riptide wrote:I didn't know I had to avoid the noise on here as well as CNBC, and the NEWS
Why buy now, why not wait until the market really crashes??
Re: Why buy now, why not wait until the market really crashes??
Re: Why buy now, why not wait until the market really crashes??
The other thing "they" could be doing is only buying stocks with their regular contributions. That is what I'm doing. The other way you hear this phrased is re-balancing with your regular contributions. You could certainly keep the same AA in your contributions but that would slow the rate of overall re-balance. So instead you could adjust your contributions to only buy the asset class(es) that are down until such a time that your overall AA is back on track. Then change your contributions back to match the AA you want for your whole portfolio.
Sheesh, it would be a nice feature if VG did this automatically, adjusting your contribution mix each time based on your portfolio's deviation from target
Sheesh, it would be a nice feature if VG did this automatically, adjusting your contribution mix each time based on your portfolio's deviation from target
Re: Why buy now, why not wait until the market really crashes??
You mean some people post repeatedly here brushing off any such methods without ever having seriously looked into them? It can't be!lack_ey wrote:If you didn't catch Maynard's link above, do try it. It's hokey and sounds stupid, but it would have worked historically way more often than it seems like it should. It's not just 2008-2009 or 2000-2002 in stocks, where it makes out like a bandit and is unusually strong, but over plenty of other conditions, despite getting many, many calls wrong and plenty of whipsawing.rbaldini wrote:I'm assuming this line is the average of the *prior* 10 months, not the 10 months centered on the current date? The latter would of course be incalculable right now and therefore useless in predicting future returns.
Edit: based on the graph it does look like the prior 10 months is being used. I may try looking at whether this model is useful for prediction - like in my post a few days ago.
Do you trust all your life savings (or even a significant amount) with any kind of all-or-nothing timing system or even bother at all in accumulation? I wouldn't, but that doesn't mean being 100% skeptical is right either, as some are without looking at any of the data for themselves.
But seriously folks, the discussion of 'momentum' v 'stay the course' is a continuum. Even some personal finance guru's accepted here as true believers, not a shadow of heresy, have pointed out that delaying 'rebalancing' (to say no more frequently than annually) tends to help, and it's for the same reason, tendency toward trend/momentum. Going a baby step further and say simply not shifting money from bonds to stocks while the stock market is in a downtrend, is just that. Doing stuff like going *short 100%* stocks when a binary trend indicator is negative is extreme. That's not questionable because 'trend following can't work by the cosmic laws of market nature'. It's questionable because it's concentrating a lot of risk on one thing, especially the example discussed recently where the person would go from +100% to -100% on the market dropping (even a 0.1 points) below the 250 day moving average, whenever it does.
Somewhere in the middle of the spectrum, say for example proportional change in position within a limited range because on how far the 1 yr trend is from its historic average (see link) is much harder IMO to write off as 'data mining' to 'speculate'. It seems to work more than not, and isn't actually that sensitive to exact construction of the rule. What it saves in big downturns seems to slightly more than make up for what it loses when trend changes are meandering, more often than not. Moreover one must consider risk preference. If one *really* has 'fun' when the market face plants, because of all the 'on sale' stocks, connected to a belief (and that's all it is) that big downturns are always followed by big upturns because the stocks market *must* win by the laws of nature, that's one thing. But if one is basically on board with stock risking taking, but the possibility of big lasting downturns is the main caveat, some kind of momentum modification to strict % allocation is a rational choice (not the only choice) based on past results, as always keeping in mind that 'the market always comes back soon enough' is *another* past result. It's not as if one is projecting the past into the future and the other isn't, they both are.
http://www.institutionalinvestor.com/ar ... stors.html
Re: Why buy now, why not wait until the market really crashes??
No, it's not a rule. It's just an optional measurement for the exponentiality of the variance.HomerJ wrote:Yes, let's just keep adding more rules to the system until it works perfectly with past data...Bustoff wrote:To avoid whipsaws, instead of using the daily stock price, why not use its 10 day moving average crossing the 10 mo mvg avg as a buy/sell signal ?
Then it's guaranteed to work going forward!
- Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??
Just to be consistent, I'd be looking for the point when it's just crossed over - so price is lower than the trend ... Some models have suggested waiting till it's perhaps 2-5% downBustoff wrote:Your chart appears to be compelling evidence.Maynard F. Speer wrote: ...A simple moving average can tell you when a market is moving up or down...
Couple questions please.
1) Is your basic strategy to sell/buy when the stock price hits the 10 month moving average or when the price actually crosses it?
2) To avoid whipsaws, instead of using the daily stock price, why not use its 10 day moving average crossing the 10 mo mvg avg as a buy/sell signal ?
Thanks
To avoid whipsawing, Meb Faber suggested simply using the 1st day of the month to rebalance - that's to say, whatever the trend does on every other day of the month is ignored ... However if we're just using this to time rebalancing your own portfolio, whipsawing is usually much more ignorable, because your allocations probably haven't drifted enough to warrant further rebalancing
The classic method traders have used for as long as I know is the point when the 50 day MA crosses the 200 day .. But oddly I've not seen that backtested in this context so much - I'd assume Faber's once a month rebalance is as good a method as any .. (Obviously using 'rebalance' in two contexts here ... In a trading system, rebalance can mean when you look at your timing signal and perform an action ... And my suggestion is that you use this system to rebalance your portfolio back to your target allocations - and in my case I use cash as an asset class in my portfolio, so if I'm earning, my cash allocation can build while other assets are downtrending)
http://mebfaber.com/timing-model/
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: Why buy now, why not wait until the market really crashes??
Thanks for talking about this Maynard, it's very interesting to think about having a more systematic way to re-balance. I get how it would work with an asset and a safe investment. You look at the asset and when it crosses the moving average you move funds.Maynard F. Speer wrote:Just to be consistent, I'd be looking for the point when it's just crossed over - so price is lower than the trend ... Some models have suggested waiting till it's perhaps 2-5% downBustoff wrote:Your chart appears to be compelling evidence.Maynard F. Speer wrote: ...A simple moving average can tell you when a market is moving up or down...
Couple questions please.
1) Is your basic strategy to sell/buy when the stock price hits the 10 month moving average or when the price actually crosses it?
2) To avoid whipsaws, instead of using the daily stock price, why not use its 10 day moving average crossing the 10 mo mvg avg as a buy/sell signal ?
Thanks
To avoid whipsawing, Meb Faber suggested simply using the 1st day of the month to rebalance - that's to say, whatever the trend does on every other day of the month is ignored ... However if we're just using this to time rebalancing your own portfolio, whipsawing is usually much more ignorable, because your allocations probably haven't drifted enough to warrant further rebalancing
The classic method traders have used for as long as I know is the point when the 50 day MA crosses the 200 day .. But oddly I've not seen that backtested in this context so much - I'd assume Faber's once a month rebalance is as good a method as any .. (Obviously using 'rebalance' in two contexts here ... In a trading system, rebalance can mean when you look at your timing signal and perform an action ... And my suggestion is that you use this system to rebalance your portfolio back to your target allocations - and in my case I use cash as an asset class in my portfolio, so if I'm earning, my cash allocation can build while other assets are downtrending)
http://mebfaber.com/timing-model/
But how would this work with multiple assets? Say we have US equity, international equity, and US bonds in equal proportion. In this system would we re-balance to our allocation when any of the funds crosses their MA? Or would we do something more complicated and try to isolate the only fund that has crossed the MA?
- Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??
Personally this is why I've got a cash allocation in my portfolio - as it acts as a buffer and allows me to treat each asset class individually .. So I'm never forced to sell in order to buy, and vice versamoopy wrote:Thanks for talking about this Maynard, it's very interesting to think about having a more systematic way to re-balance. I get how it would work with an asset and a safe investment. You look at the asset and when it crosses the moving average you move funds.Maynard F. Speer wrote:Just to be consistent, I'd be looking for the point when it's just crossed over - so price is lower than the trend ... Some models have suggested waiting till it's perhaps 2-5% downBustoff wrote:Your chart appears to be compelling evidence.Maynard F. Speer wrote: ...A simple moving average can tell you when a market is moving up or down...
Couple questions please.
1) Is your basic strategy to sell/buy when the stock price hits the 10 month moving average or when the price actually crosses it?
2) To avoid whipsaws, instead of using the daily stock price, why not use its 10 day moving average crossing the 10 mo mvg avg as a buy/sell signal ?
Thanks
To avoid whipsawing, Meb Faber suggested simply using the 1st day of the month to rebalance - that's to say, whatever the trend does on every other day of the month is ignored ... However if we're just using this to time rebalancing your own portfolio, whipsawing is usually much more ignorable, because your allocations probably haven't drifted enough to warrant further rebalancing
The classic method traders have used for as long as I know is the point when the 50 day MA crosses the 200 day .. But oddly I've not seen that backtested in this context so much - I'd assume Faber's once a month rebalance is as good a method as any .. (Obviously using 'rebalance' in two contexts here ... In a trading system, rebalance can mean when you look at your timing signal and perform an action ... And my suggestion is that you use this system to rebalance your portfolio back to your target allocations - and in my case I use cash as an asset class in my portfolio, so if I'm earning, my cash allocation can build while other assets are downtrending)
http://mebfaber.com/timing-model/
But how would this work with multiple assets? Say we have US equity, international equity, and US bonds in equal proportion. In this system would we re-balance to our allocation when any of the funds crosses their MA? Or would we do something more complicated and try to isolate the only fund that has crossed the MA?
I'd think of short-term bonds and P2P lending as cash-like assets too - endowment portfolios use absolute return funds .. Otherwise to keep it simple I'd just trend-follow stocks and rebalance into and out of bonds
Emerging Markets can be a little tricker, as trends tend to be extra volatile .. But if you hold 5-10% in EM, I might just rebalance when it's drifted, or annually - although when they're on a real downward trajectory, again just personally I might look at the 20 day moving average and avoid buying until it's above .. I wouldn't think of it as a system so much as a reference for when you find yourself asking "Should I buy now or wait?"
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: Why buy now, why not wait until the market really crashes??
To paraphrase Will Rogers, buy at the bottom. If it turns out it wasn't the bottom, don't buy.
Re: Why buy now, why not wait until the market really crashes??
http://www.philosophicaleconomics.com/ has written roughly two books worth of content on momentum strategies that begins with backtesting
http://www.priceactionlab.com/Blog/ has also has some recent work analyzing the degradation of performance in momentum strategies over time.
MA crossover systems in general have been declining in profitability and 2015 was one of the worst years ever because of sideways price action.
It might look okay in a backtest, but remember we also have a lot of historical data showing that markets change over time. You should expect anomalies to fade as they are discovered, published, and exploited.
I would never trust a backtest that I have not verified myself, it is way too easy to data mine or straight up lie. You can brute force thousands of strategies and pick the 1/10,000 that returns 35% compounded over fifty years, but live performance will be garbage. You need sensitivity analysis on all tunable parameters and bootstraping.
http://www.priceactionlab.com/Blog/ has also has some recent work analyzing the degradation of performance in momentum strategies over time.
MA crossover systems in general have been declining in profitability and 2015 was one of the worst years ever because of sideways price action.
It might look okay in a backtest, but remember we also have a lot of historical data showing that markets change over time. You should expect anomalies to fade as they are discovered, published, and exploited.
I would never trust a backtest that I have not verified myself, it is way too easy to data mine or straight up lie. You can brute force thousands of strategies and pick the 1/10,000 that returns 35% compounded over fifty years, but live performance will be garbage. You need sensitivity analysis on all tunable parameters and bootstraping.
Re: Why buy now, why not wait until the market really crashes??
Does anyone think that John Bogle knows about moving averages as mentioned in these previous charts to predict bull and bear markets ? I`m sure he does but I bet he does not use them as they are not fool proof. It would be nice to hear what he has to say about them.
Last edited by selftalk on Thu Jan 21, 2016 5:55 pm, edited 1 time in total.
- Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??
This is why I'm happier to advocate them for rebalancing purposes (rather than moving in and out of the market)691175002 wrote:http://www.philosophicaleconomics.com/ has written roughly two books worth of content on momentum strategies that begins with backtesting
http://www.priceactionlab.com/Blog/ has also has some recent work analyzing the degradation of performance in momentum strategies over time.
MA crossover systems in general have been declining in profitability and 2015 was one of the worst years ever because of sideways price action.
It might look okay in a backtest, but remember we also have a lot of historical data showing that markets change over time. You should expect anomalies to fade as they are discovered, published, and exploited.
I would never trust a backtest that I have not verified myself, it is way too easy to data mine or straight up lie. You can brute force thousands of strategies and pick the 1/10,000 that returns 35% compounded over fifty years, but live performance will be garbage. You need sensitivity analysis on all tunable parameters and bootstraping.
The enemy of trend-following is these sideways, indeterminate markets - which you can get really unlucky on, and whipsaw into losing months and out of winning ones ... In fact when you really backtest these strategies across asset classes, you realise the 10-month MA strategy is really a bet on one particular trend being stronger than another
But when it comes to portfolio rebalancing, these sideways markets present no problem at all .. You may get a dozen buy and sell signals in a 12 month period, but if you've already rebalanced once, there'll be no need to do it again .. It's only the big movements and crossovers that will throw up both a buy/sell signal and an opportunity to rebalance
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
- Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??
I believe Bogle doesn't advocate rebalancing at all .. And I'm not a critic of this approachselftalk wrote:Does anyone think that John Bogle knows about moving averages as mentioned in these previous charts to predict bull and bear markets ? I`m sure he does but I bet he does not use them as they are not fool proof. It would be nice to hear what he has to say about them.
The main reason to rebalance is obviously to avoid style drift - the pitfalls can be catching falling knives (those hard-earned bond profits being shovelled into an Emerging Markets blackhole), and cutting winners (perhaps if one asset class is going to have a 10 year boom and compound huge returns, you might not want to be taking profits all the way up ... I believe it's been compared to cutting the heads off flowers and planting weeds?)
If you back-test Larry's Fat-Tails portfolio without rebalancing, the returns are fantastic - but the style drift would be huge ... I'd see moving averages as a compromise - where it's most useful is potentially where it stops you rebalancing for long periods
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: Why buy now, why not wait until the market really crashes??
You might consider using rebalancing bands as usual but holding off on actual execution until the trend reverses.moopy wrote:But how would this work with multiple assets? Say we have US equity, international equity, and US bonds in equal proportion. In this system would we re-balance to our allocation when any of the funds crosses their MA? Or would we do something more complicated and try to isolate the only fund that has crossed the MA?
Suppose you're 30% US stocks, 30% international stocks, 40% bonds and you want to keep those within a +/- 5% range each. After a few years of a bull market your allocation has drifted to 33%, 35%, 32%. If international stocks are still uptrending then you let that ride and don't bother selling any to rebalance until it stops. Maybe by that point your AA is 34%, 37%, 29%, whereupon you sell and reallocate to 34%, 30%, 36% (US stocks still going up), or maybe 34%, 28%, 38% or so. Doesn't really matter. Point is, you can ride the trend a little longer and not cut winners too early, theoretically, with some probability.
When going down, if your target is 30%, 30%, 40% again, say there's a bear market and you're now 25%, 27%, 48%. You don't need to be in a hurry to buy US stocks yet if they're still trending down; you can wait until they stop going down.
Obviously you can easily end up buying or selling on a hiccup and not actually when the market is changing directions, but nobody said there was magic involved. And it may or may not be worth thinking about and tracking in general.
Re: Why buy now, why not wait until the market really crashes??
Thank God you added that last bit. I was getting worried reading your post. I am pretty sure you are too smart to actually post, "Just wait to rebalance until right after the market hits top or bottom", but you came pretty close.lack_ey wrote:Obviously you can easily end up buying or selling on a hiccup and not actually when the market is changing directions
- Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??
All you're looking to do is increase your odds of making good decisions .. Whether it's by 80% or 0.8%, you can ultimately split everyone trading and investing in the markets down the middle: those who understand statistics, and those who don'tHomerJ wrote:Thank God you added that last bit. I was getting worried reading your post. I am pretty sure you are too smart to actually post, "Just wait to rebalance until right after the market hits top or bottom", but you came pretty close.lack_ey wrote:Obviously you can easily end up buying or selling on a hiccup and not actually when the market is changing directions
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
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Re: Why buy now, why not wait until the market really crashes??
The problem with having discussions such as these on this forum is not the topic of conversation so much as the tendency for people such as yourself to begin by attacking the poster using the premise that timing systems can't work and then oddly following up by asking how such systems work. My assumption in these cases is always that the attacker preaches at the pulpit of buy-and-hold but secretly wishes he or she understood how to market time. All of the answers to your questions are readily available through a little research or even a basic effort in a spreadsheet.HomerJ wrote:Yes, it worked fairly well during the last two bear markets, letting you miss significant losses, and letting you buy in much lower. But how much of that is back-testing? Why 10-month? What does 4-month show? Or 16-month?
What if the next crash is different?
How does that simple 10-month system look during the 1966-1982 years, when there was a ton of whipsawing, instead of one big drop immediately followed by one big rise? How did it handle the crash of 1987? Did people following this system sell immediately the month after the crash, locking in 20% losses? And then buy back in a few months later at a much higher point as the market recovered?
Re: Why buy now, why not wait until the market really crashes??
nobody knows what market is going to do tomorrow. All we know is that it is down today and people are acting on it.riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
Re: Why buy now, why not wait until the market really crashes??
I would venture to say that John Bogle tried everything to get his returns up and his funds returns up way back when in about 1972 or so. He was fortunate enough to have loads of resources at his disposal to use that we all cannot use or afford and that really did not help him. In other words he did it all and wasn`t successful at it and thus tells us to buy and hold and to not try to time the market. I personally will try to learn and profit from his experiences at investing. No matter how you look at it he is a great mentor to have.
Re: Why buy now, why not wait until the market really crashes??
Where did I attack the poster?MindBogler wrote:The problem with having discussions such as these on this forum is not the topic of conversation so much as the tendency for people such as yourself to begin by attacking the poster using the premise that timing systems can't work and then oddly following up by asking how such systems work.HomerJ wrote:Yes, it worked fairly well during the last two bear markets, letting you miss significant losses, and letting you buy in much lower. But how much of that is back-testing? Why 10-month? What does 4-month show? Or 16-month?
What if the next crash is different?
How does that simple 10-month system look during the 1966-1982 years, when there was a ton of whipsawing, instead of one big drop immediately followed by one big rise? How did it handle the crash of 1987? Did people following this system sell immediately the month after the crash, locking in 20% losses? And then buy back in a few months later at a much higher point as the market recovered?
I didn't state that timing systems can't work. I questioned the graph shown. I asked about other periods of time when circumstances were different. I asked where an arbitrary number like 10 months came from. I'm guessing (just guessing though), that people testing 100 different moving average time periods, and discovered that the 10-month one worked REALLY well for the past two crashes.
Is that reason to trust in it going forward?
These are straight logic questions. If something as simple as a 10-month moving average always let one enjoy the bull markets while skipping the bear markets, then everyone would be using it. Why would any active manager have lost money in 2000 and 2008?
Heh, you know what they say about assumptions...My assumption in these cases is always that the attacker preaches at the pulpit of buy-and-hold but secretly wishes he or she understood how to market time. All of the answers to your questions are readily available through a little research or even a basic effort in a spreadsheet.
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Re: Why buy now, why not wait until the market really crashes??
What I'm suggesting here is something many of us do anyway - which is rebalance ..selftalk wrote:I would venture to say that John Bogle tried everything to get his returns up and his funds returns up way back when in about 1972 or so. He was fortunate enough to have loads of resources at his disposal to use that we all cannot use or afford and that really did not help him. In other words he did it all and wasn`t successful at it and thus tells us to buy and hold and to not try to time the market. I personally will try to learn and profit from his experiences at investing. No matter how you look at it he is a great mentor to have.
Rebalancing in itself is debatable; is a form of market timing; is somewhat based on behavioural finance and mean reversion; and is not (I believe) practised by Bogle .. My proposition is, if the arguments for rebalancing make sense for you, why not aim to do it the best way possible?
As for resources ... It used to take teams of people weeks to work out market valuations ... You had to physically track down research papers, and wait 12 months to hear criticisms ... No one was as well resourced as the average investor today ... And you also have to remember Bogle did successfully market time the Tech crash - moving out of stocks and into bonds - in a way an experienced investor may be able to do once in a while
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: Why buy now, why not wait until the market really crashes??
You may be using a different definition of rebalancing.Maynard F. Speer wrote:Rebalancing in itself is debatable; is a form of market timing; is somewhat based on behavioural finance and mean reversion; and is not (I believe) practised by Bogle .. My proposition is, if the arguments for rebalancing make sense for you, why not aim to do it the best way possible?
Rebalancing with bands to maintain a constant AA is very different than changing one's AA based on a moving average chart.
If I'm 50/50 and stocks go up a lot, I may find myself at 60/40... I then rebalance back to 50/50 (or use new contributions to get back to 50/50) to maintain my risk preference.
This is not market timing because I'm not predicting what the market will do next or when it will do it. I'm just maintaining my chosen AA.
Re: Why buy now, why not wait until the market really crashes??
Marketing timing is like successful stock picking. Both sound easy (don't buy when the market is over priced, don't buy loser stocks). Reality turns out a lot differently. It is very,very hard to tell if someone got lucky versus having real skill. It is easy for someone to have a good 10-15 year run where they crush the market. You make one good call (buy apple in 2000, buy value stocks in early 2000, short MBS in 2008, or even just not own financials (some of the sharia law funds)) and you can get outsized returns. History has shown though that over the long run very few people continue to beat the market. See Bill Miller for the classic guy who crushed for 20 years before stumbling. Even a guy like Warren Buffet has seen his level of outpeformance drop over time.MindBogler wrote:The problem with having discussions such as these on this forum is not the topic of conversation so much as the tendency for people such as yourself to begin by attacking the poster using the premise that timing systems can't work and then oddly following up by asking how such systems work. My assumption in these cases is always that the attacker preaches at the pulpit of buy-and-hold but secretly wishes he or she understood how to market time. All of the answers to your questions are readily available through a little research or even a basic effort in a spreadsheet.HomerJ wrote:Yes, it worked fairly well during the last two bear markets, letting you miss significant losses, and letting you buy in much lower. But how much of that is back-testing? Why 10-month? What does 4-month show? Or 16-month?
What if the next crash is different?
How does that simple 10-month system look during the 1966-1982 years, when there was a ton of whipsawing, instead of one big drop immediately followed by one big rise? How did it handle the crash of 1987? Did people following this system sell immediately the month after the crash, locking in 20% losses? And then buy back in a few months later at a much higher point as the market recovered?
The thing is that there are a lot of winners in both the timing and stock picking game. It isn't hard to buy 10 stocks and beat the market by 5%+/yr for 20 years. There are people that sold their house in 2007 and went to cash. But balancing them out are all the people that made the wrong choices. The went to cash in 2009 and stayed there, they bought stocks that underperformed the market. Unfortunately it turns out the downside group tends to be a lot bigger than the upside one. The boglehead approach is to pass on the upside and the downside and just accept being average.
Re: Why buy now, why not wait until the market really crashes??
Hey riptide,
One perspective to have about these posts on buying during the recent, relatively mild correction (well, not so mild if you look at emerging markets stocks), is that they are a counterpoint to the other posts we're seeing where people express fear, and wonder whether their asset allocations are appropriate for them. I think one of the benefits of the forum is that it helps less experienced investors understand that when we experience corrections like this, it's really no big deal--it's pretty much par for the course.
I think maybe we've been a little spoiled by relatively calm, upward-trending stock markets (at least US stocks) since 2009. I think we had what, maybe one decent correction in US stocks in 2011 since then? So this is the first downturn of 10% or more than some forum members have experienced. So maybe it's hard not to get a little excited about a correction when we haven't seen many in recent years, whether it's positive excitement about buying stocks on sale, or negative excitement about portfolio losses.
Hopefully most of us are following our investment policies:
It's important to note that this is kind of the reverse of what I've been doing the last couple of years, which is to sell stocks to help fund living expenses in retirement, since stocks have tended to be above my allocation targets.
My favorite day to buy stocks is on a really big down day, following a really big down week, following a really big down month. Not only am I buying stocks at lower prices, but I am exercising the emotional muscle to counter the natural fear reaction that tends to occur when we see the value of our portfolios dropping. I got lots of this exercise in late 2008 and early 2009; not so much since then, but I'm almost positive we'll get some more exercise opportunities in the future, and that what we're experiencing lately is merely a warm-up exercise.
Of course it's also important to note that we don't want to exceed our ability or need to take risk, not to mention our willingness to take risk. So if I were to start feeling financially threatened, I would no longer look forward to buying stocks during big downturns. I'm waiting to see if I hit that threshold, but we're nowhere near that yet.
Kevin
One perspective to have about these posts on buying during the recent, relatively mild correction (well, not so mild if you look at emerging markets stocks), is that they are a counterpoint to the other posts we're seeing where people express fear, and wonder whether their asset allocations are appropriate for them. I think one of the benefits of the forum is that it helps less experienced investors understand that when we experience corrections like this, it's really no big deal--it's pretty much par for the course.
I think maybe we've been a little spoiled by relatively calm, upward-trending stock markets (at least US stocks) since 2009. I think we had what, maybe one decent correction in US stocks in 2011 since then? So this is the first downturn of 10% or more than some forum members have experienced. So maybe it's hard not to get a little excited about a correction when we haven't seen many in recent years, whether it's positive excitement about buying stocks on sale, or negative excitement about portfolio losses.
Hopefully most of us are following our investment policies:
- If our policy is to rebalance once per year, then we should simply be ignoring any changes in between our rebalancing dates.
- If our policy is to rebalance using bands, then it's unlikely that we've been doing any rebalancing lately, unless our bands are narrow, or we have a specific policy for something like emerging markets that are about 35% below their 52-week highs (or even maybe total international, which is about 25% below its 52-week high).
- If our policy is to contribute new money to whichever asset class is most below target, then we certainly have been buying more stocks than bonds lately, and more international stocks if we have a policy target for them.
It's important to note that this is kind of the reverse of what I've been doing the last couple of years, which is to sell stocks to help fund living expenses in retirement, since stocks have tended to be above my allocation targets.
My favorite day to buy stocks is on a really big down day, following a really big down week, following a really big down month. Not only am I buying stocks at lower prices, but I am exercising the emotional muscle to counter the natural fear reaction that tends to occur when we see the value of our portfolios dropping. I got lots of this exercise in late 2008 and early 2009; not so much since then, but I'm almost positive we'll get some more exercise opportunities in the future, and that what we're experiencing lately is merely a warm-up exercise.
Of course it's also important to note that we don't want to exceed our ability or need to take risk, not to mention our willingness to take risk. So if I were to start feeling financially threatened, I would no longer look forward to buying stocks during big downturns. I'm waiting to see if I hit that threshold, but we're nowhere near that yet.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
- Maynard F. Speer
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Re: Why buy now, why not wait until the market really crashes??
Rebalancing is market timing (whether it's trying to be or not), because you're doing something the market isn't ..HomerJ wrote:You may be using a different definition of rebalancing.Maynard F. Speer wrote:Rebalancing in itself is debatable; is a form of market timing; is somewhat based on behavioural finance and mean reversion; and is not (I believe) practised by Bogle .. My proposition is, if the arguments for rebalancing make sense for you, why not aim to do it the best way possible?
Rebalancing with bands to maintain a constant AA is very different than changing one's AA based on a moving average chart.
If I'm 50/50 and stocks go up a lot, I may find myself at 60/40... I then rebalance back to 50/50 (or use new contributions to get back to 50/50) to maintain my risk preference.
This is not market timing because I'm not predicting what the market will do next or when it will do it. I'm just maintaining my chosen AA.
When we look at a fund's time-weighted return, we get the permanent buy-and-hold return .. When we look at its dollar-weighted return, we get what investors return .. The difference between the two is market timing
The question is "When and if to rebalance?" .. Any systematic strategy (from no rebalancing, to daily rebalancing) is going to yield some trade off between risk and return .. Too frequent manages risk, but limits return by working against momentum; too infrequent allows style drift .. A moving average strategy is a smarter strategy because it allows style drift at times when it may make more sense to wait
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
Re: Why buy now, why not wait until the market really crashes??
Riptide, you really are maturing as an investor. You are seeing big market drops as buying opportunities. Atta boy! Hope things work out for you in your personal relationships. Many best wishes.
Ned
Ned
A fool and his money are good for business.
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Re: Why buy now, why not wait until the market really crashes??
I don't rebalance on 10-15% dips. That strategy increases risk of a greater portfolio downdraft from a possible deep bear market, and I don't view the upside to be enough to compensate for the extra risk. Bear markets are unpleasant enough on their own. Doing nothing (waiting to see if the market goes lower, or not) is not market timing.riptide wrote:I am still learning, and I am staying the course with my portfolio 2/3 stocks, 1/3 bonds. I am seeing my portfolio steadily drop and have unrecognized losses of quite a bit. However; I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015. Holding what I have, not buying or selling anything right now.
Re: Why buy now, why not wait until the market really crashes??
Thanks Brother Ned, I am very surprised myself!! I did nothing during the recent - ongoing market correction. I even wanted it to go lower so I could eventually buy! I have too much in my personal life now to worry too much about money!nedsaid wrote:Riptide, you really are maturing as an investor. You are seeing big market drops as buying opportunities. Atta boy! Hope things work out for you in your personal relationships. Many best wishes.
Ned
Brokerage account-100% stocks |
VG total Market 55% |
VG small cap value 20% |
VG Reit index 25% |
|
TSP Account 75C/25S |
C Fund75%, S25%, |
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Bonds: U.S. Treasury 5 year Note, 1 year T Bill
Re: Why buy now, why not wait until the market really crashes??
You answered your own question in a way. "Why" is the key.riptide wrote: I see people saying they are buying. Why? The market is only down 12% or so, correct? Why buy stocks now, why not wait until the market really crashes like down 20% or 30%?
When you "see people saying they are buying", they might simply be engaged in rebalancing or they may be referring to activity within a separate trading account.
With regard to rebalancing, some people might be buying stocks in a class that is underweight or some people might be putting new money into stocks by means of DCA. Still others may be trading for fun.
For instance, I do both. In my portfolio, rebalancing is according to my IPS.
On the other hand, I also engage in some market timing (gambling) but only within a separate play account.
The play account keeps me from getting medieval on my portfolio.
Re: Why buy now, why not wait until the market really crashes??
Here is a chart from Morningstar.com showing that in the past 7 months both US small-cap value index and International Total Index are down about 20%.
With these kinds of 20% drops, I have hit my rebalancing bands and have moved money from my bond funds to my equity funds. My IPS says to do this, so I did it and did not wait. This is called rebalancing.
If the markets go lower, then I will have to rebalance again. If the markets go higher, then I will have to rebalance again. I cannot imagine a portfolio where I didn't have to rebalance occasionally.
With these kinds of 20% drops, I have hit my rebalancing bands and have moved money from my bond funds to my equity funds. My IPS says to do this, so I did it and did not wait. This is called rebalancing.
If the markets go lower, then I will have to rebalance again. If the markets go higher, then I will have to rebalance again. I cannot imagine a portfolio where I didn't have to rebalance occasionally.
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Re: Why buy now, why not wait until the market really crashes??
Or the local wiki, Rebalancing - BogleheadsBustoff wrote:riptide wrote:With regard to rebalancing, some people might be buying stocks in a class that is underweight or some people might be putting new money into stocks by means of DCA. Still others may be trading for fun.
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