World's worst market timer. Buy high, sell... never?

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jasc15
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World's worst market timer. Buy high, sell... never?

Post by jasc15 » Fri May 29, 2015 3:02 pm

Just came across this. Thought it might be a fun read.

http://awealthofcommonsense.com/worlds- ... ket-timer/

Bob makes all his stock purchases at historic high points over the past 40 years.
Meet Bob.

Bob is the world’s worst market timer.

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

..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:

Image

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.

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
Last edited by jasc15 on Fri May 29, 2015 10:31 pm, edited 1 time in total.

artibug
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Re: World's worst market timer. Buy high, sell... never?

Post by artibug » Fri May 29, 2015 3:15 pm

Very interesting reading. Thank you for sharing. Good lesson to keep in mind when the market drops. :?

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Ged
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Re: World's worst market timer. Buy high, sell... never?

Post by Ged » Fri May 29, 2015 3:22 pm

Interesting, however I wonder if his returns are as good if he had just bought some conservative bonds and never bought equities at all?

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Re: World's worst market timer. Buy high, sell... never?

Post by RyanHorizon » Fri May 29, 2015 3:24 pm

This was a very good read and gave me great peace of mind. Just last week my wife and I opened ROTH IRAs with Vanguard and are contributing the max every year on top of my Traditional IRA and her 401K. I have my contribution schedule set to invest every other week as to not lose out on any market downturns. I'm trying not to be the world's worst market timer. I'm 27 years old now, and 30 years from now I hope to have a few million to retire on. It actually seems possible.

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Re: World's worst market timer. Buy high, sell... never?

Post by lack_ey » Fri May 29, 2015 3:33 pm

OP, you probably don't want to quote the entire article, even if you link it.
Ged wrote:Interesting, however I wonder if his returns are as good if he had just bought some conservative bonds and never bought equities at all?
I wonder what you'd consider as "conservative" as bonds were perceived as pretty risky through a lot of the period.

Doing a quick check with 10-year Treasury returns, I don't have intrayear data, but Bob would have ended up with approximately $650,000 if rolling those 10-year T-Notes (assuming no tax) and adding in new money on approximately those dates.

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Re: World's worst market timer. Buy high, sell... never?

Post by LadyGeek » Fri May 29, 2015 6:41 pm

lack_ey wrote:OP, you probably don't want to quote the entire article, even if you link it.
I would agree, but I don't see a copyright notice anywhere in that blog. Perhaps the OP could edit the post to summarize the salient points.
Quoting outside material

The forum is not a clipping service. Please keep copyright restrictions in mind and reproduce only materials that qualify under fair use and limit your quotation to the minimum necessary to make your point. When possible, provide links to the original so that those interested can read an excerpt in context.
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Re: World's worst market timer. Buy high, sell... never?

Post by madbrain » Fri May 29, 2015 7:07 pm

What was his annualized rate of return ?

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jasc15
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Re: World's worst market timer. Buy high, sell... never?

Post by jasc15 » Fri May 29, 2015 10:28 pm

I know it is sometimes inconvenient to read from an outside webpage so I included the full text for reader convenience, as well as the link for proper reference. Although there doesn't appear to be a copyright notice on the referenced blog, I will edit my OP to summarize the main points per the forum guidelines.

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Re: World's worst market timer. Buy high, sell... never?

Post by LadyGeek » Sat May 30, 2015 2:35 pm

Thanks. I'm not a lawyer, but someone PM'd me that all works are copyrighted as soon as they are published - the copyright notice is not needed. See: Berne Convention (History)

Back on-topic, here's another real-world example: A different approach to asset allocation, a 29 page thread.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: World's worst market timer. Buy high, sell... never?

Post by letsgobobby » Sat May 30, 2015 2:53 pm

This is an old story, and it makes a good point, but it relies on two conditions. First, that Bob did not HAVE to sell. That means he didn't get sick, laid off, disabled, or retired, in any kind of permanent way. If he was 22 when he started, he's 65 now, so that's certainly possible but it isn't guaranteed. For many investors it won't be the case. That brings me to the second condition, related. That is, we've had a wonderful recovery in the last 6 years: in fact, nearly unprecedented (6 year bull market with only a single significant correction in 2011). So it's nice to make this calculation when stocks are at their all time highs. And it's nice for Bob that he didn't get disabled, or retired, or laid off permanently, before the present, because if he had, this picture would not have looked so rosy. In fact, in 2008-09, many nearly 60 year old workers did get laid off permanently, and had to live off their portfolios earlier than planned: in Bob's case, it would have been 70% smaller, or only about $400,000. That's a lot different than $1.1 million.

The most dangerous lesson to have learned from the 2008-09 crash is that 'stocks always recover.' I am sure that one day, the US market will go to zero. It will probably not happen in my lifetime. Furthermore, one day the US market will go down 75% and not bounce back in 5 years. It might end up going to zero that time. It might end up recovering in 20 years. I hope I don't live to see it, nor my children or their children. But my eventual grandchildren may not die for another 120 years. That's half the age of the United States today. A lot can happen to a country and its stock market over 120 years. I wouldn't put all my eggs in that basket no matter what Jack Bogle or Warren Buffett tell me.

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Re: World's worst market timer. Buy high, sell... never?

Post by takethree » Sat May 30, 2015 3:58 pm

letsgobobby wrote:This is an old story, and it makes a good point, but it relies on two conditions. First, that Bob did not HAVE to sell. That means he didn't get sick, laid off, disabled, or retired, in any kind of permanent way. If he was 22 when he started, he's 65 now, so that's certainly possible but it isn't guaranteed. For many investors it won't be the case. That brings me to the second condition, related. That is, we've had a wonderful recovery in the last 6 years: in fact, nearly unprecedented (6 year bull market with only a single significant correction in 2011). So it's nice to make this calculation when stocks are at their all time highs. And it's nice for Bob that he didn't get disabled, or retired, or laid off permanently, before the present, because if he had, this picture would not have looked so rosy. In fact, in 2008-09, many nearly 60 year old workers did get laid off permanently, and had to live off their portfolios earlier than planned: in Bob's case, it would have been 70% smaller, or only about $400,000. That's a lot different than $1.1 million.
This is very true. Lots of investment advice and financial thought experiments contain assumptions that are exasperating, tacitly elitist, or downright oblivious to the material conditions of most people who work for a living.

But this story is admittedly artificial, and it shows that for whatever amount you can afford to invest, even the worst scenarios aren't total losses in the long term. And furthermore, the counter scenarios you describe prove the wisdom of automated glide paths for people who wouldn't otherwise know that to have all of one's money in stocks just before retirement is a risky idea... which is most ordinary working people who have a minimal understanding of their 401ks.

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Re: World's worst market timer. Buy high, sell... never?

Post by letsgobobby » Sat May 30, 2015 4:03 pm

takethree wrote:
But this story is admittedly artificial, and it shows that for whatever amount you can afford to invest, even the worst scenarios aren't total losses in the long term if your long term is 43 years and you can promise to retire at an all time market high.
agreed, though I just added one simple important clause.
And furthermore, the counter scenarios you describe prove the wisdom of automated glide paths for people who wouldn't otherwise know that to have all of one's money in stocks just before retirement is a risky idea... which is most ordinary working people who have a minimal understanding of their 401ks.
agreed

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Re: World's worst market timer. Buy high, sell... never?

Post by KC1983 » Sat May 30, 2015 6:28 pm

letsgobobby wrote:This is an old story, and it makes a good point, but it relies on two conditions. First, that Bob did not HAVE to sell. <snip>That brings me to the second condition ... we've had a wonderful recovery in the last 6 years: in fact, nearly unprecedented <snip>

The most dangerous lesson to have learned from the 2008-09 crash is that 'stocks always recover.' I am sure that one day, the US market will go to zero. It will probably not happen in my lifetime. Furthermore, one day the US market will go down 75% and not bounce back in 5 years. It might end up going to zero that time. It might end up recovering in 20 years. I hope I don't live to see it, nor my children or their children. But my eventual grandchildren may not die for another 120 years. That's half the age of the United States today. A lot can happen to a country and its stock market over 120 years. I wouldn't put all my eggs in that basket no matter what Jack Bogle or Warren Buffett tell me.
I've never seen anyone suggest investing in equities and staying the course who didn't also explicitly recommend having a substantial emergency fund, as well as avoiding investing money that one might need in the next few years. When I read a scenario like the one above, I don't imagine that 'Bob' put every saved penny into those horribly timed 4 lump sum investments, and had no other savings/investments/assets. If Bob did that, Bob's an idiot, and is not remotely following the advice one gets here.

What does Bob's hypothetical picture look like if he followed conventional advice, and invested $666 in bonds in 1972 (10% of his total investment), and $19700 in bonds in 1987 (30% of his total investment), an additional 4$5K bond investment in 1999 (40%), and $64k in bonds in 2007 (close to retirement and now 50/50)? Or what if Bob was 100% an equity investor, but averaged $600/year in equity investment from 1972-1981, and $4600/year in equities from 1987-1996, and $10k/yr from 1999-2005, and $8k/yr from 2007-now?

We can only invest in the world as we know it. Who knows what the world will be like in 120 years? Who cares? This hypothetical story is an illustration that points out the futility of trying to wait till the perfect time to invest, and the futility of obsessing about a stock market crash. What we DO know, as much as we know anything, is that when the stock market drops, an investor's worst play is to pull out of that market at the bottom. The second worst play is to sit on the sidelines in the years after the market drops. The conventional Bogelhead wisdom is that one should only invest in equities up to the point that they can live with a large loss in the short run, that one should only be 100% in stocks as an investment if one is young, risk tolerant, and has a very long investment horizon, and that everyone should have a substantial emergency fund.

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Re: World's worst market timer. Buy high, sell... never?

Post by stocknoob4111 » Tue Nov 13, 2018 1:59 pm

sorry to resurrect this thread but I was just thinking about this article regarding the world's worst market timer. The key element that is missing here is that Bob had 41 years to ride the market (2013-1972). However, most people who are not in the markets for one reason or the other are more likely to have a much later start, perhaps mid 30s or early 40s or even at 50.

Investing at the market peak without a 4 decade window could have a drastically different result. I wonder what would happen to Bob if he started in 1985 at age 35. Another error to this thesis is that Bob invested 100% in the S&P500, who exactly has a 100% domestic equity portfolio?

A better study would've been to invest only at market peaks with a more reasonable 20 year window and a typical portfolio 60 US/20 ex-US/20 Bonds.

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Re: World's worst market timer. Buy high, sell... never?

Post by willthrill81 » Tue Nov 13, 2018 2:06 pm

stocknoob4111 wrote:
Tue Nov 13, 2018 1:59 pm
sorry to resurrect this thread but I was just thinking about this article regarding the world's worst market timer. The key element that is missing here is that Bob had 41 years to ride the market (2013-1972). However, most people who are not in the markets for one reason or the other are more likely to have a much later start, perhaps mid 30s or early 40s or even at 50.

Investing at the market peak without a 4 decade window could have a drastically different result. I wonder what would happen to Bob if he started in 1985 at age 35. Another error to this thesis is that Bob invested 100% in the S&P500, who exactly has a 100% domestic equity portfolio?

A better study would've been to invest only at market peaks with a more reasonable 20 year window and a typical portfolio 60 US/20 ex-US/20 Bonds.
First, this was merely a hypothetical illustration. It's hard to imagine that anyone would actually do what this hypothetical person did.

What you seem to be overlooking is that once a person hits retirement, they don't immediately sell all of their equities. Many Bogleheads keep a 50% or greater stock allocation throughout retirement. So even if a person doesn't start investing until 35, it's very conceivable that they have a 50 year horizon to buy and/or hold equities.

And yes, many Bogleheads have a 100% U.S. portfolio.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: World's worst market timer. Buy high, sell... never?

Post by Random Musings » Tue Nov 13, 2018 5:16 pm

And after all those years, Bob said:

"I feel good, I feel great, I feel wonderful... I feel good, I feel great, I feel wonderful... I feel good, I feel great, I feel wonderful..."

Rumor has it his last name was Wiley.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

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Re: World's worst market timer. Buy high, sell... never?

Post by mikeyzito22 » Mon Jul 15, 2019 9:38 pm

letsgobobby wrote:
Sat May 30, 2015 2:53 pm
This is an old story, and it makes a good point, but it relies on two conditions. First, that Bob did not HAVE to sell. That means he didn't get sick, laid off, disabled, or retired, in any kind of permanent way. If he was 22 when he started, he's 65 now, so that's certainly possible but it isn't guaranteed. For many investors it won't be the case. That brings me to the second condition, related. That is, we've had a wonderful recovery in the last 6 years: in fact, nearly unprecedented (6 year bull market with only a single significant correction in 2011). So it's nice to make this calculation when stocks are at their all time highs. And it's nice for Bob that he didn't get disabled, or retired, or laid off permanently, before the present, because if he had, this picture would not have looked so rosy. In fact, in 2008-09, many nearly 60 year old workers did get laid off permanently, and had to live off their portfolios earlier than planned: in Bob's case, it would have been 70% smaller, or only about $400,000. That's a lot different than $1.1 million.

The most dangerous lesson to have learned from the 2008-09 crash is that 'stocks always recover.' I am sure that one day, the US market will go to zero. It will probably not happen in my lifetime. Furthermore, one day the US market will go down 75% and not bounce back in 5 years. It might end up going to zero that time. It might end up recovering in 20 years. I hope I don't live to see it, nor my children or their children. But my eventual grandchildren may not die for another 120 years. That's half the age of the United States today. A lot can happen to a country and its stock market over 120 years. I wouldn't put all my eggs in that basket no matter what Jack Bogle or Warren Buffett tell me.
Okay, so no. The stock market wont go to zero unless all companies fail. In which case you should be thinking of a bug-out shelter. Are you invested? It seems like a fairly negative thing then for you. Just put in under the mattress. Oh, and btw, as of this writing (way past your post) we are at all time highs, again, and again, and again. Four years later are you still so pessimistic?

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Re: World's worst market timer. Buy high, sell... never?

Post by willthrill81 » Mon Jul 15, 2019 9:59 pm

mikeyzito22 wrote:
Mon Jul 15, 2019 9:38 pm
The stock market wont go to zero unless all companies fail.
That's not necessary. Both the Russian (1918) and Chinese (1949) stock markets were nationalized, sending both to zero.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: World's worst market timer. Buy high, sell... never?

Post by owenmia » Mon Jul 15, 2019 10:09 pm

Thank you!

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Re: World's worst market timer. Buy high, sell... never?

Post by mikeyzito22 » Tue Jul 16, 2019 10:02 pm

willthrill81 wrote:
Mon Jul 15, 2019 9:59 pm
mikeyzito22 wrote:
Mon Jul 15, 2019 9:38 pm
The stock market wont go to zero unless all companies fail.
That's not necessary. Both the Russian (1918) and Chinese (1949) stock markets were nationalized, sending both to zero.
Will. One was a civil war and revolution and one was a complete take over of government. I highly doubt we are living in that scenario. I also highly doubt that scenario will occur here and if it does it will be because of a global climate crisis or economic meltdown based on such a crisis. So, maybe you should, as I said, invest in muni's, oh i mean treasuries , oh i mean stocks, oh i mean rubles. Name your strategy. Putting it under the mattress isn't going to work then anyway because the currency wont work, so its really a mute point to say that the market will go to zero. Everything will go to zero in letsgobobby's version of the future or his story of such.

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Re: World's worst market timer. Buy high, sell... never?

Post by willthrill81 » Tue Jul 16, 2019 10:04 pm

mikeyzito22 wrote:
Tue Jul 16, 2019 10:02 pm
willthrill81 wrote:
Mon Jul 15, 2019 9:59 pm
mikeyzito22 wrote:
Mon Jul 15, 2019 9:38 pm
The stock market wont go to zero unless all companies fail.
That's not necessary. Both the Russian (1918) and Chinese (1949) stock markets were nationalized, sending both to zero.
Will. One was a civil war and revolution and one was a complete take over of government. I highly doubt we are living in that scenario. I also highly doubt that scenario will occur here and if it does it will be because of a global climate crisis or economic meltdown based on such a crisis. So, maybe you should, as I said, invest in muni's, oh i mean treasuries , oh i mean stocks, oh i mean rubles. Name your strategy. Putting it under the mattress isn't going to work then anyway because the currency wont work, so its really a mute point to say that the market will go to zero. Everything will go to zero in the OP's version of the future.
Note that I didn't say that either event was likely to happen here, nor what, if any, strategy to deal with either an investor should take. I provided two real world historic events where a nation's stock market went to zero without all companies failing.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: World's worst market timer. Buy high, sell... never?

Post by jello_nailer » Wed Jul 17, 2019 5:37 am

If you read the link you will see an interesting comment on the article:
"You said “world’s” worst market timer, right? How did Bob’s distant relatives in Japan, Greece, Italy and Iceland fare?"

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Re: World's worst market timer. Buy high, sell... never?

Post by mikeyzito22 » Wed Jul 17, 2019 2:05 pm

willthrill81 wrote:
Tue Jul 16, 2019 10:04 pm
mikeyzito22 wrote:
Tue Jul 16, 2019 10:02 pm
willthrill81 wrote:
Mon Jul 15, 2019 9:59 pm
mikeyzito22 wrote:
Mon Jul 15, 2019 9:38 pm
The stock market wont go to zero unless all companies fail.
That's not necessary. Both the Russian (1918) and Chinese (1949) stock markets were nationalized, sending both to zero.
Will. One was a civil war and revolution and one was a complete take over of government. I highly doubt we are living in that scenario. I also highly doubt that scenario will occur here and if it does it will be because of a global climate crisis or economic meltdown based on such a crisis. So, maybe you should, as I said, invest in muni's, oh i mean treasuries , oh i mean stocks, oh i mean rubles. Name your strategy. Putting it under the mattress isn't going to work then anyway because the currency wont work, so its really a mute point to say that the market will go to zero. Everything will go to zero in the OP's version of the future.
Note that I didn't say that either event was likely to happen here, nor what, if any, strategy to deal with either an investor should take. I provided two real world historic events where a nation's stock market went to zero without all companies failing.
It's very cheeky Will. Thank you.

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Re: World's worst market timer. Buy high, sell... never?

Post by Caduceus » Wed Jul 17, 2019 3:58 pm

It sure took Bob a really, really long time to become a millionaire though. :P

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