How to take advantage of market big swing?
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How to take advantage of market big swing?
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.
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Re: How to take advantage of market big swing?
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.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.
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.” |
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Re: How to take advantage of market big swing?
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.
Re: How to take advantage of market big swing?
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.
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?
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).staythecourse wrote: ↑Tue Dec 18, 2018 11:32 amWhy do you think 2019 will be as volatile?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.
The Sensible Steward
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Re: How to take advantage of market big swing?
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?willthrill81 wrote: ↑Tue Dec 18, 2018 11:47 amFor 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).staythecourse wrote: ↑Tue Dec 18, 2018 11:32 amWhy do you think 2019 will be as volatile?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.
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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Re: How to take advantage of market big swing?
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.
Re: How to take advantage of market big swing?
In 2018 was the market "in a downward trend"?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.
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?
No, I'm not very familiar with serial correlations.staythecourse wrote: ↑Tue Dec 18, 2018 12:06 pmThanks 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?willthrill81 wrote: ↑Tue Dec 18, 2018 11:47 amFor 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).staythecourse wrote: ↑Tue Dec 18, 2018 11:32 amWhy do you think 2019 will be as volatile?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.
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.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?
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'.
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.
The Sensible Steward
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Re: How to take advantage of market big swing?
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 pmIn 2018 was the market "in a downward trend"?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.
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.
The Sensible Steward
Re: How to take advantage of market big swing?
Re: How to take advantage of market big swing?
I'm ABSOLUTELY resisting the urge to go and post to that thread! If folks here figure out who I am I will be lynched
Re: How to take advantage of market big swing?
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.
KlangFool
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.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: How to take advantage of market big swing?
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.willthrill81 wrote: ↑Tue Dec 18, 2018 12:31 pmDepending 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 pmIn 2018 was the market "in a downward trend"?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.
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.
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
- willthrill81
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Re: How to take advantage of market big swing?
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.Rowan Oak wrote: ↑Tue Dec 18, 2018 1:00 pmWhat 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.willthrill81 wrote: ↑Tue Dec 18, 2018 12:31 pmDepending 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 pmIn 2018 was the market "in a downward trend"?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.
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.
I'm a buy and hold Boglehead, but I do find the discipline required for both strategies intriguing. Thanks
The Sensible Steward
Re: How to take advantage of market big swing?
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.willthrill81 wrote: ↑Tue Dec 18, 2018 1:42 pmUntil 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.Rowan Oak wrote: ↑Tue Dec 18, 2018 1:00 pmWhat 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.willthrill81 wrote: ↑Tue Dec 18, 2018 12:31 pmDepending 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 pmIn 2018 was the market "in a downward trend"?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.
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.
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