I am timing the market. Why am I wrong?

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Novine
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Re: I am timing the market. Why am I wrong?

Post by Novine » Fri Jan 06, 2017 8:55 pm

Delete

staythecourse
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Re: I am timing the market. Why am I wrong?

Post by staythecourse » Fri Jan 06, 2017 9:19 pm

Olibri wrote: Please don't simply quote the million articles that explain how/why market timing is wrong.
You have failed before you even started in learning about finance or dare I say ANYTHING in life with that premise.

There are a million folks saying X and another million folks saying Y. How does any rational individual know to follow X or Y? By your gut? That is what we in science call empirical. Your gut may be right or wrong, but even if you are right were you right because you were correct or because you were lucky?

If one is so hell bent on not using data or studies to guide such an important aspect of their life as their retirement then there is nothing more to say.

Good luck.

p.s. I have mentioned numerous times on this site that I don't invest in a Bogleheads approach because of some love for Mr. Bogle. I do it because it is the most reaonable, logical approach with the highest probability of getting to the finish line of retirement. Trust me I wish there was a better way, but there isn't. I have looked around and it doesn't exist.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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tadamsmar
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Re: I am timing the market. Why am I wrong?

Post by tadamsmar » Fri Jan 06, 2017 9:21 pm

What do you have the 85% non-stock allocation in?

The best PE studies shows about a 2% average yearly real return for the market at these high PEs. But Bonds don't perform well either starting from here.

The best reaction to high PEs is to assume low returns and save more.

But, because of the volatility and uncertainty of investments, you end up needing a robust plan that still works with a <2% real return anyway. You need a savings rate that makes your plan robust.

swguy
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Re: I am timing the market. Why am I wrong?

Post by swguy » Fri Jan 06, 2017 9:26 pm

Novine wrote:I think you need to answer some more fundamental questions - "Why am I investing anyways?" "What's my investment timeline?" For someone in their mid 40s, pulling everything out of the market is an extreme over-reaction if your investment timeline is 25 years until retirement. I can understand someone on the brink of retirement freaking out at the prospect of a major market downturn. But someone who isn't going to be touching those dollars for decades? That doesn't make sense.
+1

The OP is wasting time focusing on everything but the objective, using "what if" as an excuse. If you know you can't meet your goals by sitting on the sidelines why do It? There is risk in investing. That's what asset allocation is for.

hoops777
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Re: I am timing the market. Why am I wrong?

Post by hoops777 » Fri Jan 06, 2017 9:39 pm

The thing about the BH's is you usually get an answer.You may not like it,but you will get one if they are interested :D
K.I.S.S........so easy to say so difficult to do.

Jpg
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Re: I am timing the market. Why am I wrong?

Post by Jpg » Fri Jan 06, 2017 9:45 pm

I understand your concerns.The market has been up 8 years in a row. This has been the longest bull market in a very long time. It might go up for a 9 th year - no one knows. Do what you need to do to be able to sleep at night. Ben Graham said never have less than 25%, or more than 75% equities. I would suggest that when in doubt either go 50/50, or age in bonds. Also, remember that broad stock indexes ALWAYS go back up( usually within 30 months), but some individual stocks and sectors never go back up.I hope that everyone on this forum achieves their financial goals, and there is more than just one road to financial success.

Fallible
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Re: I am timing the market. Why am I wrong?

Post by Fallible » Fri Jan 06, 2017 10:31 pm

briancof wrote:...
As a newish-to-investing and new-to-Boglism guy, I was struck by two things. First, it seems pretty clear that a lot of thoughtful people (including some in this thread) agreed nearly unanimously that timing does not work. I didn't arrive with enough equities knowledge to believe I could time in the first place - just a guy looking for something nonstupid to do with his extra cash - but I definitely came away feeling as though it ought to be the established null hypothesis. In other words, the burden was on somebody in favor of market timing to demonstrate that it was profitable, and not the other way around. My second takeaway, post arrival in Bogleland, was that satisfying explanations as to why timing does not work were annoyingly hard to find. ...
Here's a blog on market timing by pro Boglehead Rick Ferri that nicely explains why it's a problem. Here's the opening with the link following:
Successful market timing requires two correct decisions: when to get out and when to get back in. Guessing right once is a 50/50 proposition. Guessing right twice drops the odds to only 25 percent. One wrong guess and you shoot yourself in one foot; two wrong guesses and you shoot yourself in both feet. This is what makes market timing so difficult.

I divide market timing into two types: intentional timing and unintentional timing. Intentional timing is based on fundamental and technical factors to determine when asset classes are attractive and when they are not, and then bets are placed accordingly. Unintentional timing is behavioral – it’s rooted in a natural fear and greed mechanism that we must learn to control.

Many professional portfolio managers practice intentional market timing because it’s how they appear smart to their clients and potential clients--and justify their high fees. I’ve sat on many panels during industry conferences where portfolio managers gloat over how they predicted a market crash, or a jump in interest rates, or the fall in gold prices, etc.

What these gurus fail to mention (and what I point out) is that most of them were not able to repeat their good fortune. They failed to get their clients back into markets before the recovery and couldn’t repeat the process consistently.
https://portfoliosolutions.com/latest-l ... ket-timing
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

RAchip
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Re: I am timing the market. Why am I wrong?

Post by RAchip » Fri Jan 06, 2017 10:46 pm

Its your money. Do what you think is best. If you are not comfortable, hold your cash.

Everone here says buy index funds. I dont agree and dont do that. We all control our own fate to an extent. You dont have to just be part of the heard.

rgs92
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Re: I am timing the market. Why am I wrong?

Post by rgs92 » Fri Jan 06, 2017 11:02 pm

It sounds like you've done pretty bad already. You missed the nice gains (and dividends) since Jan. 1 2016 until now. Do you seriously think these results are validating your approach so far?
S&P500 1/1/2016: 2044; Today: 2277. (+ ~2% in dividends).
[Edit: OK, you mentioned April 2016; the S&P was 2048 on April 8th, so not much difference.]

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HomerJ
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Re: I am timing the market. Why am I wrong?

Post by HomerJ » Fri Jan 06, 2017 11:22 pm

Olibri wrote:since making this decision I have missed out on a lot of gains. I can't help but feel that the day that I cave in and buy will be the market top. Please help.
That's why you're wrong. You missed out on a lot of gains, and you now are stressed over whether or not to get back in.

Timing the market is not easy, and you're likely to make less money with more stress.

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Taylor Larimore
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2017 Boglehead Contest

Post by Taylor Larimore » Fri Jan 06, 2017 11:23 pm

Olibri:

It is not exactly the same, but you might register in the 2017 Boglehead Contest.

I started the contest in 2001 to demonstrate how difficult it is to forecast the stock market. Registration is open through January 10. Registration is free and there are prizes if you win. The challenge is to guess the price of the S&P 500 Index at the end of this year.

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

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HomerJ
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Re: I am timing the market. Why am I wrong?

Post by HomerJ » Fri Jan 06, 2017 11:26 pm

I would suggest a 50/50 stocks/bonds portfolio. That way you are always right!

If the market is up, hey you are getting gains on the stock side of your portfolio!
If the market is down, hey, at least you were smart enough to keep 50% of your money safe!

50/50, buy and hold for the next 10-20 years, and ignore the weekly ups and downs the best you can.

This is a marathon, not a sprint.

Note that there WILL be a market crash someday. Maybe even tomorrow. But we can't tell when. CAPE won't tell you when. But, so far, just riding the crash down, and riding it back up has given some very good returns. The long-term averages of the stock market INCLUDE the crashes. Read that again. You didn't have to avoid the crashes to get the very good long-term returns from the stock market.

If you market time, and you're right, you will beat the market... But if you're wrong, you will do worse. And the odds are higher that you will do worse. But if you just buy and hold the market, you are guaranteed to get the average. Which, so far, has been good enough to make people rich.
Last edited by HomerJ on Fri Jan 06, 2017 11:30 pm, edited 1 time in total.

mattshwink
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Re: I am timing the market. Why am I wrong?

Post by mattshwink » Fri Jan 06, 2017 11:29 pm

So one of the things you are missing out on is Dividends. While a lot of things you read will focus on returns, keep in mind while you are out of the market you aren't getting/reinvesting Dividends. This causes you to lose out on a lot of return. Further, during market downtowns dividends are an automatic way to buy cheap.

Case in point:
S&P 500 return, January 2008-January 2012
S&P Total Return: -5.67% (Annualized -1.449%)
S&P Return with Dividends: 3.237% (Annualized 0.8%)

So even though returns were negative, with dividends you made a positive return. In effect, it's almost a 9% swing total, from the balance in January 2008 to January 2012 (with no contributions).

If you extend to January 2016, you are looking at:
S&P 500 Total Return: 39.154% (Annualized 4.217%)
S&P 500 Return with Dividends: 65.143% (Annualized 6.471%).

So over 8 years, you are looking at 26% more total return by just staying the course.

Stay the course! :)

mortfree
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Re: I am timing the market. Why am I wrong?

Post by mortfree » Fri Jan 06, 2017 11:45 pm

You are like the surfer waiting for the perfect wave and you spent the last year treading water.

The market isn't going to wait for you. All that the market has is time. It was here before you arrived and it will be here when your time is up.

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Doom&Gloom
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Re: I am timing the market. Why am I wrong?

Post by Doom&Gloom » Sat Jan 07, 2017 12:09 am

Compare your results for 2016 with those posted during the past couple of weeks in the linked thread, and then come back and tell us the answer to your original question.

viewtopic.php?f=10&t=145610

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amp
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Re: I am timing the market. Why am I wrong?

Post by amp » Sat Jan 07, 2017 2:20 am

HomerJ wrote: Note that there WILL be a market crash someday. Maybe even tomorrow. But we can't tell when. CAPE won't tell you when. But, so far, just riding the crash down, and riding it back up has given some very good returns. The long-term averages of the stock market INCLUDE the crashes. Read that again. You didn't have to avoid the crashes to get the very good long-term returns from the stock market.
I agree with HomerJ. It's only been a few months so far and you're already nervous. If you want to outguess the markets you have to be prepared to wait much longer than that with no guarantee of success. If you don't have the fortitude to live with that uncertainty, then you shouldn't play that game.

In December 1996, Alan Greenspan gave a famous speech about the market's "irrational exuberance." The CAPE of the S&P 500 back then was around the same as it is today. Someone who took heed of his warning and sold would have to wait over five years, until 2002, for valuations to fall below their levels in 1996. And, in fact, even then stocks weren't considered a bargain. It took until the Great Recession for CAPE ratios to fall below their historical average. Over twelve long years before the valuation-based approach paid off. Can you wait twelve years to be right?

And of course, it may never pay off. Even Robert Shiller, the inventor of CAPE, doesn't advise selling.
He sort of shrugs and throws up his hands. He says the ratio that bears his name has made the market look expensive for a while, spurring some pundits to give pretty bad advice.

Record-low interest rates around the world are rendering some long-held financial theories useless, he says.

“I’ve been very wary about advising people to pull out of the market even though my CAPE ratio is at one of the highest levels ever in history,” Shiller told Bloomberg in April. “Something funny is going on. History is always coming up with new puzzles.”

ghudson
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Re: I am timing the market. Why am I wrong?

Post by ghudson » Sat Jan 07, 2017 2:51 am

Being 85% in cash is bad.

Do the math.

You're losing out big time.

The stock market is the collective force of mankind trying to prosper -- and you get to invest in a piece of that. Mankind's collective prosperity is a given: both historically, and philosophically this holds up to scrutiny.

Holding cash is negative real returns. :oops:

sat24
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Re: I am timing the market. Why am I wrong?

Post by sat24 » Sat Jan 07, 2017 3:07 am

You remind me of a friend I used to have - he would come to parties and boast that he had it made and had cracked the code of how to make money in the market (for e.g. he said he made $8000 in 2 days by shorting Netflix - I think this was around the Quikster fiasco, but mostly it was how his stock picks always rocked the market and kept climbing up and up). [Pet Peeve: he would never share any "tips" though, even when someone explicitly asked for it - his answer: "do your own research", in slightly nicer, but unmistakably condescending tone]. Then one day the market tanked, and he lost most of his (unrealized) gains. It burnt him enough that he not only shut up at parties, but he also refused to enter the market and converted all his positions to cash (similar to what you said you did - in fact, that's what reminded me of him). He lost out a bunch when the market rebounded again. I hear he just buys index funds these days :)

The lesson I learnt there was:
1) In an upmarket, every stock picker seems like a winner (OMG, keep buying and buying! It's always going to keep going up!). They are also delusional enough to advice others should do the same.
2) In a down market, every stock picker seems like a loser (OMG, it's all going down! Run and sell everything!).
3) [my fav] don't [mess --admin LadyGeek] with your friends by boasting like this in parties. You will find yourself with no [genuine] friends anymore.

Ok, (3) isn't relevant in this case, but I needed to get it off my chest. :D

(Sorry if this comes off harsh; I am just sharing a life lesson of mine)

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Portfolio7
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Re: I am timing the market. Why am I wrong?

Post by Portfolio7 » Sat Jan 07, 2017 3:27 am

No offense intended, but the methodology you describe seems to be more like guessing the markets than timing them; P/E has been shown to be a poor timing basis for market timing. This kind of thing is a common experience many of us have engaged in as well, so it's no shame to have tried. I've worked with decades of data and built my own timing methodologies based on the best information I could find. Backtests, sampling, variations on rules, mostly momentum based.... after all that work, I found that with a lot of diligent effort, on average, it appeared I could get solid returns - a little better even than a buy and hold portfolio... but then there were transaction costs which brought me right back to the same point as that original buy and hold portfolio. So, I could stick with my basic portfolio and let it do it's work without any help from me - or I could put in a ton of work and blood sweat and tears, monitor my investments weekly, just to receive roughly the same returns as I receive right now with a basic buy and hold portfolio. Many other people have done the same types of analysis, and reached similar conclusions. Many of us have IQs that are at least a couple standard deviations above normal, as well as financial and investing experience in our work lives as well as our private lives. None of that means anything to the market. I'll add that despite those years of study and effort, I still feel like I've only just jumped the first couple hurdles when it comes to really understanding my own portfolio (and to prove it I have a couple threads out there asking for advice on what must seem to many here to be elementary matters.)

We are all individuals, and we have to find the path that makes sense to us, not someone else. By questioning your beliefs, you have put yourself on the right track. Best of luck to you as you figure out what works for you.
"An investment in knowledge pays the best interest" - Benjamin Franklin

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catdude
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Re: I am timing the market. Why am I wrong?

Post by catdude » Sat Jan 07, 2017 4:09 am

OP, while you're trying to figure out if/when to get back into the market, consider this story from Jonathan Pond (the financial guru). He was a guest one day on a call-in radio show back in the late 90's. A guy called in and said he'd been out of the market for awhile and wondered when would be a good time to get back in. The following exchange took place:

Pond: When did you get out of the market?

Caller: Right after the Crash of '87.

The guy missed one of the great bull markets in history, waiting for the perfect time to get back in!
catdude | | "As much as cats fight, there always seems to be plenty of kittens." (Abraham Lincoln)

Clive
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Re: I am timing the market. Why am I wrong?

Post by Clive » Sat Jan 07, 2017 6:53 am

HomerJ wrote:I would suggest a 50/50 stocks/bonds portfolio. That way you are always right!
What about half of time 100% stock, other half of time bonds? (Average 50/50).

Generally on average you'd expect similar outcome (reward) over the total period compared to constant 50/50. But within that there'd be more individual case volatility around the constant weighted progression.

Much of gains (losses) can arise out of relatively few days. 1994 to 2013 ... if the 40 worst-performing days of the S&P 500 Index were missed, an investor's increased return would have been 893% more than investors who stayed in the market every day throughout the entire 20 years. University of Michigan Professor H. Nejat Seyhun analyzed 7,802 trading days for the 31 years from 1963 to 1993 and concluded that just 90 days generated 95% of all the years' market gains — an average of just three days per year.

Predicting best and worst periods in advance however is ... as good as impossible to do so reliably/accurately.

NYCguy
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Re: I am timing the market. Why am I wrong?

Post by NYCguy » Sat Jan 07, 2017 7:47 am

staythecourse wrote:
Olibri wrote: Please don't simply quote the million articles that explain how/why market timing is wrong.
p.s. I have mentioned numerous times on this site that I don't invest in a Bogleheads approach because of some love for Mr. Bogle. I do it because it is the most reaonable, logical approach with the highest probability of getting to the finish line of retirement. Trust me I wish there was a better way, but there isn't. I have looked around and it doesn't exist.
Well said. . Amen.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

Stormbringer
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Re: I am timing the market. Why am I wrong?

Post by Stormbringer » Sat Jan 07, 2017 8:45 am

Olibri wrote:I noticed my accumulation and started to come to the realization that I am approaching a point where the yields from my net assets would start approaching my work salary. So, I decided to dig in and start learning.
It sounds to me like you are risking money you have and need to make money you don't need.

I see this sort of thing happen with people all the time. They aren't content to win the game with boring singles and doubles. They have to hit the home runs. Instead, they usually end up striking out in spectacular fashion.
"Compound interest is the most powerful force in the universe." - Albert Einstein

epictetus
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Re: I am timing the market. Why am I wrong?

Post by epictetus » Sat Jan 07, 2017 8:56 am

this is the kind of situation where a mechanical asset allocation would help:

age in bonds or age +/- x in bonds or a static 60/40 or 50/50 or any number of options

that would have you steadily investing and re-balancing but not trying to get in/out of the market
Focus on what you can control

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just frank
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Re: I am timing the market. Why am I wrong?

Post by just frank » Sat Jan 07, 2017 9:21 am

I believe that (limited) market timing is possible, and I think you are doing it all wrong.

I have never seen a careful study that suggests that trailing PE can be used for timing index portfolios to achieve higher returns that buy and hold. So on what basis is OP doing it?

There are pundits on TV that like to make predictions, but that is not a timing model. Schiller is invested, himself.

On a more technical side, there is no reason to believe that the PE that the market reverts to is the average value over the last century plus, due to changes in investor base, demographics, technology, financial engineering, you name it. Even simple linear detrending paints a very different (and more favorable) scenario, and there is no reason to believe that even a linear trend captures the secular time dependence.

Further, it is clear that if you could time recessions (which is hard) you could make another ~5% CAGR, but trailing PE is not an effective way to call recessions. If you wanted to do this, you would need to do a deep dive into multifactor analysis of leading indicators, which is a LOT of work for another 5%, with added risk (from erroneous calls).

If you want to time non-recession related corrections and crashes, then good luck, that I think is formally impossible.

livesoft
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Re: I am timing the market. Why am I wrong?

Post by livesoft » Sat Jan 07, 2017 9:44 am

Instead of "Why am I wrong?", I think a better question to ask is "What if I am wrong?"

I would not put all my eggs into the market timing basket. A portfolio that is passively-managed using low-expense-ratio index funds can have overlaid on top of it a market timing component. That might be called "rebalancing" by some folks. With that, one will at least achieve the market return for the passively-managed low-expense-ratio index fund component and that index component will also tell one if their market timing component is helping or hurting.

So if one is going to experiment with market timing, one should also have some experimental controls. Fortunately, the controls are easy to come by and actually do quite well for one's portfolio all on their own.
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foozman
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Re: I am timing the market. Why am I wrong?

Post by foozman » Sat Jan 07, 2017 12:24 pm

I think the mathematics of timing the market are against you because of geometric growth. Say you think stocks are expensive and you pull out. Say it takes three years for everyone to say, "yeah you are right. They are expensive" and the market crashes 25% The average return in this scenario is 1.10 x 1.10 x 1.10 x 0.75-1 = -0.2%

You just went through a lot of emotional trauma to save 0.2%. In the mean time, you probably lost your nerve in the third year and bought just before the 25% crash, so future you really messed things up.

Suppose you don't lose your nerve and the market corrects after four years, the market would have returned 10% from the time you pulled out. You missed it. Are you really ready for all the craziness of random geometric growth?

If you feel that you really, Really get random geometric growth and are ready for it and able to backtest and Monte Carlo simulate your assumptions, then you can try to time the market.

DaufuskieNate
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Re: I am timing the market. Why am I wrong?

Post by DaufuskieNate » Sat Jan 07, 2017 1:17 pm

1. Why is your insight better than the collective insight of the market? Think hard before answering. You are up against lots of people with advanced degrees, armed with massive data and computing power, working full time to beat you.

2. If you make a correct call, and you're human, you're likely to ascribe your success to skill.

3. If you make an incorrect call, and you're human, you're likely to ascribe your failure to bad luck.

4. Because of 2. & 3., you'll likely go along thinking that your strategy is working just fine when it may not be.

If none of this concerns you, you probably shouldn't be timing the market.

If it does concern you, at least your eyes are wide open.

alfaspider
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Re: I am timing the market. Why am I wrong?

Post by alfaspider » Sat Jan 07, 2017 2:57 pm

Every few months someone makes a post on this forum announcing they are cashing out to time the market. Almost all of them turn out to be spectacularly wrong in their predictions and lose a lot of money.

minesweep
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Re: I am timing the market. Why am I wrong?

Post by minesweep » Sat Jan 07, 2017 3:04 pm

Q3 2015 I subscribed to the WSJ and then Barrons to start learning. In addition I started lurking and sometimes contributing in online forums.

Last April, deciding that the market was in a significantly overvalued state I decided to go from nearly 100% invested to nearly 0% invested.
It’s lucky for you that you found the Boglehead's Forum. All is not lost.

Going from nearly a 100% positon in stocks to 0% is an extreme measure. It’s no wonder you feel uneasy about your situation. You need to find the right balance of stocks and bonds that matches your risk profile (it’s not an easy task for some investors, at least not initially). Once you’ve done that, Stay the Course. You won’t need to buy a My Pillow to sleep better at night.

RAchip
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Re: I am timing the market. Why am I wrong?

Post by RAchip » Sat Jan 07, 2017 3:13 pm

I personally wouldn't dump 100% of my investable money into the market all at once when the market is at an all time high. And I don't buy individual stocks at all time highs. The market goes down 10 or 20% every once in a while. I think its ok to wait for "corrections" to buy, but you have to be disciplined in doing it. I'm not trying to buy at the bottom, I just try not to buy at the top. If prices drop 10% or whatever, buy some, if they drop more, buy some more.

But once the money is in, I say just forget it and leave it in. Trying to jump in and out is where people get into trouble.

minimalistmarc
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Re: I am timing the market. Why am I wrong?

Post by minimalistmarc » Sat Jan 07, 2017 3:18 pm

RAchip wrote:I personally wouldn't dump 100% of my investable money into the market all at once when the market is at an all time high. And I don't buy individual stocks at all time highs. The market goes down 10 or 20% every once in a while. I think its ok to wait for "corrections" to buy, but you have to be disciplined in doing it. I'm not trying to buy at the bottom, I just try not to buy at the top. If prices drop 10% or whatever, buy some, if they drop more, buy some more.

But once the money is in, I say just forget it and leave it in. Trying to jump in and out is where people get into trouble.
Rubbish. The market might only drop 10 or 20% after a bigger rise. With individual stocks you could just be catching a falling knife all the way to the bottom. Even blue chip aristocrats can and have gone bust.

ghudson
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Re: I am timing the market. Why am I wrong?

Post by ghudson » Sat Jan 07, 2017 3:45 pm

RAchip wrote:Its your money. Do what you think is best. If you are not comfortable, hold your cash.

Everone here says buy index funds. I dont agree and dont do that. We all control our own fate to an extent. You dont have to just be part of the heard.
Investing based on comfort is putting the cart before the horse.

Instead learn what is true (what the studies suggest), and through knowledge get comfortable over time.

Otherwise you are just acting out of fear, and you'll get sub-par results.

bamn
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Re: I am timing the market. Why am I wrong?

Post by bamn » Tue Jan 10, 2017 9:46 am

In a nutshell, this is why.
Image
( As found on http://thereformedbroker.com/2016/07/20 ... s-this-it/ )

kylemerriman
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Re: I am timing the market. Why am I wrong?

Post by kylemerriman » Tue Jan 10, 2017 10:00 am

I am new to investing in stocks but have had the same question as you. I always hear people say things like, "the market shifts every 7, 8, or 9 years", which led me to the same question: Why not time it? The more time I spend looking at the historical trend charts of the markets over the last 100 years, it is apparent one cannot make an absolute statement that the market shifts every "x" number of years. For example, 1987 looked like the beginning of an extended bear market, but selling would have been a poor choice because 1987-2000 saw huge growth. Even if you guess accurately half the time you still wont get ahead. I just don't see any definitive pattern in the historical data that would justify timing the shifts.

delamer
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Re: I am timing the market. Why am I wrong?

Post by delamer » Tue Jan 10, 2017 11:23 am

Another way to look at market timing: http://awealthofcommonsense.com/2014/02 ... ket-timer/

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Taylor Larimore
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Important Article

Post by Taylor Larimore » Tue Jan 10, 2017 11:34 am

Bogleheads:

Please read the important article linked by delamer. It ends with this advice:

Saving more, thinking long-term and allowing compound interest to work in your favor are your biggest accelerants for building wealth. These factors have nothing to do with picking stocks or a complex investment strategy. Get these big things right and any disciplined investment strategy should do the trick.


Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

leonard
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Re: I am timing the market. Why am I wrong?

Post by leonard » Tue Jan 10, 2017 1:22 pm

OP - perhaps before we provide our critique - can you provide a summary of what the typical Boglehead objections might be to your plan?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

Radjob4me
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Re: I am timing the market. Why am I wrong?

Post by Radjob4me » Tue Jan 10, 2017 3:57 pm

delamer wrote:Another way to look at market timing: http://awealthofcommonsense.com/2014/02 ... ket-timer/
Absolutely! I honestly think this is the article that finally got me to latch on to a steady approach investing for the long term. I was reading through the whole thread and surprised it hadn't been posted yet.

OP - I feel what you are going through. I am in my early 40s and have done everything that you have - including sticking with that "gut" feeling that I was really the one who could do better, that markets/stocks "felt" a particular way. Or that the metric I chose was the one to follow to long term rewards. I mean I went to med school and I am smart, I could do better than other investors.

I made random choices (like a "leveraged company stock fund", amongst others - still don't know exactly what I was investing in, but it had good returns - at least until I bought it...), bought individual stocks that see-sawed all over the place making me log into my account a couple times a day wondering if "now was the time..."; looked for Motley Fool picks, stock board tips, etc... I actually did bail in '08, and paid for it by waiting, waiting, waiting as everything recovered and I lost out on all those dividends and new investments at the bottom (and on the way down, and the way back up)

It was such a mess, I couldn't even really figure out what my returns were over time from 2005-2014. But best I could figure I was hurting myself and my family's future returns by at least a few percent per year...

I strongly encourage you to read the article above, make a solid investing plan and invest most if not all your assets for the long haul.

I still invest, as do some others I am sure, in stocks that I like, but at less than 5% of my portfolio I am comfortable that the rest of money (70/30 index mix) is doing yeoman's work to get me to my goal and keeping me from touching it and worrying about it all the time.

rbaldini
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Re: I am timing the market. Why am I wrong?

Post by rbaldini » Tue Jan 10, 2017 4:11 pm

I can't tell you that you're wrong. No one can - not until years from now will you be able to look back and see if this was the right decision.

All I can say (probably similar to what others have said) is that total market valuation is not a strong predictor of future performance. It probably tells us *something* - it's better than nothing - but not a whole lot. Another way to put it is that it is a weak signal. Now, it's logical to conclude that a weak signal should only weakly influence your decision-making - weak signals should not evoke strong responses. But this is precisely what you are doing by effectively selling all your stock.

Another way to look at it: you can take historical data and use that to try to fit a model that uses market valuation to predict future returns (I have done this). Some cross-validation suggests that this is probably *a bit* better than not - i.e. the prediction is slightly better than just always guessing the historical average to that date. But, again, the effect is weak. Almost never will such a model generate negative expected return - the signal just isn't that strong. If I recall correctly, one model I fit made an estimate of expected future returns of about 4-5% - below the historical average of 9-10%, but certainly not negative. Of course, there is always massive uncertainty around that estimate, but you can think of it this way: by putting most of your money in cash, you are effectively betting that the market will return <1% - i.e. what you can get in a good savings account. I believe most good statistical models would tell you this is a bad bet: most likely, the stock market will return more than this in the next year. A crash is totally possible, but that's always true.

Based on that information, I think you're making the wrong decision. You might use the current high valuations to shift toward a higher bond allocation than you otherwise would. E.g. if you have 80% stock before, maybe shift to 70% or 60% now. But selling it all is probably not best.

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