look like to you - again, over what time horizon, and how does that time horizon compare to the time horizon you have for your goals. Are there better opportunities?

These are some of the things I consider. Looks to me like upside is potential 10% and downside is potential 10% in the 3 to 6 month time horizon (for just about every asset class). I am allocated how I perceive to be the best opportunities - risk/reward, goals - for a 5 to 10 year time horizon. This may change going forward, but for me right now - the reason why I bought in the first place, what I bought, has not changed.

Note: anything could change - from blatant market timing to my lifespan time horizon (because a health issue turned up).
FWIW
neverknow

[TheEternalVortex]

Imagine that you skipped the past year, and went from S&P 500 at 1400 last May to 950 now. Would you still choose to *sell*???

[bob90245]

My recommendation is to sell. Then read a book.

Seriously, if this money isn't needed for 10 or more years, then you should first formulate comprehensive plan for all market conditions.

[Stonebr]

I think you should sell everything now, then start a new thread asking when you should buy back.

And that's the tricky part of timing. Even if you get it right you have another timing problem to deal with immediately.

[spam]

[chaz]

[gotherelate]

[gotherelate]

FWIW, I started selling my TSM a few months ago. But I am doing so because I want to gradually shift my asset allocation away from equities (I've been retired for four years now). I set up an automatic monthly exchange into TBM that should get me where I want to be in about ten years or so.

-Grandpa
_________________
I'd rather see where I'm going than see where I've been.

[Imperabo]