Why do people keep saying you have to be right twice?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Why do people keep saying you have to be right twice?

Post by l1am »

...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
User avatar
Cheez-It Guy
Posts: 1248
Joined: Sun Mar 03, 2019 4:20 pm

Re: Why do people keep saying you have to be right twice?

Post by Cheez-It Guy »

Do it, then.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

Cheez-It Guy wrote: Sat Mar 21, 2020 2:36 pm Do it, then.
That's a weak response and doesn't address the argument.
livesoft
Posts: 74437
Joined: Thu Mar 01, 2007 8:00 pm

Re: Why do people keep saying you have to be right twice?

Post by livesoft »

And one doesn't even have to be completely right either time.

The main problem that I have seen is for the folks who do 100% big-time market timing: Go 100% stocks or go 100% cash. I suggest that one avoid that kind of market timing.

OTOH, small-time market timing probably doesn't gain one much. For instance, if one avoid a 20% loss with 10% of their portfolio, then that is just a 2% difference over doing nothing. For many portfolios, a 2% performance change is just in the noise of whether one has a different allocation to international stocks or more cash instead of intermediate-term bonds.

Bottom line: Market timing doesn't really hurt most people most of the time.
Last edited by livesoft on Sat Mar 21, 2020 2:41 pm, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
JoMoney
Posts: 10515
Joined: Tue Jul 23, 2013 5:31 am

Re: Why do people keep saying you have to be right twice?

Post by JoMoney »

l1am wrote: Sat Mar 21, 2020 2:37 pm
Cheez-It Guy wrote: Sat Mar 21, 2020 2:36 pm Do it, then.
That's a weak response and doesn't address the argument.
So your objective is to troll / create an argument?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
Cheez-It Guy
Posts: 1248
Joined: Sun Mar 03, 2019 4:20 pm

Re: Why do people keep saying you have to be right twice?

Post by Cheez-It Guy »

It's a flippant response to a silly question to which you already appear to know the answer.
User avatar
White Coat Investor
Posts: 15041
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Why do people keep saying you have to be right twice?

Post by White Coat Investor »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
It's entirely possible to screw up both ends of that gamble. Happens all the time. Lots of "investors" do it routinely.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
RandomWord
Posts: 119
Joined: Tue Jun 18, 2019 1:12 pm

Re: Why do people keep saying you have to be right twice?

Post by RandomWord »

I think that saying is aimed at "fine-tuned" market timing. If you just want to duck out to avoid a small drop and then duck back in again, you might be right about the initial drop but then wait too long and the market has already recovered before you get back in.

Of course with this crash, anyone who got out early will come out way ahead, almost no matter when they get back in. So I agree with you, for large movements you just have to be right once.
drk
Posts: 1949
Joined: Mon Jul 24, 2017 10:33 pm
Location: AWOL

Re: Why do people keep saying you have to be right twice?

Post by drk »

For a triviality, we sure have seen a lot of threads from people who got out in 2009 and never felt comfortable getting back in. The problem with being a reactionary bear is that being right once only reinforces their preconceived notions.
ionball
Posts: 241
Joined: Wed Jan 31, 2018 12:17 pm

Re: Why do people keep saying you have to be right twice?

Post by ionball »

People say things to make a point sometimes. It's not easy to give a short answer that is both exact and complete. That's why I (and perhaps others) tend to give short answers, yet brilliant Bogleheads give better answers.
Last edited by ionball on Sat Mar 21, 2020 2:51 pm, edited 1 time in total.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

RandomWord wrote: Sat Mar 21, 2020 2:41 pm I think that saying is aimed at "fine-tuned" market timing. If you just want to duck out to avoid a small drop and then duck back in again, you might be right about the initial drop but then wait too long and the market has already recovered before you get back in.

Of course with this crash, anyone who got out early will come out way ahead, almost no matter when they get back in. So I agree with you, for large movements you just have to be right once.
You still only have to be right once. I get the point from a practical perspective, an investor could mess it up, but that doesn't mean you have to be right twice. You just have to execute on the second action.

Bogle said:
“It is difficult enough to make even one timing decision correctly. But you have to be right twice. For the act of, say, getting out of the market implies the act of getting in later, and at a more favorable level. But when, pray?”
Am I taking him too literally? It's possible.
Last edited by l1am on Sat Mar 21, 2020 2:51 pm, edited 1 time in total.
RonSwanson
Posts: 111
Joined: Sat Feb 22, 2020 7:15 pm

Re: Why do people keep saying you have to be right twice?

Post by RonSwanson »

drk wrote: Sat Mar 21, 2020 2:45 pm For a triviality, we sure have seen a lot of threads from people who got out in 2009 and never felt comfortable getting back in. The problem with being a reactionary bear is that being right once only reinforces their preconceived notions.
Yup. I got out at a good time but didn't get back in until after the price was above my original exit point. Lesson learned on that one.
dachshunddad
Posts: 187
Joined: Mon Sep 03, 2018 8:22 pm

Re: Why do people keep saying you have to be right twice?

Post by dachshunddad »

The biggest mistake could be getting it right the first try. You sell and buy the dip. Seems easy. But the next time you try, it doesn't dip but jump up. Do you re-buy? keep waiting? This is how folks get on the sidelines for years.
RonSwanson
Posts: 111
Joined: Sat Feb 22, 2020 7:15 pm

Re: Why do people keep saying you have to be right twice?

Post by RonSwanson »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
Unless there are capital gains taxes to pay.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

dachshunddad wrote: Sat Mar 21, 2020 2:51 pm The biggest mistake could be getting it right the first try. You sell and buy the dip. Seems easy. But the next time you try, it doesn't dip but jump up. Do you re-buy? keep waiting? This is how folks get on the sidelines for years.
FWIW, I don't advise market timing at all. But I agree, you need to have a solid plan in advance for every outcome if you "trade" like this.
User avatar
Taylor Larimore
Advisory Board
Posts: 30174
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Market Timing

Post by Taylor Larimore »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
Bogleheads:

In my opinion, being "right" once or twice is not the answer. Avoid market-timing altogether is the answer. This is what experts say:
Advisor Perspectives (8-8-2016): "The question is whether any of these (57) tactical allocation mutual funds have shown any ability to outperform a simple, passively managed 60/40 portfolio. The answer, at least for the last five years, is a resounding “no.”

Alliance Bernstein Research: "In 2005 we interviewed more than 500 financial advisors. 83% of the advisors we polled felt that if investors had stuck to their original asset allocation plan prior to 2000, they could have cut their losses by more than half over the following few years."

Frank Armstrong, author and adviser: "Endless tinkering is unlikely to improve performance, and chasing last period's stellar achiever is a losing strategy."

David Babson, co-author of Investing for a Successful Future: "It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire quickly."

Barron's Guide to Making Investment Decisions: "If we haven't said it enough, we'll say it again: Market timing is dangerous."

Bernard Baruch, famed investor: "Only liars manage to always be "out" during bad times and "in' during good times."

Peter Bernstein, author of 10 finance books: "You have to keep reminding yourself. We don't know what's going to happen with anything, ever."

Wm. Bernstein, author and adviser: "There are two kinds of investors, be they large or small: Those who don't know where the market is headed, and those who don't know that they don't know."

Jack Bogle: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."

I started the Boglehead Contest in January 2001. Of 99 Diehard guesses that year, only 11 even guessed the direction of the stock market. Boglehead forecasts were worse in 2008. Only 2 out of 284 Bogleheads guessed how low the S&P 500 Index would plunge.

Bogleheads' Guide to Investing: "No one can predict what the stock market will do or which mutual fund will outperform in the future. This is why we diversify -- so that whatever happens we will not have all our money in losing investments."

Jack Brennan, former Vanguard CEO and author of Straight Talk on Investing: "If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor."

Warren Buffet: “The only value of stock forecasters is to make fortune-tellers look good."

Ben Carlson CPA, author of A Wealth of Common Sense: "Not only is market timing hard, but you incur fees, taxes and market impact costs, as well."

CDA/Wiesenberger: "Market timing is an ineffective strategy for mutual fund investors."

Andrew Clarke, financial adviser: "A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it."

Jonathan Clements, Wall Street Journal columnist: "Take my word for it. Buy-and-hold is still your best long-run strategy."

Consumer Reports: "Dalbar research has found that both stock and bond investors tend to overreact to events, moving money in and out of mutual funds with breathtakingly bad timing."

Dalbar research (2015) "Mutual fund investors who hold on to their investments have been more successful than those who try to time the market."

Dick Davis, publisher of Dick Davis Digest: "No one can time the market on a consistent basis."

Pat Dorsey, former Morningstar Director of Fund Analysis: "Market-timing is bunk."

David Dreman, author of Contrarian Investment Strategies: "The performance of 185 tactical asset allocation mutual funds was compared with buy-and-hold strategies and equity mutual funds over the years 1985-97. Over this period the S&P 500 Index increased 734%, average equity funds increased 598%, and tactical asset allocation funds increased 384%."

Charles Ellis, author of The Loser's Game: "Market timing is a wicked idea. Don't try it-ever."

Javier Estrada Research: "The odds against successful market timing are just staggering."

Paul Farrell, CBS MarketWatch: "Forget market timing in any form."

Rick Ferri, adviser and co-author of seven books including The Bogleheads' Guide to Retirement Planning: "The best practice for investors is to design a long-term globally diversified asset allocation plan based on present and future financial needs. Then follow that plan religiously, through all markets good and bad."

Forbes: "Benjamin Graham spent much of his career trying to devise a good formula for when to get into--and out of--the stock market. All formulas, he concluded, failed."

Fortune: "Let's say it clearly: No one knows where the market is going-experts or novices, soothsayers or astrologers. That's the simple truth."

Norman Fosback, author, researcher: "Don't sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term."

John Kenneth Galbraith, economist: "The only function of economic forecasting is to make astrology look respectful."

Elaine Garzarelli, Wall Street's best known strategist until fired by Lehman Brothers: "I've learned that market timing can ruin you."

Good & Hermansen, authors of Index Your Way to Investment Success: "Staying on course may be just as difficult in bull markets as in bear markets."

Carol Gould, author & New York Times columnist: "For most investors the odds favor a buy-and-hold strategy."

Graham/Campbell Study: "From June 1980 through December 1992, 94.5% of 237 market timing investment newsletters had gone of business."

Benjamin Graham, famed investor: "If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market."

Louis S. Harvey, President of Dalbar Research: “When investors think short-term and try to time the market, they haven’t done very well. They have been leaving a lot of money on the table.”

Mark Hebner, financial author: "Efficient markets have no trends, so any speculation using trading systems or active investment strategies, such as stock, time, manager, or style selection, will only detract from future market returns."

Chuck Hill, Director of Research at FirstCall/Thomson Financial: "At the peak of the bull market in March of 2000 only 0.7% of all recommendations on stocks issued by Wall Street brokerages and investment banks were to sell."

Morgan Housel, Wall Street Journal and Motley Fool columnist: "The odds that you will achieve long-term success by actively trading or timing the market round to zero."

Mark Hulbert, Editor of the Hulbert Financial Digest (1-18-2001): "Among the 160 or so newsletters the HFD monitors, the market timing recommendations of only 10 have beaten the stock market over the last decade on a risk-adjusted basis."

Daniel Kahneman, Nobel Laureate: "After receiving the Nobel Prize, Daniel Kahneman, was asked by a CNBC anchorman what investment tips he had for viewers. His answer: "Buy and hold.""

Michael Leboeuf, author of The Millionaire in You : "Timing the market is for losers. Time IN the market will get you to the winner's circle, and you'll sleep better at night."

Arthur Levitt, former SEC Chairman: "No one is smart enough to time the market's ups and downs."

Jessie Livermore, famous investor: "It never was my thinking that made the big money for me. It always was my sitting."

Peter Lynch, famed mutual fund manager: "Nobody can predict interest rates, the future direction of the economy or the stock market."

Burton Malkiel, author of the classic Random Walk Down Wall Street: "Buying-and-holding a broad-based market index fund is still the only game in town."

John Markese, PhD, President, American Association of Independent Investors: "Nobody, but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time."

Paul Merriman, author of Investing for a lifetime: "I don’t think more than perhaps one in 100 investors will be successful using timing."

Morningstar Course 106: "We're not keen on market-timing. It just doesn't work."

Motley Fools: "We've yet to find anyone who can accurately and consistently predict the market's short-term moves."

Nick Murray, author of eleven financial books: "Timing the market is a fool's game, whereas time in the market is your greatest natural advantage."

"Odean and Barber tested over 66,400 investors between 1991 and 1997. Their findings: "The most active traders earned 7% less annually than buy-and-hold investors."

Gerald Perritt, financial author: "Forget trying to time the market and do something productive instead."

Don Phillips, Managing Director of Morningstar: "I can't point to any mutual fund anywhere in the world that's produced a superior long-term record using market timing as its main investment criteria."

Mike Piper, author of The Oblivious Investor: "When market-beating strategies become known they generally stop working."

Jane Bryant Quinn author and syndicated columnist: "The market timer's Hall of Fame is an empty room."

John Rekenthaler, Vice-President of Research for Morningstar: "Market-timers are circus clowns minus the funny suits. Even when they dodge the bear market, they inevitably miss the ensuing bull. Their track record is terrible."

Mary Roland, author of Best Practices for Financial Advisors: "Countless studies have proved that no one is able to time the market effectively."

Louis Rukeyser, famous (deceased) TV host: "In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested."

Richard Russell, editor of Dow Theory Letters: "There are no geniuses on Wall Street, only geniuses for a while."

Paul Samuelson, Nobel Laureate: "The evidence is overwhelming that a thousand timer's who try to buy when stocks are low, and sell when they are high, is a damnably awful record."

Jim Schmidt, Editor: "For the 10 years that ended 12-31-2000, only one newsletter out of the 112 that Timers Digest follows managed to beat the S&P 500 Benchmark."

Bill Schultheis, adviser and author of The Coffeehouse Investor : "I have learned the hard way that market timing and trying to pick a fund that will out-perform the market are both losing strategies."

Charles Schwab: "I'm a strong advocate of buying and holding."

Fred Schwed Jr., author of 'Where are the Customers' Yachts?: "It turns out that I should have just bought them (securities), and thereafter I should have just sat on them like a fat, stupid peasant. A peasant however, who is rich beyond his limited dreams of avarice."

Chandan Sengupta author of The Only Proven Road to Investment Success: "Any investment method that relies on predicting the future is doomed to fail."

Jeremy Siegel, author of Stocks for the Long Run: "Winning with stocks requires only patience, not foresight."

W. Scott Simon, author of Index Funds: "Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator."

Paul Singer, hedge fund billionaire: “The important turning points in markets are never identified with precision in advance by ‘experts’ and policymakers."

James Stewart, Smart Money columnist": It's my belief that it's a waste of time to try to time any market decline, or try to pinpoint a market bottom."

Larry Swedroe, author and adviser: "Believing in the ability of market timers is the equivalent of believing astrologers can predict the future."

David Swensen, Manager of Yale Investments: "People should stop chasing performance and just put together a sensible portfolio regardless of the ups and downs of the market."

Andrew Tobias, author of The Only Investment Guide You Will Ever Need: "Don't waste money subscribing to investment letters or expensive services.

Tweddell & Pierce, financial authors: "Trust in time and forget market timing. Allow time to work its compounding magic for you. Let market timing inflict its miseries on someone else."

Eric Tyson, author of Mutual Funds for Dummies: "No one can predict the future."

Wall Street Journal Lifetime Guide to Money: "Few if any investors manage to be consistently successful in timing markets."

John Waggoner, USA Today financial columnist: "If you're considering doing your own market timing, the best advice is this: Don't."

Jason Zweig, author and Wall Street Journal columnist: "If you buy, and then hold a total-stock-market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run."
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

RonSwanson wrote: Sat Mar 21, 2020 2:52 pm
l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
Unless there are capital gains taxes to pay.
Fair point :wink:
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Why do people keep saying you have to be right twice?

Post by chevca »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
Why do most folks that do this for a living underperform the basic market returns if it's so easy and they only need to be right ONCE?
Eno Deb
Posts: 174
Joined: Sun Feb 03, 2019 4:08 pm

Re: Why do people keep saying you have to be right twice?

Post by Eno Deb »

l1am wrote: Sat Mar 21, 2020 2:35 pmYou don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
Depends on your definition of "being up". If you sell at a profit and want to stay out of the market, fine. But you may never get the chance to buy back at the same or a lower price than you sold at (e.g. if the price suddenly jumps based on some news), and there's of course the tax issue.
fwellimort
Posts: 463
Joined: Tue Feb 12, 2019 9:41 am

Re: Why do people keep saying you have to be right twice?

Post by fwellimort »

In the past, there were trading fees. And generally there are taxes (not true in IRA though most investors don't have as much in IRA for conventional market timing to be worth it)

I have seen many market timing research papers.
When research papers consider "outperformed the market", the papers usually mean a CAVG of 1% or more.

Market timing a couple % in the stock market is not going to get you in your lifetime, 1% or more CAVG.
(After all, waiting 20% 30% 40% 50% drops could realistically mess up the investor to miss the dip. In a period of high volatility and spread issues, sure one could win by 0.2%, 1% or so but any more and the trader exposes him/herself to market timing substantially)
To market time and beat the market substantially, one has to realistically stay out of the market for a while or take serious risks with options.

Those two tend to not fare well in most environments.
wolf359
Posts: 2249
Joined: Sun Mar 15, 2015 8:47 am

Re: Why do people keep saying you have to be right twice?

Post by wolf359 »

White Coat Investor wrote: Sat Mar 21, 2020 2:40 pm
l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
It's entirely possible to screw up both ends of that gamble. Happens all the time. Lots of "investors" do it routinely.
The second decision isn't a triviality. You may have noticed the massive recent market moves in both directions. Is the market ultimately going up or down? If you miss the window, is this a dead cat bounce, where it will sucker you into buying and then drop again, or is this the real move up? If you miss the real move up, do you now wait for it to drop again before you buy back in?

It IS possible to market time successfully. It is also possible to mess it up. In the long term, consistent market timing will result in you messing it up at least once. That one time may cause losses that negate all your successes from before.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

chevca wrote: Sat Mar 21, 2020 2:58 pm
l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
Why do most folks that do this for a living underperform the basic market returns if it's so easy and they only need to be right ONCE?
I never said it was easy, nor advisable.
User avatar
Vulcan
Posts: 1377
Joined: Sat Apr 05, 2014 11:43 pm

Re: Why do people keep saying you have to be right twice?

Post by Vulcan »

dachshunddad wrote: Sat Mar 21, 2020 2:51 pm The biggest mistake could be getting it right the first try. You sell and buy the dip. Seems easy. But the next time you try, it doesn't dip but jump up. Do you re-buy? keep waiting? This is how folks get on the sidelines for years.
That was my logic for not selling before the 2008 crisis, that I also saw coming: that even if I was right, it would come back to bite me sooner or later.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Why do people keep saying you have to be right twice?

Post by chevca »

l1am wrote: Sat Mar 21, 2020 3:11 pm
chevca wrote: Sat Mar 21, 2020 2:58 pm
l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
Why do most folks that do this for a living underperform the basic market returns if it's so easy and they only need to be right ONCE?
I never said it was easy, nor advisable.
You sort of implied it was.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

wolf359 wrote: Sat Mar 21, 2020 3:08 pm The second decision isn't a triviality. You may have noticed the massive recent market moves in both directions. Is the market ultimately going up or down? If you miss the window, is this a dead cat bounce, where it will sucker you into buying and then drop again, or is this the real move up? If you miss the real move up, do you now wait for it to drop again before you buy back in?

It IS possible to market time successfully. It is also possible to mess it up. In the long term, consistent market timing will result in you messing it up at least once. That one time may cause losses that negate all your successes from before.
If I sell at price x, and the price goes below x, all the rest is noise as long as you get back in before x. Being optimal about the 2nd decision is a different argument. You only had to be right once.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

chevca wrote: Sat Mar 21, 2020 3:13 pm You sort of implied it was.
No, you drew that implication yourself.
columbia
Posts: 3023
Joined: Tue Aug 27, 2013 5:30 am

Re: Why do people keep saying you have to be right twice?

Post by columbia »

It’s a logically incorrect, but persuasive way to discourage market timing.
Vision
Posts: 358
Joined: Tue Apr 02, 2013 3:16 am

Re: Why do people keep saying you have to be right twice?

Post by Vision »

They say it to cope with their lack of guts and ability to make proper decisions, so they rationalise that it is harder than it looks to cope with their passive investing meme that fell 30%.
cacophony
Posts: 590
Joined: Tue Oct 16, 2007 9:12 pm

Re: Why do people keep saying you have to be right twice?

Post by cacophony »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...Worst case, you can buy back in and break even.
No, worst case you sell out of fear of significant further losses, and at some point shortly after selling the market quickly rebounds to a place higher than you sold. But you still don't buy because you feel another big drop is imminent. Instead the market keeps going up quickly. By the time you get back in you've missed out on most of the rebound, and the final result is you sold low and bought high.
Topic Author
l1am
Posts: 400
Joined: Wed Mar 02, 2016 2:27 pm

Re: Why do people keep saying you have to be right twice?

Post by l1am »

columbia wrote: Sat Mar 21, 2020 3:17 pm It’s a logically incorrect, but persuasive way to discourage market timing.
Being logically incorrect isn't a good way to persuade people, especially when it's obviously incorrect. Better off being honest, there are enough good arguments not to market time.
columbia
Posts: 3023
Joined: Tue Aug 27, 2013 5:30 am

Re: Why do people keep saying you have to be right twice?

Post by columbia »

Part of the problem is that being “right” is almost never defined by the person expressing it.
User avatar
HomerJ
Posts: 15666
Joined: Fri Jun 06, 2008 12:50 pm

Re: Why do people keep saying you have to be right twice?

Post by HomerJ »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
It's not that easy...

If you were so scared that you sold a bunch of stock at DOW 19,000, then it drops to 18,500, then jumps back to 19,000 one day later, are you really going to buy back in?

All the reasons you were scared are still there... It's been like TWO days since you freaked out and sold, certain the market was crashing.

You think it will be a trivial decision to just buy back in?

And then the next day it drops again. Should you sell it all again, and start the process over?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
fwellimort
Posts: 463
Joined: Tue Feb 12, 2019 9:41 am

Re: Why do people keep saying you have to be right twice?

Post by fwellimort »

l1am wrote: Sat Mar 21, 2020 3:22 pm Being logically incorrect isn't a good way to persuade people, especially when it's obviously incorrect. Better off being honest, there are enough good arguments not to market time.
How much would you realistically market time in this environment. 0.1%? 1%? 2%? 3%? 4%? ... 50%? 60%? 80%? 99%?

I have stated earlier but research papers consider market timing to be in a course of one's investment paper to CAVG 1% or more.
A mere 0.2% or 1% or 3% isn't going to do that.

To market time and get substantial results, you either have to skip and make a huge bet (say 20%+) or take options.
Those two like I have said previously tend to not perform well.
During recessions to take advantage of spreads/liquidity issues and get a 1% better return tends to favour you. But even favourable trades if done enough will probabilistic-ally start to dis-favour you. So realistically, you only want to do it once. After all, if your first try has a 70% chance rate, then your next one to also succeed becomes 49%. Finding say 1% or so better return is so minute in grand scheme of things.

Say you had $100. Say returns have been -44%, 7%.... (44 times)
No market timing: 100 * (1-0.44) * (1.07)^44 = $1099.19
Market timing gain of say 2.4%: 100 * (1-0.416) * (1.07)^44 = $1146.30

CAVG of no market timing: 5.47146%
CAVG of market timing: 5.56986%
Market timing by research papers are generally considered 1% CAVG or more
To get such results in only this market timing would mean waiting till a drop of 29.63% or more.

There you go. Now you know what people are exactly stating when they say, beating the market is so hard.
Of course you could argue "I could market time multiple recessions" but know that the more you do it, the more probability works against you, and to truly do it and have 1% or more CAVG, you still need to wait out significant chunks of drops in the market.

I hope that answered your question.
Market timing favours you during recessions. Countless research papers have shown such before fees/taxes. The problem is to market time to gain a substantial advantage is difficult without taking a lot of risk (that tends to end unfavorably).
bling
Posts: 754
Joined: Sat Jan 21, 2012 12:49 pm

Re: Why do people keep saying you have to be right twice?

Post by bling »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
you can't sell without buying first.
User avatar
galawdawg
Posts: 1735
Joined: Thu Dec 14, 2017 12:59 pm
Location: Georgia

Re: Why do people keep saying you have to be right twice?

Post by galawdawg »

I agree with Jack. You have to be right twice.

1. You have to get out at the right time. You sell at X as the market is on the way down and all of a sudden it shoots back up well over X. Wrong decision.
2. You have to get back in at the right time. You sell at X at the peak of the market. The market drops. Good for you. You buy back in at Y as the market begins to climb but hasn't reached X yet. The market plummets well below Y. Wrong decision.

And in order to "beat the market" you not only have to know when to get into the market and when to get out of the market, but you have to do it consistently over the long-term.

Otherwise, if you only have to be right once, why on earth doesn't EVERY fund manager have a consistent long-term record of outperforming the market?? It should be easy to be right 50% of the time.
fwellimort
Posts: 463
Joined: Tue Feb 12, 2019 9:41 am

Re: Why do people keep saying you have to be right twice?

Post by fwellimort »

galawdawg wrote: Sat Mar 21, 2020 3:47 pm Otherwise, if you only have to be right once, why on earth doesn't EVERY fund manager have a consistent long-term record of outperforming the market?? It should be easy to be right 50% of the time.
Because that's not how 'outperforming the market' by most research papers are defined.
'Beating the market' long term is considered out performance of +1% CAVG or more.
Not 1% in 1 year out of say a 45 year period. That by research papers is not considered 'beating the market'.

Also cause fees/taxes.
ks289
Posts: 655
Joined: Sun Mar 11, 2012 12:42 pm

Re: Why do people keep saying you have to be right twice?

Post by ks289 »

100% correct that you only have to be right once -assuming you avoid a big loss you don’t have to buy back at the absolute bottom to come out ahead (after capital gains taxes).

However, the clear difficulty is that being right ONCE is difficult. More often you’ll be wrong about the tops and bottoms. And you’ll end up losing out on some gains and failing to avoid some losses over the long term.
User avatar
watchnerd
Posts: 5990
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Why do people keep saying you have to be right twice?

Post by watchnerd »

OP, try this:

https://engaging-data.com/market-timing-game/

See how you do after 10 runs.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
Danzangdc
Posts: 77
Joined: Sun Oct 13, 2013 7:59 am

Re: Why do people keep saying you have to be right twice?

Post by Danzangdc »

RandomWord wrote: Sat Mar 21, 2020 2:41 pm I think that saying is aimed at "fine-tuned" market timing. If you just want to duck out to avoid a small drop and then duck back in again, you might be right about the initial drop but then wait too long and the market has already recovered before you get back in.

Of course with this crash, anyone who got out early will come out way ahead, almost no matter when they get back in. So I agree with you, for large movements you just have to be right once.
+1

Also, shame on the early posters who griefed the OP for asking a question. There are too many rude grumps on this forum.
User avatar
Cheez-It Guy
Posts: 1248
Joined: Sun Mar 03, 2019 4:20 pm

Re: Why do people keep saying you have to be right twice?

Post by Cheez-It Guy »

Oops.
User avatar
JoMoney
Posts: 10515
Joined: Tue Jul 23, 2013 5:31 am

Re: Why do people keep saying you have to be right twice?

Post by JoMoney »

Danzangdc wrote: Sat Mar 21, 2020 4:44 pm ...
Also, shame on the early posters who griefed the OP for asking a question. There are too many rude grumps on this forum.
What is the right ratio of rude grumps to trolls ?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
keelerjr12
Posts: 128
Joined: Tue Jan 13, 2015 2:56 am

Re: Why do people keep saying you have to be right twice?

Post by keelerjr12 »

When it comes to market timing, I believe many people make the assumption that your "guesses" have to be optimal and anything sub-optimal is inadequate. Additionally, they assume that the probability that the market going up or down is 50/50 (i.e. no different than flipping a coin); however, that is not the case. If that were the case, then the strategy of buy-and-hold would not work since the expected return would be less than 0%. Finally, people assume that because the market has gone up they've succeeded (reference 2 months ago), but you haven't succeeded until you've sold! What I mean by that is that you hear people constantly say "yes, but he got out and missed out on all these gains for the last year!". What they fail to realize is that they haven't gained anything (YET). What happens if/when the market drops...

For the first assumption, we can disprove this by showing that as long as I sell at a price higher than what I bought the stock for then I have made money. The next assumption can be disapproved, again, by showing the historical returns of the stock market and that investing for the long-term results in some positive gain as time goes to infinite.

So instead of just looking at the daily price quotes and trying to guess if tomorrow the market goes up or down, what can we do? We can use past financial data to HELP influence our decisions so we make a decision that is statistically better than a coin-flip. Things we can look at:

1) Market Cap to GDP... Show how over-valued/under-valued the market is (a Buffet favorite). Looking at this chart we can see that over time it trends upwards; we can de-trend the data and get a better understanding of where the current market sits. We know that if the market is heavily over-valued, it must drop to revert back towards the mean!

2) Unemployment

3) The price return rate of change over the last qtr, 6 mos, 1 year, etc.

4) Any other data you feel that pertains to influencing the stock market...

Finally, we can use Logistic Regression to build a model that can predict with some accuracy what the market will do over the next 3 mos, 6 mos, 1 year, 2 years, 5 years, etc. We are able to split our data into training data and test data. The test data can give some reflection on how well your model fits. Are you going to accurately guess the market up/down 100%? Absolutely not! But we don't have to.

If I know that 1 year from now the market will be less than it is now with 85% certainty (maybe because market cap-to-gdp is 158% like it was before COVID-19), then I can stop buying stocks and maybe shift to cash. We KNOW that at some point there will be a market correction (we've seen them numerous times before). Now as long as I get back in at a price less than when I got out, I've succeeded.

How do I know this works? I've done it. I shifted to cash in 2016 when I found that the market was over-valued (I didn't sell). I've would've done much worse had I DCA'd every month for the last 4 years. I'm glad I used some statistics, made an EDUCATED decision, and had the gut to stick with it (even though numerous people told me I was crazy).

To the post above, I wouldn't call 2% just noise... Let's say that you have 2 portfolios with $100k to start. 1 portfolio makes 2% a year for 5 years that the other does not. Now each portfolio makes 8% a year for the next 30 years. What's the difference between the two portfolios? $105k... close to 10% of the portfolio's value.
Last edited by keelerjr12 on Sat Mar 21, 2020 5:07 pm, edited 2 times in total.
User avatar
mrspock
Posts: 1393
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: Why do people keep saying you have to be right twice?

Post by mrspock »

l1am wrote: Sat Mar 21, 2020 2:35 pm ...with market timing.

You don't, you only have to be right ONCE. You're already up after a single decision to sell at the right time.

The second decision is a triviality. Worst case, you can buy back in and break even.
I agree sort of, but just in a different way, and it requires a key assumption. If we assume that the market will reach a given valuations again some time in the future, AND you hold some bonds or cash equivalents, you can only have to buy below whatever market valuation which gives you a positive total return (including dividends of the bonds or cash equivalents AND taxes) vs. what you would have received by buying equities in the first place.

There is no second decision in this case. For example if you bought some bonds where the S&P was at 2700 to 3380, and then it plummeted to 1800, you could choose to move to equities in your AA. Of course.... this is more or what happens when most Bogleheads rebalance :) . Though I don't think any of us figure out what the opportunity costs were for holding the bonds and adjust accordingly.

The 2nd decision you are talking about isn't trivial.... when you buy at -20% and it goes to -30% then what? You buy again, and it goes to -40%? Eventually you run out of capital, and emotions kick in.
yoyo6713
Posts: 130
Joined: Thu May 10, 2018 8:48 pm

Re: Why do people keep saying you have to be right twice?

Post by yoyo6713 »

watchnerd wrote: Sat Mar 21, 2020 3:55 pm OP, try this:

https://engaging-data.com/market-timing-game/

See how you do after 10 runs.
I don't know why you keep posting this (or maybe someone else also did). When you are playing you are flying blind and that is not the case with investment.
keelerjr12
Posts: 128
Joined: Tue Jan 13, 2015 2:56 am

Re: Why do people keep saying you have to be right twice?

Post by keelerjr12 »

yoyo6713 wrote: Sat Mar 21, 2020 4:59 pm
watchnerd wrote: Sat Mar 21, 2020 3:55 pm OP, try this:

https://engaging-data.com/market-timing-game/

See how you do after 10 runs.
I don't know why you keep posting this (or maybe someone else also did). When you are playing you are flying blind and that is not the case with investment.
Yah this is dumb.. You have no idea what market valuations are at time T. This is the equivalent of walking up to the roulette table.
Danzangdc
Posts: 77
Joined: Sun Oct 13, 2013 7:59 am

Re: Why do people keep saying you have to be right twice?

Post by Danzangdc »

yoyo6713 wrote: Sat Mar 21, 2020 4:59 pm
watchnerd wrote: Sat Mar 21, 2020 3:55 pm OP, try this:

https://engaging-data.com/market-timing-game/

See how you do after 10 runs.
I don't know why you keep posting this (or maybe someone else also did). When you are playing you are flying blind and that is not the case with investment.
+1
airshow
Posts: 55
Joined: Sat Dec 20, 2014 2:54 am

Re: Why do people keep saying you have to be right twice?

Post by airshow »

watchnerd wrote: Sat Mar 21, 2020 3:55 pm OP, try this:

https://engaging-data.com/market-timing-game/

See how you do after 10 runs.
2 things about that game -

1) There's no backstory to each game. Don't most, if not all, timers use current economic conditions or critical news to make those decisions? (dot-com, 2008 real estate, Coronavirus).
2) I get the game's complete SELL thing, but there's no provisions for drip buy-backs; it's a one-time shot to BUY back in. Right now I'm dripping back after getting out on Feb 19; dripping back has allowed me locked-in discounts.
User avatar
watchnerd
Posts: 5990
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

Re: Why do people keep saying you have to be right twice?

Post by watchnerd »

airshow wrote: Sat Mar 21, 2020 5:02 pm
watchnerd wrote: Sat Mar 21, 2020 3:55 pm OP, try this:

https://engaging-data.com/market-timing-game/

See how you do after 10 runs.
2 things about that game -

1) There's no backstory to each game. Don't most, if not all, timers use current economic conditions or critical news to make those decisions? (dot-com, 2008 real estate, Coronavirus).
2) I get the game's complete SELL thing, but there's no provisions for drip buy-backs; it's a one-time shot to BUY back in. Right now I'm dripping back after getting out on Feb 19; dripping back has allowed me locked-in discounts.
The game lets you buy back in with the BUY button.

No, it doesn't let you DCA the buy.

But we all know that DCA doesn't beat lump sum, so your complaint doesn't change the outcome.
Last edited by watchnerd on Sat Mar 21, 2020 5:10 pm, edited 1 time in total.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Why do people keep saying you have to be right twice?

Post by chevca »

keelerjr12 wrote: Sat Mar 21, 2020 4:50 pm If I know that 1 year from now the market will be less than it is now with 85% certainty (maybe because market cap-to-gdp is 158% like it was before COVID-19), then I can stop buying stocks and maybe shift to cash. We KNOW that at some point there will be a market correction (we've seen them numerous times before). Now as long as I get back in at a price less than when I got out, I've succeeded.

How do I know this works? I've done it. I shifted to cash in 2016 when I found that the market was over-valued (I didn't sell). I've would've done much worse had I DCA'd every month for the last 4 years. I'm glad I used some statistics, made an EDUCATED decision, and had the gut to stick with it (even though numerous people told me I was crazy).
If I'm understanding this correctly, you have a portfolio of stocks and still have those... but, in 2016 you stopped buying more stocks and switched to accumulating cash?

January 1 of 2016, the S&p 500 was at 1918, March 20 of 2020 it was at 2304, and let's remember it was at 3278 on January 1 of this year. How have you done much better by accumulating cash in that time??
dru808
Posts: 1281
Joined: Sat Oct 15, 2011 2:42 pm
Location: mid pac

Re: Why do people keep saying you have to be right twice?

Post by dru808 »

watchnerd wrote: Sat Mar 21, 2020 3:55 pm OP, try this:

https://engaging-data.com/market-timing-game/

See how you do after 10 runs.
Omg, that’s hard. Lol lost out both times I tried. Great tool
Post Reply