Why do people still try to time the market?

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

Post by Caduceus »

A lot of people are gamblers. It's as simple as that.

But I think of re-balancing as a rule-based form of market timing. Stocks aren't riskier just because they go up over time more than bonds - that's what they tend to do because they are productive assets that can grow revenues, profits, etc. So when people re-balance by selling stocks to buy more bonds, there's no particular logical reason to do that. The oft-quoted reason is to "control risk" - but surely the total US stock market isn't riskier just because it's gone up much more than your bond allocation over time - it's exactly what you would have expected it to do. So re-balancing has always struck me as rule-based market timing with strict limits imposed.

There are value investors like Warren Buffett who go in and out of market not based on total stock valuations but whether they can find something. They buy when the price is compelling and sell when it's no longer compelling. But note that he would have lost pretty big with this strategy over the last five years. The 100 billion or so he's had sitting in cash for five years would have gained about 50% more than his short-term Treasury holdings on a cumulative basis over five years, had he invested it in the total stock market. So with the recent 20% stock market down turn, he's still 30% less well off than he would have been had it been invested. Of course, if things go down by another 20%, and he finds compelling things to buy, it may well be that he comes out ahead.

If you happen to be out of the market with just 50% of your portfolio, and the market drops 20%, and you buy back in, you've permanently gained 10% from a pure timing move. Of course, it's more likely over your investment lifetime the opposite will happen. You'll be out of the market and the market is more likely to move up.
JustinR
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Re: Why do people still try to time the market?

Post by JustinR »

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?
Uh because humans constantly believe they can outsmart randomness?

Even when the randomness odds are expressly stacked against them they still think they can beat it (casinos).
sambb
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Re: Why do people still try to time the market?

Post by sambb »

wen ttiming works - hghly lucrative. sometimes it is predictable (coronavirus spread)
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watchnerd
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Re: Why do people still try to time the market?

Post by watchnerd »

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?
Humans aren't perfectly rational.

Behavioral economics studies this as it related to money.
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firebirdparts
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Re: Why do people still try to time the market?

Post by firebirdparts »

I always joke that I like money way too much to spend it gambling. However.... There is some sort of "excitement" aspect to gambling.

With high quality investment instruments, you could participate in gambling where the "house" always loses. We would be gambling in a casino where all the chips actually produce money while they lie on the table. Who wouldn't want to do that? If you save your whole life, it becomes "high stakes" gambling, but without the tuxedos and it gets somewhat less appealing.

The important thing, I guess, is to recognize the part of the game that is the zero sum game. On average, in the short term, nobody wins that part of it. Collectively, in the long term, everybody wins.
A fool and your money are soon partners
jdilla1107
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Re: Why do people still try to time the market?

Post by jdilla1107 »

sambb wrote: Sat Feb 29, 2020 5:47 am wen ttiming works - hghly lucrative. sometimes it is predictable (coronavirus spread)
Everything is predictable, especially in retrospect. What is your prediction going forward from here?

If you perfectly timed this particular drop, you simply are even with someone who bought in Oct 2019. That does not seem lucrative at all. This drop is a complete non-event so far.
Nowizard
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Re: Why do people still try to time the market?

Post by Nowizard »

A hidden reason may be that some define market timing differently from others. As with most things, there are moves that some might consider market timing while others would not. For example, some say that a dip such as the current one may result in a reassessment of one's risk tolerance and a portfolio change but not consider it market timing. Others buy on the dip which is based on market timing, at least on the buy side. Some of those are buying in order to sell when they think the asset will appreciate whether as a day-trader or somewhat longer time holder. Others have no plan to sell and are only market timing on the buy side. Few things are absolute other than by the definition of the individual purchaser.

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

Post by bugleheadd »

learned my lesson after 2008/2009. i pulled out in mid 2008 to safer investments like treasuries, but didnt start getting back to equities until around 2012-2013. now i max $2000 401k contributions every paycheck into VTI equivalents. $4000 annual company contribution in my account today. another $5000 bonus contribution in two weeks. feels good man
EnjoyIt
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Re: Why do people still try to time the market?

Post by EnjoyIt »

runner3081 wrote: Wed Feb 26, 2020 12:54 pm Why do people:
Go to casinos?
Play the lotto?
Buy raffle tickets?
Enter drawings?
Fear, desperation, greed, non-rational thinking, entertainment, addiction, and I'm sure there is more.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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bertilak
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Re: Why do people still try to time the market?

Post by bertilak »

jdilla1107 wrote: Sat Feb 29, 2020 10:14 am What is your prediction going forward from here?
My prediction is that the coronavirus "situation" will calm down. The effects on the stock market will then wither away.

I think this is actionable so have changed my allocation from 50/50 to 60/40. I may not have made this change if it could not have been contained within my IRA (no tax hits). I would otherwise have had to think more about it.

I believe I am following, in spirit, Baron Rothschild's (apocryphal?) advice to "buy when there's blood in the streets." I take that figuratively in two respects:
  1. It's not literally blood, but infectious disease. None-the-less it is scary and the market has taken a real hit.
  2. It is mostly scary because of the way and degree to which it is being reported, not because of the actual situation. When the media finds something else to latch onto the hysteria will die down. Yes, this IS a serious situation, but there will always be serious situations. It is how those situations are reported that has the biggest affect on the market.
I know I might be wrong but I think the odds are in my favor AND my action is fairly conservative (i.e. safe).

So please, if someone takes a look back at this a year from now and sees I have erred call me out! I can take it.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
jdilla1107
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Re: Why do people still try to time the market?

Post by jdilla1107 »

bertilak wrote: Sat Feb 29, 2020 11:51 am
jdilla1107 wrote: Sat Feb 29, 2020 10:14 am What is your prediction going forward from here?
My prediction is that the coronavirus "situation" will calm down. The effects on the stock market will then wither away.

I think this is actionable so have changed my allocation from 50/50 to 60/40. I may not have made this change if it could not have been contained within my IRA (no tax hits). I would otherwise have had to think more about it.

I believe I am following, in spirit, Baron Rothschild's (apocryphal?) advice to "buy when there's blood in the streets." I take that figuratively in two respects:
  1. It's not literally blood, but infectious disease. None-the-less it is scary and the market has taken a real hit.
  2. It is mostly scary because of the way and degree to which it is being reported, not because of the actual situation. When the media finds something else to latch onto the hysteria will die down. Yes, this IS a serious situation, but there will always be serious situations. It is how those situations are reported that has the biggest affect on the market.
I know I might be wrong but I think the odds are in my favor AND my action is fairly conservative (i.e. safe).

So please, if someone takes a look back at this a year from now and sees I have erred call me out! I can take it.
You would have done better if you made this allocation change 12 months ago based on no news. (Since the market was lower then than it is now.) All you are doing is buying at Oct 2019 prices. Big yawn.
bugleheadd
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Re: Why do people still try to time the market?

Post by bugleheadd »

market timing is the only way we can time travel currently. if you buy in at fridays price and can say you bought in at oct 2019 prices
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bertilak
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Re: Why do people still try to time the market?

Post by bertilak »

jdilla1107 wrote: Sat Feb 29, 2020 12:17 pm You would have done better if you made this allocation change 12 months ago based on no news. (Since the market was lower then than it is now.) All you are doing is buying at Oct 2019 prices. Big yawn.
But that's hindsight. Today I have more information than I did 12 months ago. Today I know a global event has knocked the market back. I also am pretty sure this is a temporary situation -- that's the risky part.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
EnjoyIt
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Re: Why do people still try to time the market?

Post by EnjoyIt »

bertilak wrote: Sat Feb 29, 2020 11:51 am
jdilla1107 wrote: Sat Feb 29, 2020 10:14 am What is your prediction going forward from here?
My prediction is that the coronavirus "situation" will calm down. The effects on the stock market will then wither away.

I think this is actionable so have changed my allocation from 50/50 to 60/40. I may not have made this change if it could not have been contained within my IRA (no tax hits). I would otherwise have had to think more about it.

I believe I am following, in spirit, Baron Rothschild's (apocryphal?) advice to "buy when there's blood in the streets." I take that figuratively in two respects:
  1. It's not literally blood, but infectious disease. None-the-less it is scary and the market has taken a real hit.
  2. It is mostly scary because of the way and degree to which it is being reported, not because of the actual situation. When the media finds something else to latch onto the hysteria will die down. Yes, this IS a serious situation, but there will always be serious situations. It is how those situations are reported that has the biggest affect on the market.
I know I might be wrong but I think the odds are in my favor AND my action is fairly conservative (i.e. safe).

So please, if someone takes a look back at this a year from now and sees I have erred call me out! I can take it.
Personally I think this is a very rational explanation.
Vs
As Keynes said in the 1930s: “Markets can stay irrational longer than you can stay solvent.”

Even if you are mistaken, by increasing your equities allocation you have a higher expected return over the long run as long as you can tolerate an even further market decline.

If you are correct you will feel like a genius :)
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
sambb
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Re: Why do people still try to time the market?

Post by sambb »

Some people time the market because it can work, it is not always destined to fail. People here also invest in actively managed funds (wellington, welleseley, Berkshire hathaway). Those involve market timing also i bet - on individual stocks,. people also time the bond market all the time (move to short term from long term bonds)

Others time the market because of fear.
dknightd
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Re: Why do people still try to time the market?

Post by dknightd »

The reality is we know nothing. And as near as I can tell the people in the market know nothing.
If somebody actually knows more - likely they are trading using insider information - which is not legal!
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.
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bluquark
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Re: Why do people still try to time the market?

Post by bluquark »

nisiprius wrote: Wed Feb 26, 2020 12:44 pm 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.
Hmm, did you perhaps get your 1987-2016 calculation from a different source that used day-to-day market data? The chart shows only a 50x gain from 1925-2016. From 1925-1987, it shows about a 15x gain. So according to the chart, it is only ~3.3x from 1987 to 2016, that is, $1.6M.

The Great Depression famously had a 90% crash from peak to trough, but on the chart the perfect (yearly) market timer is shown as only 3x ahead in 1933. It must be because the market went up 3.3x from Jan-Oct 1929 before crashing, so they sold too early. In contrast, a perfect day-trading market timer would already be 10x ahead by 1933. By 2016 their market timing oracle would long since have become useless because trying to move their entire fortune into cash would single-handedly cause market crashes!
Last edited by bluquark on Sat Feb 29, 2020 10:20 pm, edited 4 times in total.
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Rowan Oak
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Re: Why do people still try to time the market?

Post by Rowan Oak »

Sometimes we don't know what we don't know.

The goal is to get to I don't know, and I don't care

Linked article written by :
Jason Zweig. Jason is author of The Intelligent Investor and he is a featured columnist with the Wall Street Journal.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger
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watchnerd
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Re: Why do people still try to time the market?

Post by watchnerd »

Rowan Oak wrote: Sat Feb 29, 2020 10:16 pm Sometimes we don't know what we don't know.

The goal is to get to I don't know. I don't care.

Linked article written by :
Jason Zweig. Jason is author of The Intelligent Investor and he is a featured columnist with the Wall Street Journal.
That's one reason I love holding global market weight in stocks.

How did the Dow do?

Don't know, don't care, it's just a slice of my stock pie.

But you know an article is old when it mentions:

"a bunch of AOL stock"
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Ocean77
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Re: Why do people still try to time the market?

Post by Ocean77 »

runner3081 wrote: Wed Feb 26, 2020 12:54 pm Why do people:
Go to casinos?
Play the lotto?
Buy raffle tickets?
Enter drawings?
I read somewhere that all these things that you list are a tax on people with poor math skills.
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watchnerd
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Re: Why do people still try to time the market?

Post by watchnerd »

Ocean77 wrote: Sat Feb 29, 2020 10:33 pm
runner3081 wrote: Wed Feb 26, 2020 12:54 pm Why do people:
Go to casinos?
Play the lotto?
Buy raffle tickets?
Enter drawings?
I read somewhere that all these things that you list are a tax on people with poor math skills.

They're all things that give people endorphins.
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flaccidsteele
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Re: Why do people still try to time the market?

Post by flaccidsteele »

Just like the tech crash and credit crisis, market timing is seems to be working for me again

Again, no prediction necessary, only preparation

The US market always recovers. It’s never different this time
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Why do people still try to time the market?

Post by willthrill81 »

GaryA505 wrote: Wed Feb 26, 2020 12:28 pm So, why do people still try to time the market?
Because it can be profitable. I'm ahead of buy-and-hold right now myself. (And no, I no longer share specifics due to the consistent and vehement backlash I've received).
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