Buy High, Sell Low : Avoid Market Timing

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mbk734
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Buy High, Sell Low : Avoid Market Timing

Post by mbk734 » Sun Feb 01, 2015 10:25 am

Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities. The market tanks so you sell your equities and lose faith in investing.

This is what is great about the Lifestrategy Funds with a fixed equity/bond ratio. You are less tempted to time the market.

I can think of a few ways to help yourself to avoid market timing:

1. Rebalance once a year or use Lifestrategy/Target Date funds
2. Set up automatic investing/rebalancing
3. Don't read the news or watch Bloomberg
4. Make an investment plan and stick to it
5. Change your brokerage password to something you won't remember :mrgreen:

How do you avoid market timing?
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Re: Buy High, Sell Low : Avoid Market Timing

Post by BeneIRA » Sun Feb 01, 2015 10:40 am

While I personally don't have this problem, two ways to combat that would be Dollar Cost Averaging via automatic contributions or investing in one Lump Sum. Especially for a Roth IRA contribution, a bunch of Bogleheads just put in the $5,500 at the beginning of the year and were done with it. No need to care about the market because the Roth IRA is maxed out. Now, if you are referring to your taxable account and you don't have the LS to invest, I would DCA at the same time each month, ideally via automatic contributions from a checking account, and then don't pay attention. You have to emotionally separate yourself from it until you need the money. If you have an automatic system set up and vow not to touch it, or you put a LS into the market, then just let it be. You researched your options, probably selected a three fund portfolio in the AA you wanted, and just trust yourself.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by livesoft » Sun Feb 01, 2015 11:02 am

mbk734 wrote:Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities. The market tanks so you sell your equities and lose faith in investing.
[…]
How do you avoid market timing?

No, I don't find myself doing this. Instead, I put into my IPS that I must buy on RBDs, so I am definitely buying when the market tanks. I do not try to avoid market timing. Instead, I try to avoid bad market timing.

An example of bad market timing might be to invest one's Roth IRA contribution all at once at January 2nd.
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Re: Buy High, Sell Low : Avoid Market Timing

Post by Peter Foley » Sun Feb 01, 2015 11:11 am

mbk734 wrote:
Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities. The market tanks so you sell your equities and lose faith in investing.
[…]
How do you avoid market timing?


I think a basic understanding of the psychology of investing helps. I contend that human beings are not wired well for investing. When there is pleasure (stock market up) we want more, when there is pain (stock market down) we want it to stop. The greater the pleasure, the harder it is not to buy high, the greater the pain, the harder it is not to sell low.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by Sbashore » Sun Feb 01, 2015 11:44 am

Peter Foley wrote:
mbk734 wrote:
Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities. The market tanks so you sell your equities and lose faith in investing.
[…]
How do you avoid market timing?


I think a basic understanding of the psychology of investing helps. I contend that human beings are not wired well for investing. When there is pleasure (stock market up) we want more, when there is pain (stock market down) we want it to stop. The greater the pleasure, the harder it is not to buy high, the greater the pain, the harder it is not to sell low.


I agree with Peter Foley. Naming your demons, so to speak helps you deal with them. Knowing this, and having the benefit of experience, all my investment decisions have already been made in the form of an investment plan. I've implemented this plan using Excel so all I have to do now is fill in the balances and do what the calculations say. It's been working for decades so I'm pretty confident I've found the plan that suits me.
Steve | Semper Fi

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Never again

Post by Taylor Larimore » Sun Feb 01, 2015 11:57 am

How do you avoid market timing?

Easy.

I tried various forms of market-timing for about 10-12 years beginning in the 60s. Not only did I spend a lot of money on market-timing books and newsletters, I wasted a lot of valuable time and significantly under-performed the market.

Never again.

Best wishes.
Taylor
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Re: Buy High, Sell Low : Avoid Market Timing

Post by baw703916 » Sun Feb 01, 2015 2:38 pm

Peter Foley wrote:
mbk734 wrote:
Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities. The market tanks so you sell your equities and lose faith in investing.
[…]
How do you avoid market timing?


I think a basic understanding of the psychology of investing helps. I contend that human beings are not wired well for investing. When there is pleasure (stock market up) we want more, when there is pain (stock market down) we want it to stop. The greater the pleasure, the harder it is not to buy high, the greater the pain, the harder it is not to sell low.


Whenever I read posts like this I think my brain must be wired backwards from everybody else's. In early 2009 I was happy to invest my IRA contributions in the riskiest asset classes I could find. In late 2013 the equities market seemed to be doing a little too well, and so I increased the bonds in my AA by about 10% (and have kept them there since then). This was in fact what my intuition was telling me to do.
Most of my posts assume no behavioral errors.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by tyler_cracker » Sun Feb 01, 2015 3:12 pm

baw703916 wrote:Whenever I read posts like this I think my brain must be wired backwards from everybody else's. In early 2009 I was happy to invest my IRA contributions in the riskiest asset classes I could find. In late 2013 the equities market seemed to be doing a little too well, and so I increased the bonds in my AA by about 10% (and have kept them there since then). This was in fact what my intuition was telling me to do.


i'd say your brain is wired the same as everyone else's because it still thinks it can time the market! it even invoked "intuition" so you'd feel comfortable doing it.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by GoldenFinch » Sun Feb 01, 2015 3:20 pm

livesoft wrote:
mbk734 wrote:Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities. The market tanks so you sell your equities and lose faith in investing.
[…]
How do you avoid market timing?

No, I don't find myself doing this. Instead, I put into my IPS that I must buy on RBDs, so I am definitely buying when the market tanks. I do not try to avoid market timing. Instead, I try to avoid bad market timing.

An example of bad market timing might be to invest one's Roth IRA contribution all at once at January 2nd.


RBD = Really Bad Days :D

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Re: Buy High, Sell Low : Avoid Market Timing

Post by baw703916 » Sun Feb 01, 2015 3:23 pm

tyler_cracker wrote:
baw703916 wrote:Whenever I read posts like this I think my brain must be wired backwards from everybody else's. In early 2009 I was happy to invest my IRA contributions in the riskiest asset classes I could find. In late 2013 the equities market seemed to be doing a little too well, and so I increased the bonds in my AA by about 10% (and have kept them there since then). This was in fact what my intuition was telling me to do.


i'd say your brain is wired the same as everyone else's because it still thinks it can time the market! it even invoked "intuition" so you'd feel comfortable doing it.


Seriously, do you see no difference whatsoever in what I wrote and the first paragraph of the OP? What transaction would rebalancing cause someone to make in early 2009? How about in late 2013? What transactions did I make at those two times?
Most of my posts assume no behavioral errors.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by stlutz » Sun Feb 01, 2015 3:26 pm

I avoid it by following all of the BH threads about the great bond crash of 2010 2011 2012 2013 2014 2015.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by tyler_cracker » Sun Feb 01, 2015 3:36 pm

baw703916 wrote:Seriously, do you see no difference whatsoever in what I wrote and the first paragraph of the OP?


not really, no:

op wrote:The market is on a roll doing great so you get greedy and buy more equities.


you wrote: In late 2013 the equities market seemed to be doing a little too well, and so I increased the bonds in my AA



you changed your strategy based on current market conditions, which is classic market timing.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by mbk734 » Sun Feb 01, 2015 3:44 pm

livesoft wrote:An example of bad market timing might be to invest one's Roth IRA contribution all at once at January 2nd.


I don't see why this would be bad necessarily. Isn't lump sum investing generally preferred to DCA?

livesoft wrote:No, I don't find myself doing this. Instead, I put into my IPS that I must buy on RBDs, so I am definitely buying when the market tanks. I do not try to avoid market timing. Instead, I try to avoid bad market timing.


Do you also sell on RGD's? :mrgreen:

Peter Foley wrote:I think a basic understanding of the psychology of investing helps. I contend that human beings are not wired well for investing. When there is pleasure (stock market up) we want more, when there is pain (stock market down) we want it to stop. The greater the pleasure, the harder it is not to buy high, the greater the pain, the harder it is not to sell low.


Good point. It is easier said than done to avoid behavioral errors with investing. It is far better to learn from others mistakes than your own. Another pitfall is checking your account everyday.

stlutz wrote:I avoid it by following all of the BH threads about the great bond crash of 2010 2011 2012 2013 2014 2015.

I too enjoy the doomsday articles saying the market is going to crash every year.
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Re: Buy High, Sell Low : Avoid Market Timing

Post by baw703916 » Sun Feb 01, 2015 4:03 pm

tyler_cracker wrote:
baw703916 wrote:Seriously, do you see no difference whatsoever in what I wrote and the first paragraph of the OP?


not really, no:

op wrote:The market is on a roll doing great so you get greedy and buy more equities.


you wrote: In late 2013 the equities market seemed to be doing a little too well, and so I increased the bonds in my AA



you changed your strategy based on current market conditions, which is classic market timing.


Right. Buying equities and selling them to buy bonds is the same thing!

I didn't act on just intuition, by the way (not that I feel I owe you any explanation whatsoever). My net worth had increased considerably due to the good performance of equities in 2013, I've gotten a few years older, and so I concluded that my need to take risk had gone down, So, I lowered my equity AA.

My point, which you seem to have missed, was that unlike the posts that seem to always appear regarding market timing, my intuitive reaction generally points in the same direction as do considerations of rebalancing and need/ability to take risk.
Most of my posts assume no behavioral errors.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by tyler_cracker » Sun Feb 01, 2015 4:29 pm

baw703916 wrote:Right. Buying equities and selling them to buy bonds is the same thing!


it's market timing not because of what you buy or sell. it's market timing because of why you choose to buy or sell.

I didn't act on just intuition, by the way (not that I feel I owe you any explanation whatsoever).


(bold added) so intuition *is* part of the decision-making process?

My net worth had increased considerably due to the good performance of equities in 2013, I've gotten a few years older, and so I concluded that my need to take risk had gone down, So, I lowered my equity AA.


i agree these are all sound reasons to change your AA. but that's not what you said in your first post:

your first post wrote:In late 2013 the equities market seemed to be doing a little too well, and so I increased the bonds in my AA


so i apologize for being confused when you said you changed your AA due to X but it turns out it was do to Y, Z, but maybe also X?

My point, which you seem to have missed, was that unlike the posts that seem to always appear regarding market timing, my intuitive reaction generally points in the same direction as do considerations of rebalancing and need/ability to take risk.


my point is that you seem to have the same cognitive biases as the rest of us regarding market timing.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by Toons » Sun Feb 01, 2015 4:34 pm

"Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities."

No I do not,,but try this timing strategy,,,It probably won't make a difference,but only buy shares when the market drops in triple digit figures during the day,Never buy when the market is headed higher. :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

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Re: Buy High, Sell Low : Avoid Market Timing

Post by mbk734 » Sun Feb 01, 2015 4:39 pm

Toons wrote:"Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities."

No I do not,,but try this timing strategy,,,It probably won't make a difference,but only buy shares when the market drops in triple digit figures during the day,Never buy when the market is headed higher. :happy


I actually prefer the market to tank, it's like a black friday sale on stocks! :happy
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Re: Buy High, Sell Low : Avoid Market Timing

Post by Ki_poorrichard » Sun Feb 01, 2015 5:36 pm

mbk wrote: I actually prefer the market to tank, it's like a black friday sale on stocks!


Be careful on what you wish for... it just might happen but long, hard, and relentlessly. We live in a crazy world.. anything is possible and nothing is guaranteed especially in investing. That's my personal take on it. It would behoove anyone of us to reassess our asset allocation, risk tolerance, and emotional stability. Once you establish where your at with those three then lock-in your IPS and throw away the key.

Here's two quotes that puts market timing into perspective:
"After nearly fifty years in this business, I do not know anybody who has done it successfully and consistently. I don't even know anybody who knows anybody that's done it successfully and consistently." - John C. Bogle


"Very often we are our own worst enemy as we foolishly build stumbling blocks on the path that leads to success and happiness." - Louis Binstock
Last edited by Ki_poorrichard on Sun Feb 01, 2015 10:41 pm, edited 2 times in total.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by Toons » Sun Feb 01, 2015 5:40 pm

mbk734 wrote:
Toons wrote:"Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities."

No I do not,,but try this timing strategy,,,It probably won't make a difference,but only buy shares when the market drops in triple digit figures during the day,Never buy when the market is headed higher. :happy


I actually prefer the market to tank, it's like a black friday sale on stocks! :happy


:sharebeer Now you speaking my language
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Buy High, Sell Low : Avoid Market Timing

Post by Toons » Sun Feb 01, 2015 5:48 pm

Ki_poorrichard wrote:
mbk wrote: I actually prefer the market to tank, it's like a black friday sale on stocks!


Be careful on what you wish for... it just might happen but long, hard, and relentlessly. We live in a crazy world.. anything is possible and nothing is guaranteed especially in investing. That's my personal take on it. It would behoove anyone one of us to reassess our asset allocation, risk tolerance, and emotional stability. Once you establish where your at with those three then lock-in your IPS and throw away the key.

Here's two quotes that puts market timing into perspective:

"After nearly fifty years in this business, I do not know anybody who has done it successfully and consistently. I don't even know anybody who knows anybody that's done it successfully and consistently." - John C. Bogle

"Very often we are our own worst enemy as we foolishly build stumbling blocks on the path that leads to success and happiness." - Louis Binstock



Simply Put,Be fearful when others are greedy. Be greedy when others are fearful."Buffett
: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

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Re: Buy High, Sell Low : Avoid Market Timing

Post by IPer » Sun Feb 01, 2015 6:06 pm

I found I don't have time or energy to worry about breaking up the Roth IRA contribution of $5500 (now $6500) into smaller amounts and making a monthly deposit
even automatic and watching that is annoying. However, Firecalc says all I have to do is keep doing that for x more years and everything is 100% fine for my goals,
which may be a false comfort, however, as other cash comes in it gets invested accordingly either in tax-deffered or taxable so hopefully cash will keep coming in
long enough so it doesn't matter. As for livesoft's comment and picking RBD's, I have seen some that look bad but not quite bad enough, if I have a chunk of cash
around at those times and my IPS/AA require balancing and I can find something that is in accordance to what I am trying to build up I will buy it at that time. I bought
Cisco at that time, and then it continued to go down, I bought a bit more, it went down further! I never sold it, it is up above what I paid in every time I bought so
far, I think even Target is up. But my Roth contributions go to Target Funds, I tend to like those more than single stocks. But I wouldn't mind having 50-100 very
nice single stock positions with money above the necessity!

Wow that was a bit of a ramble...sorry!
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Re: Buy High, Sell Low : Avoid Market Timing

Post by Ki_poorrichard » Sun Feb 01, 2015 6:23 pm

Toons wrote: Simply Put,Be fearful when others are greedy. Be greedy when others are fearful."Buffett


Better yet,
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." - Warren Buffett


:D

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Re: Buy High, Sell Low : Avoid Market Timing

Post by pascalwager » Mon Feb 02, 2015 1:33 am

For every investor who follows a value approach, there must be an investor who follows a growth strategy or buys high and sells low because he is exposed to the value risk at work or otherwise averse to the value risk (John Cochrane).

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Re: Buy High, Sell Low : Avoid Market Timing

Post by z3r0c00l » Mon Feb 02, 2015 7:12 am

I don't sell my investments at all, since they are meant to be 10+ year investments. Instead I rebalance by buying most whatever is lagging. That feels good emotionally, even though it is not exactly buying low, it feels like it! Nothing is cheap right now so it gets harder. If I don't feel right one quarter, there is always the option to keep a few thousand extra in the bank account for a while. Keeping emotions in check is important.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by obgyn65 » Mon Feb 02, 2015 8:33 am

To the OP- I avoid market timing simply by buying 10-year CDs, deferred annuities and munis mainly.
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Re: Buy High, Sell Low : Avoid Market Timing

Post by pkcrafter » Mon Feb 02, 2015 10:16 am

Peter Foley wrote:
I think a basic understanding of the psychology of investing helps. I contend that human beings are not wired well for investing. When there is pleasure (stock market up) we want more, when there is pain (stock market down) we want it to stop. The greater the pleasure, the harder it is not to buy high, the greater the pain, the harder it is not to sell low.

Excellent insight. Rule 1. Investor, know thyself.

According to the replies in this thread, I guess no one makes behavioral errors, or those that do recognize themselves and chose not to post in this thread. What about the recent trend for posters to rationally conclude they really don't need international? What about those who are increasing REITs in their portfolio. The point is people do slide, but they don't see themselves as making the error.

Poorrichard wrote:
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." - Warren Buffett

Thanks, I've not seen this one before. It's a keeper. :!:

Paul
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Re: Buy High, Sell Low : Avoid Market Timing

Post by uclalien » Mon Feb 02, 2015 11:51 am

livesoft wrote:An example of bad market timing might be to invest one's Roth IRA contribution all at once at January 2nd.


Why do you consider investing on January 2nd an example of bad market timing? Are you implying that dollar cost averaging is a better approach than lump sum investing?

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Re: Buy High, Sell Low : Avoid Market Timing

Post by kaudrey » Tue Feb 03, 2015 10:57 am

My 401(k) and IRA contributions are on autopilot; and I generally rebalance by changing the allocation of those contributions as compared to selling stocks to buy bonds or vice versa.
So I don't buy mores stocks (proportionately) as the market goes up.

But I invest in taxable as well. I did let the cash build up a bit toward the end of 2014 while the DOW was over 18,000, as I don't buy bonds in my taxable account but count cash/bonds together for allocation purposes, and my bond/cash allocation was low due to the high stock market. In January I invested some of the cash in equity funds as the market pulled back. So I guess I was waiting to buy lower, and I consider it a rebalance, since I am within my desired AA, but I guess you could say I market timed a bit?

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Re: Buy High, Sell Low : Avoid Market Timing

Post by baw703916 » Tue Feb 03, 2015 11:17 am

uclalien wrote:
livesoft wrote:An example of bad market timing might be to invest one's Roth IRA contribution all at once at January 2nd.


Why do you consider investing on January 2nd an example of bad market timing? Are you implying that dollar cost averaging is a better approach than lump sum investing?


I'm pretty sure he's not saying that. It depends on the year of course. In 2008 it was terrible market timing; in 2009 it was fantastic. But in general making an IRA contribution at the beginning of the year should give you a higher expected value in your IRA, simply due to more time in the market.
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Re: Buy High, Sell Low : Avoid Market Timing

Post by livesoft » Tue Feb 03, 2015 9:18 pm

On the Roth IRA thing, I think one should buy something that has gone down at least a little bit during the year. So on Jan 2, there is nothing that has gone down yet. It is rather rare for Jan 2 to be the lowest day of the year for everything that one would want to purchase. I will grant you that Jan 2 was the lowest day for a couple of recent years, but one could find something else to buy.

And besides, I think it is bad karma to buy when one does not have compensation yet to cover that buy. Sure, many folks expect to get enough compensation to cover it, but they also might die beforehand. We never hear about those folks.
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Re: Buy High, Sell Low : Avoid Market Timing

Post by Purelife304 » Tue Feb 03, 2015 9:31 pm

Peter Foley wrote:
mbk734 wrote:
Do you ever find yourself doing this? The market is on a roll doing great so you get greedy and buy more equities. The market tanks so you sell your equities and lose faith in investing.
[…]
How do you avoid market timing?


I think a basic understanding of the psychology of investing helps. I contend that human beings are not wired well for investing. When there is pleasure (stock market up) we want more, when there is pain (stock market down) we want it to stop. The greater the pleasure, the harder it is not to buy high, the greater the pain, the harder it is not to sell low.



Hmmm, I wonder if masochists have better long term returns???

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Re: Buy High, Sell Low : Avoid Market Timing

Post by Peter Foley » Tue Feb 03, 2015 11:19 pm

livesoft wrote:

On the Roth IRA thing, I think one should buy something that has gone down at least a little bit during the year. So on Jan 2, there is nothing that has gone down yet. It is rather rare for Jan 2 to be the lowest day of the year for everything that one would want to purchase. I will grant you that Jan 2 was the lowest day for a couple of recent years, but one could find something else to buy.


Ah, but with the possibility of recharacterization, why not do January 2nd? At any time for the next 364 days you can have a do-over after a decline.

purelife304 wrote:

Hmmm, I wonder if masochists have better long term returns???


I don't know. But I have read that optimists are poor investors.

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Re: Buy High, Sell Low : Avoid Market Timing

Post by Confuscious » Fri Feb 13, 2015 12:13 pm

How to avoid market timing: What about a dedicated dividend payout fund? These type of funds don't have much price appreciation during bulls. Therefore, if one had a large lump sum to invest and was concerned about market highs, this could be a good buy?

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