Are you a closet market-timer?

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Financologist
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Are you a closet market-timer?

Post by Financologist » Wed Jan 15, 2020 11:53 pm

Something's been eating away at me...

For all the talk about staying the course, investment policies, automated rebalancing etc.. an awful lot of folks seem to adjust their desired asset allocations at "compelling market moments."

I am hypothesizing that asset allocations are adjusted more frequently in volatile markets than in calm ones. They are tweaked at perceived highs and lows more often than when markets float inside of recently established ranges. Traders and other market-timers always do this. But I am talking to the BH faithful right now. Subscribers of the staid principles of Bogleian investing.

I raise my hand as a case in point. I've considered myself to be a stone-cold dollar cost average investor for a long time. But recently I find myself reexamining this position. Over the last couple of months I've made a significant reallocation - shifting ~5% of my net worth from stocks to bonds. The impetus (I told myself) was a general assessment of my station in life: A combination of accelerated retirement plans, diminished volatility tolerance, perceived reduction in income predictability etc.. I concluded mild de-risking was prudent.

Before you, I confront myself with a disturbing possibility. All the rationalizations were a pretext for having "sold high" at a point where fear trumped greed.

Are you right now "reassessing your risk tolerance" or "reexamining your investment policy" or undertaking some Bogleian exercise all in the name of justifying what your gut demands of you.. to SELLLLL!!!? Are you a closet market-timer?

DesertDiva
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Re: Are you a closet market-timer?

Post by DesertDiva » Thu Jan 16, 2020 12:07 am

Not a closet market-timer.

02nz
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Re: Are you a closet market-timer?

Post by 02nz » Thu Jan 16, 2020 12:12 am

Bogle himself was never all that dogmatic about any of this stuff (except maybe cost). If you looked at your life situation and decided a lower allocation to stocks would be better for you, nothing wrong with that. But there are some on this board who see anything and everything as market-timing.

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whodidntante
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Re: Are you a closet market-timer?

Post by whodidntante » Thu Jan 16, 2020 12:45 am

Bogle timed the market at extremes.

Timing the market because you're anxious, heard something on CNBC, or because your gut says so it almost perfectly a bad idea. But I think we're all better off if we time the market in a responsible way, by making sure we are taking appropriate risks and that we are buying the most attractive investments available at the time to take those appropriate risks. You have to play the hand you're dealt, but that doesn't mean you have to play it the same way as the next person. If that's market timing, so be it.

Since I can hear the tar boiling, I will give an example. I recently decided that I need to reduce the risk of my portfolio since my age is sneaking up behind me. But the thought of buying even more high-quality bonds at these awful low yields is relatively unattractive compared to paying off my most expensive debt (my mortgage). So I'm prepaying my mortgage instead of buying more bonds. This has the same effect as buying more bonds when it comes to the risk of my portfolio since debt is a short position in fixed income.

If I could go buy a 5% yielding high-quality bond fund, I would do that instead. This would also have some benefit from an MPT perspective since 5% yielding high-quality bonds are likely to have a real return even after-tax and are unlikely to be highly correlated with stocks. The only problem is that 5% yielding high-quality bond funds do not exist right now.

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Cubicle
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Re: Are you a closet market-timer?

Post by Cubicle » Thu Jan 16, 2020 12:56 am

I'm not because I don't look at gains & losses. I look at the deviation from where I want to be.

People are allowed to change their allocation. But it should be logical & not emotional. Based on risk tolerance. That isn't market timing.

I'm 100% in equities right now. When I reach my number I may shift some into bonds. However, if I get very lucky & have >2x my "number", I'd go back to 100% equities because at 2x I could weather a huge correction & still be okay.
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BalancedJCB19
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Re: Are you a closet market-timer?

Post by BalancedJCB19 » Thu Jan 16, 2020 1:04 am

Well being my entire portfolio is in the Vanguard Balanced Index Fund, I am as Stay the Course as one can get. Most of the time I don't even look at it. This portfolio is a win-win. It helps me sleep at night, it protects me against myself and I don't even have to give it TLC. It does all the heavy lifting without me.

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Bluce
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Re: Are you a closet market-timer?

Post by Bluce » Thu Jan 16, 2020 1:28 am

I've been derisking since I was in my mid-50s; am 69 now -- although I didn't do anything during the '08 crisis. Overall, it was about a ten year effort, regardless of what stocks were doing.
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TomCat96
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Re: Are you a closet market-timer?

Post by TomCat96 » Thu Jan 16, 2020 2:18 am

Financologist wrote:
Wed Jan 15, 2020 11:53 pm
Something's been eating away at me...

For all the talk about staying the course, investment policies, automated rebalancing etc.. an awful lot of folks seem to adjust their desired asset allocations at "compelling market moments."

I am hypothesizing that asset allocations are adjusted more frequently in volatile markets than in calm ones. They are tweaked at perceived highs and lows more often than when markets float inside of recently established ranges. Traders and other market-timers always do this. But I am talking to the BH faithful right now. Subscribers of the staid principles of Bogleian investing.

I raise my hand as a case in point. I've considered myself to be a stone-cold dollar cost average investor for a long time. But recently I find myself reexamining this position. Over the last couple of months I've made a significant reallocation - shifting ~5% of my net worth from stocks to bonds. The impetus (I told myself) was a general assessment of my station in life: A combination of accelerated retirement plans, diminished volatility tolerance, perceived reduction in income predictability etc.. I concluded mild de-risking was prudent.

Before you, I confront myself with a disturbing possibility. All the rationalizations were a pretext for having "sold high" at a point where fear trumped greed.

Are you right now "reassessing your risk tolerance" or "reexamining your investment policy" or undertaking some Bogleian exercise all in the name of justifying what your gut demands of you.. to SELLLLL!!!? Are you a closet market-timer?

Not a closet market timer. I buy when the market goes up; I buy when the market goes down. I buy when the market goes sideways.
Let each be convinced in his/her own mind.

I've run the numbers and looked at the data so many times. It helps to convince oneself by doing rather than taking someone else's word for it.
If you do the latter, you're running on faith. And that faith is going to be challenged when someone else who is "smart" comes along and speaks words that validate your anxiety or optimism. The path of faith lacks staying power in my opinion. It lacks resilience.

Just the other day, I ran some hypothetical numbers for that one thread that keeps getting updated--US markets in freefall. I generated some numbers for Sheepdog, assuming a high asset allocation in stocks. I did this actually to show a new friend who is just getting into investing what to expect.

I believe I ran with a 1M dollar portfolio for Sheepdog and showed my new friend, that he probably saw a 40% drop in portfolio value, perhaps about 400,000 in a few very short months. I showed her: it can get that bad, and that she should expect that over the course of an investing lifetime.

I wanted to show the actual portfolio value drops behind the trepidation and anxiety of the community here. (I wasnt here then)

I believe it's one thing to say stay the course. It's another to calculate exactly how high the waves the storms can bring.



I'm a 100% stocks right now, and will be for the foreseeable future. Some on this website assume that the it's a matter of emotional resilience. But from my perspective it's a matter of data. It has been said time and time again in many different incarnations that if you were to miss the top 100 high growth days of the past 50 years, your stock investment would actually be negative.

It is sometimes said on this site: Time in the market, not timing the market. No---that is not quite true. Clearly, from the aforementioned assertion. I could have been in the stock market the majority of the past 50 years and still come out negative. Yet had you never sold, you would be up by about 35 times your money. To me that says something I've mentioned here before...another way of saying the same thing:

Majority of the time the market moves sidewards. When it moves upward, it is rapid and decisive.

Those conclusions are simply another way of stating that if you had been out of the market on the special 100 days it counted, it could have destroyed even 50 years of growth. Another way of saying it is that the net market growth of the past 50 years took place in only 0.54% of those past 50 years!(slightly more than half a percent)

This latest upward swing has been extremely rapid. In the past 3 months and 6 days, the US total market has gained 12.7% If 10% gain is considered to be too optimistic for the market in the long run, what about 12.7% in 1/4 of a year?

There was another such rapid swing upwards after the election of 2016. (about 9.7% growth in the ensuing 1 month, 5 days) You cannot miss out on these. Yet if you sat around for most of 2015-2016, your investment went sideways. If you sat around for all of 2018, your investment again went sideways before dipping in december. Had you got during these long sideways periods and gotten back in, it wouldn't have mattered.

But if you miss those critical months of net growth, it will crush your growth potential. The fear should not be buying into the stock market in trying to avoid loss, the fear should be on missing the growth!! The math works out to be the same. The psychology however makes us fearful of losing money--as in we would rather avoid losing than missing out on growth.

I do not try and time the market for those reasons (and many more I dont have time to share). It's simply too dangerous for me to be out of the market should the market strike gold that day. The recovery will come if I wait long enough. But missing the growth--there's no remedy for that.

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Re: Are you a closet market-timer?

Post by james22 » Thu Jan 16, 2020 4:55 am


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dogagility
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Re: Are you a closet market-timer?

Post by dogagility » Thu Jan 16, 2020 6:16 am

TomCat96 wrote:
Thu Jan 16, 2020 2:18 am
I've run the numbers and looked at the data so many times. It helps to convince oneself by doing rather than taking someone else's word for it.
If you do the latter, you're running on faith. And that faith is going to be challenged when someone else who is "smart" comes along and speaks words that validate your anxiety or optimism. The path of faith lacks staying power in my opinion. It lacks resilience.
Clipped most of your post (which I agree with) to focus on this snippet. I'm also the type of person that needs data to convince myself how to allocate assets and stay at that allocation.

My approach has been to examine the US total stock market history and identify maximum downturns and how long it has taken to recover from those downturns. Also examine the positive, upside trajectory of the market. These are my data. Emotionally, I also believe in the innovative nature of humans. I believe this drives the stock market at a fundamental level and will not go away. These two factors kept me at 100% stock for 20 years.

Forum members will bring up fat tail events like Russia, Japan, etc. As for Japan, people tend to cherry pick data and focus on the post-1990 Nikkei index, as if someone lump summed all of their retirement portfolio at the January 1990 index peak. What about the huge bull in the post-war Nikkei? Torture the data long enough, and it will confess to anything. But consider probabilities based upon the data.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

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firebirdparts
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Re: Are you a closet market-timer?

Post by firebirdparts » Thu Jan 16, 2020 8:49 am

I am a closet market timer. I used to be an actual market timer.

An innocuous way to be a closet market timer is to own some bonds and let yourself rebalance. No harm in that. I am new to it. I never owned any bonds until I was about 50. I would prefer to monkey with my account more often than, say, 90 days, but I will just control myself.

If you are accumulating or decumulating, you can put money in or take it out based on actual AA vs. the target, and that also is innocuous.
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JoeRetire
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Re: Are you a closet market-timer?

Post by JoeRetire » Thu Jan 16, 2020 9:00 am

Financologist wrote:
Wed Jan 15, 2020 11:53 pm
Are you right now "reassessing your risk tolerance" or "reexamining your investment policy" or undertaking some Bogleian exercise all in the name of justifying what your gut demands of you.. to SELLLLL!!!? Are you a closet market-timer?
No.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

Amadis_of_Gaul
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Re: Are you a closet market-timer?

Post by Amadis_of_Gaul » Thu Jan 16, 2020 9:03 am

I suppose that I am an indirect market timer. The larger my portfolio gets, the more bonds I want to buy. My wife and I aren't really that interested in the upside potential of stocks. I can't imagine what I would do with, say, $10 million as opposed to $5 million. We are interested in making sure that we can keep the lights on and food on the table, so the closer I get to my goals, the more I want to reduce uncertainty. Security, not wealth, is the priority.

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Bluce
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Re: Are you a closet market-timer?

Post by Bluce » Thu Jan 16, 2020 9:11 am

Amadis_of_Gaul wrote:
Thu Jan 16, 2020 9:03 am
I suppose that I am an indirect market timer. The larger my portfolio gets, the more bonds I want to buy. My wife and I aren't really that interested in the upside potential of stocks. I can't imagine what I would do with, say, $10 million as opposed to $5 million. We are interested in making sure that we can keep the lights on and food on the table, so the closer I get to my goals, the more I want to reduce uncertainty. Security, not wealth, is the priority.
See my above post, a half dozen or so back.

I've never thought of changing one's AA because of age (de-risking) was market timing. I think most would agree with me. If not, then I've been market timing for the past 10+ years.
"There are no new ideas, only forgotten ones." -- Amity Shlaes

livesoft
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Re: Are you a closet market-timer?

Post by livesoft » Thu Jan 16, 2020 9:15 am

I'm certainly not in the closet on this. I'm a market timer and I'm proud of it. But I don't market time in the way many people think about market timing.
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KlangFool
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Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 9:17 am

Financologist wrote:
Wed Jan 15, 2020 11:53 pm
Something's been eating away at me...

For all the talk about staying the course, investment policies, automated rebalancing etc.. an awful lot of folks seem to adjust their desired asset allocations at "compelling market moments."

I am hypothesizing that asset allocations are adjusted more frequently in volatile markets than in calm ones. They are tweaked at perceived highs and lows more often than when markets float inside of recently established ranges. Traders and other market-timers always do this. But I am talking to the BH faithful right now. Subscribers of the staid principles of Bogleian investing.

I raise my hand as a case in point. I've considered myself to be a stone-cold dollar cost average investor for a long time. But recently I find myself reexamining this position. Over the last couple of months I've made a significant reallocation - shifting ~5% of my net worth from stocks to bonds. The impetus (I told myself) was a general assessment of my station in life: A combination of accelerated retirement plans, diminished volatility tolerance, perceived reduction in income predictability etc.. I concluded mild de-risking was prudent.

Before you, I confront myself with a disturbing possibility. All the rationalizations were a pretext for having "sold high" at a point where fear trumped greed.

Are you right now "reassessing your risk tolerance" or "reexamining your investment policy" or undertaking some Bogleian exercise all in the name of justifying what your gut demands of you.. to SELLLLL!!!? Are you a closet market-timer?
Financologist,

If your portfolio is big enough and it is time to take money away from the stock market, what is wrong with that?

KlangFool

KlangFool
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Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 9:18 am

OP,

My AA is 60/40 and that is my final AA. I plan to keep this AA even in my retirement.

KlangFool

rascott
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Re: Are you a closet market-timer?

Post by rascott » Thu Jan 16, 2020 9:21 am

I don't think adjusting AA as one ages is market timing whatsoever. If it is.... then every target date fund is a closet market timing fund.

If you are only adjusting your equity allocation down because of market prices (with the idea you'll increase it again in the future).... that's a different story.

Prudence
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Re: Are you a closet market-timer?

Post by Prudence » Thu Jan 16, 2020 9:21 am

Yes I am a market timer. I retired over three years ago and am particularly concerned about sequence of returns risk. I want the portfolio (net of inflation) to keep growing, even if the growth rate is very slow and less than a balanced portfolio would have yielded. For various reasons (which most folks on the forum would disagree with), I don't like stocks or bonds (over the past few years) so I am avoiding them for the time being.

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Re: Are you a closet market-timer?

Post by Dottie57 » Thu Jan 16, 2020 9:22 am

I’ve been changing my asset allocation as I adjust to retirement spending vs packing money away in tax deferred. If that is market timing so be it. It doesn’t make sense to keep your asset allocation if you are not comfortable withi it and understand the consequences.

EdNorton
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Re: Are you a closet market-timer?

Post by EdNorton » Thu Jan 16, 2020 9:32 am

I am now. Should have been one in late September of 2018. Went from 60/40 to 40/60. :sharebeer
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Rowan Oak
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Re: Are you a closet market-timer?

Post by Rowan Oak » Thu Jan 16, 2020 10:30 am

whodidntante wrote:
Thu Jan 16, 2020 12:45 am
Bogle timed the market at extremes.
Context for the above statement. Extremes is right.

Here's the video interview with Jack Bogle from 2014 talking about the decision he made in 2000:
https://youtu.be/k6ra5POdsYg

- He was around 70 yrs old at the time;
- his heart was failing;
- equity position 70-80%;
- bonds yielding around 7%;
- stocks yielding 1%;
- stock market closer to 40x earnings than to 30;

Quoted from the interview:

Jack Bogle: I think it's impossible in the next decade, and I look at things in decade lengths, that stocks will outperform bonds. So returns on stocks ought to be, you know, pretty close to nominal and the returns on bonds gonna be 7% a year. That's doubling your money in a decade. And then I looked at him and said, "You know, Don, sometimes I sit here and worry why I have any money in stocks whatsoever.

And I was in the process then, and I can't remember the exact timing, but obviously around that time, of reducing my own equity position from about what's normal of about 70-75%. I don't even remember, maybe 80% down to about 25-30%. And I did that.

...everybody said, "you knew what was going to happen", and I suppose you could argue that I did, but that was also, my heart was failing; my life was in danger. I wanted to make sure what kind of estate I had mostly my retirement plan here (Vanguard) was protected for my family so it was a personal financial decision greatly abetted by the fact that it made totally financial and economic sense. How many times in a lifetime does that come along.
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Barsoom
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Re: Are you a closet market-timer?

Post by Barsoom » Thu Jan 16, 2020 10:48 am

I am a "hopeful" market timer.

I am recently retired and just now building a diversified portfolio. I haven't been invested in the market outside of my MegaCorp 401(k) for very long, and so had no prior opportunity to time the market.

However, I am keeping a spreadsheet of widely-accepted leading indicators of recession, and tracking them monthly. I'm not sure yet what my reaction will be if my dashboard turns all red, but that will be a conversation (or two) with my FA if the time comes.

-B

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watchnerd
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Re: Are you a closet market-timer?

Post by watchnerd » Thu Jan 16, 2020 10:52 am

Financologist wrote:
Wed Jan 15, 2020 11:53 pm

I am hypothesizing that asset allocations are adjusted more frequently in volatile markets than in calm ones. They are tweaked at perceived highs and lows more often than when markets float inside of recently established ranges.
Sounds like you're asking if tactical asset allocation counts as market timing.

I would say it's a "soft" form, and not at all analogous to taking all your money out of the market and trying to get back in at the right time.

And, yes, I do a little tactical AA.

I'll be shifting from 70/30 to 60/40 earlier than anticipated due to recent gains. And I also adjust my fixed income holdings according to my perception of current yields.
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Re: Are you a closet market-timer?

Post by dcabler » Thu Jan 16, 2020 11:00 am

There seems to be an aversion with being labelled with the scarlet letters "MT". Yet here and in other forums, I've seen people making arguments that seemingly anything can be considered market timing including, rebalancing, tactical asset allocation, glidepaths, using valuations to determine how much to withdraw, and even buy & hold, among others I'm probably missing. And of course there are arguments where two people make exactly the same decision but since their rationale's are different, one is a market timer and one is not.

Labels aside, for me the only question is whether I can sleep at night with my decisions and whether I can predict what regret might feel like if I made a bad one.

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Financologist
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Re: Are you a closet market-timer?

Post by Financologist » Thu Jan 16, 2020 11:21 am

My contention is that an awful lot of rebalancing and reallocating seems to happen in response to changes in one's circumstances like age.. but upon closer examination, a disproportionate amount of these changes happen at market highs and lows and times of high volatility. In other words people say they are "reallocating" for one reason but really just rationalizing what amounts to an emotional reaction. I am offering myself as a case in point after making a dispassionate (I think) assessment of my "rebalance" transactions over the last ~5 years.
Bluce wrote:
Thu Jan 16, 2020 9:11 am
Amadis_of_Gaul wrote:
Thu Jan 16, 2020 9:03 am
I suppose that I am an indirect market timer. The larger my portfolio gets, the more bonds I want to buy. My wife and I aren't really that interested in the upside potential of stocks. I can't imagine what I would do with, say, $10 million as opposed to $5 million. We are interested in making sure that we can keep the lights on and food on the table, so the closer I get to my goals, the more I want to reduce uncertainty. Security, not wealth, is the priority.
See my above post, a half dozen or so back.

I've never thought of changing one's AA because of age (de-risking) was market timing. I think most would agree with me. If not, then I've been market timing for the past 10+ years.

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Financologist
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Re: Are you a closet market-timer?

Post by Financologist » Thu Jan 16, 2020 11:29 am

Hey KlangFool,

My concern is that by making these moves in response to market moments rather than the evolution of my circumstances I am making sub-optimal reallocations. Worse yet all of these years I have been telling myself that these moves ARE based on my circumstances when in reality they may be reactions to compelling market moments.
KlangFool wrote:
Thu Jan 16, 2020 9:17 am
Financologist wrote:
Wed Jan 15, 2020 11:53 pm
Something's been eating away at me...

For all the talk about staying the course, investment policies, automated rebalancing etc.. an awful lot of folks seem to adjust their desired asset allocations at "compelling market moments."

I am hypothesizing that asset allocations are adjusted more frequently in volatile markets than in calm ones. They are tweaked at perceived highs and lows more often than when markets float inside of recently established ranges. Traders and other market-timers always do this. But I am talking to the BH faithful right now. Subscribers of the staid principles of Bogleian investing.

I raise my hand as a case in point. I've considered myself to be a stone-cold dollar cost average investor for a long time. But recently I find myself reexamining this position. Over the last couple of months I've made a significant reallocation - shifting ~5% of my net worth from stocks to bonds. The impetus (I told myself) was a general assessment of my station in life: A combination of accelerated retirement plans, diminished volatility tolerance, perceived reduction in income predictability etc.. I concluded mild de-risking was prudent.

Before you, I confront myself with a disturbing possibility. All the rationalizations were a pretext for having "sold high" at a point where fear trumped greed.

Are you right now "reassessing your risk tolerance" or "reexamining your investment policy" or undertaking some Bogleian exercise all in the name of justifying what your gut demands of you.. to SELLLLL!!!? Are you a closet market-timer?
Financologist,

If your portfolio is big enough and it is time to take money away from the stock market, what is wrong with that?

KlangFool

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hisdudeness
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Re: Are you a closet market-timer?

Post by hisdudeness » Thu Jan 16, 2020 11:32 am

What happens in my closet
Stays in my closet
8-)

lazyday
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Re: Are you a closet market-timer?

Post by lazyday » Thu Jan 16, 2020 11:34 am

Financologist wrote:
Thu Jan 16, 2020 11:21 am
people say they are "reallocating" for one reason but really just rationalizing what amounts to an emotional reaction
Yes, I think this happens all the time on this forum.

In 2007, people improved their portfolios after learning about mixing asset classes with low correlations, so they bought EM and REITs.

When Small and Value had done well, people again improved their portfolios by adding tilts.

Today people simplify their portfolios by getting rid of international, or they improve their portfolios by leveraging up on long Treasuries and US stocks.

The longer I'm on the forums, the more I think most people should just buy Target Retirement and leave it alone.

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Financologist
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Re: Are you a closet market-timer?

Post by Financologist » Thu Jan 16, 2020 11:35 am

Target date funds have stated investment policies with known allocations. They use computers to ensure maintenance of those allocations. Closet Market Timers say they are making rational adjustments over time in response to things like advancing age when in reality they seem to make those moves more frequently during Compelling Market Moments.
rascott wrote:
Thu Jan 16, 2020 9:21 am
I don't think adjusting AA as one ages is market timing whatsoever. If it is.... then every target date fund is a closet market timing fund.

If you are only adjusting your equity allocation down because of market prices (with the idea you'll increase it again in the future).... that's a different story.

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watchnerd
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Re: Are you a closet market-timer?

Post by watchnerd » Thu Jan 16, 2020 11:53 am

Financologist wrote:
Thu Jan 16, 2020 11:35 am
Target date funds have stated investment policies with known allocations. They use computers to ensure maintenance of those allocations. Closet Market Timers say they are making rational adjustments over time in response to things like advancing age when in reality they seem to make those moves more frequently during Compelling Market Moments.
If they were "out and proud" in their tactical asset allocations, would that be okay?
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Re: Are you a closet market-timer?

Post by watchnerd » Thu Jan 16, 2020 12:03 pm

Financologist wrote:
Thu Jan 16, 2020 11:29 am
Hey KlangFool,

My concern is that by making these moves in response to market moments rather than the evolution of my circumstances I am making sub-optimal reallocations. Worse yet all of these years I have been telling myself that these moves ARE based on my circumstances when in reality they may be reactions to compelling market moments.
Okay, so this is about your personal thoughts and feelings about your investment behavior patterns....

Are you looking for reassurance that it's okay?

Or for someone to call you a sinner and tell you straighten up your act?
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

Topic Author
Financologist
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Re: Are you a closet market-timer?

Post by Financologist » Thu Jan 16, 2020 12:13 pm

I seek to examine this hypothesis with the benefit of the collective wisdom of this forum with an eye on learning something(s) that help(s) me become a better investor.

Or maybe I'm seeking permission to SELLLLL but didn't realize it.
watchnerd wrote:
Thu Jan 16, 2020 12:03 pm
Financologist wrote:
Thu Jan 16, 2020 11:29 am
Hey KlangFool,

My concern is that by making these moves in response to market moments rather than the evolution of my circumstances I am making sub-optimal reallocations. Worse yet all of these years I have been telling myself that these moves ARE based on my circumstances when in reality they may be reactions to compelling market moments.
Okay, so this is about your personal thoughts and feelings about your investment behavior patterns....

Are you looking for reassurance that it's okay?

Or for someone to call you a sinner and tell you straighten up your act?

koala2
Posts: 25
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Re: Are you a closet market-timer?

Post by koala2 » Thu Jan 16, 2020 12:26 pm

deleted
Last edited by koala2 on Fri Jan 24, 2020 12:45 pm, edited 1 time in total.

KlangFool
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Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 12:27 pm

Financologist wrote:
Thu Jan 16, 2020 11:29 am
Hey KlangFool,

My concern is that by making these moves in response to market moments rather than the evolution of my circumstances I am making sub-optimal reallocations. Worse yet all of these years I have been telling myself that these moves ARE based on my circumstances when in reality they may be reactions to compelling market moments.
Financologist,

What is your Investment Policy Statement (IPS) says about your AA adjustment? In my case, the AA adjustment based on my portfolio size is part of my IPS. Hence, it is not a market-timing movement.

KlangFool

KlangFool
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Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 12:31 pm

OP,

The short answer to your question is this:

If you are making the move based on the IPS that you created ahead of time, it is not a market-timing move. Your IPS should include a section on how you should adjust your AA based on your age or portfolio size.

If you make the move contrary to what your IPS says or you do not have an IPS, you are making a market-timing move.

KlangFool

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watchnerd
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Re: Are you a closet market-timer?

Post by watchnerd » Thu Jan 16, 2020 12:32 pm

Financologist wrote:
Thu Jan 16, 2020 12:13 pm
I seek to examine this hypothesis with the benefit of the collective wisdom of this forum with an eye on learning something(s) that help(s) me become a better investor.
What I do is write the change rules in advance. These are from my IPS:

Example 1, AA change rule:

Shift from 70/30 AA to 60/40 when I hit 55, or if portfolio hits XX, whichever comes first.

Background: I turn 50 in 2020. XX is the anticipated amount for age 55 based on accumulations and lowish market returns (I used 4.7%).

Example 2, Short bonds / cash mix change rule:

50% of fixed income shall be in instruments with duration of 2.5 years or less, or cash equivalents (MM funds). Default position is 5% cash, with the remainder in Short TIPS (VTIP). In the event of an anticipated cash need (e.g. buying another house), funds can be reallocated from VTIP to cash, with a glide path equivalent to duration.

Example 3, equity change rule:

Equity mix shall remain the global cap weighting without alteration in perpetuity. Specific funds can be altered if one is found that a) is direct equivalent replacement using the same index b) has no negative tax consequences c) does not upset cap weighting balance and d) lowers ER by a minimum of 5 bps.
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Topic Author
Financologist
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Re: Are you a closet market-timer?

Post by Financologist » Thu Jan 16, 2020 12:34 pm

My IP first and foremost states that I save or invest 50% of all income after tax and basic needs are met. It provides for auto-deductions every paycheck with auto investment in predetermined allocation. It also provides for periodic adjustments based on evolving circumstances.
KlangFool wrote:
Thu Jan 16, 2020 12:27 pm
Financologist wrote:
Thu Jan 16, 2020 11:29 am
Hey KlangFool,

My concern is that by making these moves in response to market moments rather than the evolution of my circumstances I am making sub-optimal reallocations. Worse yet all of these years I have been telling myself that these moves ARE based on my circumstances when in reality they may be reactions to compelling market moments.
Financologist,

What is your Investment Policy Statement (IPS) says about your AA adjustment? In my case, the AA adjustment based on my portfolio size is part of my IPS. Hence, it is not a market-timing movement.

KlangFool

WildBill
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Re: Are you a closet market-timer?

Post by WildBill » Thu Jan 16, 2020 12:40 pm

Howdy

I most certainly am, or at least was, a market timer, but I was never in the closet😀.

All in all I think I am ahead on timing, but it was mostly in individual stocks and I would have done as well or better using ETF index funds, if they had existed at the time.

Nice to get a x30 run up in AMAT and GLW for example, but offset by things like AIG going effectively to 0.

Good luck to all, in or out of the closet

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

KlangFool
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Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 1:02 pm

Financologist wrote:
Thu Jan 16, 2020 12:34 pm
My IP first and foremost states that I save or invest 50% of all income after tax and basic needs are met. It provides for auto-deductions every paycheck with auto investment in predetermined allocation. It also provides for periodic adjustments based on evolving circumstances.
KlangFool wrote:
Thu Jan 16, 2020 12:27 pm
Financologist wrote:
Thu Jan 16, 2020 11:29 am
Hey KlangFool,

My concern is that by making these moves in response to market moments rather than the evolution of my circumstances I am making sub-optimal reallocations. Worse yet all of these years I have been telling myself that these moves ARE based on my circumstances when in reality they may be reactions to compelling market moments.
Financologist,

What is your Investment Policy Statement (IPS) says about your AA adjustment? In my case, the AA adjustment based on my portfolio size is part of my IPS. Hence, it is not a market-timing movement.

KlangFool
Financologist,

<< It also provides for periodic adjustments based on evolving circumstances.>>

Do you spell out exactly what are those circumstances? And, it has to be totally objective and measurable like your age and/or the portfolio size. If that is not true, then, it will lead to the dilemma that you are having now.

You could not tell whether you are making your move based on the market sentiment.

It is very simple. You have a problem with your IPS.

KlangFool

Whatyear?
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Re: Are you a closet market-timer?

Post by Whatyear? » Thu Jan 16, 2020 1:21 pm

I have a certain "average" return I am hoping to achieve over time, which happens to be 7.25%. This is based on historical returns for my AA (which I KNOW is not necessarily indicative of future return, but it's what I am targeting). If I happen to over-achieve that return mid-year, I happily take it off the table by moving $$ from stock funds to bond funds. If the market keeps going up after that I don't feel bad because I have plenty more invested in stocks. If it happens to go down, I'm happy I locked in a small gain. I don't consider it market-timing at all.

KlangFool
Posts: 15541
Joined: Sat Oct 11, 2008 12:35 pm

Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 1:41 pm

Whatyear? wrote:
Thu Jan 16, 2020 1:21 pm
I have a certain "average" return I am hoping to achieve over time, which happens to be 7.25%. This is based on historical returns for my AA (which I KNOW is not necessarily indicative of future return, but it's what I am targeting). If I happen to over-achieve that return mid-year, I happily take it off the table by moving $$ from stock funds to bond funds. If the market keeps going up after that I don't feel bad because I have plenty more invested in stocks. If it happens to go down, I'm happy I locked in a small gain. I don't consider it market-timing at all.
Whatyear?,

In my opinion, you are a market-timer.

KlangFool

chevca
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Re: Are you a closet market-timer?

Post by chevca » Thu Jan 16, 2020 1:49 pm

Whatyear? wrote:
Thu Jan 16, 2020 1:21 pm
I have a certain "average" return I am hoping to achieve over time, which happens to be 7.25%. This is based on historical returns for my AA (which I KNOW is not necessarily indicative of future return, but it's what I am targeting). If I happen to over-achieve that return mid-year, I happily take it off the table by moving $$ from stock funds to bond funds. If the market keeps going up after that I don't feel bad because I have plenty more invested in stocks. If it happens to go down, I'm happy I locked in a small gain. I don't consider it market-timing at all.
How do you get your average return over time if you make moves depending on how half a year is going? :happy

1130Super
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Re: Are you a closet market-timer?

Post by 1130Super » Thu Jan 16, 2020 1:58 pm

KlangFool wrote:
Thu Jan 16, 2020 1:41 pm
Whatyear? wrote:
Thu Jan 16, 2020 1:21 pm
I have a certain "average" return I am hoping to achieve over time, which happens to be 7.25%. This is based on historical returns for my AA (which I KNOW is not necessarily indicative of future return, but it's what I am targeting). If I happen to over-achieve that return mid-year, I happily take it off the table by moving $$ from stock funds to bond funds. If the market keeps going up after that I don't feel bad because I have plenty more invested in stocks. If it happens to go down, I'm happy I locked in a small gain. I don't consider it market-timing at all.
Whatyear?,

In my opinion, you are a market-timer.

KlangFool
You need those 20% & 30% years (2013,2019) to make up for the down years. Your theory is probably the worst possible way to market time. If you capped your return at 7.25% in 2012, 2013, 2017, 2019 your equities are half what they could be

Topic Author
Financologist
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Re: Are you a closet market-timer?

Post by Financologist » Thu Jan 16, 2020 3:09 pm

A policy statement is based on the point in time at which it was created. I am coming to the belief that people tinker with their policy statements and their plans at an increased rate during compelling market moments. It's fascinating to see how people offer rationalizations at an increased frequency during this time also. I include myself in that group.

I offer this based on anecdotal observations and I'm trying to validate or invalidate the hypothesis based on the broader sample of investors here.

The higher rate of action during these market moments seems to suggest that regardless of the rationalizations people offer, they are reacting to the market and not individual circumstances.

In other words I am trying to follow the numbers.. not the claims. To that end, I would be interested if someone could offer evidence in support or to the contrary of the hypothesis.
KlangFool wrote:
Thu Jan 16, 2020 12:31 pm
OP,

The short answer to your question is this:

If you are making the move based on the IPS that you created ahead of time, it is not a market-timing move. Your IPS should include a section on how you should adjust your AA based on your age or portfolio size.

If you make the move contrary to what your IPS says or you do not have an IPS, you are making a market-timing move.

KlangFool

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watchnerd
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Re: Are you a closet market-timer?

Post by watchnerd » Thu Jan 16, 2020 3:15 pm

Financologist wrote:
Thu Jan 16, 2020 3:09 pm
A policy statement is based on the point in time at which it was created. I am coming to the belief that people tinker with their policy statements and their plans at an increased rate during compelling market moments. It's fascinating to see how people offer rationalizations at an increased frequency during this time also. I include myself in that group.

I offer this based on anecdotal observations and I'm trying to validate or invalidate the hypothesis based on the broader sample of investors here.

The higher rate of action during these market moments seems to suggest that regardless of the rationalizations people offer, they are reacting to the market and not individual circumstances.

In other words I am trying to follow the numbers.. not the claims. To that end, I would be interested if someone could offer evidence in support or to the contrary of the hypothesis.
You're quite probably right, but...

1. I know of no data source to validate or refute your hypothesis regarding IPS/AA changes during special market moments

2. What would you do what that info if you had it? Would it change anything for you?
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KlangFool
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Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 3:16 pm

Financologist wrote:
Thu Jan 16, 2020 3:09 pm

A policy statement is based on the point in time at which it was created. I am coming to the belief that people tinker with their policy statements and their plans at an increased rate during compelling market moments. It's fascinating to see how people offer rationalizations at an increased frequency during this time also. I include myself in that group.
Financologist,

<<A policy statement is based on the point in time at which it was created. >>

It does not have to and I don't.

<<I am coming to the belief that people tinker with their policy statements and their plans at an increased rate during compelling market moments.>>

If you believe that, then, you would have a problem with your IPS.

My annual expense is 60K.

My IPS says that my AA starts at 70/30 and glides down to 60/40 as it approaches my FI number of 1.5 million. My IPS says that my AA should be 60/40 after it crosses 1.2 million. My IPS was created long ago.

The AA is 60/40 because, at 1.5 million and 25X annual expense, it gives me 10 years of expense in fixed income.

There are no market-related items in my IPS.

It looks like you need to fix your IPS.

KlangFool

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watchnerd
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Re: Are you a closet market-timer?

Post by watchnerd » Thu Jan 16, 2020 3:20 pm

KlangFool wrote:
Thu Jan 16, 2020 3:16 pm

My annual expense is 60K.

My IPS says that my AA starts at 70/30 and glides down to 60/40 as it approaches my FI number of 1.5 million. My IPS says that my AA should be 60/40 after it crosses 1.2 million. My IPS was created long ago.

The AA is 60/40 because, at 1.5 million and 25X annual expense, it gives me 10 years of expense in fixed income.

I think this is a very sensible way to look at things.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

KlangFool
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Re: Are you a closet market-timer?

Post by KlangFool » Thu Jan 16, 2020 3:24 pm

watchnerd wrote:
Thu Jan 16, 2020 3:20 pm
KlangFool wrote:
Thu Jan 16, 2020 3:16 pm

My annual expense is 60K.

My IPS says that my AA starts at 70/30 and glides down to 60/40 as it approaches my FI number of 1.5 million. My IPS says that my AA should be 60/40 after it crosses 1.2 million. My IPS was created long ago.

The AA is 60/40 because, at 1.5 million and 25X annual expense, it gives me 10 years of expense in fixed income.

I think this is a very sensible way to look at things.
Common sense is highly uncommon. For whatever reason, some people believe that complexity is good. If I cannot do my calculation with a pencil on an envelope, I don't trust that kind of strategy.

KlangFool

Nowizard
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Re: Are you a closet market-timer?

Post by Nowizard » Thu Jan 16, 2020 3:27 pm

Made the exact same 5% change near the end of 2019. For quite awhile, we have had a 60/40 portfolio which is riskier than required in consideration of need and expenses. Have questioned why and simply concluded it is difficult moving from accumulation to preservation. Call it market timing, a pejorative term here, or finally coming to our senses. What difference does it make? As long as changes are rational in terms of individual circumstances, then you only have to accept consequences of a change that has two adages from which to choose: 1. Don't market time; 2. Don't take risk beyond what is required. How you define each determines the move or non-move.

Tim

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