Market timing

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Cramerica
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Market timing

Post by Cramerica » Wed Dec 23, 2015 5:03 pm

When do you guys decide to actually trade an index fund?

If you are doing lump sum, how do you decide what day you actually buy the index? Do you just do it ASAP, randomly, on a bad day?

If you are doing DCA, same question. Do you DCA on the same day each month, randomly, on a bad day?

swl
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Re: Market timing

Post by swl » Wed Dec 23, 2015 5:07 pm

I dump in half ASAP and the other half 181 days later (TDA has a 180 day minimum holding period on commission free mutual funds) while rebalancing if needed.

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Phineas J. Whoopee
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Re: Market timing

Post by Phineas J. Whoopee » Wed Dec 23, 2015 5:44 pm

I'm going to answer the question you asked, how do I do it, and explain why.

There are two scenarios:

First, I have new money to invest, mostly because I live below my means and I just got my paycheck:

I invest money as soon as I have it.

Second, I have good reason, rebalancing, or reallocating as I explained in this post with answers to followup questions, to trade from one fund to another:

I trade as soon as I determine my carefully-crafted plan tells me to do so. I don't stand around waiting and I don't attempt to time the market.

Now I'll explain why.

I can't predict short or medium term changes in market prices any more than anybody else who isn't illegally trading on inside information can.

If my asset allocation is appropriate for me, and I come into money beyond what I need to meet current expenses, I deploy it immediately into the allocation. If I don't, I'm temporarily out of balance.

If I determine my asset allocation is inappropriate, and identify a more-appropriate one, I move immediately from less good to more good. I see no reason to linger in an inappropriate allocation when I've identified a better option. Obviously such decisions should be made after due deliberation, such as, for example, after settling on a well-reasoned Investment Policy Statement and crossing one of its thresholds.

There exist active bogleheads.org posters, whom I respect, who say one should always dollar cost average. I disagree, for the reasons in the paragraph immediately above.

If one is investing new money, or rebalancing, or reallocating, and is fearful of either losing, or of losing out, and is unwilling to move all at once, I and some others suggest it may be an indication that the new allocation is not appropriate, and the plan should be reconsidered before implementation.

I do agree with some others that if, in fact, the new allocation is more suitable, but one can't bring oneself to change all at once, it's better to move gradually from less-good to more-good than never to move at all.

PJW

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BolderBoy
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Re: Market timing

Post by BolderBoy » Wed Dec 23, 2015 10:31 pm

Cramerica wrote:If you are doing lump sum, how do you decide what day you actually buy the index? Do you just do it ASAP, randomly, on a bad day?
As soon after I get the money as I can.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

red5
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Re: Market timing

Post by red5 » Thu Dec 24, 2015 5:47 am

Cramerica wrote:When do you guys decide to actually trade an index fund?

If you are doing lump sum, how do you decide what day you actually buy the index? Do you just do it ASAP, randomly, on a bad day?

If you are doing DCA, same question. Do you DCA on the same day each month, randomly, on a bad day?
Similarly to the above posters I purchase as soon as I have the money.

I always make my full IRA investments at the beginning of the year. It just so happened that a couple of times it would be that the markets were up 1% or so on the first day of trading and this made me feel bad about making a purchase. So I would try to wait it out a day or two but the market just kept going up. When I finally made my purchase the market was a couple of percentage points higher than it would have been had I done it on that first day of trading.

Of course this is a behavioral issue that I was dealing with. To take out the emotion of making the trade I made a rule that I will make my purchases as soon as I can. For an IRA that would be the first day of trading.

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Toons
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Re: Market timing

Post by Toons » Thu Dec 24, 2015 5:51 am

Whenever the mood strikes me and I have the cash.
Time,Not Timing :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Cramerica
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Re: Market timing

Post by Cramerica » Thu Dec 24, 2015 9:57 am

red5 wrote:
Similarly to the above posters I purchase as soon as I have the money.

I always make my full IRA investments at the beginning of the year. It just so happened that a couple of times it would be that the markets were up 1% or so on the first day of trading and this made me feel bad about making a purchase. So I would try to wait it out a day or two but the market just kept going up. When I finally made my purchase the market was a couple of percentage points higher than it would have been had I done it on that first day of trading.
Makes sense but in general stocks don't rise that quickly. Even if they are on a rally, there are usually days or even weeks when there is at least a 1-3% decline. It seems the volatility often allows for better buying opportunities later.

livesoft
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Re: Market timing

Post by livesoft » Thu Dec 24, 2015 10:02 am

I am no longer in the accumulation stage. I tend to make trades for 3 reasons:

1. Sell when I need money.
2. Use Really Bad Days™ to rebalance and/or tax-loss harvest (that's a sell and a buy)
3. Buy when I have money, such as when dividends are paid.
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Joe_R95
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Re: Market timing

Post by Joe_R95 » Thu Dec 24, 2015 10:11 am

I set mine on autopilot. Direct draft on the 28th of every month set amount(wasn't sure what they'd do about February if I did the 30th). The allocation is also automatically set. My investment schedule replaced a mortgage payment that was at the end of the month so I'm use to it anyway. Anything you can do to make it as automatic as possible will keep you on target.

Cramerica
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Re: Market timing

Post by Cramerica » Thu Dec 24, 2015 10:14 am

livesoft wrote:I am no longer in the accumulation stage. I tend to make trades for 3 reasons:

1. Sell when I need money.
2. Use Really Bad Days™ to rebalance and tax-loss harvest (that's a sell and a buy)
3. Buy when I have money, such as when dividends are paid.
#2 is interesting. I don't have a taxable account yet so it doesn't totally apply to me yet. The idea of buying on bad days is clear and applies to all accounts. Selling on a bad day in a taxable account would be good so there is a loss, which you can then harvest. Nice.

Dandy
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Re: Market timing

Post by Dandy » Fri Dec 25, 2015 12:30 am

Lump sum - Usually about 1/3 to 1/2 soon and the rest automated over 6 to 9 months. If the market is at or near highs (like now) less lump and longer DCA. If the market is low more lump and shorter DCA. Oh and if the market takes a big dip add more to the DCA that month.

cals400ex
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Re: Market timing

Post by cals400ex » Fri Dec 25, 2015 10:36 am

Dandy wrote:Lump sum - Usually about 1/3 to 1/2 soon and the rest automated over 6 to 9 months. If the market is at or near highs (like now) less lump and longer DCA. If the market is low more lump and shorter DCA. Oh and if the market takes a big dip add more to the DCA that month.
Sorry for the silly question (I'm still learning), but how do you determine that the market is at "near highs?" I've heard several people say something similar, but I'm just not sure what it is based on? My target retirement fund is lower than it was a year ago.

Dandy
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Re: Market timing

Post by Dandy » Fri Dec 25, 2015 9:27 pm

Sorry for the silly question (I'm still learning), but how do you determine that the market is at "near highs?" I've heard several people say something similar, but I'm just not sure what it is based on? My target retirement fund is lower than it was a year ago.
It isn't a silly question at all. There is a lot of disagreement about what measure to use or if any measure makes any sense. Just because the market is at or near a record high doesn't mean it can't go higher. Many would just say do the whole lump immediately and since equity market rise over time eventually things will turn out well.

One way I think about it is has the market, say measured by the S&P 500 been at or near a record high for that index. Go to Yahoo Finance and click on the S&P 500. It will take you to a chart showing how that index did for the day. At the bottom of the chart it has the option to click on several time periods e.g. 1day, 5 days -- go all the way to the right and click on "max" - it will show the growth of the S&P 500 from before the 1960's to the present. As you can see the growth has been impressive. The far right shows that the index is fairly close to the record high and a spurt of growth for the last few years. This year - no so much.

So I say we have had a several years of excellent growth and now are pretty close to a record high. I think I'll put in a smaller lump and automate a DCA for maybe 9 months. If the market dips during any month I'll add a bit more to the DCA.

If the chart showed that we have had a few years of decline I'd put a higher lump and a shorter automated DCA

There is no guarantee that this will be a winner. What it does is get you into the market with a plan and in less than a year you will be fully invested. If the market soars you will have regret if it plunges you will have bought some shares at a discount. It isn't based on fear or media hype it is based on looking at what that index has done or not done the last few years.

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Phineas J. Whoopee
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Re: Market timing

Post by Phineas J. Whoopee » Sun Dec 27, 2015 5:50 pm

Near highs is a simple example of technical analysis, the attempt to project future prices by looking at past prices.

Some of the technical analysts make a lot of money.

By selling people their analyses.

PJW

Dandy
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Re: Market timing

Post by Dandy » Sun Dec 27, 2015 10:00 pm

Near highs is a simple example of technical analysis, the attempt to project future prices by looking at past prices.

Some of the technical analysts make a lot of money.

By selling people their analyses.


Well in my case "near" highs is an opinion based on fact. I'm not a technical analyst but you can send me money anyway :happy I think people can decide whether they want to invest all their lump sum at or near a record high market (fact) or not. I think actual technical analysts would laugh at my suggestion.

Consider that setting rebalance points is a form, perhaps a lesser form, of technical investing -- you are basically saying that the market is driving my equity investments too high I need to take some risk off the table. Yet we all know that eventually equity markets go to new highs. And rebalance points are based on a iffy idea of your risk tolerance that is translated into an iffy idea of how that risk tolerance equates to a equity/fixed income allocation and they are often set with a percent ending with 0 or 5. So a lot of us are basing our investments and changing our investments based on some very shaky/loose assumptions vs hard facts. My suggestions about how much lump sum to consider seems at least on a par with all of that.

I try, in retirement, to avoid big losses and am willing to give up some potential gain with some extra cash holding. For me the time to take some extra equity risk is when the market is significantly off a record high.

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HomerJ
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Re: Market timing

Post by HomerJ » Sun Dec 27, 2015 10:08 pm

livesoft wrote:Use Really Bad Days™ to rebalance and/or tax-loss harvest (that's a sell and a buy)
It's an honest answer, but you're going to get people new to Boglehead investing in trouble thinking it's possible to market time.

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Taylor Larimore
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Re: Market timing

Post by Taylor Larimore » Sun Dec 27, 2015 10:28 pm

Phineas J. Whoopee wrote:Near highs is a simple example of technical analysis, the attempt to project future prices by looking at past prices.

Some of the technical analysts make a lot of money.

By selling people their analyses.

PJW
How true!
Jack Bogle: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."
What Experts Say About Market-Timing

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Taylor
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livesoft
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Re: Market timing

Post by livesoft » Sun Dec 27, 2015 10:47 pm

HomerJ wrote:
livesoft wrote:Use Really Bad Days™ to rebalance and/or tax-loss harvest (that's a sell and a buy)
It's an honest answer, but you're going to get people new to Boglehead investing in trouble thinking it's possible to market time.
I'm not sure what you mean. I do not tell folks who state they rebalance once a year that they are going to get people new to Boglehead investing in trouble thinking it's possible to market time, say on their birthdays. Are you admitting that RBDs are good days to do some market timing?

I will write though that if one is goinig to do market timing (the title of this thread), then I think it is best not to lose money doing so.
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Phineas J. Whoopee
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Re: Market timing

Post by Phineas J. Whoopee » Mon Dec 28, 2015 5:40 pm

Dandy wrote:...
Well in my case "near" highs is an opinion based on fact.
Absolutely. The S&P 500 isn't far below its highest ever. Of course the S&P 500 is a price index, not a total return index, but as price indices go it tracks the total US market very well.
Dandy wrote:I'm not a technical analyst but you can send me money anyway :happy I think people can decide whether they want to invest all their lump sum at or near a record high market (fact) or not.
Of course. Everybody decides what to do in their own situation. I just don't see the point of lingering in an inappropriate allocation once a better becomes apparent, whether by new analysis or according to a rational and carefully considered plan. I'm highly aware that many members here think temporarily staying away from a better suited allocation is preferable to embracing it. People post that all the time.
Dandy wrote: ...
Consider that setting rebalance points is a form, perhaps a lesser form, of technical investing -- you are basically saying that the market is driving my equity investments too high I need to take some risk off the table.
Absolutely not. Market timing, whether using technical or fundamental analysis, is an attempt to increase returns. Rebalancing is an attempt to manage risk. They are not the same, and often are at odds.
Dandy wrote:...
I try, in retirement, to avoid big losses and am willing to give up some potential gain with some extra cash holding. For me the time to take some extra equity risk is when the market is significantly off a record high.
If, in retirement, you choose to attempt to increase returns using market timing and technical analysis, the choice, along with its consequences, is yours and yours alone.

PJW

Dandy
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Re: Market timing

Post by Dandy » Tue Dec 29, 2015 9:07 am

Absolutely not. Market timing, whether using technical or fundamental analysis, is an attempt to increase returns. Rebalancing is an attempt to manage risk. They are not the same, and often are at odds.
My view is that market timing is trying to make investment decisions based on a view of the relatively short term future market. Most do it for gain -- some use it to avoid losses. A value investor who feels equity markets or a stock price is too high will sit in cash and wait. They feel the risk of loss is more likely than the benefit of gain. That, to me is market timing. Since that has a negative connotation they use the term value investing.

That is what setting a rebalancing point or percentage does - you just set it up in advance and call it adjusting risk instead of market timing. As I said most people who rebalance, and I do it, feel the equity markets will continue to rise but they rebalance because the shorter term risk has been decided (in advance) to be too great. Traditional market timing is done more on the spur of the moment vs rebalancing which the decision to do it is set up in advance and is triggered and executed later. What rebalancing tries to do is take the emotion out of the decision of when to execute an investment decision based on a change in portfolio allocations.

I agree that over the short term we can't predict what the market will do. I also believe that there is a role for assessing value/risk and on occasion, using some objective data, we can decide that the risk of loss is greater than the benefit of gain. Over time not losing money can be very important.

Not many people mention that Mr. Bogle feels that when the market is extremely overvalued, which is rare, people should adjust their allocations significantly e.g. go from 60/40 to 40/60. I don't recall what he used to assess extreme over valuation. This is in contrast with his stay the course and you can't market time beliefs. I don't recall if he referred to this as market timing -- probably not. :happy
If, in retirement, you choose to attempt to increase returns using market timing and technical analysis, the choice, along with its consequences, is yours and yours alone.
In retirement for many people asset preservation can become more important than portfolio growth. I am fortunate to be in that position.
Your definition of market timing seems to focus on people making investment decisions striving for growth. That is not true in my case. I have, on occasion, taken some money out of equities e.g. at the end of 2013 when the market was up 30%, but it is not my normal approach to investing. I think your bit of verbal finger wagging is a bit unnecessary. Yes, I realize that I am solely responsible for my actions and have been extremely happy with the results. There are many good ways to manage money not just the one you prefer.

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