Bogleheads are good at market timing

[TheoLeo]

I was reading through the threads of summer and autumn of 2007 and there were lots of threads questioning if markets have really priced in the mortgage crisis.

Then, when covid cases started to show up all over the world, these kinds of threads were common again and the market didnt react at first.

This makes it seem like if there is serious trouble on the horizon, it sometimes actually is anticipated and the market does ignore it for a while. Is this just hindsight bias? How common is an increased occurence of alarming threads that turn out to be false alarms?

[Taylor Larimore]

TheoLeo:

Market timing is contrary to The Boglehead Philosophy -- Here's why:

https://www.bogleheads.org/wiki/Taylor_ ... ing_quotes

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."

[nedsaid]

I was reading through the threads of summer and autumn of 2007 and there were lots of threads questioning if markets have really priced in the mortgage crisis.

Then, when covid cases started to show up all over the world, these kinds of threads were common again and the market didnt react at first.

This makes it seem like if there is serious trouble on the horizon, it sometimes actually is anticipated and the market does ignore it for a while. Is this just hindsight bias? How common is an increased occurence of alarming threads that turn out to be false alarms?

I have joked about market sentiment and Boglehead threads. As you know we have competing "Free Fall" and "Soar" threads regarding the U.S. Stock Market. Probably 70% of the time or more, it seems like the market will rally after the "Free Fall" thread pops up so I look at it as sort of a contrary indicator. The "Soar" thread doesn't seem to jinx the market.

I also have joked that Cliff Asness has a secret Algorithm that goes long or short stocks depending upon Boglehead threads.

It is fun to talk about but market timing just doesn't work. A big part of this is the being right too early problem. I think of the late John Neff who famously shorted the NASDAQ during the late 1990's and took big paper losses until the 2000-2002 crash when he covered his shorts and made a mint. Neff was pretty well heeled and was able to sustain his losses until things broke his way. I think he had the short on for 2-3 years or more, this would have broken most investors. Neff made a mint and wasn't heard from again until he passed away in recent years.

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

[HootingSloth]

There's an old joke, I think attributable to Paul Samuelson, that economists have correctly predicted 9 out of the last 5 recessions. I think this may also go for Bogleheads predicting market crashes. Many of us can be a tad anxious or pessimistic about the state of the market, valuations, etc. Just look at the frequent races-to-the-bottom regarding long-term returns or safe withdrawal rates!

Often, I think, it is a helpful kind of conservativism, for example when it encourages keeping savings rates relatively high. But I don't think it makes for a reliable market timing signal. For those two worries that Bogleheads posts may have foreshadowed to some degree, there have been many others where the risks did not materialize. (At least not yet!)

[celia]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

[UpperNwGuy]

This makes it seem like if there is serious trouble on the horizon, it sometimes actually is anticipated and the market does ignore it for a while. Is this just hindsight bias? How common is an increased occurence of alarming threads that turn out to be false alarms?

If you go back to the last few months of 2017 you will find a number of alarmist threads about high valuations and the inevitability of a near-term market decline. It was a false alarm as are most of these threads. They often have titles like, "Is anyone selling because of the sky-high valuations?"

[nedsaid]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Yes, I do too, but certainly rebalancing is a very mild form of market timing.

[flaccidsteele]

Market timing is simple. I’ve been doing it successfully since the 1990s. It’s a dirty word on BH so some posters call it rebalancing

[patrick]

Here are a few of many examples of false alarms:

April 2010 Time To Sell Stocks? Is the party over? Today's extreme drop is scary. Is it only the beginning?

January 2013 Overvalued Equities ... US equities are 40 to 50 percent overpriced.

November 2013 Advice: Should I invest when Stocks are at all time high ... feel that investing it now when stock are crushing it will surely set me up for a big loss in the near future.

December 2014 Frankly, we do not understand the current market. We still think its overvalued ... Although we have cash to invest, we see the current market as too risky

June 2015 Safe haven for next crash ... many that say that the stock market is overdue a correction

March 2017 Sitting on cash....Waiting for a crash ... Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? ... it just feels so foolish right now to put money into such an inflated market

October 2017 Extreme Valuations, and why you should reconsider I have been crunching data and couldn't figure out how I keep seeing prognosticators saying PE's aren't too stretched. ... Let someone else hold the bag - and be fearful when others are greedy.

January 2018 Anyway to compare metrics of today w stock bubble in 2000 ... I feel its sort of the same thing now.

March 2020 (near the crash bottom) Looming Crash ... we’re certainly going lower. And if the same trajectory holds, it’ll take about 10 or more years before we even sniff the previous all-time highs

If you had bought at the time any of these posts were made and held until today, you would have made a lot of money.

[TheoLeo]

TheoLeo:

Market timing is contrary to The Boglehead Philosophy -- Here's why:

https://www.bogleheads.org/wiki/Taylor_ ... ing_quotes

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."

Thanks Taylor, it is hard to argue with 120 expert quotes But prior to the two last recessions, there seem to have been more alarming threads than usually on bogleheads.org. Was it merely a coincidence?
Maybe there are different kinds of market timing. One is trying to anticipate new trends within the market (traditional car makers vs Tesla, tech vs. the rest, a rebound of oil, anticipating fed actions). The other is reacting to severe threats to the entire economy or stock market valuations that have already manifested and the market seems to ignore them (record high valuations relative to bond yields, pandemic, massive vulcano eruption, real political instability etc). Maybe its possible to recognize these times when the market reaction seems to lag reality (propably not though..).

[TheoLeo]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

a bit OT, but do you disagree with this kind of market timing?

[flaccidsteele]

Only need one quote for me to believe that market timing works

“Be greedy when others are fearful” - Warren Buffett

[Normchad]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Interesting. I guess I can see that.

It doesn’t have that “knee jerk” or “trying to predict the future” aspect to it, but you’re right, it does involve selling some of your equities when the market is high. I guess you have to do that to buy low and sell high.

For me, the only time I sell is when I fundamentally change my asset allocation. And that doesn’t happen often, and it doesn’t happen due to market conditions. It’s only as a result of long thinking and deciding that what I was doing is no longer appropriate.

On a day to day basis, I just never sell. If the AA starts to stray, I just start buying whatever is low....

[DesertDiva]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Yes, I do too, but certainly rebalancing is a very mild form of market timing.

I view annual re-balancing as alignment of my portfolio with my IPS

[TheoLeo]

Here are a few of many examples of false alarms:

April 2010 Time To Sell Stocks? Is the party over? Today's extreme drop is scary. Is it only the beginning?

November 2013 Advice: Should I invest when Stocks are at all time high ... feel that investing it now when stock are crushing it will surely set me up for a big loss in the near future.

December 2014 Frankly, we do not understand the current market. We still think its overvalued ... Although we have cash to invest, we see the current market as too risky

June 2015 Safe haven for next crash ... many that say that the stock market is overdue a correction

March 2017 Sitting on cash....Waiting for a crash ... Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? ... it just feels so foolish right now to put money into such an inflated market

October 2017 Extreme Valuations, and why you should reconsider I have been crunching data and couldn't figure out how I keep seeing prognosticators saying PE's aren't too stretched. ... Let someone else hold the bag - and be fearful when others are greedy.

January 2018 Anyway to compare metrics of today w stock bubble in 2000 ... I feel its sort of the same thing now.

March 2020 (near the crash bottom) Looming Crash ... we’re certainly going lower. And if the same trajectory holds, it’ll take about 10 or more years before we even sniff the previous all-time highs

If you had bought at the time any of these posts were made and held until today, you would have made a lot of money.

Thanks for this list of false alarms!

[iamlucky13]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Rebalancing is not based on a prediction of what the market is expected to do. It is based on deviation from your intended allocation. It can end up mirroring market timing moves, but the method for determining what to invest in differs.

[marcopolo]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Yes, I do too, but certainly rebalancing is a very mild form of market timing.

Interesting. Can you explain your reasoning here.
I think it is quite the opposite, that NOT re-balancing is a form of market timing.

If you have chosen your AA to achieve a certain level risk in your portfolio.
When the market goes up (or down), you have increased (or decreased) your risk exposure.
If you do NOT re-balance, you are essentially saying you are now willing to take on more (or less) market risk at this time.
That seems like market timing.

By contrast, re-balancing to maintain your desired AA, seems to say you are maintaining the same risk exposure regardless of what the market is doing at this time.

Would be interested to hear the opposing viewpoint on that.

[celia]

According to our wiki page on Market Timing, it is:

Market timing refers to act(s) of investing based on the condition of the market as opposed to personal characteristics.[notes 1]

I think it is quite the opposite, that NOT re-balancing is a form of market timing.

This is definitely NOT market timing since you need to take action, in order to market time. For example, having a dormant account you forgot about, is not market timing.

[vitaflo]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Rebalancing is not based on a prediction of what the market is expected to do. It is based on deviation from your intended allocation. It can end up mirroring market timing moves, but the method for determining what to invest in differs.

100%. If I don't hold bonds in taxable but have used up my tax-advantaged space, I may be putting funds into stocks in taxable (should I have the means). It could quickly get to the point where my AA gets out of whack and I need to rebalance. I would do so by buying/selling in my tax advantaged space.

Note this could happen even if the market goes nowhere, yet I still need to rebalance. There is no way this is market timing at all. Rebalancing is simply risk control. This can happen for a multitude of reason, the market moving up and down is only one of them.

[marcopolo]

According to our wiki page on Market Timing, it is:

Market timing refers to act(s) of investing based on the condition of the market as opposed to personal characteristics.[notes 1]

I think it is quite the opposite, that NOT re-balancing is a form of market timing.

This is definitely NOT market timing since you need to take action, in order to market time. For example, having a dormant account you forgot about, is not market timing.

In the great words of Rush:

"If you choose not to decide,
You still have made a choice"

[Luckywon]

According to our wiki page on Market Timing, it is:

Market timing refers to act(s) of investing based on the condition of the market as opposed to personal characteristics.[notes 1]

I think it is quite the opposite, that NOT re-balancing is a form of market timing.

This is definitely NOT market timing since you need to take action, in order to market time. For example, having a dormant account you forgot about, is not market timing.

Not re-balancing could certainly be a form of market timing. For example, in the recent coronavirus market drop, many investors probably had an IPS that directed rebalancing should be done, but they did not do it because...they were market timing. If it helps you understand this point, consider the market timing "act" the "act" of not following one's IPS.

[HomerJ]

I was reading through the threads of summer and autumn of 2007 and there were lots of threads questioning if markets have really priced in the mortgage crisis.

Then, when covid cases started to show up all over the world, these kinds of threads were common again and the market didnt react at first.

This makes it seem like if there is serious trouble on the horizon, it sometimes actually is anticipated and the market does ignore it for a while. Is this just hindsight bias? How common is an increased occurence of alarming threads that turn out to be false alarms?

Read the Stocks are free-falling thread

Ton of posts where people predicted trouble (Brexit, government shutdown, Greek debt crisis, etc.) And NOTHING happened.

[Onlineid3089]

Here are a few of many examples of false alarms:

April 2010 Time To Sell Stocks? Is the party over? Today's extreme drop is scary. Is it only the beginning?

January 2013 Overvalued Equities ... US equities are 40 to 50 percent overpriced.

November 2013 Advice: Should I invest when Stocks are at all time high ... feel that investing it now when stock are crushing it will surely set me up for a big loss in the near future.

December 2014 Frankly, we do not understand the current market. We still think its overvalued ... Although we have cash to invest, we see the current market as too risky

June 2015 Safe haven for next crash ... many that say that the stock market is overdue a correction

March 2017 Sitting on cash....Waiting for a crash ... Is there any Bogleheads out there that has decided to hold onto cash right now since valuations are so high and interest rates are so low? ... it just feels so foolish right now to put money into such an inflated market

October 2017 Extreme Valuations, and why you should reconsider I have been crunching data and couldn't figure out how I keep seeing prognosticators saying PE's aren't too stretched. ... Let someone else hold the bag - and be fearful when others are greedy.

January 2018 Anyway to compare metrics of today w stock bubble in 2000 ... I feel its sort of the same thing now.

March 2020 (near the crash bottom) Looming Crash ... we’re certainly going lower. And if the same trajectory holds, it’ll take about 10 or more years before we even sniff the previous all-time highs

If you had bought at the time any of these posts were made and held until today, you would have made a lot of money.

This is my reaction. It reminds me of the ads for so and so who 'predicted each of the last three recessions', but they never mention they predicted recessions about 87 other times that were wrong.

[GreenLawn]

Market timing is easy, and it works. Buy low, sell high. If you don't need the money, don't sell, the market trends higher over the decades so when you do need the money you'll have made a bundle. But do buy low when the market crashes. Buy as much as you're comfortable spending. Don't overdo it, but do buy.

Folks who buy low and sell high in every other facet of their life call it getting a good deal. Bogleheads call it re-balancing. I call it market timing.

[rkhusky]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

I can rebalance without knowing anything about the market. You must be doing it wrong.

[dharrythomas]

I’m perfectly willing to tell you what I think about the market, I don’t usually try to do anything about it and when I’ve tried, I’ve been wrong.

I understood that tech stocks had to fall, but I knew I couldn’t and didn’t try to time it. I had a value tilt, but I don’t know if I made money over TSM, because I had several years of lower returns.

I saw the train wreck coming with subprime, so we did not buy a new house and we got out of debt, but depending on many factors, I might have been better off to have carried more leverage.

I carry a slight value tilt and about 1/3 in international, but that has not helped in awhile.

Live below your means, invest early and often, minimize costs, diversify, and don’t overreact to market conditions.

The market has historically paid off over time. If you buy and hold, you can take advantage of the trend. If you trade and market time, you are competing with people who are at least as smart as you and have an information and technology advantage. In the casino, you’ve given up the house edge to be a gambler. It might work for a very few, for most of us that is a losing bet.

Good luck

Harry

[alluringreality]

According to our wiki page on Market Timing, it is:

Market timing refers to act(s) of investing based on the condition of the market as opposed to personal characteristics.[notes 1]

I think it is quite the opposite, that NOT re-balancing is a form of market timing.

This is definitely NOT market timing since you need to take action, in order to market time. For example, having a dormant account you forgot about, is not market timing.

In Unconventional Success, David Swensen defines passive market timing as having a fixed bond and stock allocation and not adjusting back to target after market movements. He defines active market timing as intentionally tilting away from a target, such as temporarily deciding to hold an extra 5% of stocks or bonds beyond a predetermined target. He clearly advocates for rebalancing to predetermined stock and bond allocations in the book, so I think the definitions he uses is generally how market timing is usually discussed on this forum.

Not re-balancing could certainly be a form of market timing. For example, in the recent coronavirus market drop, many investors probably had an IPS that directed rebalancing should be done, but they did not do it because...they were market timing. If it helps you understand this point, consider the market timing "act" the "act" of not following one's IPS.

If market timing means not following an IPS, then it is possible that the IPS definition could entirely flip the typical meaning of market timing. Say I'm not convinced using a fixed stock and bond allocation and rebalancing back to target necessarily makes sense for my considerations, then my IPS may ignore market movements. For example if I decide to put 30% of new income into savings bonds up to the yearly limits, then the movement of the stock market essentially does not affect my IPS. The stock market can move higher or lower, yet my IPS can say that all I do is to continue putting 30% of new assets into savings bonds and 70% into stocks regardless of what happens in the market. With this sort of definition, putting more or less new assets into the stock market due to market movements could potentially amount to market timing as a deviation from the IPS, which is potentially out of line with the common usage.

[rockstar]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

I can rebalance without knowing anything about the market. You must be doing it wrong.

Rebalancing seems like unnecessary trading to me. And with bonds yielding practically zero, what are you rebalancing into?

[rkhusky]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

I can rebalance without knowing anything about the market. You must be doing it wrong.

Rebalancing seems like unnecessary trading to me. And with bonds yielding practically zero, what are you rebalancing into?

I have 7 or 8 categories that I try to keep in balance. I don’t care about current yields. If my plan calls for selling stocks and buying bonds, that’s what I do. And vice-versa. Just did a round trip over the last month that netted me $500+.

[BroIceCream]

My definition of market timing... "Whenever I have free cash, it is time to put it in the market."

[BogleFan510]

My definition of market timing... "Whenever I have free cash, it is time to put it in the market."

This. While I think it is possible for the average Boglehead to pick and hold solid individual stocks and perhaps do slightly better than average, I have seen no evidence anyone can successfully time the market. Anyone can observe macro economic factors and predict that a possible downward pressure exists, but no one I've seen is able to repeatedly predict when to actually get out and, even harder, when to get back in. Add in the fact that time out of the market is an earnings 'total return headwind.' Any time out of the market is time when the portfolio is likely earning an expected return around short term MM rates instead of an expected return at the total stock market rates (any growth or dividends declared during that time are earnings lost). Since Expected value STOCK Return > Expected Value Cash Return, on average this time out of the market drags the timer's returns down.

[000]

I've observed that bogleheads are probably the group of individual investors most capable of beating the market via a good active approach (keep costs low, trade infrequently, avoid obvious speculative bubbles) but do not attempt to do so.

A strange paradox -- or perhaps the answer to the paradox is that once you have the skill to beat the market, you no longer have the need.

[GreenLawn]

My definition of market timing... "Whenever I have free cash, it is time to put it in the market."

This. While I think it is possible for the average Boglehead to pick and hold solid individual stocks and perhaps do slightly better than average, I have seen no evidence anyone can successfully time the market. Anyone can observe macro economic factors and predict that a possible downward pressure exists, but no one I've seen is able to repeatedly predict when to actually get out and, even harder, when to get back in. Add in the fact that time out of the market is an earnings 'total return headwind.' Any time out of the market is time when the portfolio is likely earning an expected return around short term MM rates instead of an expected return at the total stock market rates (any growth or dividends declared during that time are earnings lost). Since Expected value STOCK Return > Expected Value Cash Return, on average this time out of the market drags the timer's returns down.

Why would you want to get out of the market when it's down? That's exactly the time to get in. Buy stocks when they're cheap.

[Fallible]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

a bit OT, but do you disagree with this kind of market timing?

A couple questions about market timing as often discussed on the forum:

True market timing is defined basically as predicting what the market will do and when and then investing accordingly.

1) How then can investing that does not include such predicting be called market timing or a form of timing?

2) Why call it a form of timing if it isn't true timing?

[nedsaid]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Yes, I do too, but certainly rebalancing is a very mild form of market timing.

I view annual re-balancing as alignment of my portfolio with my IPS

Now that I am older, age 61, I am paying a lot more attention to rebalancing my portfolio which I now do every time the stock market hits new highs. It is about controlling risk. In my younger days, I pretty much let things ride as I had more human capital from years left in my career and also more time to recover from bear markets. Retirement was once a long way off and now it is just around the corner.

[flaccidsteele]

Market timing is easy, and it works. Buy low, sell high. If you don't need the money, don't sell, the market trends higher over the decades so when you do need the money you'll have made a bundle. But do buy low when the market crashes. Buy as much as you're comfortable spending. Don't overdo it, but do buy.

Folks who buy low and sell high in every other facet of their life call it getting a good deal. Bogleheads call it re-balancing. I call it market timing.

+1 agree

[nedsaid]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Yes, I do too, but certainly rebalancing is a very mild form of market timing.

Interesting. Can you explain your reasoning here.
I think it is quite the opposite, that NOT re-balancing is a form of market timing.

If you have chosen your AA to achieve a certain level risk in your portfolio.
When the market goes up (or down), you have increased (or decreased) your risk exposure.
If you do NOT re-balance, you are essentially saying you are now willing to take on more (or less) market risk at this time.
That seems like market timing.

By contrast, re-balancing to maintain your desired AA, seems to say you are maintaining the same risk exposure regardless of what the market is doing at this time.

Would be interested to hear the opposing viewpoint on that.

Whatever forms of market timing I have used are pretty mild indeed. It isn't that a magic indicator flashes and I am out of stocks, or later on I am back in. It is more mild tactical allocation, so I have been doing a mild reallocation from Total Stock Market to Value Indexes, a mild reallocation from US to International, and a mild reallocation from Large Cap to Small Cap. Pretty much overbalancing and selling expensive expensive assets to buy cheap assets. So I have overweighted Large Value and underweighted Large Growth, but I am still in Large Growth but just less of it.

So mostly I maintain a steady risk exposure maintaining the same asset allocation. But there are times that I might overbalance when one asset class looks overvalued and another asset class looks like a bargain. In other words, I might change my asset allocation a bit when I am seeing opportunity. But it never is an all or nothing approach, just more subtle shifts.

A good case can be made for never rebalancing your portfolio, just let your winners run. Jack Bogle discussed this. But of course, stock allocations get higher and higher over time and your risks increase. This is the ultimate "stay the course" strategy.

Rebalancing is a form of selling high and buying low, you sell something that is expensive to buy something that is cheap. If you wanted to really torture the language, you could say that rebalancing is a form of market timing, in theory the market should price everything efficiently, you shouldn't have to rebalance between Growth and Value or between Large and Small. The risk adjusted returns for these Asset Classes should be the same, in theory you shouldn't have to worry if an Asset Class is cheap or expensive.

As far as stocks vs. bonds, you do want to rebalance there if you want to control risk.

There is an issue of not only rebalancing over overbalancing between stocks, bonds, and cash but also another issue of rebalancing or overbalancing within the sub-asset classes within stocks and bonds. Whether you do this depends upon your opinion of how efficient the markets are and if you believe in the factors: Market, Size, Value, Quality, Momentum, Low Volatility. My view is that valuations matter and that you want to trim expensive and popular assets to buy cheap and unpopular investments.

Within stocks, rebalancing or even overbalancing can be done between such things as US vs. International, Large vs. Small, Value vs. Growth. On the bond side, you are looking at Treasuries, Agency Bonds, MBS, Corporates, High Yield Corporates, Munis, Foreign.

How detailed you want to get with rebalancing depends upon your view of the markets and how much you want to slice and dice your portfolio. A Taylor Larimore 3 fund portfolio is relatively easy to rebalance, if you believe in factors and are looking to capitalize on cheaper assets then the process of rebalancing or even overbalancing gets to be more complex.

[BogleFan510]

My definition of market timing... "Whenever I have free cash, it is time to put it in the market."

This. While I think it is possible for the average Boglehead to pick and hold solid individual stocks and perhaps do slightly better than average, I have seen no evidence anyone can successfully time the market. Anyone can observe macro economic factors and predict that a possible downward pressure exists, but no one I've seen is able to repeatedly predict when to actually get out and, even harder, when to get back in. Add in the fact that time out of the market is an earnings 'total return headwind.' Any time out of the market is time when the portfolio is likely earning an expected return around short term MM rates instead of an expected return at the total stock market rates (any growth or dividends declared during that time are earnings lost). Since Expected value STOCK Return > Expected Value Cash Return, on average this time out of the market drags the timer's returns down.

Why would you want to get out of the market when it's down? That's exactly the time to get in. Buy stocks when they're cheap.

Its like you didnt even read my post. Where did I say selling a stock when down? How do you know when stocks are cheap or when they are expensive? There is no such valuation, as every day stocks sell for exactly what a buyer is willing to pay and what a seller is willing to pay, hence what the market thinks they are worth. Why would anyone ever sell cheap or buy for over what a stock is worth? Because no one knows.

[wander]

I did market timing actually. My portfolio was 80/20 (equity/bond) before the pandemic, but I re-balanced it to 90/10. Now it is back to 80/20.

[MathWizard]

Going along with nedsaid above, I do at time shift my AA when I believe stocks are over or undervalued. I am generally very stock heavy, nearly 100% for most of my investing career.

Stock index funds generally do better long-term,because you are buying small slices of companies, and you have all the employees of all those companies trying to make money for you .

There are times when buying a dollar of earnings (the PE or PE10 ratio) is so large as to be ridiculous, that I take it as the stocks have moved far into speculative areas . A PE10 above 25 seems to be a eating sign to me. We are in the 30 range and have been for a while other than a very short time in March of this year. At such times, I like to reduce my exposure. I've gone as low as 50/50. This is not going to cash, it is just shifting to bonds. I don't claim to know when the top will occur, because it is speculation,or irrational exuberance.
A broad bottom seems more clear to me. Dividends at least will look better, even if price appreciation is not. I have a greater probability of making a profit if the PEs are low than if they are high.

I will freely admit that I am timing the market, and that others on the board disagree,but I can to view low cost index investing as the best way to invest long term well before I ever heard of Jack Bogle or the Bogleheads. It is just the definition of average, and a lack of hubris. I don't believe that I can be a part time investor and beat full-time investing pros like Buffet, any more than I can beat a boxing pro in the ring.

[nedsaid]

Going along with nedsaid above, I do at time shift my AA when I believe stocks are over or undervalued. I am generally very stock heavy, nearly 100% for most of my investing career.

Stock index funds generally do better long-term,because you are buying small slices of companies, and you have all the employees of all those companies trying to make money for you .

There are times when buying a dollar of earnings (the PE or PE10 ratio) is so large as to be ridiculous, that I take it as the stocks have moved far into speculative areas . A PE10 above 25 seems to be a eating sign to me. We are in the 30 range and have been for a while other than a very short time in March of this year. At such times, I like to reduce my exposure. I've gone as low as 50/50. This is not going to cash, it is just shifting to bonds. I don't claim to know when the top will occur, because it is speculation,or irrational exuberance.
A broad bottom seems more clear to me. Dividends at least will look better, even if price appreciation is not. I have a greater probability of making a profit if the PEs are low than if they are high.

I will freely admit that I am timing the market, and that others on the board disagree,but I can to view low cost index investing as the best way to invest long term well before I ever heard of Jack Bogle or the Bogleheads. It is just the definition of average, and a lack of hubris. I don't believe that I can be a part time investor and beat full-time investing pros like Buffet, any more than I can beat a boxing pro in the ring.

I think you have found that your strategic asset allocation is more about controlling risks than boosting returns. In theory, you should be able to boost returns but in reality investors like you might be 100% correct but right too early. In other words, asset classes can remain overvalued longer than you would think. So you might have a chunk of your portfolio sitting in cash, that chunk which would ordinarily be in stocks, only to see cash earn 0.1% and the market continuing to zoom.

I have done more mild forms of strategic asset allocation with the expectation of boosting returns but hard to say if I got my timing close enough to actual market shifts to actually boost returns.

[retire2022]

Op sometimes I am a market timer sometime not, nevertheless it is my money, I do what i want, if it does not work out , no one to blame but me, but I have been investing before this forum. 2.0 million portfolio in 32 years.

[marcopolo]

Most Bogleheads have practiced milder forms of market timing, for me it is based upon valuations and is more about risk control than trying to beat the markets.

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Yes, I do too, but certainly rebalancing is a very mild form of market timing.

Interesting. Can you explain your reasoning here.
I think it is quite the opposite, that NOT re-balancing is a form of market timing.

If you have chosen your AA to achieve a certain level risk in your portfolio.
When the market goes up (or down), you have increased (or decreased) your risk exposure.
If you do NOT re-balance, you are essentially saying you are now willing to take on more (or less) market risk at this time.
That seems like market timing.

By contrast, re-balancing to maintain your desired AA, seems to say you are maintaining the same risk exposure regardless of what the market is doing at this time.

Would be interested to hear the opposing viewpoint on that.

Whatever forms of market timing I have used are pretty mild indeed. It isn't that a magic indicator flashes and I am out of stocks, or later on I am back in. It is more mild tactical allocation, so I have been doing a mild reallocation from Total Stock Market to Value Indexes, a mild reallocation from US to International, and a mild reallocation from Large Cap to Small Cap. Pretty much overbalancing and selling expensive expensive assets to buy cheap assets. So I have overweighted Large Value and underweighted Large Growth, but I am still in Large Growth but just less of it.

So mostly I maintain a steady risk exposure maintaining the same asset allocation. But there are times that I might overbalance when one asset class looks overvalued and another asset class looks like a bargain. In other words, I might change my asset allocation a bit when I am seeing opportunity. But it never is an all or nothing approach, just more subtle shifts.

A good case can be made for never rebalancing your portfolio, just let your winners run. Jack Bogle discussed this. But of course, stock allocations get higher and higher over time and your risks increase. This is the ultimate "stay the course" strategy.

Rebalancing is a form of selling high and buying low, you sell something that is expensive to buy something that is cheap. If you wanted to really torture the language, you could say that rebalancing is a form of market timing, in theory the market should price everything efficiently, you shouldn't have to rebalance between Growth and Value or between Large and Small. The risk adjusted returns for these Asset Classes should be the same, in theory you shouldn't have to worry if an Asset Class is cheap or expensive.

As far as stocks vs. bonds, you do want to rebalance there if you want to control risk.

There is an issue of not only rebalancing over overbalancing between stocks, bonds, and cash but also another issue of rebalancing or overbalancing within the sub-asset classes within stocks and bonds. Whether you do this depends upon your opinion of how efficient the markets are and if you believe in the factors: Market, Size, Value, Quality, Momentum, Low Volatility. My view is that valuations matter and that you want to trim expensive and popular assets to buy cheap and unpopular investments.

Within stocks, rebalancing or even overbalancing can be done between such things as US vs. International, Large vs. Small, Value vs. Growth. On the bond side, you are looking at Treasuries, Agency Bonds, MBS, Corporates, High Yield Corporates, Munis, Foreign.

How detailed you want to get with rebalancing depends upon your view of the markets and how much you want to slice and dice your portfolio. A Taylor Larimore 3 fund portfolio is relatively easy to rebalance, if you believe in factors and are looking to capitalize on cheaper assets then the process of rebalancing or even overbalancing gets to be more complex.

I think what you describe makes sense.

Perhaps it is just a semantics difference.

But, I think there is a difference between rebalancing because your AA, even in sub-classes, has drifted from your target allocations vs. over-balancing because you think one sub-class is expected to outperform going forward.

I would consider the later market timing, I would consider the former as such.

[telemark]

Bogleheads have been predicting poor returns or an outright crash in bonds for as long as I can remember, and perhaps someday they will be right.

[GreenLawn]

My definition of market timing... "Whenever I have free cash, it is time to put it in the market."

This. While I think it is possible for the average Boglehead to pick and hold solid individual stocks and perhaps do slightly better than average, I have seen no evidence anyone can successfully time the market. Anyone can observe macro economic factors and predict that a possible downward pressure exists, but no one I've seen is able to repeatedly predict when to actually get out and, even harder, when to get back in. Add in the fact that time out of the market is an earnings 'total return headwind.' Any time out of the market is time when the portfolio is likely earning an expected return around short term MM rates instead of an expected return at the total stock market rates (any growth or dividends declared during that time are earnings lost). Since Expected value STOCK Return > Expected Value Cash Return, on average this time out of the market drags the timer's returns down.

Why would you want to get out of the market when it's down? That's exactly the time to get in. Buy stocks when they're cheap.

Its like you didnt even read my post. Where did I say selling a stock when down? How do you know when stocks are cheap or when they are expensive? There is no such valuation, as every day stocks sell for exactly what a buyer is willing to pay and what a seller is willing to pay, hence what the market thinks they are worth. Why would anyone ever sell cheap or buy for over what a stock is worth? Because no one knows.

I could have phrased it better, I wasn't referring to you personally. I was referring to your example of folks who try to guess when the market will decline, selling their stock, then guessing again as to when to buy the stock back. We'd both agree that is a risky strategy with a poor chance of success on a regular basis.

I know when stocks are cheap. When the stock market has a big crash, happens every 10 years or so. No need to guess when the stock market crashes, when stocks suffer a precipitous decline, buy. Most folks will want to invest more than once every 10 years, but at least returns can be boosted by buying more than usual during crashes. So buying low is easy.

When to sell high is what I find problematic. Stocks trend higher over time so I know the VTI I sell today will be even higher years from now. But we have to sell eventually to fund living expenses (or at least I do). Traditional Boglehead rebalancing is win/win if stocks and bonds perform as they have historically. Sell stocks when they're high and put the money into cheap bonds. Problem is with the massive Fed intervention in the bond market I don't know if that will work in the future. Anyway, it's a good problem to have: do I sell stocks and make good money or sell stocks and make great money? Either one works for me:)

[Leesbro63]

Bogleheads have been predicting poor returns or an outright crash in bonds for as long as I can remember, and perhaps someday they will be right.

I don't think this is quite right. What "Bogleheads" have been "predicting" is that real bond yields are at the low end of historical range. And that for our "safe money" (fixed income), the most prudent place is/will be short term fixed income. It's not a prediction of a "crash", but more an acknowledgment of the severe consequences (loss of safe money) of a bond crash. Starting in about 2003, for me, I took to heart Dr. Bernstein's thinking that anything longer than short term bonds was too risky for safe money. He's been totally wrong, so far, about the direction of interest rates...and for a very long time. It never occurred to me in 2003 that our interest rates might end up like Japan's....very very low for very very long. Yet, Bernstein was and still is right about the risk/reward and about Pascal's Wager...if you're wrong about your safe money, you're condemned to a bad place for eternity. Sure I wish I had invested in longer term bonds in 2003 as I wish I had invested in Amazon and Apple then. But I don't regret either miss-out because my longer term goal requires optimizing risk and reward and longer bonds/Apple/Amazon do/does not meet that requirement.

[MathWizard]

Going along with nedsaid above, I do at time shift my AA when I believe stocks are over or undervalued. I am generally very stock heavy, nearly 100% for most of my investing career.

Stock index funds generally do better long-term,because you are buying small slices of companies, and you have all the employees of all those companies trying to make money for you .

There are times when buying a dollar of earnings (the PE or PE10 ratio) is so large as to be ridiculous, that I take it as the stocks have moved far into speculative areas . A PE10 above 25 seems to be a eating sign to me. We are in the 30 range and have been for a while other than a very short time in March of this year. At such times, I like to reduce my exposure. I've gone as low as 50/50. This is not going to cash, it is just shifting to bonds. I don't claim to know when the top will occur, because it is speculation,or irrational exuberance.
A broad bottom seems more clear to me. Dividends at least will look better, even if price appreciation is not. I have a greater probability of making a profit if the PEs are low than if they are high.

I will freely admit that I am timing the market, and that others on the board disagree,but I can to view low cost index investing as the best way to invest long term well before I ever heard of Jack Bogle or the Bogleheads. It is just the definition of average, and a lack of hubris. I don't believe that I can be a part time investor and beat full-time investing pros like Buffet, any more than I can beat a boxing pro in the ring.

I think you have found that your strategic asset allocation is more about controlling risks than boosting returns. In theory, you should be able to boost returns but in reality investors like you might be 100% correct but right too early. In other words, asset classes can remain overvalued longer than you would think. So you might have a chunk of your portfolio sitting in cash, that chunk which would ordinarily be in stocks, only to see cash earn 0.1% and the market continuing to zoom.

I have done more mild forms of strategic asset allocation with the expectation of boosting returns but hard to say if I got my timing close enough to actual market shifts to actually boost returns.

Note that I said not going to cash, which I bolded above for reference.
I agree that means moving out of investing.

Instead, I am just shifting my AA. I shifted from 100% stocks to 50/50
(at age 58). Some would say I should have been there anyway. My returns
turned out to be about the same as a 100/0 portfolio.

I can't pick a top, they go on way longer than I expect (irrational exuberance),
but I am pretty good at calling bottoms.

The drops from a wildly overvalued market tend to be huge, and rapid. I believe that this is because
of the huge amount of leveraging, which seems to accelerate downturns, but does not seem to have the same effect going up. (Loss aversion being stronger than greed, or is it due to forced sales to meet margin calls?)

I called the bottom in 2001, 2003, and admittedly with some luck in 2008/9. The three cases I cite are the extent of my "market timing".

What I am doing is more like closing the shutters when a storm is approaching.

What would people on this board do if PEs for indices were 100, or 1000?
Would someone keep buying into a stock index if it cost $100 to get a dime's worth of earnings?

(100 and 1000 is not unheard of, Amazon and Tesla Motors resp. are above each of those.
Presumably the expected PEG must be astronomical, but individual stocks are too risky for me.)

[Third Son]

According to our wiki page on Market Timing, it is:

Market timing refers to act(s) of investing based on the condition of the market as opposed to personal characteristics.[notes 1]

I think it is quite the opposite, that NOT re-balancing is a form of market timing.

This is definitely NOT market timing since you need to take action, in order to market time. For example, having a dormant account you forgot about, is not market timing.

In the great words of Rush:

"If you choose not to decide,
You still have made a choice"

I will choose free will.......

[nedsaid]

I consider re-balancing as a form of market timing. That is popular on Bogleheads.

Yes, I do too, but certainly rebalancing is a very mild form of market timing.

Interesting. Can you explain your reasoning here.
I think it is quite the opposite, that NOT re-balancing is a form of market timing.

If you have chosen your AA to achieve a certain level risk in your portfolio.
When the market goes up (or down), you have increased (or decreased) your risk exposure.
If you do NOT re-balance, you are essentially saying you are now willing to take on more (or less) market risk at this time.
That seems like market timing.

By contrast, re-balancing to maintain your desired AA, seems to say you are maintaining the same risk exposure regardless of what the market is doing at this time.

Would be interested to hear the opposing viewpoint on that.

Whatever forms of market timing I have used are pretty mild indeed. It isn't that a magic indicator flashes and I am out of stocks, or later on I am back in. It is more mild tactical allocation, so I have been doing a mild reallocation from Total Stock Market to Value Indexes, a mild reallocation from US to International, and a mild reallocation from Large Cap to Small Cap. Pretty much overbalancing and selling expensive expensive assets to buy cheap assets. So I have overweighted Large Value and underweighted Large Growth, but I am still in Large Growth but just less of it.

So mostly I maintain a steady risk exposure maintaining the same asset allocation. But there are times that I might overbalance when one asset class looks overvalued and another asset class looks like a bargain. In other words, I might change my asset allocation a bit when I am seeing opportunity. But it never is an all or nothing approach, just more subtle shifts.

A good case can be made for never rebalancing your portfolio, just let your winners run. Jack Bogle discussed this. But of course, stock allocations get higher and higher over time and your risks increase. This is the ultimate "stay the course" strategy.

Rebalancing is a form of selling high and buying low, you sell something that is expensive to buy something that is cheap. If you wanted to really torture the language, you could say that rebalancing is a form of market timing, in theory the market should price everything efficiently, you shouldn't have to rebalance between Growth and Value or between Large and Small. The risk adjusted returns for these Asset Classes should be the same, in theory you shouldn't have to worry if an Asset Class is cheap or expensive.

As far as stocks vs. bonds, you do want to rebalance there if you want to control risk.

There is an issue of not only rebalancing over overbalancing between stocks, bonds, and cash but also another issue of rebalancing or overbalancing within the sub-asset classes within stocks and bonds. Whether you do this depends upon your opinion of how efficient the markets are and if you believe in the factors: Market, Size, Value, Quality, Momentum, Low Volatility. My view is that valuations matter and that you want to trim expensive and popular assets to buy cheap and unpopular investments.

Within stocks, rebalancing or even overbalancing can be done between such things as US vs. International, Large vs. Small, Value vs. Growth. On the bond side, you are looking at Treasuries, Agency Bonds, MBS, Corporates, High Yield Corporates, Munis, Foreign.

How detailed you want to get with rebalancing depends upon your view of the markets and how much you want to slice and dice your portfolio. A Taylor Larimore 3 fund portfolio is relatively easy to rebalance, if you believe in factors and are looking to capitalize on cheaper assets then the process of rebalancing or even overbalancing gets to be more complex.

I think what you describe makes sense.

Perhaps it is just a semantics difference.

But, I think there is a difference between rebalancing because your AA, even in sub-classes, has drifted from your target allocations vs. over-balancing because you think one sub-class is expected to outperform going forward.

I would consider the later market timing, I would consider the former as such.

We really aren't in disagreement here, some minor niggling over semantics. The point is that there is nuance to all of this, most of us here have practice market timing in its mildest forms. It is okay to rebalance to keep your portfolio in alignment with a preselected asset allocation, I would call this a sort-of but not really market timing.

Many of us have gone beyond that and actually overbalanced or performed outright tactical asset allocation.

I read thread after thread where Bogleheads have dropped International Stocks and TIPS for "simplicity" when in reality, I view this as recency bias. These asset classes have underperformed, International has underperformed US Stocks and TIPS have underperformed the broad US Bond Market. As a result of more recent underperformance, these asset classes have been dropped, the rationale being that if it hasn't performed well recently then I don't want to own it. This seems to be a bit of timing as well. The Boglehead portfolio keeps shrinking hence my joking about the Zero Fund portfolio, Bogleheads will be shopping for the lowest cost mattress to stuff their cash into. Even the three fund portfolio is passe now.

So there is nuance here and shades of gray here. None of us are 100% pure, most all have sinned at least a little.

[BogleFan510]

My definition of market timing... "Whenever I have free cash, it is time to put it in the market."

This. While I think it is possible for the average Boglehead to pick and hold solid individual stocks and perhaps do slightly better than average, I have seen no evidence anyone can successfully time the market. Anyone can observe macro economic factors and predict that a possible downward pressure exists, but no one I've seen is able to repeatedly predict when to actually get out and, even harder, when to get back in. Add in the fact that time out of the market is an earnings 'total return headwind.' Any time out of the market is time when the portfolio is likely earning an expected return around short term MM rates instead of an expected return at the total stock market rates (any growth or dividends declared during that time are earnings lost). Since Expected value STOCK Return > Expected Value Cash Return, on average this time out of the market drags the timer's returns down.

Why would you want to get out of the market when it's down? That's exactly the time to get in. Buy stocks when they're cheap.

Its like you didnt even read my post. Where did I say selling a stock when down? How do you know when stocks are cheap or when they are expensive? There is no such valuation, as every day stocks sell for exactly what a buyer is willing to pay and what a seller is willing to pay, hence what the market thinks they are worth. Why would anyone ever sell cheap or buy for over what a stock is worth? Because no one knows.

I could have phrased it better, I wasn't referring to you personally. I was referring to your example of folks who try to guess when the market will decline, selling their stock, then guessing again as to when to buy the stock back. We'd both agree that is a risky strategy with a poor chance of success on a regular basis.

I know when stocks are cheap. When the stock market has a big crash, happens every 10 years or so. No need to guess when the stock market crashes, when stocks suffer a precipitous decline, buy. Most folks will want to invest more than once every 10 years, but at least returns can be boosted by buying more than usual during crashes. So buying low is easy.

When to sell high is what I find problematic. Stocks trend higher over time so I know the VTI I sell today will be even higher years from now. But we have to sell eventually to fund living expenses (or at least I do). Traditional Boglehead rebalancing is win/win if stocks and bonds perform as they have historically. Sell stocks when they're high and put the money into cheap bonds. Problem is with the massive Fed intervention in the bond market I don't know if that will work in the future. Anyway, it's a good problem to have: do I sell stocks and make good money or sell stocks and make great money? Either one works for me:)

Thanks for clarifying. I only have one comment. It seems you believe that the probability markets will rise over a specific long time horizon is 100%. This is not correct. There is a non zero possibility any basket of stocks could decline, even over a very long time period.

I accept this risk personally and hope the probability is low. Scenarios when this could happen include:

* A long period of poor economic results or recession
* War or political changes damage business infrastucture reducing earnings
* Social changes like a new tax policies or nationization of business infrastructure reduce attractiveness of companies vs other investments
* Shift from public markets to private equity for best business opportunities makes companies remaining in indexes relatively weak competitors
* Non US entities begin to dominate key new industries (e.g. China invents a new tech for making things, say bioengineered products and US dominated indexes start to lag the profitable growth of these new private product delivery entities)