Does a Boglehead ever time the market?

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Indexer Matt
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Does a Boglehead ever time the market?

Post by Indexer Matt » Fri Dec 08, 2017 2:37 am

Hi all, this is my first post… I have just finished The little Book of Common Sense Investing. The reoccurring theme that Mr Bogle reiterates is reversion to the mean.

As a beginner investor I am looking at investing in index funds. However the Shiller PE Ratio is 32, this is only the third time in history the stock market has been this overpriced (the other two times ended very badly). It would seem that a reversion to the mean is coming.

A quote from the little books sums up my dilemma…
Here’s how the Economist of London puts it: “The truth is that, for the most part, fund managers have offered extremely poor value for money. Their records of outperformance are almost always followed by stretches of underperformance. Over long periods of time, hardly any fund managers have beaten the market averages. They encourage investors, rather than spread their risks wisely or seek the best match for their future liabilities, to put their money into the most modish assets going, often just when they become overvalued. And all the while they charge their clients big fees for the privilege of losing their money. . . . (One) specific lesson . . . is the merits of indexed investing . . . you will almost never find a fund manager who can repeatedly beat the market. It is better to invest in an indexed fund that promises a market return but with significantly lower fees.”

So it seems to me that Mr Bogle is advocating that it is unwise to invest in overpriced markets, so the best thing I can do as an indexer, is to wait until the market is fair valued or undervalued, then invest for the long term in index funds.

Would Mr Bogle really advocate a new investor to put his life savings into an index fund only to have 30 to 60% wiped out, potentially overnight. Surely in this case it would be wiser to wait.
Or, is it economical to invest in an overpriced market?
I realise that once you are on the ship it makes sense to stay the course and stay in the market, but surely jumping on a ship heading from troubled water is unwise, so I should time the market?
Any help would be appreciated, investing books seem to have no advice regarding what a new investor should do in this situation.

Matt.

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Makaveli
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Re: Does a Boglehead ever time the market?

Post by Makaveli » Fri Dec 08, 2017 8:13 am

Don't make it more complicated than it is. You're young. Time in the market is what is important. Leverage compounding growth. Create a plan. Perhaps you don't lump sum. DCA for next 12 months at very least.

p0nyboy
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Re: Does a Boglehead ever time the market?

Post by p0nyboy » Fri Dec 08, 2017 8:25 am

I time the market...in the sense that at the 1st of every month I put money in taxable investments and my roth ira. Thats my timing.

chevca
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Re: Does a Boglehead ever time the market?

Post by chevca » Fri Dec 08, 2017 8:26 am

Is this new investor's life savings $500k cash they squirreled away, or someone just starting out with a portfolio of a few hundred bucks?

If it's the cash one, we could talk lump sum or DCA. If it's the few hundred bucks one, just start investing and pick a plan you can stick with for the long haul.

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Padlin
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Re: Does a Boglehead ever time the market?

Post by Padlin » Fri Dec 08, 2017 8:35 am

If we all waited for the stars to align in the investing heavens we'd never invest a dime, there's always something going on.

Lump sum, DCA, do whichever makes you feel better about it, I've done both a number of times and can't tell which was better in the long run.

To answer your question, yes, some Bogleheads, at least this one, has occasionally timed the market. My risk tolerance is pretty low, I've used the jitters as a way knowing I'm uncomfortable with my current AA. Being a Boglehead has prevented me from maiking big mistakes, I'm sure I've made small ones.
Regards | Bob

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Re: Does a Boglehead ever time the market?

Post by livesoft » Fri Dec 08, 2017 8:37 am

Everybody times the market to one degree or another. If you're a Boglehead though, you will never admit it.
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goingup
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Re: Does a Boglehead ever time the market?

Post by goingup » Fri Dec 08, 2017 8:51 am

Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
So it seems to me that Mr Bogle is advocating that it is unwise to invest in overpriced markets, so the best thing I can do as an indexer, is to wait until the market is fair valued or undervalued, then invest for the long term in index funds.
I think you're taking the wrong lessons from Jack Bogle. A couple of the key things I've learned are:
*Invest we must.
*Nobody knows nothing.

The Bogleheads® Philosophy
*Develop a workable plan
*Invest early and often
*Never bear too much or too little risk
*Never try to time the market
*Use index funds when possible
*Keep costs low
*Diversify
*Minimize taxes
*Keep it simple
*Stay the course

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Re: Does a Boglehead ever time the market?

Post by Jags4186 » Fri Dec 08, 2017 8:55 am

I just did. I sold all of my taxable accounts this week in anticipation of a home purchase in the next couple of months. I gambled leaving all the money in the market for the last year and it paid off. But now that a home purchase seems like reality vs pie in the sky talk I took money off the table.

Most people would recommend not investing money that is going to be used in 3-5 years.

chevca
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Re: Does a Boglehead ever time the market?

Post by chevca » Fri Dec 08, 2017 8:56 am

livesoft wrote:
Fri Dec 08, 2017 8:37 am
Everybody times the market to one degree or another. If you're a Boglehead though, you will never admit it.

Or, calls it something else... like rebalancing on a RBD? :happy

chevca
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Re: Does a Boglehead ever time the market?

Post by chevca » Fri Dec 08, 2017 8:57 am

Jags4186 wrote:
Fri Dec 08, 2017 8:55 am
I just did. I sold all of my taxable accounts this week in anticipation of a home purchase in the next couple of months. I gambled leaving all the money in the market for the last year and it paid off. But now that a home purchase seems like reality vs pie in the sky talk I took money off the table.

Most people would recommend not investing money that is going to be used in 3-5 years.
Congrats, that one worked out well! :sharebeer

livesoft
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Re: Does a Boglehead ever time the market?

Post by livesoft » Fri Dec 08, 2017 9:00 am

chevca wrote:
Fri Dec 08, 2017 8:56 am
livesoft wrote:
Fri Dec 08, 2017 8:37 am
Everybody times the market to one degree or another. If you're a Boglehead though, you will never admit it.

Or, calls it something else... like rebalancing on a RBD? :happy
Yep, that too. :sharebeer
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bottlecap
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Re: Does a Boglehead ever time the market?

Post by bottlecap » Fri Dec 08, 2017 9:08 am

Did Bogle talk about the Schiller PE in that book? If not, there’s your answer. If so, what did he say about it?

JT

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Re: Does a Boglehead ever time the market?

Post by BogleMelon » Fri Dec 08, 2017 9:15 am

Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am

So it seems to me that Mr Bogle is advocating that it is unwise to invest in overpriced markets,
How did you know that it is overpriced? Because if you know that it is overpriced, then everyone else would know it too (including wall street gurus). And if everyone else knowing it is overpriced, then everyone must be selling now and refrain to buy more, and if everyone is selling and not buying, then the supply is higher than the demand.What happen when the supply is higher than the demand? Right, cheaper prices. Cheaper prices means it is not overpriced! In brief, if you know it is overpriced, then it is not overpriced!
Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
so the best thing I can do as an indexer, is to wait until the market is fair valued or undervalued
Investors are making money by 2 ways, Stocks appreciation and dividends. You seem to ignore dividends and the effect or reinvesting it and the power of compounding
Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
Would Mr Bogle really advocate a new investor to put his life savings into an index fund
Owning an index fund = Owning the whole market. What could be more diversifiable than that? Don't make it seem like he is advising to put all our eggs into one basket!
Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
only to have 30 to 60% wiped out, potentially overnight.
If you own a house. You paid $100K for that 3 bedroom house to buy it. The housing market crashed. Now the house worth $50K. How much rooms did you lose? Zero, you still have the same quantity of rooms (i.e: same quantity of shares.. Number of shares doesn't go anywhere when market crashes). Now let's assume you are renting out the house to a tenant. How much would you lose in rental income? Zero. The contract is still valid. The guy has to pay you the rent (dividends) no matter what. How much money you lost because of the drop from $100K to $50K? Nothing, if you never sold the house at $50K, but instead you kept it till it recoups its value.
Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
Surely in this case it would be wiser to wait.
No, it is not. You could wait forever, or untill you give up and buy higher.
Here is a proof:
What if You Only Invested at Market Peaks?
http://awealthofcommonsense.com/2014/02 ... ket-timer/
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

B. Wellington
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Re: Does a Boglehead ever time the market?

Post by B. Wellington » Fri Dec 08, 2017 9:16 am

livesoft wrote:
Fri Dec 08, 2017 9:00 am
chevca wrote:
Fri Dec 08, 2017 8:56 am
livesoft wrote:
Fri Dec 08, 2017 8:37 am
Everybody times the market to one degree or another. If you're a Boglehead though, you will never admit it.

Or, calls it something else... like rebalancing on a RBD? :happy
Yep, that too. :sharebeer
^^^Okay, Guilty. Re-balanced on really bad days at times. However, today I would tell my younger self (you) to invest as much as you can, as often as you can, for as long as you can.

Then by the end of your career you should be in a great position that you don't have to worry about paying the bills, helping a family member, or your favorite charity.

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Re: Does a Boglehead ever time the market?

Post by nisiprius » Fri Dec 08, 2017 9:20 am

Without trying to be doctrinaire, there's no definite definition of "Boglehead," people can call themselves Bogleheads and do what they like, and people can have a plan or a strategy and choose to depart from it... or depart from it impulsively.

That said, John C. Bogle has said "stay the course," and "time is your friend, impulse is your enemy."

The the Bogleheads investment philosophy, which is just something some people wrote up to capture the general ideas Bogleheads have, says "Never try to time the market."

There is a spectrum of behavior here. People who call themselves market timers, publish market timing investment letters, talk about "signals," and practice things they call like 200-day moving average market timing or triple crossover market timing--really are talking about moving from all-in to all-out and back. I don't think many people who do that call themselves "Bogleheads." I don't think people who are "inspired by John Bogle" would do that.

Quite a few Bogleheads practice some kind of gentle, valuation-based asset allocation modification--not going to cash or buying back in, but practicing a bit of "tactical asset allocation." Some do it by using rules, some just intuitively "take a little money off the table" if they think things are getting overheated.

Many Bogleheads rebalance, i.e. buying or selling back to a target asset allocation, and there is a good deal of argument as to whether or not this is a very gentle form of market timing. Some do it very systematically and use almost market-timing-like rules, "rebalancing bands," and believe that rebalancing produces a small "rebalancing bonus" and creates a little bit of extra return. Some just rebalance to keep their allocation from being too far out of whack with their risk tolerance.

There isn't any secret handshake and you don't get a prize for adhering strictly to the Bogleheads investment philosophy. If you read John C. Bogle's books or interviews, you will find that he's not at all doctrinaire.
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Re: Does a Boglehead ever time the market?

Post by Ged » Fri Dec 08, 2017 9:30 am

Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am

As a beginner investor I am looking at investing in index funds. However the Shiller PE Ratio is 32, this is only the third time in history the stock market has been this overpriced (the other two times ended very badly). It would seem that a reversion to the mean is coming.
You are a beginner. When I was a beginner it was 1978 and the S&P average was 90. The increase that has occurred since then vastly overwhelms the occasional fluctuations that have occurred since.

You are sweating the small stuff and ignoring what is important.

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Re: Does a Boglehead ever time the market?

Post by Dandy » Fri Dec 08, 2017 9:30 am

The market is high - could it go higher - you bet. If I were trying to enter the market I would put a modest lump sum in now
(20-25%) and automate a monthly DCA investment over say 12 months or so. If the market drops significantly in any month I would double that month's investment.

It gets you off the sidelines, creates a plan to get you fully invested in a year or so, and if you double up when there is a bad month teaches you to buy when the market is down. Once you invest at your risk tolerance make sure to re balance to keep risk under control.

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Re: Does a Boglehead ever time the market?

Post by davegreen10 » Fri Dec 08, 2017 9:39 am

IMHO- A true Boglehead purist doesn't time the market but you can find plenty of people on this board who may do so. I mean you can even interpret rebalancing your portfolio as market timing if want to.

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nedsaid
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Re: Does a Boglehead ever time the market?

Post by nedsaid » Fri Dec 08, 2017 10:20 am

Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
Hi all, this is my first post… I have just finished The little Book of Common Sense Investing. The reoccurring theme that Mr Bogle reiterates is reversion to the mean.

Nedsaid: A good start. It takes a bit of courage to post and to put your thoughts out there. Thanks for posting and starting what should be a good thread.

Yes, I am a big believer in reversion to the mean.


As a beginner investor I am looking at investing in index funds. However the Shiller PE Ratio is 32, this is only the third time in history the stock market has been this overpriced (the other two times ended very badly). It would seem that a reversion to the mean is coming.

Nedsaid: A lot depends upon how old you are. Take some time and study the "Nifty Fifty". This happened in the 1960's, the idea is that you would buy quality stocks and hold them forever. Problem was that euphoria set in and these blue chip stocks often got bid up to P/E ratios of 50. Most of these were fantastic companies and if investors would have just kept their positions in these stocks, they would have done well. It look a lot of patience as the market peaked in 1968 and was more or less flat until about 1984. A young investor could just shrug this off and wait for earnings to catch up to high expectations. If you retired in 1968 with a good helping of such stocks, doubtless you would have suffered some heartburn along the way, such a retiree would have faced the 1970's stagflation and a nasty 50% down bear market in 1973-74.

A quote from the little books sums up my dilemma…
Here’s how the Economist of London puts it: “The truth is that, for the most part, fund managers have offered extremely poor value for money. Their records of outperformance are almost always followed by stretches of underperformance. Over long periods of time, hardly any fund managers have beaten the market averages. They encourage investors, rather than spread their risks wisely or seek the best match for their future liabilities, to put their money into the most modish assets going, often just when they become overvalued. And all the while they charge their clients big fees for the privilege of losing their money. . . . (One) specific lesson . . . is the merits of indexed investing . . . you will almost never find a fund manager who can repeatedly beat the market. It is better to invest in an indexed fund that promises a market return but with significantly lower fees.”

So it seems to me that Mr Bogle is advocating that it is unwise to invest in overpriced markets, so the best thing I can do as an indexer, is to wait until the market is fair valued or undervalued, then invest for the long term in index funds.

Would Mr Bogle really advocate a new investor to put his life savings into an index fund only to have 30 to 60% wiped out, potentially overnight. Surely in this case it would be wiser to wait.
Or, is it economical to invest in an overpriced market?

Nedsaid: If you are 30 years old, I would not sweat it. A nasty bear market would give you a great opportunity to buy quality stocks at bargain prices.

If you are an old fogey like me, at age 58, you might want to cut back somewhat on US stocks and put the proceeds into the cheaper International Developed and International Emerging Stock markets. You might also up your allocation to bonds and take a more conservative asset allocation.

At age 58, I have about 2/3 of my portfolio in stocks. I have been agonizing over this too.


I realise that once you are on the ship it makes sense to stay the course and stay in the market, but surely jumping on a ship heading from troubled water is unwise, so I should time the market?
Any help would be appreciated, investing books seem to have no advice regarding what a new investor should do in this situation.

Nedsaid: Matt, I have market timed in its mildest forms. In general, you buy, hold, and rebalance. Even Mr. Bogle has advocated shifts of maybe 20% of your portfolio when markets get overheated. The US market is richly priced but one thing to keep an eye out for is that there has been a shift in the economy. The surprises now are on the upside and not the downside. We have gone from the "new normal" of 1% to 2% economic growth and we are seeing a return to more historic GDP growth rates of 3% plus. It this continues to be true, higher P/E ratios will be justified. A better economy equals better earnings.

The stock market is an expectations game. When you worry is when expectations get to a genuine euphoria. Bull markets end when the last pessimist tosses in the towel and throws his or her life savings into the stock market, pretty much at some point the market runs out of buyers and the market has nowhere to go but down. Market optimism is increasing but we are nowhere near euphoria. Still a lot of pessimists out there who could change their minds and become optimists.

What I have been telling people is that this is a good opportunity to rebalance your portfolio if you have not done so already. If high valuations make you nervous, nothing wrong with taking a bit off the top. Better to "panic" at market highs than after markets have crashed.


Matt.
A fool and his money are good for business.

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ruralavalon
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Re: Does a Boglehead ever time the market?

Post by ruralavalon » Fri Dec 08, 2017 11:22 am

Welcome to the forum :) .
Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
Hi all, this is my first post… I have just finished The little Book of Common Sense Investing. The reoccurring theme that Mr Bogle reiterates is reversion to the mean.

As a beginner investor I am looking at investing in index funds. However the Shiller PE Ratio is 32, this is only the third time in history the stock market has been this overpriced (the other two times ended very badly). It would seem that a reversion to the mean is coming.
. . . . .
So it seems to me that Mr Bogle is advocating that it is unwise to invest in overpriced markets, so the best thing I can do as an indexer, is to wait until the market is fair valued or undervalued, then invest for the long term in index funds.
. . . . .
I realise that once you are on the ship it makes sense to stay the course and stay in the market, but surely jumping on a ship heading from troubled water is unwise, so I should time the market?
I do not even try to time the market. I am 72, my asset allocation is 50% stocks and 50% bonds. I have been rebalancing once per year, to adhere to my desired asset allocation which hasn't changed for 9 years.

Invest for the long-term, don't be so concerned about what the stock market might do the day after you start investing.

Don't try to time the market. If you wait for a good day to start investing, you will never know if the next day, or the next week, or the next month, or the next year might be an even better time to start investing.

As a "beginner investor" the most important thing is to get started, invest early and often with regular contributions every pay period. Please see the "getting started" link below, and read the wiki article "Boglehead's Investment Philosophy".

? Lump sum or in stages? There is much discussion here about the two approaches. I am in the invest it "all at once" camp. When investing a large chunk of new money, "all at once" works out better about 2/3 of the time. Please see the Vanguard paper, "Dollar-cost averaging just means taking risk later".

Here is another interesting article to read -- "What if you only invested at market peaks?"

EDITED to add links.
Last edited by ruralavalon on Fri Dec 08, 2017 3:16 pm, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Does a Boglehead ever time the market?

Post by bmelikia » Fri Dec 08, 2017 11:51 am

Every 2 weeks. . .
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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Re: Does a Boglehead ever time the market?

Post by AlD » Fri Dec 08, 2017 12:44 pm

...this is only the third time in history the stock market has been this overpriced (the other two times ended very badly)
"Ended very badly" for whom?

Did it really "end very badly" for someone who stayed the course? Are you assuming that those hypothetical investors who jumped in at the peak (at that point in time), also managed to have the bad luck of timing their exit and cashing out at the very bottom of those bear markets? Unfortunately, this behavior is the norm and why most investors underperform the mutual funds they are invested in. One of the great things about this forum is that those with a little more experience help to save others from themselves.

If you follow the Bogleheads tenets you will continue to invest through the inevitable bear market (if you are in the accumulation phase) and/or rebalance to your target allocation if you are in the distribution phase of your life.

The $500K that I have in the market today is no different from the $500K that you are putting into the market today. Going forward, my $500K will be subject to the same gains or losses that your $500K is subject to. It doesn't matter where I "got in." Every day I am making the decision to invest in my portfolio (even when I'm not adding new money to it). The value of each of our $500K is the same. If you feel otherwise, you are doing some funny mental accounting and letting your emotions get in the way of sound long term investing.

Create an IPS, build a portfolio you are comfortable with and stay the course.

Below is a good read, taken from the following site: http://awealthofcommonsense.com/2014/02 ... ket-timer/


What if You Only Invested at Market Peaks?

Posted February 25, 2014 by Ben Carlson


Meet Bob.

Bob is the world’s worst market timer.

What follows is Bob’s tale of terrible timing of his stock purchases.

Bob began his career in 1970 at age 22. He was a diligent saver and planner.

His plan was to save $2,000 a year during the 1970s and bump that amount up by $2,000 each decade until he could retire at age 65 by the end of 2013 (so $4,000/year in the 80s, $6,000/year in the 90s then $8,000/year until he retired).

He started out by saving the $2,000 a year in his bank account until he had $6,000 to invest by the end of 1972.

Bob’s problem as an investor was that he only had the courage to put his money to work in the market after a huge run-up.

So all of his money went into an S&P 500 index fund at the end of 1972 (I know there were no index funds in 1972, but just go with me here…see my assumptions at the bottom of the post).

The market dropped nearly 50% in 1973-74 so Bob basically put his money in at the peak of the market right before a crash.

Yet he did have one saving grace. Once he was in the market, he never sold his fund shares. He held on for dear life because he was too nervous about being wrong on both his sell decisions too.

Remember this decision because it’s a big one.

Bob didn’t feel comfortable about investing again until August of 1987 after another huge bull market. After 15 years of saving he had $46,000 to put to work. Again he put it in an S&P 500 index fund and again he invested at a market peak just before a crash.

This time the market lost more than 30% in short order right after Bob bought his index shares.

Timing wasn’t on Bob’s side so he continued to keep his money invested as he did before.

After the 1987 crash, Bob didn’t feel right about putting his future savings back into stocks until the tech bubble really ramped up at the end of 1999. He had another $68,000 of savings to put to work. This time his purchase at the end of December in 1999 was just before a 50%+ downturn that lasted until 2002.

This buy decision left Bob with some more scars but he decided to make one more big purchase with his savings before he retired.

The final investment was made in October of 2007 when he invested $64,000 which he had been saving since 2000. He rounded out his string of horrific market timing calls by buying right before another 50%+ crash from the credit blow-up.

After the financial crisis, he decided to continue to save his money in the bank (another $40,000) but kept his stock investments in the market until he retired at the end of 2013.

To recap, Bob was a terrible market timer with his only stock market purchases being made at the market peaks just before extreme losses.

Here are the purchase dates, the crashes that followed and the amount invested at each date:

Date of Investment / Subsequent crash / Amount Invested
December 1972 / -48% / $6,000
August 1972 / -34% / $46,000
December 1999 / -49% / $68,000
October 2007 / -52% / $64,000
________________________________________________________________________
Total Invested $184,000


Luckily, while Bob couldn’t time his buys, he never sold out of the market even once. He didn’t sell after the bear market of 1973-74 or the Black Monday in 1987 or the technology bust in 2000 or the financial crisis of 2007-09.

He never sold a single share.

So how did he do?

Even though he only bought at the very top of the market, Bob still ended up a millionaire with $1.1 million.

How could that be you might ask?

First of all Bob was a diligent saver and planned out his savings in advance. He never wavered on his savings goals and increased the amount he saved over time.

Second, he allowed his investments to compound through the decades by never selling out of the market over his 40+ years of investing. He gave himself a really long runway.

He did have to endure a huge psychological toll from seeing large losses and sticking with his long-term mindset, but I like to think Bob didn’t pay much attention to his portfolio statements over the years. He just continued to save and kept his head down.

And finally, he had a very simple and low-cost investment plan — one index fund with minimal costs.

Obviously, this story was for illustrative purposes and I wouldn’t recommend a portfolio consisting of 100% in stocks of a single market in the S&P 500 unless you have an extremely high risk tolerance. Even then a more balanced portfolio in different global markets with a sound rebalancing policy makes much more sense.

And if he would have simply dollar cost averaged into the market on an annual basis with his savings he would have ended up with much more money in the end (over $2.3 million).

But then he wouldn’t be Bob, The World’s Worst Market Timer.

Lessons from Bob’s Journey:
•If you are going to make investment mistakes, make sure you are biased towards optimism and not pessimism. Long-term thinking has been rewarded in the past and unless you think the world or innovation is coming to an end it should be rewarded in the future. As Winston Churchill once said, “I am an optimist. It does not seem too much use being anything else.”
•Losses are part of the deal when investing in stocks. How you react to those losses is one of the biggest determinants of your investment performance.
•Saving more, thinking long-term and allowing compound interest to work in your favor are your biggest accelerants for building wealth. These factors have nothing to do with picking stocks or a complex investment strategy. Get these big things right and any disciplined investment strategy should do the trick.

*******

***Assumptions and disclaimers: This is fictional and is in no way how you should invest your money. It takes nerves of steel to hold 100% of your portfolio in stocks for decades on end. This is purely an exercise in the power of long-term thinking and compounding. I used the S&P 500 less a 0.20% expense ratio from the 1972 until 1977 when the Vanguard 500 Fund had its first full year. I used the Vanguard 500 Fund from 1977 on so these were actual results from a real fund, not purely hypothetical.

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Re: Does a Boglehead ever time the market?

Post by Dottie57 » Fri Dec 08, 2017 12:47 pm

p0nyboy wrote:
Fri Dec 08, 2017 8:25 am
I time the market...in the sense that at the 1st of every month I put money in taxable investments and my roth ira. Thats my timing.
+1

This. I've been through some roughtimes. 1997, early 2000's and 2008/2009. Yet. i have enough to retire. No market timing because for much of the time I did not have web access to see my account. I didn't pay attention. That was very good for me.

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Re: Does a Boglehead ever time the market?

Post by TonyDAntonio » Fri Dec 08, 2017 12:58 pm

While working I don't think I ever sold anything. Just kept investing no matter what the market did. Now that I'm retired and need to spend that money I market time a bit. While the market has been at all time highs I sell some of my 'overweight' funds for cash that I will need over the next 5 years or so. Honestly, if the market keeps going up I'll keep selling. If the market starts going down I'll stop selling and hope that I have enough in money markets and bonds to spend from. I'm not saying this is any better than leaving everything invested and selling when needed just that I feel better doing it this way. I guess I am market timing. Where do I turn in my boglehead badge.

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Re: Does a Boglehead ever time the market?

Post by GerryL » Fri Dec 08, 2017 1:02 pm

I do sort of "time the market" when I am planning to get rid of some of the individual stocks I own (employer stock and inheritance). For instance, I planned this year to get rid of the rest of my inherited automotive stock by donating it to my DAF. I waited until it appeared to be going up so that the DAF would get a bigger bang. Now, if I had waited another couple of months, it turns out, the price went up even more. Also sold a couple of lots of employer stock to take advantage of $0 LTCG tax in a low income year. Then the share price suddenly popped up, so I put another limit order on a few more lots. Share price kept going up and did another limit order. (Would continue selling but trying to keep state tax down.) So, this Boglehead does a little market timing when it comes to selling. Sometimes it works, sometimes it doesn't. (Now, if Vanguard could just get its act together and document the sales the way they were submitted!!! Grrr.)

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Re: Does a Boglehead ever time the market?

Post by itstoomuch » Fri Dec 08, 2017 1:04 pm

Time the Markets :oops: :annoyed :?: 67/70 yo.
Most of retirement assets are now protected in GLWB longevity income annuities or Income property(s). These were timed and opportunistic purchases.
When we did have indexes, MF, we never timed markets.
What remains, the Dscretionary, I do time stock , CD buys and sells. That is the idea of owning individual stocks. Currently almost all in cash.
Hmmm, ymmv
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Re: Does a Boglehead ever time the market?

Post by Tyler Aspect » Fri Dec 08, 2017 1:20 pm

chevca wrote:
Fri Dec 08, 2017 8:56 am
livesoft wrote:
Fri Dec 08, 2017 8:37 am
Everybody times the market to one degree or another. If you're a Boglehead though, you will never admit it.
Or, calls it something else... like rebalancing on a RBD? :happy
Yes, sometimes I am feeling bouncy, but that is a secret ! :shock:
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: Does a Boglehead ever time the market?

Post by itstoomuch » Fri Dec 08, 2017 1:29 pm

OP
Do not confuse Investing with Income.
As a retiree, I am more concerned with Income and purchasing power on that Income; I am less concerned with Investing and Timing.
Ymmv
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Does a Boglehead ever time the market?

Post by CnC » Fri Dec 08, 2017 1:42 pm

Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am

Would Mr Bogle really advocate a new investor to put his life savings into an index fund only to have 30 to 60% wiped out, potentially overnight. Surely in this case it would be wiser to wait.
Or, is it economical to invest in an overpriced market?
I realise that once you are on the ship it makes sense to stay the course and stay in the market, but surely jumping on a ship heading from troubled water is unwise, so I should time the market?
Any help would be appreciated, investing books seem to have no advice regarding what a new investor should do in this situation.

Matt.

Here is the issue. Say you need to get from USA to England. There is a ship in front of you. You read the forecast and heard that there may be stormy seas ahead. Do you sit on the dock and wait until the storm passes and the next boat comes? Neither of which you know a time table of. Or do you get on the boat.

Sure the boat may need to duck the storms and it may take twice as long to reach the other side. But what happens if you wait and wait for the perfect boat to come by and the storms to cease only to realize that the first boat is already docked in England before you start.


Real world example.

Say you looked at the market in 2012 and said wow stocks crashed last time they got this high I better wait for the next crash to buy. Well you sat on the sidelines and got 0 returns while the sp500 got 100% returns. Now the market would have to crash 50%+ just for you to break even by waiting.

That being said perhaps DCA your money in or start with a overly conservative portfolio of 50/50 untill you get your sealegs.

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Re: Does a Boglehead ever time the market?

Post by magneto » Fri Dec 08, 2017 1:50 pm

Sometimes 'Market Timing' and 'Adaptive Value Investing' get mixed up.

Ben Graham had this to say in The Intelligent Investor.
‘Since common stocks, even of investment grade, are subject to recurrent and wide fluctuations in their prices, the intelligent investor should be interested in the possibilities of profiting from these pendulum swings. There are two possible ways by which he may try to do this : by way of TIMING and the way of PRICING. By timing we mean the endeavour to anticipate the action of the stock …… . By pricing we mean the endeavour to buy stocks when they are below their fair value and to sell them when they rise above such value. … We are convinced that the intelligent investor can derive satisfactory results from pricing …. We are equally sure that if he places his emphasis on timing, in the sense of forecasting, he will end up a speculator and with a speculator’s financial results This distinction may seem rather tenuous to the layman, and it is not commonly accepted in Wall Street.’.

See also 'Constant Ratio' v 'Variable Ratio' in link.
http://thismatter.com/money/investments ... -plans.htm

Quite difficult to entirely satisfactorily define 'Market Timing', to please all readers, but some may consider anything other than 'Constant Ratio'.
Others look to the more active peering into the future using 'Technical Analysis' for signs of 'momentum' or 'inflection points' where time is definitely included in the measure.
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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Re: Does a Boglehead ever time the market?

Post by tadamsmar » Fri Dec 08, 2017 1:53 pm

Bogle gave a talk entitled "Law of Gravity: Reversion to the Mean":

https://www.vanguard.com/bogle_site/lib/sp19980129.html

He seems to mean an reversion to average performance. Reversion to average performance is not a basis for timing the market.

Nobody says "Gee, X outperformed Y in the last decade and that means X and Y will revert to having the same performance in the next decade, therefore I must time the market and buy Y"

The Shiller PE thing is different. But, from what I have seen of Shiller's stuff, the effect shows up over a long period and even the overpriced market provides a profit over the long periods. Also there is the matter of finding another investment if you bail from stocks, I think you will find that bonds and other investments have reduced peformance in the long periods when stocks have reduced performance. The moral seems to be that you have to plan for possible low returns for long periods.

The Boglehead Wiki seems to have a different take on Bogle's meaning:

https://www.bogleheads.org/wiki/Mean_reversion

The Wiki presents the idea that long-term risk-adjusted return is lower than it should be under a Random Walk assumption given short-term risk-adjusted return. The Wiki cite Bogle's "The Telltale Chart". But I can't find anything in the cited talk that backups the Wiki's claim that Bogle is invoking this idea. All I see is another discussion of reversion to future mean performance.

The lack of long-term risk-adjusted return could just be cherry-picking bias. If you pick only the best cherries, or if you analyze only the most successful national market in history, the some risk will indeed be missing :wink:.
Last edited by tadamsmar on Fri Dec 08, 2017 4:11 pm, edited 4 times in total.

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Re: Does a Boglehead ever time the market?

Post by cfs » Fri Dec 08, 2017 1:54 pm

YES. Next question? Wishing you a Merry Christmas and thanks for reading.

p.s. Welcome aboard, your first post !!!!
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Re: Does a Boglehead ever time the market?

Post by youngpleb » Fri Dec 08, 2017 1:58 pm

I'm about to go ham on the market in the upcoming year, even though it is scarily high right now. Why, you ask? Because I'm 26 and have a lifetime of investing ahead of me. If we go '08 again and I lose half of everything next year, it'd still just be a blip on the radar 30 years from now. You have to invest with a long-term mindset.
27. Always learning.

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Re: Does a Boglehead ever time the market?

Post by SimplicityNow » Fri Dec 08, 2017 4:38 pm

If all the comments above haven't convinced you then read the link in this post from Taylor Larimore, King of the Bogleheads viewtopic.php?f=10&t=234063

The last two paragraphs apply.

Here is the last paragraph:

"As Barry Ritholtz, chairman and chief investment officer of Ritholtz Wealth Management, put it earlier this year, “If you don’t want to invest in equities because you fear a market crash, then you should never be in equities, because equities always crash.”

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Re: Does a Boglehead ever time the market?

Post by HomerJ » Fri Dec 08, 2017 6:18 pm

livesoft wrote:
Fri Dec 08, 2017 8:37 am
Everybody times the market to one degree or another. If you're a Boglehead though, you will never admit it.
After 50,000 posts, everything is a joke, I guess.

Might be better to help new posters though instead of confusing them.

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Re: Does a Boglehead ever time the market?

Post by GCD » Fri Dec 08, 2017 9:34 pm

This ain't no joke...

If you market time you can't be a Boglehead and I've heard the BH mafia will hunt you down and forcibly remove your Vanguard tattoo if they find out you've been market timing.

Blood in, blood out don'tcha know...

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Re: Does a Boglehead ever time the market?

Post by venkman » Sat Dec 09, 2017 12:38 am

Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
As a beginner investor I am looking at investing in index funds. However the Shiller PE Ratio is 32, this is only the third time in history the stock market has been this overpriced (the other two times ended very badly). It would seem that a reversion to the mean is coming.
A reversion to the mean probably IS coming. But we don't know if that reversion to the mean will come in the form of a 40% drop in the market tomorrow, or in the form of steady below-average returns (4%-ish) over the next decade. It's possible that stocks right now are the cheapest they will ever be.

That 32 Shiller PE number does look scary on its own, but it's not nearly as bad when taken in the context of the current low-rate, low-inflation environment. Vanguard has its own Fair Value CAPE, which takes current market conditions into account, and I think their most recent evaluation is that stocks may be slightly overvalued, but nothing like they were before the 2008 crash.

Vanguard whitepaper with latest CAPE chart

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Re: Does a Boglehead ever time the market?

Post by randomizer » Sat Dec 09, 2017 12:45 am

I don't time. I follow my IPS, which directs me to immediately lump-sum any inflows according to my AA. On my time scale (hopefully going to live another 30 to 50 years), I'm simply not worried about these local maxima.
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Re: Does a Boglehead ever time the market?

Post by 2comma » Sat Dec 09, 2017 3:27 am

goingup wrote:
Fri Dec 08, 2017 8:51 am
Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
So it seems to me that Mr Bogle is advocating that it is unwise to invest in overpriced markets, so the best thing I can do as an indexer, is to wait until the market is fair valued or undervalued, then invest for the long term in index funds.
I think you're taking the wrong lessons from Jack Bogle. A couple of the key things I've learned are:
*Invest we must.
*Nobody knows nothing.

The Bogleheads® Philosophy
*Develop a workable plan
*Invest early and often
*Never bear too much or too little risk
*Never try to time the market
*Use index funds when possible
*Keep costs low
*Diversify
*Minimize taxes
*Keep it simple
*Stay the course
Really that's it. When he says never try to time the market he's not saying unless the Shiller is such and so, he's saying never try to time the market. As a sailor I know what "stay the course" means and it doesn't mean there won't be any storms along the way.
If I am stupid I will pay.

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Re: Does a Boglehead ever time the market?

Post by SGM » Sat Dec 09, 2017 4:33 am

If you approach him and brag about how well the BH method and the total stock market fund has performed for a recent BH convert, Jack will you remind you that markets can crash. I did not mind market crashes when I was in the accumulation stage as that meant I was buying more shares with my monthly purchases. This does not mean that it was always easy to remain fully invested.

VictoriaF invented a secret BH handshake. However, those that know exactly what it is don't tell and those that tell don't know. 8-)

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Re: Does a Boglehead ever time the market?

Post by TwstdSista » Sat Dec 09, 2017 8:16 am

In my own personal experience, timing is a sucker's bet. I lose every time. If I buy, the market goes down. If I sell, the market goes up. But I'm mostly a "set it and forget it" investor, so it doesn't really matter.

I've been re-balancing lately, and my husband did ask me not to buy in any further. That works for me, since we needed to balance out of stocks and into bonds anyway. Mostly just made some lateral moves. Money moved into a stock fund came from a different stock fund. (finally got rid of a few long-held funds. Tough triggers to pull, I seem to have an emotional attachment to decisions I made a long time ago for reasons I no longer remember....)

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Re: Does a Boglehead ever time the market?

Post by annielouise » Sat Dec 09, 2017 10:09 am

Here is my tutorial for buying stock for new investors.

Imagine that you love art, so you buy a painting for $1000. You no longer have $1000, but you do have a painting hanging on the wall. Every once in a while, you have your painting appraised for insurance purposes.
The first time it is valued at $1000.
5 years later, it is valued at $10,000. You do not have $10,000 - you have a painting. You could sell the painting and have $10,000, but you don't.
5 years later, the painting is valued at $2000. Did you lose $8000? No, you still have the same painting. If you needed money, you could sell it for $2000 and you made $1000 over your initial investment. But, you don't need money, so you keep the painting.
3 years later you DO need money and your painting is worth $15,000 and you sell it.
(3 years later it also could be worth $20, which is why one painting - or one stock - is a bad retirement plan.)

So, stock is like the painting. Once you buy stock, you own stock and do not have the money, what you have is stock that has a current value every time you check. That value can go up and down. Sometimes that value will be less than what you bought it for, but you still own the stock.

To invest in the stock market, you have to believe that the value will go up over time even though it goes down sometimes (perhaps even a lot very soon after you purchase it). If you can't believe that, then it is better not to invest because you will panic and sell low.

To answer the original question, we usually buy more stock when everyone else is panicking and selling low. So, a little bit of timing.

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Re: Does a Boglehead ever time the market?

Post by sambb » Sat Dec 09, 2017 10:12 am

I think it is best to rebalance out, if you are uncomfortable with the risk in the market. Your risk tolerance has changed, and hence you have a new allocation.

Past perfomance does not guarantee future results. Lump sum worked well for us, maybe the japanese market may tell you differently.

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Re: Does a Boglehead ever time the market?

Post by Soon2BXProgrammer » Sat Dec 09, 2017 10:15 am

i suppose you could say i timed the market..
i decided not to buy stuff, go on an extravagant vacation, because i thought stocks where cheap, and bought stocks, and i was willing to roll the dice on my vacation fund.... that just happened to be in the middle of the great recession, and it turned out great for me... Figuring out when to "get out" wasnt hard... i "had" to take my family on vacataion sooner or later, and didn't want to wait too long.. so i came out ahead...

besides that... i try not to..

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Re: Does a Boglehead ever time the market?

Post by cfs » Sat Dec 09, 2017 2:04 pm

TwstdSista wrote:
Sat Dec 09, 2017 8:16 am
. . . In my own personal experience, timing is a sucker's bet. I lose every time. If I buy, the market goes down. If I sell, the market goes up . . .
Good answer. Thank you. Here is a lesson learned on my side of the house, my retirement portfolio did much better on those years when I was away incommunicado on my military deployments (no chance to screw things up). Wishing all forum members and visitors a Merry Christmas, and thanks for reading.
~ Member of the Active Retired Force since 2014 ~

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Re: Does a Boglehead ever time the market?

Post by nedsaid » Sat Dec 09, 2017 2:13 pm

cfs wrote:
Sat Dec 09, 2017 2:04 pm
TwstdSista wrote:
Sat Dec 09, 2017 8:16 am
. . . In my own personal experience, timing is a sucker's bet. I lose every time. If I buy, the market goes down. If I sell, the market goes up . . .
Good answer. Thank you. Here is a lesson learned on my side of the house, my retirement portfolio did much better on those years when I was away incommunicado on my military deployments (no chance to screw things up). Wishing all forum members and visitors a Merry Christmas, and thanks for reading.
Sometimes we overthink our investments. The folks here are a fairly bright bunch and the temptation is to tinker in order to improve a portfolio. What you want to do as an investor is to buy good stuff and keep it. The broad stock and bond market indexes qualify as good stuff. I work with an independent broker, he worked for a major brokerage firm and went independent about 20 years ago. He says that his clients that leave well enough alone do better than his clients who tinker. Good advice.
A fool and his money are good for business.

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Re: Does a Boglehead ever time the market?

Post by flyingaway » Sat Dec 09, 2017 2:19 pm

I want to time the market, I just don't know how to do it successfully.

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Re: Does a Boglehead ever time the market?

Post by abuss368 » Sat Dec 09, 2017 2:21 pm

Indexer Matt wrote:
Fri Dec 08, 2017 2:37 am
Hi all, this is my first post… I have just finished The little Book of Common Sense Investing. The reoccurring theme that Mr Bogle reiterates is reversion to the mean.

As a beginner investor I am looking at investing in index funds. However the Shiller PE Ratio is 32, this is only the third time in history the stock market has been this overpriced (the other two times ended very badly). It would seem that a reversion to the mean is coming.

A quote from the little books sums up my dilemma…
Here’s how the Economist of London puts it: “The truth is that, for the most part, fund managers have offered extremely poor value for money. Their records of outperformance are almost always followed by stretches of underperformance. Over long periods of time, hardly any fund managers have beaten the market averages. They encourage investors, rather than spread their risks wisely or seek the best match for their future liabilities, to put their money into the most modish assets going, often just when they become overvalued. And all the while they charge their clients big fees for the privilege of losing their money. . . . (One) specific lesson . . . is the merits of indexed investing . . . you will almost never find a fund manager who can repeatedly beat the market. It is better to invest in an indexed fund that promises a market return but with significantly lower fees.”

So it seems to me that Mr Bogle is advocating that it is unwise to invest in overpriced markets, so the best thing I can do as an indexer, is to wait until the market is fair valued or undervalued, then invest for the long term in index funds.

Would Mr Bogle really advocate a new investor to put his life savings into an index fund only to have 30 to 60% wiped out, potentially overnight. Surely in this case it would be wiser to wait.
Or, is it economical to invest in an overpriced market?
I realise that once you are on the ship it makes sense to stay the course and stay in the market, but surely jumping on a ship heading from troubled water is unwise, so I should time the market?
Any help would be appreciated, investing books seem to have no advice regarding what a new investor should do in this situation.

Matt.
Hi IndexerMatt -

There are three possible strategies with investing:

1) Asset Allocation
2) Market Timing
3) Security Selection

The research is overwhelming in terms of both Market Timing and Security Selection in terms of how they do not work. Over the long term, an investors Asset Allocation with determine the return.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: Does a Boglehead ever time the market?

Post by abuss368 » Sat Dec 09, 2017 2:29 pm

AlD wrote:
Fri Dec 08, 2017 12:44 pm
...this is only the third time in history the stock market has been this overpriced (the other two times ended very badly)
"Ended very badly" for whom?

Did it really "end very badly" for someone who stayed the course? Are you assuming that those hypothetical investors who jumped in at the peak (at that point in time), also managed to have the bad luck of timing their exit and cashing out at the very bottom of those bear markets? Unfortunately, this behavior is the norm and why most investors underperform the mutual funds they are invested in. One of the great things about this forum is that those with a little more experience help to save others from themselves.

If you follow the Bogleheads tenets you will continue to invest through the inevitable bear market (if you are in the accumulation phase) and/or rebalance to your target allocation if you are in the distribution phase of your life.

The $500K that I have in the market today is no different from the $500K that you are putting into the market today. Going forward, my $500K will be subject to the same gains or losses that your $500K is subject to. It doesn't matter where I "got in." Every day I am making the decision to invest in my portfolio (even when I'm not adding new money to it). The value of each of our $500K is the same. If you feel otherwise, you are doing some funny mental accounting and letting your emotions get in the way of sound long term investing.

Create an IPS, build a portfolio you are comfortable with and stay the course.

Below is a good read, taken from the following site: http://awealthofcommonsense.com/2014/02 ... ket-timer/


What if You Only Invested at Market Peaks?

Posted February 25, 2014 by Ben Carlson


Meet Bob.

Bob is the world’s worst market timer.

What follows is Bob’s tale of terrible timing of his stock purchases.

Bob began his career in 1970 at age 22. He was a diligent saver and planner.

His plan was to save $2,000 a year during the 1970s and bump that amount up by $2,000 each decade until he could retire at age 65 by the end of 2013 (so $4,000/year in the 80s, $6,000/year in the 90s then $8,000/year until he retired).

He started out by saving the $2,000 a year in his bank account until he had $6,000 to invest by the end of 1972.

Bob’s problem as an investor was that he only had the courage to put his money to work in the market after a huge run-up.

So all of his money went into an S&P 500 index fund at the end of 1972 (I know there were no index funds in 1972, but just go with me here…see my assumptions at the bottom of the post).

The market dropped nearly 50% in 1973-74 so Bob basically put his money in at the peak of the market right before a crash.

Yet he did have one saving grace. Once he was in the market, he never sold his fund shares. He held on for dear life because he was too nervous about being wrong on both his sell decisions too.

Remember this decision because it’s a big one.

Bob didn’t feel comfortable about investing again until August of 1987 after another huge bull market. After 15 years of saving he had $46,000 to put to work. Again he put it in an S&P 500 index fund and again he invested at a market peak just before a crash.

This time the market lost more than 30% in short order right after Bob bought his index shares.

Timing wasn’t on Bob’s side so he continued to keep his money invested as he did before.

After the 1987 crash, Bob didn’t feel right about putting his future savings back into stocks until the tech bubble really ramped up at the end of 1999. He had another $68,000 of savings to put to work. This time his purchase at the end of December in 1999 was just before a 50%+ downturn that lasted until 2002.

This buy decision left Bob with some more scars but he decided to make one more big purchase with his savings before he retired.

The final investment was made in October of 2007 when he invested $64,000 which he had been saving since 2000. He rounded out his string of horrific market timing calls by buying right before another 50%+ crash from the credit blow-up.

After the financial crisis, he decided to continue to save his money in the bank (another $40,000) but kept his stock investments in the market until he retired at the end of 2013.

To recap, Bob was a terrible market timer with his only stock market purchases being made at the market peaks just before extreme losses.

Here are the purchase dates, the crashes that followed and the amount invested at each date:

Date of Investment / Subsequent crash / Amount Invested
December 1972 / -48% / $6,000
August 1972 / -34% / $46,000
December 1999 / -49% / $68,000
October 2007 / -52% / $64,000
________________________________________________________________________
Total Invested $184,000


Luckily, while Bob couldn’t time his buys, he never sold out of the market even once. He didn’t sell after the bear market of 1973-74 or the Black Monday in 1987 or the technology bust in 2000 or the financial crisis of 2007-09.

He never sold a single share.

So how did he do?

Even though he only bought at the very top of the market, Bob still ended up a millionaire with $1.1 million.

How could that be you might ask?

First of all Bob was a diligent saver and planned out his savings in advance. He never wavered on his savings goals and increased the amount he saved over time.

Second, he allowed his investments to compound through the decades by never selling out of the market over his 40+ years of investing. He gave himself a really long runway.

He did have to endure a huge psychological toll from seeing large losses and sticking with his long-term mindset, but I like to think Bob didn’t pay much attention to his portfolio statements over the years. He just continued to save and kept his head down.

And finally, he had a very simple and low-cost investment plan — one index fund with minimal costs.

Obviously, this story was for illustrative purposes and I wouldn’t recommend a portfolio consisting of 100% in stocks of a single market in the S&P 500 unless you have an extremely high risk tolerance. Even then a more balanced portfolio in different global markets with a sound rebalancing policy makes much more sense.

And if he would have simply dollar cost averaged into the market on an annual basis with his savings he would have ended up with much more money in the end (over $2.3 million).

But then he wouldn’t be Bob, The World’s Worst Market Timer.

Lessons from Bob’s Journey:
•If you are going to make investment mistakes, make sure you are biased towards optimism and not pessimism. Long-term thinking has been rewarded in the past and unless you think the world or innovation is coming to an end it should be rewarded in the future. As Winston Churchill once said, “I am an optimist. It does not seem too much use being anything else.”
•Losses are part of the deal when investing in stocks. How you react to those losses is one of the biggest determinants of your investment performance.
•Saving more, thinking long-term and allowing compound interest to work in your favor are your biggest accelerants for building wealth. These factors have nothing to do with picking stocks or a complex investment strategy. Get these big things right and any disciplined investment strategy should do the trick.

*******

***Assumptions and disclaimers: This is fictional and is in no way how you should invest your money. It takes nerves of steel to hold 100% of your portfolio in stocks for decades on end. This is purely an exercise in the power of long-term thinking and compounding. I used the S&P 500 less a 0.20% expense ratio from the 1972 until 1977 when the Vanguard 500 Fund had its first full year. I used the Vanguard 500 Fund from 1977 on so these were actual results from a real fund, not purely hypothetical.
Hi AID -

I read that story and it certainly does have impact. Time in the market and staying the course are key.

Thank you for sharing.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Indexer Matt
Posts: 3
Joined: Thu Dec 07, 2017 11:12 pm
Location: New Zealand

Re: Does a Boglehead ever time the market?

Post by Indexer Matt » Sat Dec 09, 2017 6:35 pm

Wow that is a lot of replies and a lot of info to digest, thanks to everyone for the advice and the time spent replying, its a bit overwhelming I feel like I have dived in head first. For the record I am 34, timeframe is 20 years + and my nestegg is a lump sum, not a few hundred.

In particular thanks to…

"Nedsaid: Matt, I have market timed in its mildest forms. In general, you buy, hold, and rebalance. Even Mr. Bogle has advocated shifts of maybe 20% of your portfolio when markets get overheated. The US market is richly priced but one thing to keep an eye out for is that there has been a shift in the economy. The surprises now are on the upside and not the downside. We have gone from the "new normal" of 1% to 2% economic growth and we are seeing a return to more historic GDP growth rates of 3% plus. It this continues to be true, higher P/E ratios will be justified. A better economy equals better earnings."

Thanks to CnC for summing up the dilemma

Thanks to Magneto for pointing out that I am not trying to time the market, I am considering pricing the market. In my ignorance I was using the wrong lingo.

Lastly thanks to all who pointed out Investor Bob and the other background reading, very, very valuable resources.

So my conclusions are…
It seems that the hardest decision is to invest my nestegg either via Dollar Cost Averaging or all at once. (I am leaning towards going all in)
It also seems that the heart of my dilemma can be solved by asset allocation. If I were to invest a large percentage into high quality bonds I could actually benefit from any reversion to the mean in the stock market. Perhaps 70% in bonds.

Now regarding my comments that the market is overpriced, I will defend my position

"Mean reversion refers to the tendency of asset prices to return to a trend path” https://www.bogleheads.org/wiki/Mean_reversion

The average p/e ratio is around 16, right now it is a lot higher. Nothing anyone says will shake my belief in gravity. Gravity is clearly the concept I take from reversion to the mean.

In this article Jack Bogle states “"I don't feel super confident in the stock market. By any historical standards, it's pretty fully valued," the 87-year-old founder of Vanguard told CNNMoney in a phone call.
Bogle isn't calling it a bubble yet, but he think stocks are clearly expensive. His view is in stark contrast to another famous investor, Warren Buffett, who recently dubbed the market "cheap."”
http://money.cnn.com/2017/03/08/investi ... index.html

However it does seem that even if the market is overpriced I agree with the consensus that it’s still a good ideal to get in the market. I just don’t think the bulk of my nest egg will be in stocks at the moment. Nedsaid has indicated that Mr Bogle does shift a percentage of assets when certain areas get overheated.

So it seems that I need to work out two asset allocation strategies, a short term strategy higher in Vanguard bonds, and a long term strategy higher in Vanguard stocks. The switching point will be when the stock market bottoms at the end of its next cycle. I agree that it doesn't matter when this happens, just that it will happen.

This means I will be pricing the market to full advantage in accordance with an inevitable reversion to the mean, without timing the market or trying to predict when things are going to happen.

Will this plan give me my Boglehead tattoo or am I still lacking? :)

Right now I am reading the "Bogleheads Guide to investing" lots of good info in that book as well.

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