Why do people still try to time the market?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
GaryA505
Posts: 678
Joined: Wed Feb 08, 2017 2:59 pm
Location: New Mexico

Why do people still try to time the market?

Post by GaryA505 »

I keep running into people who insist on trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe". These are intelligent people, engineers and such (maybe that's the problem).

I usually tell them, "you know, most people who try to time the market get it wrong", but they insist that they are right. I work with a guy who sold all his equity when the SP500 was at 3000 because he was sure the market was overvalued. I guess I should ask him what SP500 value he is going to get back in at.

So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
J295
Posts: 2605
Joined: Sun Jan 01, 2012 11:40 pm

Re: Why do people still try to time the market?

Post by J295 »

Depending upon the circumstances, fear or greed
Unladen_Swallow
Posts: 784
Joined: Tue Dec 10, 2019 6:12 pm

Re: Why do people still try to time the market?

Post by Unladen_Swallow »

You should ask them why they try to time the market.

The rest of us would be guessing at strangers intentions.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
KlangFool
Posts: 17712
Joined: Sat Oct 11, 2008 12:35 pm

Re: Why do people still try to time the market?

Post by KlangFool »

OP,

It is very simple.

They do not know that they know nothing.

KlangFool
User avatar
AnalogKid22
Posts: 393
Joined: Wed May 18, 2016 8:26 pm
Location: Babylon, but I'd love to spend a night in Zion

Re: Why do people still try to time the market?

Post by AnalogKid22 »

Emotion. It “feels” like the right time to buy/sell.
User avatar
AnalogKid22
Posts: 393
Joined: Wed May 18, 2016 8:26 pm
Location: Babylon, but I'd love to spend a night in Zion

Re: Why do people still try to time the market?

Post by AnalogKid22 »

There are also those people who stay on the sideline because a major correction/crash is right around the corner, so why take the risk.
Last edited by AnalogKid22 on Wed Feb 26, 2020 1:00 pm, edited 1 time in total.
User avatar
nisiprius
Advisory Board
Posts: 41967
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Why do people still try to time the market?

Post by nisiprius »

Image

Greed. The potential for wealth from successful market timing (as from successful Powerball number picking) is mouthwatering.

The red line represents the hypothetical cumulative wealth from a $10,000 investment in the S&P-500-and-predecessors.

The green line is the hypothetical cumulative wealth of an investor who was in the market during during the 67 calendar years in in which the stock market made money, and out of the market, in cash (0% interest), in the 24 years in which it lost money. (Look for little level places in the green line corresponding to downward dips in the red line).

Over 1926 through 2016, inclusive, we are looking at the difference between a CAGR of 9.92% versus 14.50%.

Looking at just the last thirty years on the chart and recalculating, 1987 through 2016, inclusive, without market timing $10,000 would have grown to $478,000. With perfect annual market timing, to $60,000,000. One hundred and twenty-five times, 125X as much.

It's awfully tempting to say "surely there would be a meaningful reward even if you were right just a little bit more often than you were wrong." Just as it's awfully tempting to say "Surely it must be easy to improve on the S&P 500 by tossing out the obvious dogs."
Last edited by nisiprius on Wed Feb 26, 2020 2:08 pm, edited 4 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Trader Joe
Posts: 1986
Joined: Fri Apr 25, 2014 6:38 pm

Re: Why do people still try to time the market?

Post by Trader Joe »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm I keep running into people who insist on trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe". These are intelligent people, engineers and such (maybe that's the problem).

I usually tell them, "you know, most people who try to time the market get it wrong", but they insist that they are right. I work with a guy who sold all his equity when the SP500 was at 3000 because he was sure the market was overvalued. I guess I should ask him what SP500 value he is going to get back in at.

So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
Typically this is due to inexperience.
balbrec2
Posts: 340
Joined: Mon Nov 13, 2017 3:03 pm

Re: Why do people still try to time the market?

Post by balbrec2 »

Because either they think they are smarter than they really are or, on its face it seems so easy
to do until emotions get in the way and makes you do something stupid.
runner3081
Posts: 3564
Joined: Mon Aug 22, 2016 3:22 pm

Re: Why do people still try to time the market?

Post by runner3081 »

Why do people:
Go to casinos?
Play the lotto?
Buy raffle tickets?
Enter drawings?
User avatar
David Jay
Posts: 9379
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Why do people still try to time the market?

Post by David Jay »

I think humility is a necessary component of portfolio investment. What do I know that the Wall Street professionals don’t?

Information asymmetry cuts against the individual investor. I see one of the business channels this morning is talking about algorithmic trading based on keywords in news reports: German health ministry uses the (translated) word “epidemic”, the DOW drops 200 points on trading keyed off of that one word.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
lesstjm
Posts: 26
Joined: Wed May 21, 2008 12:42 pm

Re: Why do people still try to time the market?

Post by lesstjm »

Does anyone actually know someone who did time the market and retired early?
markcoop
Posts: 1179
Joined: Fri Mar 02, 2007 8:36 am

Re: Why do people still try to time the market?

Post by markcoop »

I agree it's greed, but I think it is no more greed than a buy and hold investor saying that is the best strategy to make the most money.
Mark
Boglegrappler
Posts: 1292
Joined: Wed Aug 01, 2012 9:24 am

Re: Why do people still try to time the market?

Post by Boglegrappler »

Because they haven't read Bogle's little book of common sense investing, and haven't focused on the statistics.

Also, because they get scared.
Topic Author
GaryA505
Posts: 678
Joined: Wed Feb 08, 2017 2:59 pm
Location: New Mexico

Re: Why do people still try to time the market?

Post by GaryA505 »

If I had a devious mind, I would taunt them with the nisiprius chart. :twisted:
KlangFool
Posts: 17712
Joined: Sat Oct 11, 2008 12:35 pm

Re: Why do people still try to time the market?

Post by KlangFool »

David Jay wrote: Wed Feb 26, 2020 1:03 pm
I think humility is a necessary component of portfolio investment. What do I know that the Wall Street professionals don’t?
David Jay,

My family member was Wall Street professionals. His annual salary and bonus were in the 7 figures range. He lost 10 million in the Telecom bust. So, please do not assume that they know any more than us.

KlangFool
Topic Author
GaryA505
Posts: 678
Joined: Wed Feb 08, 2017 2:59 pm
Location: New Mexico

Re: Why do people still try to time the market?

Post by GaryA505 »

My co-worker bailed out at SP500 3000. I asked at what level he would get back in. He said he's buying back in when the market drops 15%. I decided not to ask any more questions.
User avatar
TheTimeLord
Posts: 8249
Joined: Fri Jul 26, 2013 2:05 pm

Re: Why do people still try to time the market?

Post by TheTimeLord »

GaryA505 wrote: Wed Feb 26, 2020 4:13 pm My co-worker bailed out at SP500 3000. I asked at what level he would get back in. He said he's buying back in when the market drops 15%. I decided not to ask any more questions.
So what will you say to him if we hit 2,700?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Gemini1962
Posts: 68
Joined: Sun Jan 26, 2020 5:22 am

Re: Why do people still try to time the market?

Post by Gemini1962 »

I have to admit to being one of those people. I am a gambler and enjoy the 'fun' of it. However, I only gamble with a percentage of my total. So as an example I sold 20% of my S&P500 shares 10 days ago and bought them back yesterday at a lower price. Of course I could have sold and it could have gone up forever but with all the bad news around I was willing to bet the market would drop and even though I didn't sell at the top and buy at the bottom I didn't try to, I was just happy with buying it back at 3% or so lower.
barnaclebob
Posts: 4215
Joined: Thu Aug 09, 2012 10:54 am

Re: Why do people still try to time the market?

Post by barnaclebob »

A lot of people have trouble with the fact that there is nothing they can do in certain circumstances. They NEED to do something even if its meaningless or counterproductive. My investment choices are best summed up by RUSH..."If you choose not to decide, you still have made a choice.
barnaclebob
Posts: 4215
Joined: Thu Aug 09, 2012 10:54 am

Re: Why do people still try to time the market?

Post by barnaclebob »

Gemini1962 wrote: Wed Feb 26, 2020 4:25 pm I have to admit to being one of those people. I am a gambler and enjoy the 'fun' of it. However, I only gamble with a percentage of my total. So as an example I sold 20% of my S&P500 shares 10 days ago and bought them back yesterday at a lower price. Of course I could have sold and it could have gone up forever but with all the bad news around I was willing to bet the market would drop and even though I didn't sell at the top and buy at the bottom I didn't try to, I was just happy with buying it back at 3% or so lower.
But the drag on your portfolio from your metered gambling might be worse that leaving your portfolio in Edward Jones' hands. How do you rationalize that?
User avatar
Nate79
Posts: 6419
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Why do people still try to time the market?

Post by Nate79 »

No clue but every day there is a thread on Bogleheads asking about market timing.
Fallible
Posts: 7518
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Why do people still try to time the market?

Post by Fallible »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm ...
So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
Both of the above, usually called overconfidence, plus nearly all mentioned on this thread. Also, as we see often on the forum, especially among newer investors, market timing is misunderstood and what appears to be timing is really correcting an allocation to lower risk and better reflect personal risk tolerance.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Gemini1962
Posts: 68
Joined: Sun Jan 26, 2020 5:22 am

Re: Why do people still try to time the market?

Post by Gemini1962 »

barnaclebob wrote: Wed Feb 26, 2020 4:40 pm But the drag on your portfolio from your metered gambling might be worse that leaving your portfolio in Edward Jones' hands. How do you rationalize that?
Yes it could and part of the reason why I only use 20% of my total - just in case!

I do believe that stocks can become overbought (when the price will subsequently fall) and oversold (when the price will then rise) and some would argue that it's possible to determine which stage you're in (to some degree). So I would say it's a calculated gamble rather than the toss of a coin.
EnjoyIt
Posts: 4693
Joined: Sun Dec 29, 2013 8:06 pm

Re: Why do people still try to time the market?

Post by EnjoyIt »

I can understand seeing it in the world. What bogles
my mind is seeing so much market timing on Bogleheads. I figure we should know better.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
User avatar
Sandtrap
Posts: 11744
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Why do people still try to time the market?

Post by Sandtrap »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm I keep running into people who insist on trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe". These are intelligent people, engineers and such (maybe that's the problem).

I usually tell them, "you know, most people who try to time the market get it wrong", but they insist that they are right. I work with a guy who sold all his equity when the SP500 was at 3000 because he was sure the market was overvalued. I guess I should ask him what SP500 value he is going to get back in at.

So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
For the same reason people select Edward Jones as a financial advisor and defend the choice no matter what happens.

j :D
Wiki Bogleheads Wiki: Everything You Need to Know
Topic Author
GaryA505
Posts: 678
Joined: Wed Feb 08, 2017 2:59 pm
Location: New Mexico

Re: Why do people still try to time the market?

Post by GaryA505 »

TheTimeLord wrote: Wed Feb 26, 2020 4:23 pm
GaryA505 wrote: Wed Feb 26, 2020 4:13 pm My co-worker bailed out at SP500 3000. I asked at what level he would get back in. He said he's buying back in when the market drops 15%. I decided not to ask any more questions.
So what will you say to him if we hit 2,700?
I'd say, "Good guess!"
flaccidsteele
Posts: 995
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: Why do people still try to time the market?

Post by flaccidsteele »

lesstjm wrote: Wed Feb 26, 2020 1:16 pm Does anyone actually know someone who did time the market and retired early?
Yes. Me

Started investing in the 1990s

Never climbed corporate ladder. Never had managerial responsibilities. No inheritance

Retired in my 40s with a nw over $5m

NB: most ppl do market timing all wrong imo
Last edited by flaccidsteele on Thu Feb 27, 2020 10:08 am, edited 1 time in total.
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
User avatar
bertilak
Posts: 7839
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Why do people still try to time the market?

Post by bertilak »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm I keep running into people who insist on trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe". These are intelligent people, engineers and such (maybe that's the problem).

I usually tell them, "you know, most people who try to time the market get it wrong", but they insist that they are right. I work with a guy who sold all his equity when the SP500 was at 3000 because he was sure the market was overvalued. I guess I should ask him what SP500 value he is going to get back in at.

So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
I know I'm tempted at times like this when I think the situation is temporary and expect things to get back to "normal" in the not-to-distant future; eventually the news cycle will move on to something less scary. That is, unless the sell-off is NOT because of the current news cycle. That uncertainty is why I am reluctant to act on my expectations.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: Why do people still try to time the market?

Post by dbr »

I think that generally in life people are trained or expect to be able to apply effort and intelligence to being successful and the stock market appears to them to be something that one should be able to figure out. At least people imagine that simply making an effort should somehow be rewarded. These two traits are especially highly developed in people who already are successful in fields that really do reward effort, intelligence, and knowledge.

I agree it is astonishing how many people one runs across that think they can come out ahead by somehow timing the market.

Another factor is that by the very nature of market fluctuation some market timing will be successful. This combined with selective amnesia can convince people that it really works. But then I know at least one person bankrupted by gambling that still swears by their successes when they won.
flaccidsteele
Posts: 995
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: Why do people still try to time the market?

Post by flaccidsteele »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm I keep running into people who insist on trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe". These are intelligent people, engineers and such (maybe that's the problem).

I usually tell them, "you know, most people who try to time the market get it wrong", but they insist that they are right. I work with a guy who sold all his equity when the SP500 was at 3000 because he was sure the market was overvalued. I guess I should ask him what SP500 value he is going to get back in at.

So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
Most people do it wrong tbh

They make predictions, jump in and out, etc

Market timing works because the US market always recovers. Always. It’s never different this time

Image

And to all the posts and posters talking about the recent market “sell off”... well, as an investor who invested into the teeth of the tech wreck and credit crisis... this isn’t a sell off
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
User avatar
David Jay
Posts: 9379
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Why do people still try to time the market?

Post by David Jay »

KlangFool wrote: Wed Feb 26, 2020 4:05 pm
David Jay wrote: Wed Feb 26, 2020 1:03 pm
I think humility is a necessary component of portfolio investment. What do I know that the Wall Street professionals don’t?
David Jay,

My family member was Wall Street professionals. His annual salary and bonus were in the 7 figures range. He lost 10 million in the Telecom bust. So, please do not assume that they know any more than us.

KlangFool
You may have misunderstood my point. My point is that the market represents the current knowledge of the entire financial industry (not any individual WS professional).

That is the information asymmetry that the individual investor faces when one decides that they can outperform the market. They are up against all the research departments and databases of the financial industry, an industry which is likely on the other side of the individual’s trade.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
tesuzuki2002
Posts: 1119
Joined: Fri Dec 11, 2015 12:40 pm

Re: Why do people still try to time the market?

Post by tesuzuki2002 »

AnalogKid22 wrote: Wed Feb 26, 2020 12:42 pm There are also those people who stay on the sideline because a major correction/crash is right around the corner, so why take the risk.
This is there lucky time to get back in!!! We are back down to September 2019 levels...
User avatar
AnalogKid22
Posts: 393
Joined: Wed May 18, 2016 8:26 pm
Location: Babylon, but I'd love to spend a night in Zion

Re: Why do people still try to time the market?

Post by AnalogKid22 »

tesuzuki2002 wrote: Thu Feb 27, 2020 11:51 am
AnalogKid22 wrote: Wed Feb 26, 2020 12:42 pm There are also those people who stay on the sideline because a major correction/crash is right around the corner, so why take the risk.
This is there lucky time to get back in!!! We are back down to September 2019 levels...
But do they know that or is a bigger correction on the way?
KlangFool
Posts: 17712
Joined: Sat Oct 11, 2008 12:35 pm

Re: Why do people still try to time the market?

Post by KlangFool »

David Jay wrote: Thu Feb 27, 2020 11:48 am
KlangFool wrote: Wed Feb 26, 2020 4:05 pm
David Jay wrote: Wed Feb 26, 2020 1:03 pm
I think humility is a necessary component of portfolio investment. What do I know that the Wall Street professionals don’t?
David Jay,

My family member was Wall Street professionals. His annual salary and bonus were in the 7 figures range. He lost 10 million in the Telecom bust. So, please do not assume that they know any more than us.

KlangFool
You may have misunderstood my point. My point is that the market represents the current knowledge of the entire financial industry (not any individual WS professional).

That is the information asymmetry that the individual investor faces when one decides that they can outperform the market. They are up against all the research departments and databases of the financial industry, an industry which is likely on the other side of the individual’s trade.
My family member worked in one of those companies with the big R&D department.

KlangFool
beehivehave
Posts: 466
Joined: Thu Aug 08, 2019 1:21 pm

Re: Why do people still try to time the market?

Post by beehivehave »

David Jay wrote: Thu Feb 27, 2020 11:48 am
KlangFool wrote: Wed Feb 26, 2020 4:05 pm
David Jay wrote: Wed Feb 26, 2020 1:03 pm
I think humility is a necessary component of portfolio investment. What do I know that the Wall Street professionals don’t?
David Jay,

My family member was Wall Street professionals. His annual salary and bonus were in the 7 figures range. He lost 10 million in the Telecom bust. So, please do not assume that they know any more than us.

KlangFool
You may have misunderstood my point. My point is that the market represents the current knowledge of the entire financial industry (not any individual WS professional).

That is the information asymmetry that the individual investor faces when one decides that they can outperform the market. They are up against all the research departments and databases of the financial industry, an industry which is likely on the other side of the individual’s trade.
Amen. They are up against MIT mathematicians trading full-time equipped with sophisticated models on supercomputers and in the case of individual stocks, corporate execs privy to inside information.
(Plus all the pump-and-dumpers feeding them bogus information via the financial media.)
barberakb
Posts: 287
Joined: Fri Apr 21, 2017 11:14 pm

Re: Why do people still try to time the market?

Post by barberakb »

i admit, depending on your definition I time the market sometimes.

According to yours "trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe" I
Do Not time the market.

But according to most here, I do somewhat.

I don't really sell at the top, I keep my investments long term. But I do keep money on the side, not necessarily to market time, I like to have enough at all times in case i want to put a down payment on a house for instance. This is outside my emergency fund $.

But, at times like this I like this quote from warren buffet. “Be Fearful when others are greedy and greedy when others are fearful.

I like to buy stuff on sale. Clothes, food, cars, etc... Stocks are no different.

So when stuff like 911, coronavirus, etc... happen and the stock market takes a hit like it is doing now, I buy the dips.

I figure no rental property is gonna give me the returns that the stock market will so i invest that money I had sitting there in the market.

Why do I do it? Because it is fun for me and i like to think that long term it makes me more money.

I did this in 2008/2009 and it was a great move for me. But again, I didn't sell anything, just bought more while prices were low.

Make sense?
Fallible
Posts: 7518
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Why do people still try to time the market?

Post by Fallible »

barberakb wrote: Thu Feb 27, 2020 12:36 pm i admit, depending on your definition I time the market sometimes.
...
So when stuff like 911, coronavirus, etc... happen and the stock market takes a hit like it is doing now, I buy the dips.
...
Make sense?
It can make sense to buy on the dips, but it's not true market timing. The former is reacting to the market, reacting to a drop; timing is predicting what the market will do, when it will drop, when it will rise, and even by how much it will drop or rise.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
tesuzuki2002
Posts: 1119
Joined: Fri Dec 11, 2015 12:40 pm

Re: Why do people still try to time the market?

Post by tesuzuki2002 »

AnalogKid22 wrote: Thu Feb 27, 2020 11:53 am
tesuzuki2002 wrote: Thu Feb 27, 2020 11:51 am
AnalogKid22 wrote: Wed Feb 26, 2020 12:42 pm There are also those people who stay on the sideline because a major correction/crash is right around the corner, so why take the risk.
This is there lucky time to get back in!!! We are back down to September 2019 levels...
But do they know that or is a bigger correction on the way?
you won't know until it passes... but we do know that money they were holding in October, Nov, December, Jan, feb can be invested at a sale based on them holding out... I did a little of the same...
tesuzuki2002
Posts: 1119
Joined: Fri Dec 11, 2015 12:40 pm

Re: Why do people still try to time the market?

Post by tesuzuki2002 »

runner3081 wrote: Wed Feb 26, 2020 12:54 pm Why do people:
Go to casinos?
Play the lotto?
Buy raffle tickets?
Enter drawings?
because it's fun!!!
tesuzuki2002
Posts: 1119
Joined: Fri Dec 11, 2015 12:40 pm

Re: Why do people still try to time the market?

Post by tesuzuki2002 »

Sometimes it produces good results....

I recently bought SPCE and then sold it... I was in around $9.50/share and sold for $42.12/share Not bad trade for 3 ish months...
barberakb
Posts: 287
Joined: Fri Apr 21, 2017 11:14 pm

Re: Why do people still try to time the market?

Post by barberakb »

tesuzuki2002 wrote: Thu Feb 27, 2020 3:00 pm Sometimes it produces good results....

I recently bought SPCE and then sold it... I was in around $9.50/share and sold for $42.12/share Not bad trade for 3 ish months...
I don't get the hype with that stock, it makes no money as far as I know
bmelikia
Posts: 628
Joined: Mon Jun 15, 2009 9:23 pm

Re: Why do people still try to time the market?

Post by bmelikia »

Because the idea of doing it and being correct in your timing is appealing. . .but obviously the likelihood of doing it and being "right" over the course of ones lifetime is unlikely - and probably statistically close to impossible
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle
MarkRoulo
Posts: 251
Joined: Mon Jun 22, 2015 10:25 am

Re: Why do people still try to time the market?

Post by MarkRoulo »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm I keep running into people who insist on trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe". These are intelligent people, engineers and such (maybe that's the problem).

I usually tell them, "you know, most people who try to time the market get it wrong", but they insist that they are right. I work with a guy who sold all his equity when the SP500 was at 3000 because he was sure the market was overvalued. I guess I should ask him what SP500 value he is going to get back in at.

So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
Let me point you to a blog post (personal site, not mine, on an education site!) from 2015 that might shed some insight on
the mindset that causes folks to try to time the market.
I mentioned a couple of weeks ago that Ed and I were trying to figure out what to do about our 401(k).

What we're told to do, and what we did do during the 17-month bear market of 2007-2009, is nothing.

That's John Bogle: "Don't do something. Just stand there."

That's what we did.

We stood there for the entire 17 months.

Worse than that: we continued to contribute money.

Ed finally took a close look at his Vanguard statement last week. Seven years later. He found that for the first several months of the bear market, his balance stayed the same.

Which meant that every penny he and NYU were putting into the fund, month after month after month, was instantly burned up in the market. Every penny. Not one survived.

Then at some point, presumably in October 2008, the account balances started going down. Which meant that not only was every new penny being burned up, but now the old pennies were being disappeared as well.

17 months of this.

We're not doing that again.

...

The money we lost didn't come back.

New money came in.

That may sound like a distinction without a difference, but it's not.

The reason the market made such huge gains after 2011 was that the Fed did quantitative easing. If the Fed hadn't done quantitative easing, there was no reason for stocks to go back up. The Bank of Japan didn't do quantitative easing when they hit zero, and Japan's stock market declined for two decades, losing 3/4 of its value in that time.

This is America, and the Fed did do quantitative easing, so all things equal I assume they'll do it again if need be.

But I don't assume they'll do it before the market loses more than it has already. The Fed obviously wants, desperately, to tighten money, and tight money is bad for markets.

If, at some point during those 17 months, Ed and I had redirected his monthly deposits to a money market, we would be far ahead of where we are now.

We couldn't have timed the move exactly, of course. We would have sustained losses for a few months going into the bear market, and we would have missed the return of the bull market for a couple of months on the other side.

Doesn't matter. We'd still be far ahead because when we got back in we'd have had lots more to invest than we did when we got out. We've have had all the money we'd protected by putting it in a money market instead of the stock market.

...

The reason people like us are told to put our money in index funds and forget about it is that people like us can't time the market.

(I used to think no one could time the market, but a friend of mine, whose money is managed by Neuberger Berman, tells me she's been earning 1% above market returns, after fees, for years.)

It's true that I can't time the market.

But there's no trick to timing a market that goes down 17 months and loses 56% of its value. That's not a blip. It's a trend.

My new rule: if the trend is up, we're in the market. If the trend is down, we're not in the market. If the market is moving "sideways," which is more or less what it's doing now, we're also not in the market, but we're paying attention so as not to miss too much of the bull market when the bull market returns.

My Fed watching hobby helps with all this, needless to say.
tesuzuki2002
Posts: 1119
Joined: Fri Dec 11, 2015 12:40 pm

Re: Why do people still try to time the market?

Post by tesuzuki2002 »

barberakb wrote: Thu Feb 27, 2020 3:12 pm
tesuzuki2002 wrote: Thu Feb 27, 2020 3:00 pm Sometimes it produces good results....

I recently bought SPCE and then sold it... I was in around $9.50/share and sold for $42.12/share Not bad trade for 3 ish months...
I don't get the hype with that stock, it makes no money as far as I know
No profits to speak of as of yet.... but it could potentially become a new form of transportation... It's a long shot..
Call_Me_Op
Posts: 7980
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Why do people still try to time the market?

Post by Call_Me_Op »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm I keep running into people who insist on trying to time the market, selling everything when they think it's peaked and then buying back in when they think it's "safe". These are intelligent people, engineers and such (maybe that's the problem).

I usually tell them, "you know, most people who try to time the market get it wrong", but they insist that they are right. I work with a guy who sold all his equity when the SP500 was at 3000 because he was sure the market was overvalued. I guess I should ask him what SP500 value he is going to get back in at.

So, why do people still try to time the market? Is it because they think they are smarter than everyone else, or is it just because they are being driven by their emotions, or something else?
The fundamental problem is that human beings have evolved to be terrible investors. Humans are social animals (a need to run with the herd) who feel a need to take action when confronted with perceived threats. Being a good investor requires countering evolutionary drives through the application of discipline informed by a knowledge of investing theory and history.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
JustinR
Posts: 1356
Joined: Tue Apr 27, 2010 11:43 pm

Re: Why do people still try to time the market?

Post by JustinR »

Humans are dumb and investors are human.
lkar
Posts: 279
Joined: Sat May 04, 2019 4:02 pm

Re: Why do people still try to time the market?

Post by lkar »

I think the single most important factor has only been alluded to in this thread so far. I don't think the answer is that people are dumb. There are very smart market timers. I don't think that market timers are any more greedy than the rest of us. Or at least not all that much. Maybe some. I don't think it's the thrill of gambling. Not at least for many or most.

I think it is in the main hindsight bias. After the market goes up or down there is a tendency to declare that you knew it would happen. It is rampant right now.

Ask yourself a question: What do you think is going to happen to the market tomorrow? Even if your primary answer as a good boglehead is "I don't know, nobody knows nothing," don't fight the question. Do your best to guess. Do you think that panic and selling is going to get worse, or do you think there is going to be a rebound? Something else? Think as hard as you can about it. Draw on all your experiences and life learning and come up with what you think is the best and most plausible answer.

Whatever your answer, here's the bottom line: Most humans are far more likely to remember it and mentally attach significance to it if they get the answer right than they are to remember it if they get the answer wrong. (I mean, not now -- not now that I have asked the question; now you'll remember either way, but that's not the point.) It's really that simple. This is a very human response. Very few of us are resistant to the effect. So, after paying attention to the markets and not doing any buying or selling on their hunches for a few cycles, people start to think that they are really good at figuring it out.

Before we get all congratulatory and slap ourselves on the back because we're bogleheads and we are not guilty of hindsight bias, or at least don't let it affect our decisionmaking in the markets, at least have the humility to understand that while you may not have hindsight bias with respect to the markets -- because you're a good boglehead and you've trained yourself well -- you undoubtedly have it in many other areas of your life. Perhaps harmless perhaps not.
User avatar
TheTimeLord
Posts: 8249
Joined: Fri Jul 26, 2013 2:05 pm

Re: Why do people still try to time the market?

Post by TheTimeLord »

JustinR wrote: Thu Feb 27, 2020 8:10 pm Humans are dumb and investors are human.
What leads you to that conclusion?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
barberakb
Posts: 287
Joined: Fri Apr 21, 2017 11:14 pm

Re: Why do people still try to time the market?

Post by barberakb »

TheTimeLord wrote: Thu Feb 27, 2020 8:45 pm
JustinR wrote: Thu Feb 27, 2020 8:10 pm Humans are dumb and investors are human.
What leads you to that conclusion?

He is human therefore he is dumb...
Post Reply