At what point do we market time?

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kosomoto
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At what point do we market time?

Post by kosomoto » Tue Jun 07, 2016 1:09 pm

Is there a point where it would simply make sense to time the market? For example, if US stocks are trading at a PE of 150 (and have been at a high PE of 150+ for over a year, slowly declining) and bonds are yielding 8%, with inflation at 3%, would it not make absolute sense to sell the stocks and buy bonds?

And then if we do decide to time the market, at what point is the cutoff? Currently interest rates are extremely low, in fact the upside is easy to calculate, if interest rates go lower then bond funds will increase in value. But they can't go much lower than negative 1 percent. So the gain is essentially capped and the downside is fairly large given how much higher interest rates can go. So at this point bonds look like a terrible investment? There are low volatility stock funds that could withstand a market crash pretty handily, so why not substitute those?

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Re: At what point do we market time?

Post by Sbashore » Tue Jun 07, 2016 1:15 pm

For me there is no point where I will time the market. My IPS takes into account the scenario you outlined and my spreadsheet, which implements my IPS will tell me exactly what to do after I fill in my account balances. It's all about maintaining my chosen risk level.
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Re: At what point do we market time?

Post by kolea » Tue Jun 07, 2016 1:31 pm

You will no doubt get different opinions on this but my feeling is that the whole point of a balanced portfolio is to be able to weather the changing conditions you described. So rather than being reactive to a changing market, be proactive with your AA and diversification. Any shifting to be done is only to keep the AA on target. But that is me.
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Re: At what point do we market time?

Post by Theoretical » Tue Jun 07, 2016 1:32 pm

kosomoto wrote:Is there a point where it would simply make sense to time the market? For example, if US stocks are trading at a PE of 150 (and have been at a high PE of 150+ for over a year, slowly declining) and bonds are yielding 8%, with inflation at 3%, would it not make absolute sense to sell the stocks and buy bonds?

And then if we do decide to time the market, at what point is the cutoff? Currently interest rates are extremely low, in fact the upside is easy to calculate, if interest rates go lower then bond funds will increase in value. But they can't go much lower than negative 1 percent. So the gain is essentially capped and the downside is fairly large given how much higher interest rates can go. So at this point bonds look like a terrible investment? There are low volatility stock funds that could withstand a market crash pretty handily, so why not substitute those?
Low volatility stocks are still stocks. A 15% drop as part of a normal boom-bust crash is quite possible. A rapid 15% drop in intermediate term bonds with a duration of 5 years represents an alarmingly fast rise of 3% in interest rates (in today's system over a short time. Unexpected rapid inflation would be the main likely culprit.

In your scenario, I'm pretty sure other equity classes, perhaps international or value, would have healthier (or at least less scary) valuations. Low volatility stocks I fear are going to suffer diminished returns over the next several years because of their past performance leading to lots of excess inflows, especially from pensions and volatility-averse investors who need yield beyond bonds.
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Re: At what point do we market time?

Post by boglephreak » Tue Jun 07, 2016 1:33 pm

what do you mean by market time? do you mean completely abandoning your asset allocation plan and buying/selling stock/bonds based on market factors? do you mean removing your money entirely from the market and waiting for a better market to buy back in?

i heard a speech by Bogle that actually advocated lowering stock when the PE is too high (i believe he was talking about right before the dot.com crash).

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Re: At what point do we market time?

Post by Fallible » Tue Jun 07, 2016 1:42 pm

We can successfully time the market when we can accurately predict the market.
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Re: At what point do we market time?

Post by Toons » Tue Jun 07, 2016 1:44 pm

Hmm,,,,,,,Thinking,,,,,,,
99.99%
No.On a consistent basis.
:happy
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Re: At what point do we market time?

Post by delamer » Tue Jun 07, 2016 1:47 pm

Read this:

https://www.bogleheads.org/wiki/Boglehe ... the_market

Not timing the market is a basic Boglehead principle. You won't find much support for it here.

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Re: At what point do we market time?

Post by tyc » Tue Jun 07, 2016 1:50 pm

When the market crash (or in a bear market), it doesn't matter what the PE of the stock is. Stock correlation during bear market is always close to 1. The only low correlation investment during a bear market is when you have investment in short duration (fixed income like money market) or cash.

Keep your investment idea simple and good luck in timing the market.

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Re: At what point do we market time?

Post by livesoft » Tue Jun 07, 2016 2:39 pm

Under the conditions presented in the OP, I think one's normal rebalancing will get one to where one wants to be. That is, one would sell stocks to buy bonds in the normal course of portfolio management.
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Bogle on "Market Timing"

Post by Taylor Larimore » Tue Jun 07, 2016 2:45 pm

Kosomoto:

As a former market-timer, my portfolio would be much larger if I had read this quote by Jack Bogle:
"After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."
Best wishes.
Taylor
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Re: At what point do we market time?

Post by Dandy » Tue Jun 07, 2016 2:53 pm

Mr. Bogle has said that when the market is extremely over valued, which is rare, say a PE closer to 40 than 30 he would make a rather dramatic reduction of equity allocations say reduce from 65 to 50%. Just before 2000's very high valuation he moved his equity allocation from about 75 or 80% to 25%. Some of that was because of concern about health but not all of it. Look at some of his interviews on youtube.

The stay the course idea is to try to prevent people from acting out of fear or greed and media or advisor hype to change their well thought out plan. As you may know most individual investors sell low out of fear and buy high based on media hype or some greed. So, they are much better off staying the course and rebalancing based on some predetermined risk assessment.

As you get closer to retirement and/or you nest egg gets to a high dollar amount you may wish to look at high stock valuations a bit differently and not keep as high an equity allocation despite a former well thought out allocation plan. The S&P 500 is about 1% from its all time high. It could go higher but it that the time to be at the top of your US equity allocation? If you are early in the accumulation phase you might as well just stay the course - if not don't let the market timer shaming get in the way. Let's say you have a 50% equity allocation and 5% rebalancing bands meaning anything between 45% and 55% is within your "plan". I'd say an occasional move based on valuations, or other "objective" criteria within that range is fine.

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Re: At what point do we market time?

Post by cheese_breath » Tue Jun 07, 2016 2:54 pm

No point when, and no point to timing the market.

If I could predict it better that my signature says, then maybe OK.
The surest way to know the future is when it becomes the past.

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Re: At what point do we market time?

Post by an_asker » Tue Jun 07, 2016 3:04 pm

When you have enough, you can market time, i.e., decide if you can retire or if you want to sell your remaining time for a few BMWs that you would not drive anyway! :oops:

[edited to add]Whoopsy! You mean timing the market not marketing time! D'uh.

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Re: At what point do we market time?

Post by jebmke » Tue Jun 07, 2016 3:11 pm

livesoft wrote:Under the conditions presented in the OP, I think one's normal rebalancing will get one to where one wants to be. That is, one would sell stocks to buy bonds in the normal course of portfolio management.
That was my thought as well. Re-balancing along the way would have eliminated most of "the gap".
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Re: At what point do we market time?

Post by siamond » Tue Jun 07, 2016 3:39 pm

One has to be a bit pragmatic on those matters, even if the principle of 'staying the course' is a great one, there are extreme circumstances where one might rightfully want to question its applicability. The OP gave such an example, where for sure I would do something, and I suspect Mr Bogle would too (as demonstrated by its historical AA change around 2000). Now how did Mr Bogle decide *when* to do it, I have no idea, as valuations were crazy high years before the peak. And if you do it too early, then there are plenty of behavioral issues (regrets, etc).

This is one of those topics which requires a judgment call, because there is simply NO WAY to properly calibrate the decision-making. I played with valuation metrics for months, torturing the numbers to no end, and I came out out of it convinced that:
1. there is definitely a kernel of truth in there
2. but there is just no way to properly calibrate any meaningful 'mean'

Now if the OP is actually asking if we should sell our equities RIGHT NOW because the CAPE is currently at 26, I would vote for a square NO, we're far from extreme conditions like in 2000.

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Re: At what point do we market time?

Post by JoMoney » Tue Jun 07, 2016 3:44 pm

When your individual circumstances dictate that you no longer have the need and willingness to take the risks associated with stocks.
If the money you need next week, next month, next year, and maybe a few years beyond is reliant on stocks to be trading at some particular value, it's time to get that money out.

If high quality bonds had an attractive yield, and stocks struck me as violating my own personal sensibility and opinion of being more than what I thought could be justified over my expected 10+ year holding period, I imagine I probably would lighten up a little for my own sleep at night factor. But I would frame it that it's my own "willingness" to take the risks (given the options) that's changed, and would have to be willing to reckon with myself that I'm happier with this lower risk situation regardless of what stock prices do in the future. I would likely still maintain some minimum level in stocks regardless, and be content with whatever gains I see in that portion of the portfolio.
I have a personal policy of not selling anything under the premise that I expect someone to sell it back to me for less in the future. If I want to 'trade' assets it would have to be because it puts me in a position I'm happier to be in regardless of what happens with whatever I sold... I suppose in a way, I want to be in a position that minimizes regret for any possible way the "unexpected" might happen.
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Re: At what point do we market time?

Post by avalpert » Tue Jun 07, 2016 3:49 pm

The problem is the person who was looking to get out of stocks because they were overvalued would have already sold back when the PE was past 100 (how insanely high is that) and had a small dip as it usually does which to them signaled the end. Also known as the people who bailed in March 2009 - how did that work out for them?

The straight answer is when you think the world has fundamentally changed you do what you have to do - just recognize that most people throughout history who thought the world fundamentally changed were wrong and most of the times the world fundamentally changed it was only recognized in hindsight.

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Re: At what point do we market time?

Post by JoMoney » Tue Jun 07, 2016 4:04 pm

avalpert wrote:...just recognize that most people throughout history who thought the world fundamentally changed were wrong and most of the times the world fundamentally changed it was only recognized in hindsight.
There are plenty of examples of strategies that worked for a period of time, and then left the followers perplexed when the market really did go on to reach "a permanently high plateau".
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Re: At what point do we market time?

Post by Theoretical » Tue Jun 07, 2016 4:11 pm

siamond wrote:One has to be a bit pragmatic on those matters, even if the principle of 'staying the course' is a great one, there are extreme circumstances where one might rightfully want to question its applicability. The OP gave such an example, where for sure I would do something, and I suspect Mr Bogle would too (as demonstrated by its historical AA change around 2000). Now how did Mr Bogle decide *when* to do it, I have no idea, as valuations were crazy high years before the peak. And if you do it too early, then there are plenty of behavioral issues (regrets, etc).

This is one of those topics which requires a judgment call, because there is simply NO WAY to properly calibrate the decision-making. I played with valuation metrics for months, torturing the numbers to no end, and I came out out of it convinced that:
1. there is definitely a kernel of truth in there
2. but there is just no way to properly calibrate any meaningful 'mean'

Now if the OP is actually asking if we should sell our equities RIGHT NOW because the CAPE is currently at 26, I would vote for a square NO, we're far from extreme conditions like in 2000.
Here's the other thing. Unless you're in Bogle's specific situation - very high US allocation, health problems, AND a bubble, there's almost always another "risk" market or investment that's either not going to be as overvalued or is going to be relatively inexpensive. In 1999-2000, TIPS were yielding 3-4%, REITs yielded 9%, and we all know about Small Cap Value and Emerging Markets.

Similarly, a Japanese investor in the late 1980s 1, should have been invested internationally to at least some degree from the getgo (and would have been rebalancing into those and bonds ideally) and 2 could have moved assets to other lower-valued "risk" assets as the bubble got crazier.

To me, if you're going to time, your stock/bond/cash (risk/low risk/no risk) ratio should not be what you're timing. It should be the composition of the risk component that perhaps changes, because your macro (stock/bond/cash) asset allocation should be designed to reflect your tolerance for losses (and goals for the upside).

Stock markets with a P/E of 10 or 15 can fall just as brutally as those in the 20s or 30s, precisely because they're still stocks and thus at the very bottom of the totem pole for the investor if the company goes bankrupt.

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Re: At what point do we market time?

Post by mac808 » Tue Jun 07, 2016 4:24 pm

kosomoto wrote:Is there a point where it would simply make sense to time the market? For example, if US stocks are trading at a PE of 150 (and have been at a high PE of 150+ for over a year, slowly declining) and bonds are yielding 8%, with inflation at 3%, would it not make absolute sense to sell the stocks and buy bonds?

And then if we do decide to time the market, at what point is the cutoff? Currently interest rates are extremely low, in fact the upside is easy to calculate, if interest rates go lower then bond funds will increase in value. But they can't go much lower than negative 1 percent. So the gain is essentially capped and the downside is fairly large given how much higher interest rates can go. So at this point bonds look like a terrible investment? There are low volatility stock funds that could withstand a market crash pretty handily, so why not substitute those?
For stocks to get to PE 150 they would have had to pass through PE 75, 100, 125, etc...at what point do you pull the trigger? I think there are some scenarios that exist where I would change rebalancing criteria but I have a hard time envisioning exactly what they are.

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Re: At what point do we market time?

Post by Dandy » Tue Jun 07, 2016 4:38 pm

For stocks to get to PE 150 they would have had to pass through PE 75, 100, 125, etc...at what point do you pull the trigger? I think there are some scenarios that exist where I would change rebalancing criteria but I have a hard time envisioning exactly what they are.
I think dollars at risk becomes of rising importance. Sure rebalancing implementation should have investors periodically exchanging super charged equities into bonds. But if an accurate risk tolerance is decided to be 60% equities does holding that level of equities if PE's were at 50 really have the same risk as when you held 60% equities when the PE was at 20? I don't think so. So rebalancing may only be a partial answer to extreme overvalued equity markets.

At some point an investor may have to decide I have too many dollars at risk and make an 'executive" decision to go more conservative with the understanding that "bubbles" often go on further before they burst. Essentially, I will forego some potential future gains to better secure my assets/dollars.

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Re: At what point do we market time?

Post by Phineas J. Whoopee » Tue Jun 07, 2016 5:03 pm

kosomoto wrote:Is there a point where it would simply make sense to time the market? For example, if US stocks are trading at a PE of 150 (and have been at a high PE of 150+ for over a year, slowly declining) and bonds are yielding 8%, with inflation at 3%, would it not make absolute sense to sell the stocks and buy bonds?
...
Hi kosomoto,

I appreciate that you're challenging the conventional wisdom here at Bogleheads.org. Under one model that's a distinct learning style, "what if," and in many ways I share it: learning about topics by testing their boundaries.

That said, if we told you P/E 150 wasn't enough, you could ask about 1,500, or 15,000, without end.

I think the thing to keep in mind is there isn't some wisest person in the universe telling you today's market price. It's far more prosaic than Douglas Adams's linked prose. I gave a description and some explanation here.

There is no central authority to disagree with. There's merely a multitude of other investors, most of whom disagree with most of the rest.

PJW

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Re: At what point do we market time?

Post by LibertyLover » Tue Jun 07, 2016 6:03 pm

If the high valuation was isolated to US stocks I would feel comfortable increasing my allocation to international stocks. Not pulling 100% out of US stocks though.

I wouldn't play with the bond/equity ratio as the question becomes when to come back into stocks.

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Re: At what point do we market time?

Post by itstoomuch » Tue Jun 07, 2016 6:23 pm

IMO
Near to retirement and after retirement.
Your timing may be very important.
For us, we were too late for 2001 and 2008.

I am mostly out of the Market at 66/69, discretionary account. I am sitting the next ~12 months out. Don't need the aggrevation. We got our Number and then some.

YMMV
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Re: At what point do we market time?

Post by Theoretical » Tue Jun 07, 2016 6:25 pm

LibertyLover wrote:If the high valuation was isolated to US stocks I would feel comfortable increasing my allocation to international stocks. Not pulling 100% out of US stocks though.

I wouldn't play with the bond/equity ratio as the question becomes when to come back into stocks.
You put my view more succinctly than I did.

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Re: At what point do we market time?

Post by Jack FFR1846 » Tue Jun 07, 2016 6:28 pm

Let me put the original question into my universal, clear as day translator. Answer the following question and you have your answer to the original question:

When would one cash in all of their investments, take it as US $100 bills and throw them all into a wood burning stove?
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Polaroid

Post by Taylor Larimore » Tue Jun 07, 2016 7:30 pm

Don't need the aggravation. We got our Number and then some.
YMMV:

I knew a very wealthy executive who retired from the Polaroid company. He told me that he sold all is Polaroid stock and put all the proceeds into municipal bonds so he would not need to worry or be bothered with his portfolio. I thought he was foolish at the time.

Later when Polaroid went under, and knowing all the times he was on the golf course with his friends, I realized he was right.

Live and learn.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: At what point do we market time?

Post by Phineas J. Whoopee » Tue Jun 07, 2016 8:05 pm

Jack FFR1846 wrote:Let me put the original question into my universal, clear as day translator. Answer the following question and you have your answer to the original question:

When would one cash in all of their investments, take it as US $100 bills and throw them all into a wood burning stove?
When one was expressing one's political opinion via their investments, rather than at the ballot box?
PJW

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Re: At what point do we market time?

Post by snarlyjack » Tue Jun 07, 2016 9:01 pm

Here is how I look at it.

I'm very young (age 22) my hold time is age 100 - 22 = 78 years.
I do not want to pay any taxes (long term or short term taxes).
Being tax efficient is very important.

I have the time to buy & hold and ride through anything...

I do not listen to the news or talking heads.
(They are not going to talk me out of my position or psych me out).

If the world blow's up...it's not going to matter any way!
If the market goes down...I plan on dollar cost averaging all the way down...

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Re: At what point do we market time?

Post by arcticpineapplecorp. » Tue Jun 07, 2016 9:20 pm

It's ok to market time, as long as you never sell. The link below tells you about Bob, the world's worst market timer. He was an awful market timer, but things still turned out well for him. Of course, that's only because he never sold.

http://awealthofcommonsense.com/2014/02 ... ket-timer/

Now if you're asking when's the best time to sell, well I'd say only when you need the money.
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Re: Polaroid

Post by Theoretical » Tue Jun 07, 2016 10:01 pm

Taylor Larimore wrote:
Don't need the aggravation. We got our Number and then some.
YMMV:

I knew a very wealthy executive who retired from the Polaroid company. He told me that he sold all is Polaroid stock and put all the proceeds into municipal bonds so he would not need to worry or be bothered with his portfolio. I thought he was foolish at the time.

Later when Polaroid went under, and knowing all the times he was on the golf course with his friends, I realized he was right.

Live and learn.

Best wishes.
Taylor
That's a great story. Don't take more risk than you need to and stop playing (at least with the money you & spouse need) when you win the game. Thanks for sharing your years of wisdom and experience with us!

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Re: At what point do we market time?

Post by pbearn » Tue Jun 07, 2016 10:42 pm

kosomoto wrote:There are low volatility stock funds that could withstand a market crash pretty handily, so why not substitute those?
Reminds me of late 1999 when I correctly predicted that AMZN would peak, sold it all and put it into "safe" GE, which went on to lose about as much as AMZN did. There's no safe stocks when the market gets ugly.

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Re: At what point do we market time?

Post by Solo Prosperity » Tue Jun 07, 2016 11:14 pm

pbearn wrote:
kosomoto wrote:There are low volatility stock funds that could withstand a market crash pretty handily, so why not substitute those?
Reminds me of late 1999 when I correctly predicted that AMZN would peak, sold it all and put it into "safe" GE, which went on to lose about as much as AMZN did. There's no safe stocks when the market gets ugly.
That's rough. If you just bought and held Amazon through today that would have been a hell of a story (30+% compounded returns since 1998) :beer

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Re: At what point do we market time?

Post by Hawaiishrimp » Wed Jun 08, 2016 12:17 am

AA save the day.

Keep your AA intact and it will all work out just fine.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: At what point do we market time?

Post by snowshoes » Wed Jun 08, 2016 12:48 am

QuietProsperity wrote:
pbearn wrote:
kosomoto wrote:There are low volatility stock funds that could withstand a market crash pretty handily, so why not substitute those?
Reminds me of late 1999 when I correctly predicted that AMZN would peak, sold it all and put it into "safe" GE, which went on to lose about as much as AMZN did. There's no safe stocks when the market gets ugly.
That's rough. If you just bought and held Amazon through today that would have been a hell of a story (30+% compounded returns since 1998) :beer
I have a contrary opinion. Having a trading account outside ones retirement accounts might just pay off, using a buy and hold strategy of course. There are a few equities that had you been betting on them no matter what, you won in less than 25-30 yrs. HD, AMZN, CVS, HM, TM, CSX, ITT, Family Dollar returned 4k% in 10yrs. Good luck!
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Re: At what point do we market time?

Post by HomerJ » Wed Jun 08, 2016 12:55 am

There is no point where I will market time...

Because, and this is key, I set up my AA assuming it's possible that the market will crash tomorrow.

I do not have to predict a future crash; my AA is ALWAYS set up to protect myself if the market crashes.

My house is paid off, 50% of my money is in bonds/cash (equal to 10 years of expenses), and 50% in stocks. If stocks crashed tomorrow, and I lost my job, my family would still be fed and warm for quite some time.

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Re: At what point do we market time?

Post by itstoomuch » Wed Jun 08, 2016 1:07 am

Market timing in your early years get reflected as huge + or - in your later years.
Market timing in your later years barely affect the overall outcome.

example: A contribution to 401k/IRA at age 21 will be huge at 65. But a contribution at 64 will have negligible affect if you retire at 65. So if you are young- you try not to market time. If you are old, it doesn't make much difference unless it is a fairly large dollar amount. :annoyed

disclaimer: 66/69. Market timed 2016 in discretionary. Probably given up $15k YTD, because I moved to cash. Its a fairly large amount. :oops:
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Re: At what point do we market time?

Post by stemikger » Wed Jun 08, 2016 1:17 am

We may get the first part right, but when do we get back in? Pick an AA and Stay the Course.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Polaroid

Post by itstoomuch » Wed Jun 08, 2016 1:21 am

Taylor Larimore wrote:
Don't need the aggravation. We got our Number and then some.
YMMV:

I knew a very wealthy executive who retired from the Polaroid company. He told me that he sold all is Polaroid stock and put all the proceeds into municipal bonds so he would not need to worry or be bothered with his portfolio. I thought he was foolish at the time.

Later when Polaroid went under, and knowing all the times he was on the golf course with his friends, I realized he was right.

Live and learn.

Best wishes.
Taylor
My older bro, "stayed-the-course" his losses amount to a few 7 figures, or 8 figures, 2007-2009. His portfolio is monitored.
I am looking to buy a home within the year. Seattle. So I don't want too much risk to swing the DP.
66/69.
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Re: At what point do we market time?

Post by qwertyjazz » Wed Jun 08, 2016 3:01 am

I was thinking about this literally . What would it mean for a PE of 150? I started thinking it would mean that I sold as it might mean a completely different meaning to either accounting rules or the market. I would wonder if the market had not just quantitatively changed but also fundamentally changed . Until I convinced myself that the fundemental change was for the good, I would wonder if I could trust the market as representing the underlying companies. If this should occur over a shorter period of time, that would probably worry me more. A PE of 50 I could believe and not market time. There is probably a definite recency bias in my logic.

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Re: At what point do we market time?

Post by beammeupscotty » Wed Jun 08, 2016 6:27 am

QuietProsperity wrote:
pbearn wrote:
kosomoto wrote:There are low volatility stock funds that could withstand a market crash pretty handily, so why not substitute those?
Reminds me of late 1999 when I correctly predicted that AMZN would peak, sold it all and put it into "safe" GE, which went on to lose about as much as AMZN did. There's no safe stocks when the market gets ugly.
That's rough. If you just bought and held Amazon through today that would have been a hell of a story (30+% compounded returns since 1998) :beer
It was actually only 16% CAGR since the end of 1998, and you had to hold on through that 90% drop in the first couple years (not many did).

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Re: At what point do we market time?

Post by carolinaman » Wed Jun 08, 2016 6:51 am

Generally speaking, we should not try to time the market. My caveat to this is that if you have a very strong conviction based upon knowledge that the market is severely over or under valued, then market timing may be a reasonable thing to do.

For example, I was an IT executive who saw first hand all of the craziness related to technology companies leading up to the 2001 dot.com crash. I knew the technology bubble was a bubble and would burst, but I did not know when or how bad things would be. I reduced by equity investments several months before the crash, especially those with heavy weighting of technology. Conversely, I did not reduce my equity in 2008 and got hammered like most other people. Based upon what I was reading at that time, I expected a correction or a bear market, and was willing to ride it out. If I had an understanding of the CDO, credit swap insanity and its magnitude, I would have been all cash. It still amazes me that so few "experts" saw that coming.

I still get convictions about market situations, but very rarely act because I am wrong as often as I am right, and stay the course makes the most sense.

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Re: At what point do we market time?

Post by KlangFool » Wed Jun 08, 2016 7:07 am

OP,

I adjust my AA based on significant gain of my portfolio size. So, way before the P/E hit 150, I would had won my game. I would had adjusted my AA to lock in the gain. Then, it won't matter anymore as to what will happen next. This is part of my IPS. So, this is not market timing.

KlangFool

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Re: At what point do we market time?

Post by Boglegrappler » Wed Jun 08, 2016 7:32 am

You'll almost never be able to properly time the market, or even sectors of the market.

Consider that there is evidence that the market moves roughly six months ahead of fundamentals, with respect to business cycles. This means that stocks in the overall market, or a sector of it, will begin to adjust months ahead of the change in fundamentals of the companies.

You can observe this phenomenon in action at the "turns" in the market. At intermediate peaks, analysts will publish reports telling you to ignore the decline in the stock price. Business is stronger than ever, and the market decline is irrational. (I saw this firsthand, decades ago, as a Big Six accountant for a large company asked me why his client's stock was declining when every week was a record week in revenue. I didn't know the answer at the time.)

Likewise, reversals from intermediate bear markets happen before fundamentals turn up. In these cases, analysts will publish comments urging investors not to jump in as stocks rise, since fundamental activity is still moribund and there's no reason for the stocks in that sector to be up 15% in the past four months. :) )

No one understands why the market anticipates these turns, but it does. If you think you can do it, you are most likely mistaken. You'll sell too early in rising markets, and you'll buy too soon in market declines (although a few charts will tell you that this second mistake is less likely since declines tend to be steeper than the markets long term rise rate----your more common mistake is getting off the escalator too early.)

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Re: At what point do we market time?

Post by chuckb84 » Wed Jun 08, 2016 8:28 am

Well, the stock answer here is never. In 30 years of very boring steady investing, I timed the market twice, once moving most of my TSP funds into the G Fund just before the dot.com bubble popped, and again just before the real estate crash.

This was based on Burton Malkiel's advice in "A Random Walk Down Wall Street" in which he says (something like) "Whenever everyone says 'this time it's different', pick up your money and run." They were, so I did, and had a couple years after each peak in which I made little or saw my balance flat....but others were seeing 50% losses.

However, over the long course of investing, missing two 50% drops helped, but less than you would imagine: (1) I didn't get out right at the peak (who could?), (2) I didn't get back into a strong stock portfolio exactly at the subsequent bottoms (who could?). So, my balance is healthier than a pure buy and hold strategy would have been, but not by much. The time averaged volatility was lower, much lower, but this was more about my peace of mind than about my portfolio balance at retirement.

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Taylor Larimore
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Market Timing -- What Experts Say

Post by Taylor Larimore » Wed Jun 08, 2016 8:42 am

Kosomoto:

Before succumbing to the lure of market timing, listen to these experts:
Alliance Bernstein Research: "In 2005 we interviewed more than 500 financial advisors. 83% of the advisors we polled felt that if investors had stuck to their original asset allocation plan prior to 2000, they could have cut their losses by more than half over the following few years."

Frank Armstrong, author and adviser: "Endless tinkering is unlikely to improve performance, and chasing last period's stellar achiever is a losing strategy."

David Babson, co-author of Investing for a Successful Future: "It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire quickly."

Baer & Ginsler authors of The Great Mutual Fund Trap: "What it really takes to improve your returns and diminish your risks is a willingness to stop focusing exclusively on the movement of the markets."

Barron's Guide to Making Investment Decisions: "If we haven't said it enough, we'll say it again: Market timing is dangerous."

Bernard Baruch, famed investor: "Only liars manage to always be "out" during bad times and "in' during good times."

Peter Bernstein, author of 10 finance books: "You have to keep reminding yourself. We don't know what's going to happen with anything, ever."

Wm Bernstein, author and adviser: "There are two kinds of investors, be they large or small: Those who don't know where the market is headed, and those who don't know that they don't know."

Jack Bogle: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."

I started the Boglehead Contest in January 2001. Of 99 Diehard guesses that year, only 11 even guessed the direction of the stock market. Boglehead forecasts were worse in 2008. Only 2 out of 284 Bogleheads guessed how low the S&P 500 Index would plunge.

Bogleheads' Guide to Investing: "No one can predict what the stock market will do or which mutual fund will outperform in the future. This is why we diversify -- so that whatever happens we will not have all our money in losing investments."

Jack Brennan, former Vanguard CEO and author of Straight Talk on Investing: "If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor."

Warren Buffet: “The only value of stock forecasters is to make fortune-tellers look good."

CDA/Wiesenberger: "Market timing is an ineffective strategy for mutual fund investors."

Andrew Clarke, financial adviser: "A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it."

Jonathan Clements, Wall Street Journal columnist: "Take my word for it. Buy-and-hold is still your best long-run strategy."

Consumer Reports: "Dalbar research has found that both stock and bond investors tend to overreact to events, moving money in and out of mutual funds with breathtakingly bad timing."

Dalbar research (2015) "Mutual fund investors who hold on to their investments have been more successful than those who try to time the market."

Dick Davis, publisher of Dick Davis Digest: "No one can time the market on a consistent basis."

Pat Dorsey, former Morningstar Director of Fund Analysis: "Market-timing is bunk."

David Dreman, author of Contrarian Investment Strategies: "The performance of 185 tactical asset allocation mutual funds was compared with buy-and-hold strategies and equity mutual funds over the years 1985-97. Over this period the S&P 500 Index increased 734%, average equity funds increased 598%, and tactical asset allocation funds increased 384%."

Charles Ellis, author of The Loser's Game: "Market timing is a wicked idea. Don't try it-ever."

Paul Farrell, CBS MarketWatch: "Forget market timing in any form."

Rick Ferri, adviser and co-author of seven books including The Bogleheads' Guide to Retirement Planning: "The best practice for investors is to design a long-term globally diversified asset allocation plan based on present and future financial needs. Then follow that plan religiously, through all markets good and bad."

Forbes: "Benjamin Graham spent much of his career trying to devise a good formula for when to get into--and out of--the stock market. All formulas, he concluded, failed."

Fortune: "Let's say it clearly: No one knows where the market is going-experts or novices, soothsayers or astrologers. That's the simple truth."

Norman Fosback, author, researcher: "Don't sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term."

John Kenneth Galbraith, economist: "The only function of economic forecasting is to make astrology look respectful."

Elaine Garzarelli, Wall Street's best known strategist until fired by Lehman Brothers: "I've learned that market timing can ruin you."

Good & Hermansen, authors of Index Your Way to Investment Success: "Staying on course may be just as difficult in bull markets as in bear markets."

Carol Gould, author & New York Times columnist: "For most investors the odds favor a buy-and-hold strategy."

Graham/Campbell Study: "From June 1980 through December 1992, 94.5% of 237 market timing investment newsletters had gone of business."

Benjamin Graham, famed investor: "If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market."

Louis S. Harvey, President of Dalbar Research: “When investors think short-term and try to time the market, they haven’t done very well. They have been leaving a lot of money on the table.”

Chuck Hill, Director of Research at FirstCall/Thomson Financial: "At the peak of the bull market in March of 2000 only 0.7% of all recommendations on stocks issued by Wall Street brokerages and investment banks were to sell."

Morgan Housel, Wall Street Journal and Motley Fool columnist: "The odds that you will achieve long-term success by actively trading or timing the market round to zero."

Mark Hulbert, Editor of the Hulbert Financial Digest: "Among the 160 or so newsletters the HFD monitors, the market timing recommendations of only 10 have beaten the stock market over the last decade on a risk-adjusted basis."

Daniel Kahneman, Nobel Laureate: "After receiving the Nobel Prize, Daniel Kahneman, was asked by a CNBC anchorman what investment tips he had for viewers. His answer: "Buy and hold.""

Michael Leboeuf, author of The Millionaire in You : "Timing the market is for losers. Time IN the market will get you to the winner's circle, and you'll sleep better at night."

Arthur Levitt, former SEC Chairman: "No one is smart enough to time the market's ups and downs."

Jessie Livermore, famous investor: "It never was my thinking that made the big money for me. It always was my sitting."

Peter Lynch: "Nobody can predict interest rates, the future direction of the economy or the stock market."

Burton Malkiel, author of the classic Random Walk Down Wall Street: "Buying-and-holding a broad-based market index fund is still the only game in town."

John Markese, PhD, President, American Association of Independent Investors: "Nobody, but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time."

Paul Merriman, author of Investing for a lifetime: "I don’t think more than perhaps one in 100 investors will be successful using timing."

Moshe Milevsky, author & researcher: "If you can't handle the short term, if the uncertainty is stressful and the headlines are unbearable, then the markets are too hot for you: get out of the kitchen."

Morningstar Course 106: "We're not keen on market-timing. It just doesn't work."

Motley Fools: "We've yet to find anyone who can accurately and consistently predict the market's short-term moves."

"Odean and Barber tested over 66,400 investors between 1991 and 1997. Their findings: "The most active traders earned 7% less annually than buy-and-hold investors."

Gerald Perritt, financial author: "Forget trying to time the market and do something productive instead."

Don Phillips, Managing Director of Morningstar: "I can't point to any mutual fund anywhere in the world that's produced a superior long-term record using market timing as its main investment criteria."

Jane Bryant Quinn author and syndicated columnist: "The market timer's Hall of Fame is an empty room."

John Rekenthaler, Vice-President of Research for Morningstar: "Market-timers are circus clowns minus the funny suits. Even when they dodge the bear market, they inevitably miss the ensuing bull. Their track record is terrible."

Mary Roland, author of Best Practices for Financial Advisors: "Countless studies have proved that no one is able to time the market effectively."

Ron Ross, author of The Unbeatable Market: "Trading is based on the rather arrogant belief that the trader knows more than the buyers and sellers with whom he is trading."

Louis Rukeyser, famous (deceased) TV host: "In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested."

Richard Russell, editor of Dow Theory Letters: "There are no geniuses on Wall Street, only geniuses for a while."

Paul Samuelson, Nobel Laureate: "The evidence is overwhelming that a thousand timer's who try to buy when stocks are low, and sell when they are high, is a damnably awful record."

Jim Schmidt, Editor: "For the 10 years that ended 12-31-2000, only one newsletter out of the 112 that Timers Digest follows managed to beat the S&P 500 Benchmark."

Bill Schultheis, adviser and author of The Coffeehouse Investor : "I have learned the hard way that market timing and trying to pick a fund that will out-perform the market are both losing strategies."

Charles Schwab: "I'm a strong advocate of buying and holding."

Fred Schwed Jr., author of 'Where are the Customers' Yachts?: "It turns out that I should have just bought them (securities), and thereafter I should have just sat on them like a fat, stupid peasant. A peasant however, who is rich beyond his limited dreams of avarice."

Chandan Sengupta author of The Only Proven Road to Investment Success: "Any investment method that relies on predicting the future is doomed to fail."

Jeremy Siegel, author of Stocks for the Long Run: "Winning with stocks requires only patience, not foresight."

W. Scott Simon, author of Index Funds: "Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator."

Paul Singer, hedge fund billionaire: “The important turning points in markets are never identified with precision in advance by ‘experts’ and policymakers."

Stein & DeMuth, authors of Yes, You Can Get A Financial Life!: "Buying and holding a few broad market index funds is perhaps the most important move ordinary invests can make to supercharge their portfolios."

James Stewart, Smart Money columnist": It's my belief that it's a waste of time to try to time any market decline, or try to pinpoint a market bottom."

Larry Swedroe, author and adviser: "Believing in the ability of market timers is the equivalent of believing astrologers can predict the future."

David Swensen, Manager of Yale Investments: "People should stop chasing performance and just put together a sensible portfolio regardless of the ups and downs of the market."

Andrew Tobias, author of The Only Investment Guide You Will Ever Need: "Don't waste money subscribing to investment letters or expensive services.

Tweddell & Pierce, financial authors: "Trust in time and forget market timing. Allow time to work its compounding magic for you. Let market timing inflict its miseries on someone else."

Eric Tyson, author of Mutual Funds for Dummies: "Only two newsletters have managed to keep ahead of the market averages over the past decade (and none have done so over the past 15 years."

Wall Street Journal Lifetime Guide to Money: "Few if any investors manage to be consistently successful in timing markets."

John Waggoner, USA Today financial columnist: "If you're considering doing your own market timing, the best advice is this: Don't."

Jason Zweig, author and Wall Street Journal columnist: "If you buy, and then hold a total-stock-market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run."
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

The Wizard
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Re: Polaroid

Post by The Wizard » Wed Jun 08, 2016 8:49 am

Theoretical wrote:
Taylor Larimore wrote:
Don't need the aggravation. We got our Number and then some.
YMMV:

I knew a very wealthy executive who retired from the Polaroid company. He told me that he sold all is Polaroid stock and put all the proceeds into municipal bonds so he would not need to worry or be bothered with his portfolio. I thought he was foolish at the time.

Later when Polaroid went under, and knowing all the times he was on the golf course with his friends, I realized he was right.

Live and learn.

Best wishes.
Taylor
That's a great story. Don't take more risk than you need to and stop playing (at least with the money you & spouse need) when you win the game. Thanks for sharing your years of wisdom and experience with us!
Interesting story, yes.
But Specific Company Risk and the risk that comes from having a good fraction of your portfolio in a broad index stock fund are two quite different things...
Attempted new signature...

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Re: At what point do we market time?

Post by Dandy » Wed Jun 08, 2016 9:01 am

Before succumbing to the lure of market timing, listen to these experts:
Or you could listen to Mr. Bogle who also said when the market is extremely overvalued, a rare event, you should consider reducing your equity allocation say from 65% to 50%. During the high valuations around the year 2000 he reduced his allocation from 75 or 80% to 25% partly due to health concerns and partly due to valuations. I think a PE of 50 would be considered "extreme" not to mention a PE of 150.

Stay the course makes sense most of the time for most people but even Mr. Bogle, who probably coined that phrase, knows there are exceptions to be considered in extreme/unusual times. He is often more flexible than many of his devoted followers.

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HomerJ
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Re: Polaroid

Post by HomerJ » Wed Jun 08, 2016 9:47 am

itstoomuch wrote:My older bro, "stayed-the-course" his losses amount to a few 7 figures, or 8 figures, 2007-2009.
Your older bro had most of his money in one stock/company.. the one he worked for.

If he had his money in a total stock market index fund, he would have gained it all back and doubled it by "staying the course".

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