How to take advantage of market big swing?

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WhiteMaxima
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How to take advantage of market big swing?

Post by WhiteMaxima »

I have set up a target AA (60/40). I will stick with it. The market is recently act very volatile, sometimes +-2% day before and after. I am rebalance whenever there is >2% swing but still keep a large % in cash and bond. I would think 2019 would be same as volatile.
staythecourse
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Re: How to take advantage of market big swing?

Post by staythecourse »

WhiteMaxima wrote: Tue Dec 18, 2018 11:24 am I have set up a target AA (60/40). I will stick with it. The market is recently act very volatile, sometimes +-2% day before and after. I am rebalance whenever there is >2% swing but still keep a large % in cash and bond. I would think 2019 would be same as volatile.
Why do you think 2019 will be as volatile? Autocorrelation/ serial correlation (the link between one year's returns reflecting the next year) is ZERO. Yes that is ZERO. So the answer is this year returns has no implication on next year. They may be worst, better, or basically the same.

To answer you bigger question, I do like the idea of overbalancing if one is GOING to market time in a STATIC way. Meaning in your IPS you spell out if market drops 10% this year you go 70/30. If it drops 20% you go 80/20. If it drops 30+% you go 100/0. Something like that IF (not my advice of doing it) you want to be more aggressive when markets tank.

Good luck.

p.s. The key should be a unemotional way of implementing the concept so it takes out any "feelings" on which way the market may go.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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WhiteMaxima
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Re: How to take advantage of market big swing?

Post by WhiteMaxima »

from 2010 up to end of 2017, I can just blindly DCA and market reaches new high almost everyday. Since 2018, this has been changed. I increase my cash % and do regular rebalance.
Tamalak
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Re: How to take advantage of market big swing?

Post by Tamalak »

When market is up I walk to invest my quarterly allocation.

When the market is down I run to invest it (doing that today in fact)

A tiny bit of market timing but not going to be all that impactful IMO.
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willthrill81
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Re: How to take advantage of market big swing?

Post by willthrill81 »

staythecourse wrote: Tue Dec 18, 2018 11:32 am
WhiteMaxima wrote: Tue Dec 18, 2018 11:24 am I have set up a target AA (60/40). I will stick with it. The market is recently act very volatile, sometimes +-2% day before and after. I am rebalance whenever there is >2% swing but still keep a large % in cash and bond. I would think 2019 would be same as volatile.
Why do you think 2019 will be as volatile?
For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't. Volatility clustering is a well documented phenomenon (e.g. Cont 2005).
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staythecourse
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Re: How to take advantage of market big swing?

Post by staythecourse »

willthrill81 wrote: Tue Dec 18, 2018 11:47 am
staythecourse wrote: Tue Dec 18, 2018 11:32 am
WhiteMaxima wrote: Tue Dec 18, 2018 11:24 am I have set up a target AA (60/40). I will stick with it. The market is recently act very volatile, sometimes +-2% day before and after. I am rebalance whenever there is >2% swing but still keep a large % in cash and bond. I would think 2019 would be same as volatile.
Why do you think 2019 will be as volatile?
For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't. Volatility clustering is a well documented phenomenon (e.g. Cont 2005).
Thanks for the info. Do you know if there is data that shows if stock market is down 10% one year (for example) the correlation of the next years returns vs. the serial correlations in general?

Also, aren't some of the BEST returning days in the market grouped in near proximity to some of the WORST days? If so, another reason to just be all in, no?

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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WhiteMaxima
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Re: How to take advantage of market big swing?

Post by WhiteMaxima »

each correction is different. 2008 we had -40% correction happening in months. this time we might have -10% each year for couple of years. I will not out of market completely (I have 40% in) but I would put big % in much safe asset like bond but still making 3% a year.
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JoeRetire
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Re: How to take advantage of market big swing?

Post by JoeRetire »

willthrill81 wrote: Tue Dec 18, 2018 11:47 am For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't.
In 2018 was the market "in a downward trend"?

What leads you to believe that in 2019 the market will be "in a downward trend"?
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Re: How to take advantage of market big swing?

Post by willthrill81 »

staythecourse wrote: Tue Dec 18, 2018 12:06 pm
willthrill81 wrote: Tue Dec 18, 2018 11:47 am
staythecourse wrote: Tue Dec 18, 2018 11:32 am
WhiteMaxima wrote: Tue Dec 18, 2018 11:24 am I have set up a target AA (60/40). I will stick with it. The market is recently act very volatile, sometimes +-2% day before and after. I am rebalance whenever there is >2% swing but still keep a large % in cash and bond. I would think 2019 would be same as volatile.
Why do you think 2019 will be as volatile?
For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't. Volatility clustering is a well documented phenomenon (e.g. Cont 2005).
Thanks for the info. Do you know if there is data that shows if stock market is down 10% one year (for example) the correlation of the next years returns vs. the serial correlations in general?
No, I'm not very familiar with serial correlations.
staythecourse wrote: Tue Dec 18, 2018 12:06 pmAlso, aren't some of the BEST returning days in the market grouped in near proximity to some of the WORST days? If so, another reason to just be all in, no?
It's true that the best days tend to be close in time to the worst days, but both tend to occur when the market is a downward trend. Avoiding both would have historically led to higher returns.

This chart displays this using data from 1961-2014. When stocks were below the 200 day moving average, the volatility was higher, and returns were much lower. While these differences were not statistically significant (though I'm baffled as to why given the large sample size [trading days] and the apparent effect size), I don't see that as being relevant at all because the displayed returns were the population (i.e. 1961-2014 volatility and returns) and not a 'sample'.

Image

Some would note that even during a downward trend that stocks still had a positive return. I would retort that few investors would be interested in a 2.1% return with a 22.2% standard deviation.
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Re: How to take advantage of market big swing?

Post by willthrill81 »

JoeRetire wrote: Tue Dec 18, 2018 12:17 pm
willthrill81 wrote: Tue Dec 18, 2018 11:47 am For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't.
In 2018 was the market "in a downward trend"?
Depending on how you defined "downward trend," U.S. stocks are currently in a downward trend. They are certainly well below their 200 day moving average, the most commonly cited measure for trends.
JoeRetire wrote: Tue Dec 18, 2018 12:17 pmWhat leads you to believe that in 2019 the market will be "in a downward trend"?
I don't try to predict when a trend will change one way or the other. I simply acknowledge where the market currently is and act accordingly.

The trend following system I use currently has me still in U.S. stocks.
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Re: How to take advantage of market big swing?

Post by GoldStar »

Tamalak wrote: Tue Dec 18, 2018 11:42 am When market is up I walk to invest my quarterly allocation.

When the market is down I run to invest it (doing that today in fact)

A tiny bit of market timing but not going to be all that impactful IMO.
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Re: How to take advantage of market big swing?

Post by Tamalak »

GoldStar wrote: Tue Dec 18, 2018 12:33 pm
Tamalak wrote: Tue Dec 18, 2018 11:42 am When market is up I walk to invest my quarterly allocation.

When the market is down I run to invest it (doing that today in fact)

A tiny bit of market timing but not going to be all that impactful IMO.
Yesterday was the day.
Nnnooooooooooo
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Re: How to take advantage of market big swing?

Post by GoldStar »

hdas wrote: Tue Dec 18, 2018 12:43 pm
GoldStar wrote: Tue Dec 18, 2018 12:33 pm
Tamalak wrote: Tue Dec 18, 2018 11:42 am When market is up I walk to invest my quarterly allocation.

When the market is down I run to invest it (doing that today in fact)

A tiny bit of market timing but not going to be all that impactful IMO.
Yesterday was the day.
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Re: How to take advantage of market big swing?

Post by KlangFool »

OP,

If you believe that rebalancing will improve return, then, the logical conclusion would be to put your money in the balanced fund. Then, you get daily rebalancing.

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Re: How to take advantage of market big swing?

Post by Rowan Oak »

willthrill81 wrote: Tue Dec 18, 2018 12:31 pm
JoeRetire wrote: Tue Dec 18, 2018 12:17 pm
willthrill81 wrote: Tue Dec 18, 2018 11:47 am For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't.
In 2018 was the market "in a downward trend"?
Depending on how you defined "downward trend," U.S. stocks are currently in a downward trend. They are certainly well below their 200 day moving average, the most commonly cited measure for trends.
JoeRetire wrote: Tue Dec 18, 2018 12:17 pmWhat leads you to believe that in 2019 the market will be "in a downward trend"?
I don't try to predict when a trend will change one way or the other. I simply acknowledge where the market currently is and act accordingly.

The trend following system I use currently has me still in U.S. stocks.
What will it take to trigger a change? Hope you'll post when it does and you get 100% out of equities. I think it will be interesting to follow along given how much the strategy is talked about here on the forum.

I'm a buy and hold Boglehead, but I do find the discipline required for both strategies intriguing. Thanks
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger
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Re: How to take advantage of market big swing?

Post by willthrill81 »

Rowan Oak wrote: Tue Dec 18, 2018 1:00 pm
willthrill81 wrote: Tue Dec 18, 2018 12:31 pm
JoeRetire wrote: Tue Dec 18, 2018 12:17 pm
willthrill81 wrote: Tue Dec 18, 2018 11:47 am For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't.
In 2018 was the market "in a downward trend"?
Depending on how you defined "downward trend," U.S. stocks are currently in a downward trend. They are certainly well below their 200 day moving average, the most commonly cited measure for trends.
JoeRetire wrote: Tue Dec 18, 2018 12:17 pmWhat leads you to believe that in 2019 the market will be "in a downward trend"?
I don't try to predict when a trend will change one way or the other. I simply acknowledge where the market currently is and act accordingly.

The trend following system I use currently has me still in U.S. stocks.
What will it take to trigger a change? Hope you'll post when it does and you get 100% out of equities. I think it will be interesting to follow along given how much the strategy is talked about here on the forum.

I'm a buy and hold Boglehead, but I do find the discipline required for both strategies intriguing. Thanks
Until the unemployment rate moves above its 12 month moving average, my strategy will keep me in equities. I'll definitely post when I move out. I fully acknowledge that the strategy, like any other, is not perfect and that I may lag the market significantly, but I accept that possibility.
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Rowan Oak
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Re: How to take advantage of market big swing?

Post by Rowan Oak »

willthrill81 wrote: Tue Dec 18, 2018 1:42 pm
Rowan Oak wrote: Tue Dec 18, 2018 1:00 pm
willthrill81 wrote: Tue Dec 18, 2018 12:31 pm
JoeRetire wrote: Tue Dec 18, 2018 12:17 pm
willthrill81 wrote: Tue Dec 18, 2018 11:47 am For at least the last 50 years, the market has been more volatile when it was in a downward trend than it wasn't.
In 2018 was the market "in a downward trend"?
Depending on how you defined "downward trend," U.S. stocks are currently in a downward trend. They are certainly well below their 200 day moving average, the most commonly cited measure for trends.
JoeRetire wrote: Tue Dec 18, 2018 12:17 pmWhat leads you to believe that in 2019 the market will be "in a downward trend"?
I don't try to predict when a trend will change one way or the other. I simply acknowledge where the market currently is and act accordingly.

The trend following system I use currently has me still in U.S. stocks.
What will it take to trigger a change? Hope you'll post when it does and you get 100% out of equities. I think it will be interesting to follow along given how much the strategy is talked about here on the forum.

I'm a buy and hold Boglehead, but I do find the discipline required for both strategies intriguing. Thanks
Until the unemployment rate moves above its 12 month moving average, my strategy will keep me in equities. I'll definitely post when I move out. I fully acknowledge that the strategy, like any other, is not perfect and that I may lag the market significantly, but I accept that possibility.
This is why I enjoy reading your posts on the subject. Very pragmatic. Of course, I'm hoping you never need to make that post, but I guess it's just a matter of time.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger
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