Is now a good time to attempt market timing ?

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Taylor Larimore
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Is now a good time to attempt market timing ?

Post by Taylor Larimore » Fri Sep 23, 2011 12:40 pm

Hi Bogleheads:

The stock and bond markets are currently experiencing exceptional volatility. As a result, investors may be lured into short-term market timing which is NOT the Bogleheads Investment Philosophy.

What experts say:

"The stock market will fluctuate, but you can't pinpoint when it will tumble or shoot up. If you have allocated your assets properly and have sufficient emergency money, you shouldn't need to worry." (AAII Guide to Mutual Funds)

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

"It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire quickly." (David Babson, author, adviser)

"What it really takes to improve your returns and diminish your risks is a willingness to stop focusing exclusively on the movement of the markets." (Baer & Ginsler, The Great Mutual Fund Trap)

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

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

"Market timing recommendations have an impressive track record of being harmful to an investor's financial health." (Peter Bernstein, author, researcher)

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

In January 2008, only 2 out of 248 Bogleheads, forecast how low the S&P 500 Index would fall that year. ( Boglehead Contest)

"If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor." (Jack Brennan in Straight Talk on Investing)

"When you give up the hope that some advisor, some system, some source of inside tips is going to give you a shortcut to wealth, you'll finally begin to gain control over your financial future." (Harry Browne, author)

"For the 12 years ending 1997, while the S&P rose 734% on a total return basis, the average return for 186 tactical asset-allocation mutual funds was a mere 384%." (Buckingham Financial Services)

"We have long felt that the only value of stock forecasters is to make fortune-tellers look good." (Warren Buffet)

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

"Any investment method that relies on predicting the future is doomed to fail." (Chandan & Sengupta, financial authors)

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

"Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation." (2003 Dalber Study)

"Take my word on it. Buy-and-hold is still your best long-run strategy." (Jonathan Clements, author & journalist)

"The buy and hold equity investor (S&P 500) would have earned a return of 8.35% for the 20 years ending 12/08, while the market-timer would have earned just 1.87%." (Dalbar research)

"Market-timing is bunk." (Pat Dorsey, M* Director of Fund Analysis."

"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%." (David Dreman, author)

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

"Do nothing. I think all of this market timing is statistically unfounded. I don't trust it. You may avoid a downturn, but you may also miss the rise. Choose the risk tolerance you're OK with and hold tight." (Professor Eugene Fama)

"Forget market timing in any form." (Paul Farrell, (CBS Marketwatch.com)

"The best practice for investors is to design a long-term globally diversified asset allocation based on present and future financial needs. Then follow that plan religiously, through all markets good and bad." (Rick Ferri, author and adviser)

"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." (Forbes, 12-27-99)

"Buy and hold. Diversify. Put your money in index funds. Pay attention to to the one thing you can control--costs." (Fortune Investor's Guide 2003)

"Dont' sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term." (Norman Fosback, author, researcher)

"We have two classes of forecasters: those who don't know-and those who don't know they don't know." (John Kenneth Galbraith, Economist)

"I've learned that market timing can ruin you." (Elaine Garzarelli, a once famed market-timer)

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

"For most investors the odds favor a buy-and-hold strategy." (Carol Gould, author & financial columnist)

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

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

"Your very refusal to be active, and your renunciation of any pretended ability to predict the future, can become your most powerful weapon." (Graham & Zweig, The Intelligent Investor)

"The best advice: buy and hold." (John Haslem, author and researcher)

"Even in a bear market, market-timing and actively managed mutual funds generally hurt investment performance more than they help it." (Mark Hulbert, N.Y.Times columnist)

"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."

"I am not a trader, and don't believe in trying to time the market or outguess the short-term fluctuations." (Lawrence Kudlow, CNBC)

"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." (Michael Leboeuf, author of The Millionaire in You)

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

"Markets will go up and they'll go down over your investing lifetime, but it's time in the market that counts, not market timing." (Mel Lindauer, author and Forbes columnist)

"It never was my thinking that made the big money for me. It always was my sitting." (Jesse Livermore, author & famed investor)

"Nobody can predict interest rates, the future direction of the economy or the stock market." (Peter Lynch)

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

"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." (Miami Herald, 1-26-03)

"If you can't handle the short term, if the uncertainty is stressful and the headlines are unbearable, then the markets are too hot for you: get out of the kitchen." (Moshe Milevsky, author & researcher)

"Timing is public enemy number one in investing." (John Montgomery, Bridgeway Capital Management)

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

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

"In 1999, 70% of day traders sustained losses that wiped out their accounts." (North American Securities Administrators Association)

"The most active traders earned 7% less annually than buy-and-hold investors." (Odean & Barber study of 66,400 investors)

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

"The market timer's Hall of Fame is an empty room." (Jane Bryant Quinn)

"Countless studies have proved that no one is able to time the market effectively." (Mary Roland, author & journalist)

"Trading is based on the rather arrogant belief that the trader knows more than the buyers and sellers with whom he is trading." (Ron Ross, The Unbeatable Market)

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

"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." (Jim Schmidt, editor)

"What do I really think is going to happen? -- I have absolutely no idea. (John Schoen, senior producer for msnbc.com)

"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." (Bill Schultheis, author and advisor)

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

"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." (Fred Schwed Jr., Where are the Customers' Yachts?)

"If you are not going to stick to your chosen investment method through thick and thin, there is almost no chance of your succeeding as an investor. (Chandan Sengupta, financial author)

"Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator." (W. Scott Simon, financial author)

"Investors desperately want to believe they can time the markets, but the statistics tell an entirely different story." (Liz Ann Sonders, Schwab Chief Investment Strategist)

"Buying and holding a few broad market index funds is perhaps the most important move ordinary investors can make to supercharge their portfolios." (Stein & DeMuth, (authors & advisor)

"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." (James Stewart, Smart Money columnist)

"It's a staple of personal finance advice: Buy-and-hold, because trading the stock market is a sucker's bet." Larry Swedroe, author and adviser.

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

"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." (Tweddell & Pierce, financial authors)

"Stay invested. Not only does buy-and-hold investing offer better returns, but it's also less work." (Eric Tyson, author of Mutual Funds for Dummies)"

"Market timing and performance-chasing are losing strategies." (Vanguard Investment Philosophy #8)

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

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

"From 1963-1993 stocks returned an annual average of 11.83% for time in the market. Conversely timing the market or trading returned an average of 3.28%." (University of Michigan survey)

"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." (Jason Zweig, author and Wall Street Journal columnist)

"I do not know of anybody who has done it (market timing) successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." (Jack Bogle in Common Sense on Mutual Funds)
"Simplicity is the master key to financial success." -- Jack Bogle

revelo
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Re: Is now a good time to attempt market timing ?

Post by revelo » Fri Sep 23, 2011 1:45 pm

Taylor Larimore wrote:Hi Bogleheads:

The stock and bond markets are currently experiencing exceptional volatility. As a result, investors may be lured into short-term market timing which is NOT the Bogleheads Investment Philosophy.
You should have added that qualifier short-term to the subject line. It is never a good time for non-professionals to attempt short-term market timing. Long-term market timing (tactical asset allocation) is another story. Ask people who came into a lump-sum of money in Japan in 1990, or the US in 2000, and invested according to some fixed allocation which included stocks. Or ask investors in the US in 1945 whose fixed allocation included long bonds. Or investors in the US and various other countries who bought houses back around 2005. All of these investing disasters could have been avoided by paying attention to valuation. Valuation doesn't have to be perfect. Just good enough to avoid buying at the top of a bubble.
"The stock market will fluctuate, but you can't pinpoint when it will tumble or shoot up. If you have allocated your assets properly and have sufficient emergency money, you shouldn't need to worry." (AAII Guide to Mutual Funds)
"Shouldn't" isn't the same as "won't". See my examples of Japan stocks/real-estate circa 1990, US stocks circa 2000, US and other housing circa 2005, US long treasury bonds circa 1945, etc.
"It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire quickly." (David Babson, author, adviser)
Exactly. Consider Warren Buffett. Shuts down his partnership (hedge fund) around 1970 because everything is too expensive. Reopens for business in 1974 because everything is cheap again and he feels like a "virgin in a whorehouse". Accumulates cash prior to 1987, then buys stocks at a huge discount. Becomes a billionaire. (Note carefully: average investors lack the skill of Warren Buffett and others like him.)
"Only liars manage to always be "out" during bad times and "in' during good times. (Bernard Baruch, famed investor)
Always is not the same as sometimes. Getting out just once in a lifetime (see my examples above) is sufficient to make a huge difference.
"There are two kinds of investors, be thay large or small: those who don't know where the market is headed, and those who don't know that they don't know." (Wm Bernstein, author and adviser)
This is true, but only in the sense we don't know where the world is headed. We might all be obliterated by a meteorite strike tomorrow, or swallowed up by a black hole, or the Yellowstone caldera might erupt, or nuclear war might break out, etc. Otherwise, when stocks are very cheap, we can predict with great certainty that they will provide an excellent return over the next 30+ years, and when they are very expensive, we can predict with great certainty that they will provide a lousy return.
In January 2008, only 2 out of 248 Bogleheads, forecast how low the S&P 500 Index would fall that year. ( Boglehead Contest)
A dumb contest. A better contest would be, for example, to predict (yes or no) whether stock prices will drop by 10% sometime within the next two years. Because if so, it makes sense to wait to buy.
"For the 12 years ending 1997, while the S&P rose 734% on a total return basis, the average return for 186 tactical asset-allocation mutual funds was a mere 384%." (Buckingham Financial Services)
They were overtrading. Big market-timing moves should be made once every 20 years or so.
"We have long felt that the only value of stock forecasters is to make fortune-tellers look good." (Warren Buffet)
And this same person also published an editorial in the NYtimes in October 2008, saying he was moving all his personal money (what wasn't in BRK stock, that is) from treasuries to stocks, presumably at the low of SP500=850. A market timing move is ever there was one.
"Any investment method that relies on predicting the future is doomed to fail." (Chandan & Sengupta, financial authors)
Let's take a break from stocks to consider the big picture of investing. In the business world, people ask for things like business plans before investing money. Are these business plans not predictions of the future?
"A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it." (Andrew Clarke, financial author)
Amen. And valuation knowledge is a critical part of that knowledge base.
"Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation." (2003 Dalber Study)
True. The problem is they time too often and they are not timing correctly, using valuation measures.
"Take my word on it. Buy-and-hold is still your best long-run strategy." (Jonathan Clements, author & journalist)
Thank you, but I prefer to think for myself rather than taking an author and journalists word on it.
"Market timing is a wicked idea. Don't try it-ever." (Charles Ellis, author of The Loser's Game)
Was this written before or after 2000?
"Do nothing. I think all of this market timing is statistically unfounded. I don't trust it. You may avoid a downturn, but you may also miss the rise. Choose the risk tolerance you're OK with and hold tight." (Professor Eugene Fama)
How does Fama explain Japan post 1990?
"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." (Forbes, 12-27-99)
The same Benjamin Graham recommended shifting between 25% and 75% stocks, based on valuation.
"Dont' sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term." (Norman Fosback, author, researcher)
Now yes, averaging over a 50 year period (25 years in, 25 years out) will allow you surf the waves of over and under valuation. In practice, few can stick to this discipline. Few Japanese who invested starting in 1980 and thus road the market up, would have had the nerves to continue investing in the 1990's and 2000's, on the way down. Better to have gotten out in the late 1980's, as valuations got crazy.

"It never was my thinking that made the big money for me. It always was my sitting." (Jesse Livermore, author & famed investor)
Taken completely out of context! Livermore was a momentum trader!
"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." (Miami Herald, 1-26-03)
All the more reason to be mistrustful of the advice by these "experts" that market-timing doesn't work. Plenty of people, Robert Shiller notably, were giving very clear advice to sell based on market valuations.
"In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested." (Louis Rukeyser, TV host)
It hasn't matter to those Japanese who've stayed invested since 1990.
"I do not know of anybody who has done it (market timing) successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." (Jack Bogle)
I already gave the example of Buffett. But there are legions of investors who followed Shiller's advice to get out of stocks in the late 1990's, myself among them. There are legions of investors who followed Shillers advice to avoid buying a house in the 2005-2007 period.

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Random Musings
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Post by Random Musings » Fri Sep 23, 2011 1:52 pm

The above post brought to you as courtesy of hindsight and the Shiller foundation....

RM

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bob90245
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Re: Is now a good time to attempt market timing ?

Post by bob90245 » Fri Sep 23, 2011 2:35 pm

revelo wrote:
"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." (Miami Herald, 1-26-03)
All the more reason to be mistrustful of the advice by these "experts" that market-timing doesn't work. Plenty of people, Robert Shiller notably, were giving very clear advice to sell based on market valuations.
Except Shiller (and Alan Greenspan) were concerned about valuations for a number of years (starting in 1996) prior to March 2000. You can cry wolf only so many times. Yeah, yeah, so they were early... :?
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Post by SP-diceman » Fri Sep 23, 2011 2:48 pm

I know “now” is not a good time, it would have been better a few weeks ago. :)

Thanks
SP-diceman

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Post by lostcowboy » Fri Sep 23, 2011 2:59 pm

I'd say if the market dips below your average cost, it would be a good time to lower your average cost.

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Post by fredflinstone » Fri Sep 23, 2011 3:03 pm

My favorite quote is this one: "Buying and holding a few broad market index funds is perhaps the most important move ordinary investors can make to supercharge their portfolios." (Stein & DeMuth)

These two wrote a book called "Yes, You Can Time the Market!"
http://www.amazon.com/Yes-You-Can-Time- ... 0471430161

Ironically, Stein totally missed the financial meltdown of 2007-08. In fall of 2008, he went on Fox News Channel to talk up Merrill Lynch and other financials. Maybe he should write another book called "No, I Can't Time the Market!"

Seriously, though, Wade Pfau has demonstrated that a PE10-based long-term timing system is superior to buy and hold in terms of risk-adjusted returns.

http://mpra.ub.uni-muenchen.de/29448/1/ ... _29448.pdf

Jack Bogle advocates tactical asset allocation at extreme valuations. (See my tagline.)

Even our very own nisiprius, who is arguably more Boglehead than Bogle himself, has acknowledged that it might not be a horrible idea to shift a little money from stocks to bonds if PE10 rises to extremely high levels.

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Post by Judsen » Fri Sep 23, 2011 3:10 pm

lostcowboy wrote:I'd say if the market dips below your average cost, it would be a good time to lower your average cost.
There is no arguing with this logic as long as your where with all holds out.
ie; you don't run out of cash.
Lowering your average cost will pay off if you have the time horizon to wait it out.
Caveat: The market can stay irrational longer than most can stay solvent.
Be the change you want to see in the world

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Post by bob90245 » Fri Sep 23, 2011 3:11 pm

fredflinstone wrote:Seriously, though, Wade Pfau has demonstrated that a PE10-based long-term timing system is superior to buy and hold in terms of risk-adjusted returns.

http://mpra.ub.uni-muenchen.de/29448/1/ ... _29448.pdf

Jack Bogle advocates tactical asset allocation at extreme valuations. (See my tagline.)

Even our very own nisiprius, who is arguably more Boglehead than Bogle himself, has acknowledged that it might not be a horrible idea to shift a little money from stocks to bonds if PE10 rises to extremely high levels.
Yeah, but that begs the question Taylor posed in his opening post:

"Is now a good time to attempt market timing?"
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Post by fredflinstone » Fri Sep 23, 2011 3:27 pm

bob90245 wrote:
fredflinstone wrote:Seriously, though, Wade Pfau has demonstrated that a PE10-based long-term timing system is superior to buy and hold in terms of risk-adjusted returns.

http://mpra.ub.uni-muenchen.de/29448/1/ ... _29448.pdf

Jack Bogle advocates tactical asset allocation at extreme valuations. (See my tagline.)

Even our very own nisiprius, who is arguably more Boglehead than Bogle himself, has acknowledged that it might not be a horrible idea to shift a little money from stocks to bonds if PE10 rises to extremely high levels.
Yeah, but that begs the question Taylor posed in his opening post:

"Is now a good time to attempt market timing?"
The difference between EP10 and real bond yields is larger than it has been in a long time. So, I think, yes, this is one of those times when it makes sense to engage in what Bogle calls tactical asset allocation.

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Re: Is now a good time to attempt market timing ?

Post by Manbaerpig » Fri Sep 23, 2011 3:50 pm

revelo wrote:
Taylor Larimore wrote:Hi Bogleheads:

The stock and bond markets are currently experiencing exceptional volatility. As a result, investors may be lured into short-term market timing which is NOT the Bogleheads Investment Philosophy.
You should have added that qualifier short-term to the subject line. It is never a good time for non-professionals to attempt short-term market timing. Long-term market timing (tactical asset allocation) is another story. Ask people who came into a lump-sum of money in Japan in 1990, or the US in 2000, and invested according to some fixed allocation which included stocks. Or ask investors in the US in 1945 whose fixed allocation included long bonds. Or investors in the US and various other countries who bought houses back around 2005. All of these investing disasters could have been avoided by paying attention to valuation. Valuation doesn't have to be perfect. Just good enough to avoid buying at the top of a bubble.
"The stock market will fluctuate, but you can't pinpoint when it will tumble or shoot up. If you have allocated your assets properly and have sufficient emergency money, you shouldn't need to worry." (AAII Guide to Mutual Funds)
"Shouldn't" isn't the same as "won't". See my examples of Japan stocks/real-estate circa 1990, US stocks circa 2000, US and other housing circa 2005, US long treasury bonds circa 1945, etc.
"It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire quickly." (David Babson, author, adviser)
Exactly. Consider Warren Buffett. Shuts down his partnership (hedge fund) around 1970 because everything is too expensive. Reopens for business in 1974 because everything is cheap again and he feels like a "virgin in a whorehouse". Accumulates cash prior to 1987, then buys stocks at a huge discount. Becomes a billionaire. (Note carefully: average investors lack the skill of Warren Buffett and others like him.)
"Only liars manage to always be "out" during bad times and "in' during good times. (Bernard Baruch, famed investor)
Always is not the same as sometimes. Getting out just once in a lifetime (see my examples above) is sufficient to make a huge difference.
"There are two kinds of investors, be thay large or small: those who don't know where the market is headed, and those who don't know that they don't know." (Wm Bernstein, author and adviser)
This is true, but only in the sense we don't know where the world is headed. We might all be obliterated by a meteorite strike tomorrow, or swallowed up by a black hole, or the Yellowstone caldera might erupt, or nuclear war might break out, etc. Otherwise, when stocks are very cheap, we can predict with great certainty that they will provide an excellent return over the next 30+ years, and when they are very expensive, we can predict with great certainty that they will provide a lousy return.
In January 2008, only 2 out of 248 Bogleheads, forecast how low the S&P 500 Index would fall that year. ( Boglehead Contest)
A dumb contest. A better contest would be, for example, to predict (yes or no) whether stock prices will drop by 10% sometime within the next two years. Because if so, it makes sense to wait to buy.
"For the 12 years ending 1997, while the S&P rose 734% on a total return basis, the average return for 186 tactical asset-allocation mutual funds was a mere 384%." (Buckingham Financial Services)
They were overtrading. Big market-timing moves should be made once every 20 years or so.
"We have long felt that the only value of stock forecasters is to make fortune-tellers look good." (Warren Buffet)
And this same person also published an editorial in the NYtimes in October 2008, saying he was moving all his personal money (what wasn't in BRK stock, that is) from treasuries to stocks, presumably at the low of SP500=850. A market timing move is ever there was one.
"Any investment method that relies on predicting the future is doomed to fail." (Chandan & Sengupta, financial authors)
Let's take a break from stocks to consider the big picture of investing. In the business world, people ask for things like business plans before investing money. Are these business plans not predictions of the future?
"A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it." (Andrew Clarke, financial author)
Amen. And valuation knowledge is a critical part of that knowledge base.
"Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation." (2003 Dalber Study)
True. The problem is they time too often and they are not timing correctly, using valuation measures.
"Take my word on it. Buy-and-hold is still your best long-run strategy." (Jonathan Clements, author & journalist)
Thank you, but I prefer to think for myself rather than taking an author and journalists word on it.
"Market timing is a wicked idea. Don't try it-ever." (Charles Ellis, author of The Loser's Game)
Was this written before or after 2000?
"Do nothing. I think all of this market timing is statistically unfounded. I don't trust it. You may avoid a downturn, but you may also miss the rise. Choose the risk tolerance you're OK with and hold tight." (Professor Eugene Fama)
How does Fama explain Japan post 1990?
"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." (Forbes, 12-27-99)
The same Benjamin Graham recommended shifting between 25% and 75% stocks, based on valuation.
"Dont' sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term." (Norman Fosback, author, researcher)
Now yes, averaging over a 50 year period (25 years in, 25 years out) will allow you surf the waves of over and under valuation. In practice, few can stick to this discipline. Few Japanese who invested starting in 1980 and thus road the market up, would have had the nerves to continue investing in the 1990's and 2000's, on the way down. Better to have gotten out in the late 1980's, as valuations got crazy.

"It never was my thinking that made the big money for me. It always was my sitting." (Jesse Livermore, author & famed investor)
Taken completely out of context! Livermore was a momentum trader!
"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." (Miami Herald, 1-26-03)
All the more reason to be mistrustful of the advice by these "experts" that market-timing doesn't work. Plenty of people, Robert Shiller notably, were giving very clear advice to sell based on market valuations.
"In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested." (Louis Rukeyser, TV host)
It hasn't matter to those Japanese who've stayed invested since 1990.
"I do not know of anybody who has done it (market timing) successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." (Jack Bogle)
I already gave the example of Buffett. But there are legions of investors who followed Shiller's advice to get out of stocks in the late 1990's, myself among them. There are legions of investors who followed Shillers advice to avoid buying a house in the 2005-2007 period.

major thumbs-down, is there an unlike button?

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Post by revelo » Fri Sep 23, 2011 4:16 pm

bob90245 wrote: Yeah, but that begs the question Taylor posed in his opening post:

"Is now a good time to attempt market timing?"
There are two types of tactical asset allocation or market timing. The first type all investors are forced to engage in, whether they want to or not. This involves what to do with a lump sum. If the market is expensive, then the right thing to do is wait until the market is fairly priced. Is the market expensive now? No.

The second type of market timing is optional, and consists in shifting from expensive to cheap asset classes, based on some sort of long-term valuation measure. Stocks are cheaper relative to bonds than they were back in Oct 2007, but not nearly as cheap as at various points between Oct 2008 and Mar 2009. So if you were mostly in bonds in Oct 2007, moved aggressively into stocks between Oct 2008 and March 2009, and have since moved back into bonds partly or totally, then it might be wise to continue this policy of tactical asset allocation now by moving some of that bond money back into stocks. But if you didn't move aggressively into stocks between Oct 2008 and Mar 2009, you should ask yourself why not. If you didn't do it then, you probably shouldn't try it now.

For the record, I was 100% bonds from 1999 until Friday Oct 10, 2008, moved 100% into stocks by Monday March 9, 2009 (it will be many years before I forget those dates) and then moved 100% back into bonds by sometime in April 2010, and have moved back to 50% stocks since August, with much of that move yesterday and today. The shift to bonds in April 2010 was a dubious move--the sort of market timing which often doesn't work--but as luck would have it, it has worked out well enough this time. I considered shifting to stocks in August 2010, but greedily held out for SP500 to break 1000 and it never did. So I'm being less greedy this time around. I do not consider stocks so cheap as to be risk-free at their current prices, not by a long shot.

Incidentally, the original edition of Shiller's book "Irrational Exuberance" was published in 2000, not 1996. Greenspan used the phrase "irrational exuberance" in 1996, not Shiller, and Shiller merely took the phrase as his title. (BTW, Greenspan started out in the 1970's as an economics consultant, and compiled a truly awful forecasting record.) It's worth looking at the Amazon.com reviews of Irrational Exuberance back in March 2000. A LOT of people did read Shiller and act on his advice.

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Post by Mr. Jean » Fri Sep 23, 2011 4:28 pm

lostcowboy wrote:I'd say if the market dips below your average cost, it would be a good time to lower your average cost.
I agree with this one. I made a swap from stock funds @ 33 and change, to bond funds in July. Stock fund is now around 28 and change, so I'm watching.

I'm watching/looking for some lower prices here soon. We'll see.

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Post by monkey_business » Fri Sep 23, 2011 4:41 pm

revelo wrote:...For the record, I was 100% bonds from 1999 until Friday Oct 10, 2008, moved 100% into stocks by Monday March 9, 2009 (it will be many years before I forget those dates) and then moved 100% back into bonds by sometime in April 2010, and have moved back to 50% stocks since August, with much of that move yesterday and today...
Yeah, and I shifted my 100% bond allocation to 100% stocks on October 19th, 1987, then shifted everything to 100% tech stocks in the 90s, then sold right before the crash, then put the proceeds into the largest house I could find, and then sold it in 2007. Oh, I also bought the IPOs of Microsoft, Amazon, and Starbucks, and I regularly send stock tips to Warren Buffet.

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Re: Is now a good time to attempt market timing ?

Post by V572625694 » Fri Sep 23, 2011 5:00 pm

revelo wrote:Exactly. Consider Warren Buffett...(Note carefully: average investors lack the skill of Warren Buffett and others like him.)
And more than that, isn't it true that Buffett, who has an MBA from Columbia, is not just a smart stock-picker but a person who works full-time studying companies thoroughly before investing or divesting, and has a staff, etc? And isn't it also true that, with the large stake he as able to buy, he takes an active role in running these companies?

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Post by revelo » Fri Sep 23, 2011 5:03 pm

monkey_business wrote:
revelo wrote:...For the record, I was 100% bonds from 1999 until Friday Oct 10, 2008, moved 100% into stocks by Monday March 9, 2009 (it will be many years before I forget those dates) and then moved 100% back into bonds by sometime in April 2010, and have moved back to 50% stocks since August, with much of that move yesterday and today...
Yeah, and I shifted my 100% bond allocation to 100% stocks on October 19th, 1987, then shifted everything to 100% tech stocks in the 90s, then sold right before the crash, then put the proceeds into the largest house I could find, and then sold it in 2007. Oh, I also bought the IPOs of Microsoft, Amazon, and Starbucks, and I regularly send stock tips to Warren Buffet.
This is my vanguard performance as of Aug 31. (I uploaded another photo a few minutes ago, that was missing the 5 year return, but I figured out what the problem was: preferred account view not set up properly.)

Image
Last edited by revelo on Fri Sep 23, 2011 5:16 pm, edited 1 time in total.

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Re: Is now a good time to attempt market timing ?

Post by revelo » Fri Sep 23, 2011 5:08 pm

V572625694 wrote:
revelo wrote:Exactly. Consider Warren Buffett...(Note carefully: average investors lack the skill of Warren Buffett and others like him.)
And more than that, isn't it true that Buffett, who has an MBA from Columbia, is not just a smart stock-picker but a person who works full-time studying companies thoroughly before investing or divesting, and has a staff, etc? And isn't it also true that, with the large stake he as able to buy, he takes an active role in running these companies?
No one is talking about active stock picking. Just getting out of the market when it is crazy expensive, then getting back in when it is reasonably priced. Or, in case of receiving a lump sum, waiting until the market is reasonably priced before buying. Really quite simple.

When Buffett moved from treasuries to stocks in Oct 2008, he probably bought individual stocks, but you could have followed his advice in his NYTimes editorial and bought an index fund and probably done almost as well. No need for an MBA, no need to work full-time or have a staff of assistants.

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Post by Mr. Jean » Fri Sep 23, 2011 5:19 pm

I'm doing better by making changes in this last year too. Not getting rich, but at least it's still growing.

Here's how mine reads today:

Personal rate of return 08/31/2011
1 year 13.2%
3 years 5.3%
5 years 5.0%

Vanguard believes you should focus on long-term performance, not short-term market fluctuations.
Time is on your side. Important information about personal rate of return »

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Post by Ice-9 » Fri Sep 23, 2011 5:42 pm

The only good time to market time is when I've hit my rebalancing bands.

And even then, I'm actually adjusting my risk exposure back to the allocations I originally established, I just tell myself it's market timing to make it seem more exciting. :D

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Post by monkey_business » Fri Sep 23, 2011 5:59 pm

revelo wrote:
monkey_business wrote:
revelo wrote:...For the record, I was 100% bonds from 1999 until Friday Oct 10, 2008, moved 100% into stocks by Monday March 9, 2009 (it will be many years before I forget those dates) and then moved 100% back into bonds by sometime in April 2010, and have moved back to 50% stocks since August, with much of that move yesterday and today...
Yeah, and I shifted my 100% bond allocation to 100% stocks on October 19th, 1987, then shifted everything to 100% tech stocks in the 90s, then sold right before the crash, then put the proceeds into the largest house I could find, and then sold it in 2007. Oh, I also bought the IPOs of Microsoft, Amazon, and Starbucks, and I regularly send stock tips to Warren Buffet.
This is my vanguard performance as of Aug 31. (I uploaded another photo a few minutes ago, that was missing the 5 year return, but I figured out what the problem was: preferred account view not set up properly.)

Image
Yeah, and here's my return:

Image

:roll:

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Post by bob90245 » Fri Sep 23, 2011 6:08 pm

revelo wrote:Incidentally, the original edition of Shiller's book "Irrational Exuberance" was published in 2000, not 1996. Greenspan used the phrase "irrational exuberance" in 1996, not Shiller, and Shiller merely took the phrase as his title. (BTW, Greenspan started out in the 1970's as an economics consultant, and compiled a truly awful forecasting record.) It's worth looking at the Amazon.com reviews of Irrational Exuberance back in March 2000. A LOT of people did read Shiller and act on his advice.
Your retelling of history is incomplete. Robert Shiller published his work on P/E10 in July 1996 and met with Greenspan the week Greenspan spoke in December. Here's an excerpt from from Shiller's website:
Robert Shiller wrote:Often people ask me whether I coined the term irrational exuberance, since I (along with my colleague John Campbell and a number of others) testified before Greenspan and the Federal Reserve Board only two days earlier, on December 3, 1996, and I had lunch with Greenspan on that day. I did testify that markets were irrational.
Source: http://www.irrationalexuberance.com/definition.htm

And Shiller wrote these words in his July 1996 paper:
Robert Shiller wrote:The January 1996 value for the ratio shown on the horizontal axis is 29.72, shown on the figure with a vertical line. Looking at the diagram, it is hard to come away without a feeling that the market is quite likely to decline substantially in value over the succeeding ten years; it appears that long run investors should stay out of the market for the next decade.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Post by Ice-9 » Fri Sep 23, 2011 6:21 pm

These posts prompted me to log in and check my own return. Is this bad?

Image

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Post by Mr. Jean » Fri Sep 23, 2011 6:27 pm

Ouch! :shock: It could be better. :wink: :lol:
Best regards, Jean

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Post by umfundi » Fri Sep 23, 2011 10:33 pm

Is now a good time to attempt market timing ?
This is the Double Jeopardy question?

We will only time the market at times that are good to time the market?

You have two levels of prediction?

Taylor, please. Don't mess with my mind. This is tough enough as it is.

Keith
Déjà Vu is not a prediction

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Re: Is now a good time to attempt market timing ?

Post by Noobvestor » Fri Sep 23, 2011 10:38 pm

revelo wrote:
"The stock market will fluctuate, but you can't pinpoint when it will tumble or shoot up. If you have allocated your assets properly and have sufficient emergency money, you shouldn't need to worry." (AAII Guide to Mutual Funds)
"Shouldn't" isn't the same as "won't". See my examples of Japan stocks/real-estate circa 1990, US stocks circa 2000, US and other housing circa 2005, US long treasury bonds circa 1945, etc.
I don't know of anyone who went all-in on one country with their investments, then retired and needed that money a few years later. Do you?
revelo wrote:
"It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire quickly." (David Babson, author, adviser)
Exactly. Consider Warren Buffett. Shuts down his partnership (hedge fund) around 1970 because everything is too expensive. Reopens for business in 1974 because everything is cheap again and he feels like a "virgin in a whorehouse". Accumulates cash prior to 1987, then buys stocks at a huge discount. Becomes a billionaire. (Note carefully: average investors lack the skill of Warren Buffett and others like him.)
I believe they call them bell curves or probability distributions or some such ... IIRC, Bernstein or Swedroe wrote something in one of their books to the effect that by purely random chance there should be a lot more Warren Buffets, which illustrates that on the whole it's even more unlikely than randomness would indicate. Anywho.
revelo wrote:
"Only liars manage to always be "out" during bad times and "in' during good times. (Bernard Baruch, famed investor)
Always is not the same as sometimes. Getting out just once in a lifetime (see my examples above) is sufficient to make a huge difference.
Yup ... you could miss a giant run-up, like a lot of timers did just a few years back.
revelo wrote:
In January 2008, only 2 out of 248 Bogleheads, forecast how low the S&P 500 Index would fall that year. ( Boglehead Contest)
A dumb contest. A better contest would be, for example, to predict (yes or no) whether stock prices will drop by 10% sometime within the next two years. Because if so, it makes sense to wait to buy.
Hey now, easy there tiger.
revelo wrote:
"For the 12 years ending 1997, while the S&P rose 734% on a total return basis, the average return for 186 tactical asset-allocation mutual funds was a mere 384%." (Buckingham Financial Services)
They were overtrading. Big market-timing moves should be made once every 20 years or so.
OK, so then if you make one mistake, that's that. Sounds less than safe to me but hey, different strokes, roads to Dublin, or rockets round the moon as it were :D
revelo wrote:
"We have long felt that the only value of stock forecasters is to make fortune-tellers look good." (Warren Buffet)
And this same person also published an editorial in the NYtimes in October 2008, saying he was moving all his personal money (what wasn't in BRK stock, that is) from treasuries to stocks, presumably at the low of SP500=850. A market timing move is ever there was one.
He's Warren Buffet ... his utility for more money is just about zippo ... 'need and ability'.
revelo wrote:
"Any investment method that relies on predicting the future is doomed to fail." (Chandan & Sengupta, financial authors)
Let's take a break from stocks to consider the big picture of investing. In the business world, people ask for things like business plans before investing money. Are these business plans not predictions of the future?
Wat?
revelo wrote:
"A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it." (Andrew Clarke, financial author)
Amen. And valuation knowledge is a critical part of that knowledge base.
Dead ... horse ... hard ... to ... keep ... beating.
revelo wrote:
"Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation." (2003 Dalber Study)
True. The problem is they time too often and they are not timing correctly, using valuation measures.
I ... can't ... keep ... going ...
revelo wrote:
"Take my word on it. Buy-and-hold is still your best long-run strategy." (Jonathan Clements, author & journalist)
Thank you, but I prefer to think for myself rather than taking an author and journalists word on it.
Too true. All those pesky studies ... I think I'll listen to 'random internet guy' instead.
revelo wrote:
"Market timing is a wicked idea. Don't try it-ever." (Charles Ellis, author of The Loser's Game)
Was this written before or after 2000?
And this would matter ... why? Grantham hopped out a few years before, and whoops, missed the burst, but the run-up to it as well ... spent a while catching up after that one. Markets, you, remain, solvent, etc...
revelo wrote:
"Do nothing. I think all of this market timing is statistically unfounded. I don't trust it. You may avoid a downturn, but you may also miss the rise. Choose the risk tolerance you're OK with and hold tight." (Professor Eugene Fama)
How does Fama explain Japan post 1990?
By investing internationally?
revelo wrote:
"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." (Forbes, 12-27-99)
The same Benjamin Graham recommended shifting between 25% and 75% stocks, based on valuation.
I'm pretty sure he didn't recommend doing that based on valuation alone, but on need/ability as well ... too late, and I'm too lazy, to check my notes.
revelo wrote:
"Dont' sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term." (Norman Fosback, author, researcher)
Now yes, averaging over a 50 year period (25 years in, 25 years out) will allow you surf the waves of over and under valuation. In practice, few can stick to this discipline. Few Japanese who invested starting in 1980 and thus road the market up, would have had the nerves to continue investing in the 1990's and 2000's, on the way down. Better to have gotten out in the late 1980's, as valuations got crazy.
Precisely when did you get out? Better yet: when did you get back in? And how will you know those precise times next time? And if you can know, why doesn't the market know?

revelo wrote:
"It never was my thinking that made the big money for me. It always was my sitting." (Jesse Livermore, author & famed investor)
Taken completely out of context! Livermore was a momentum trader!
'Out of context' kinda defines this whole line of responses ... :(
revelo wrote:
"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." (Miami Herald, 1-26-03)
All the more reason to be mistrustful of the advice by these "experts" that market-timing doesn't work. Plenty of people, Robert Shiller notably, were giving very clear advice to sell based on market valuations.
Yes, and other equally-expert folks were already out, or still waiting ... what I want to know is: why are you the perfect zen master of timing who knows the RIGHT TIME to get out and in, when not every expert does?
revelo wrote:
"In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested." (Louis Rukeyser, TV host)
It hasn't matter to those Japanese who've stayed invested since 1990.
Straw man, getting old IMHO ... diversify globally, duh.
revelo wrote:
"I do not know of anybody who has done it (market timing) successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." (Jack Bogle)
I already gave the example of Buffett. But there are legions of investors who followed Shiller's advice to get out of stocks in the late 1990's, myself among them. There are legions of investors who followed Shillers advice to avoid buying a house in the 2005-2007 period.
[/quote]

He didn't just market time ... he ran a business, effectively. This is different than being a sideline investor in markets. Since he has become more of an investor, he has made less and less ... but I digress. As for those legions, OK, but buying a house isn't an investment (my opinion).

*I just flew in from Wall Street, and BOY are my arms tired!*
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Post by umfundi » Fri Sep 23, 2011 10:49 pm

If timing the market is an option, not timing the market is actually timing the market.

There is no middle ground.

To beat my dead horse: "I sometimes time the market" means, "I always time the market".

Keith
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Post by grayfox » Sat Sep 24, 2011 2:02 am

fredflinstone wrote: Ironically, Stein totally missed the financial meltdown of 2007-08. In fall of 2008, he went on Fox News Channel to talk up Merrill Lynch and other financials. Maybe he should write another book called "No, I Can't Time the Market!"
:lol: :lol: :lol: :lol: :lol:

Good one!

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Post by grayfox » Sat Sep 24, 2011 2:10 am

Is now a good time to attempt market timing ?

Foreign stocks are looking like they have a decent expected return.
U.S. stocks not so much. Prospects for small look particular bad.
Bonds have negative expected return.

<img src="http://i55.tinypic.com/33w7fyw.jpg" alt="GMO forecast 31.August.2011" width="500" height="400">

So why not shift somewhat from bonds to stocks and from U.S. to International?

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Post by JustinR » Sat Sep 24, 2011 3:46 am

This weekend happens to be my rebalancing date (every two months). It's been marked on my calendar for two months. So I'll either be lucky or unlucky. Either way, I'm following my plan.

Also, not that it matters since I follow a time-based rebalancing schedule, but I'm at -4% band at the moment.

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Post by pkcrafter » Sat Sep 24, 2011 4:51 am

Will everyone who can time like Warren Buffet please stand up.
Will everyone who has attained Buffet's wealth please stand up.

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

“Our favorite holding period is forever.

“If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”

You only have to do a very few things right in your life so long as you don’t do too many things wrong.

The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.

the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases

“Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.­”

“We continue to make more money when snoring than when active.”
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Post by jimkinny » Sat Sep 24, 2011 6:23 am

Judsen wrote:
lostcowboy wrote:I'd say if the market dips below your average cost, it would be a good time to lower your average cost.
There is no arguing with this logic as long as your where with all holds out.
ie; you don't run out of cash.
Lowering your average cost will pay off if you have the time horizon to wait it out.
Caveat: The market can stay irrational longer than most can stay solvent.
All true. I would only add that not only can market irrationally lead to the poor house but also a rational market can lead to the same address.

I have in mind the state of the housing market in the US. Currently low 20% of all mortgages are underwater (I had read previously 30%), another 5% of mortgages have only 5% equity. If house prices decline further it gets worse.

I would think a rational market would take this into account. Future consumer spending should be a bit constrained until this debt is resolved. Add the euro situation. Plenty of reason for rational worry.

At times, I think the 10 year Treasury rates can not go lower, then I think about the housing market and Euro zone. Who knows? Not me, for sure.

Jim

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Re: Is now a good time to attempt market timing ?

Post by YDNAL » Sat Sep 24, 2011 7:00 am

Taylor Larimore wrote:The stock and bond markets are currently experiencing exceptional volatility. As a result, investors may be lured into short-term market timing which is NOT the Bogleheads Investment Philosophy.
Taylor,

If the S&P 500 PE is near 30 (1930) to 45 (2000), anyone who has a couple of working brain cells should consider adjustments to their domestic investments - especially S&P 500-dominated investments. MY $0.02.
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Post by Aptenodytes » Sat Sep 24, 2011 7:11 am

lostcowboy wrote:I'd say if the market dips below your average cost, it would be a good time to lower your average cost.
Classic fallacy. What your historic costs are is irrelevant.

[corrected typo]
Last edited by Aptenodytes on Sat Sep 24, 2011 5:22 pm, edited 1 time in total.

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Re: Is now a good time to attempt market timing ?

Post by revelo » Sat Sep 24, 2011 4:43 pm

Noobvestor wrote:
revelo wrote:
"In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested." (Louis Rukeyser, TV host)
It hasn't matter to those Japanese who've stayed invested since 1990.
Straw man, getting old IMHO ... diversify globally, duh.
The above pretty much sums up your response. Lots of snark, but failure to address the points I made. Even most bogleheads (in fact, probably all bogleheads) had a strong home bias back in 1990, because international investing was not yet considered something every boglehead had to do then, like it is now. So bogleheads in Japan would naturally have had most of their stock allocations in Japanese stocks in 1990. And they have been absolutely crushed since then. To falsify a theory, all you need is one example, and there you have it. An example of what happens when people ignore valuation when investing.

Later, you deny Buffett's talent and the talent of people like him. Sounds like an inferiority complex on your part, so that you have to tear down your superiors in order to feel better about yourself. My own attitude is that Buffett and others like him do indeed have more investing talent than me, and this why I quite rationally refuse to play zero-sum games against these people. Even if I was like you and it did make me feel good to deny someone else's obvious talent, I still wouldn't do it, because I wouldn't to want to handicap myself by filling my head with false notions.

I will reiterate what I have written elsewhere on this site. All investors will, at some point, be forced to market-time, whether they want to or not. Everyone occasionally receives lump sums and must decide what to do with those lump sums. Everyone has to make the decision of when to stop accumulating and start distributing, and by when I mean an exact date. Everyone has to make an original asset-allocation plan based on some sort of risk-tolerance questionaire and other factors. All these decisions will be subtly influenced by feelings of optimism or pessimism about the market, and thus will involve market-timing, either conscious or unconscious. At least when you market-time consciously, you can resist your natural behavioral tendencies to make bad decisions about stock investing. Not so when you market-time unconsciously.

Stocks markets are micro-efficient, in the sense that earning alpha by relative value trades is very difficult. But they are not macro-efficient. The reason is that rational contra-cyclical investors are a minority, and lack the money to push the markets back to fair-value. That is, the pros have plenty enough money to push Exxon down and Chevron up or vice-versa whenever relative valuations get out of line, but the pros lack the money to push the entire market up and down. Even when the pros as a group manage huge sums of money, they can't put these huge sums to work fighting a bubble, due to career risk. Thus the macro pricing of the market is set by the naive procyclical investors. We have plenty of examples of bubbles caused by naive procyclical investors in the past, there will likely be further examples in the future (especially in emerging markets, so it would be advisable to segregate VWO from other international stocks, so as to be able to cash out at the top of the next VWO bubble).

Because everyone is forced to market-time occasionally, as noted above, everyone should have a plan for dealing with bubbles. The rational plan, the plan that bogleheads will eventually accept, is to sell out when valuations get crazy and then buy back when they are reasonable again. In making such a trade, you are not pitting your wits against the Warren Buffetts of this world, by rather selling to naive procyclical investors on the other side of the trade. As noted above, the pros simply don't have enough money to offset all of these naive procyclical investors.

Here are some examples of how bogleheads who don't market-time consciously do so unconsciously. During booms, new bogleheads fill out their risk-tolerance questionaires and conclude they have very high risk-tolerances. These same bogleheads will discover, when the boom turns to bust, that their risk-tolerance is not what they thought. So they will redo the questionaire and this time the conclusion will be their risk-tolerance is less than what it was originally. So they will rebalance out of stocks at precisely the wrong time. Alternatively, in the aftermath of a bust, recently admitted bogleheads who fill out their risk-tolerance questioinaires will conclude they have very low risk-tolerances. Then a few years later, having seen stocks do very well, they will conclude they were ignorant about investing when they first filled out their questionaire and so they will fill it out again, and this time the risk-tolerance will be much higher, and the rebalancing is now into stocks at the wrong time. Bottom line, a lot of procyclical behavior.

Noobinvestor (an appropriate moniker for someone who doesn't regard buying a house as an investment) complains of being weary of my pounding the table about valuation. Sorry, but the table needs to be pounded until the message gets through. Valuation matters. Indeed, in the long run, valuation is all that matters. ("In the short-run, the stock market is a voting machine. In the long-run, it is a weighing machine"--Benjamin Graham).

This will be my last post here. I came here a few weeks back looking for some advice about how to protect against the rise in interest rates I anticipate a few years down the road. Probably, at a subconscious level, I was looking to get the crazier ideas (shorting TLT, buying puts on TLT, speculating in the futures market) knocked down, in favor of the much simpler approach of simply moving from bonds to stocks once stocks became sufficiently cheap, and relying on stocks to weather the difficulties I anticipate better than bonds. And so that is what I've being doing. The purpose of these endless discussions of market-timing and valuation is to convince myself that I'm making a rational move. The markets could still move against me, but as long as I have the confidence that what I did was rational under the circumstances, I can sleep well. Not so when I feel like my actions were based on emotion or some stupid ideology that says buy-and-hold always works regardless of valuation. So thanks to all who have participated in these discussions. (I can't wish good investing luck because I plan to take the opposite side of the trade from many of you :D .)

xerty24
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Post by xerty24 » Sat Sep 24, 2011 7:09 pm

lostcowboy wrote:I'd say if the market dips below your average cost, it would be a good time to lower your average cost.
This is a dangerous way of thinking - doubling down every time stocks fall will cost you big amounts of money when the market drops. How much do you put in every 2% drop, and what do you do when you run out of money? Either way, the market doesn't have to go back up, and certainly not in the next decade with the 2000's as a reminder of this.

The only thing that it's clear to do when the market falls below your average cost is think about selling for tax reasons.

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Aptenodytes
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Re: Is now a good time to attempt market timing ?

Post by Aptenodytes » Sat Sep 24, 2011 7:59 pm

revelo wrote:All investors will, at some point, be forced to market-time, whether they want to or not. Everyone occasionally receives lump sums and must decide what to do with those lump sums. Everyone has to make the decision of when to stop accumulating and start distributing, and by when I mean an exact date. Everyone has to make an original asset-allocation plan based on some sort of risk-tolerance questionaire and other factors. All these decisions will be subtly influenced by feelings of optimism or pessimism about the market, and thus will involve market-timing, either conscious or unconscious. At least when you market-time consciously, you can resist your natural behavioral tendencies to make bad decisions about stock investing. Not so when you market-time unconsciously.
My reading of the evidence is exactly the opposite of this. What you are calling "conscious" market timing entails a belief that you can accurately predict short-term movements in the market. This is magical thinking, and in general (not all the time, not for all people) makes for bad outcomes. What you call "unconscious" market timing is just a sense of unease or happiness when things appear bad or good, but not reflected in any significant actual decisions. Contrary to your assertion, the more your belief in market timing rises to the level of consciousness, the more likely you are to make mistakes.

Most of your examples aren't really market timing examples. Sticking with an asset allocation isn't a case of market timing except in some bizaro world way where everything is declared market timing by fiat.

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Littlefinger
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Post by Littlefinger » Sat Sep 24, 2011 11:55 pm

You shouldn't stop posting. Reading differing viewpoints helps all make more informed decisions.

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jwillis77373
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Post by jwillis77373 » Sun Sep 25, 2011 6:05 am

Costs matter.

Holding on to money exposes you to the losses due to inflation. It makes investing more expensive the longer you wait. That is a certainty.

If you could time the market it would be the sensible thing to do. Current evidence is no one can.

Buffet doesn't time the market. He buys pieces of the market, with notable exceptions. He allocates his investments. Anyone can.

If you can't afford to invest, simple truth is you shouldn't invest. Learning to live below your means is a pre-requisite.

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Random Musings
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Post by Random Musings » Sun Sep 25, 2011 11:31 am

I don't know why some people come to this board when they already know all the answers to investing, investor psychology and . In the words of Marvin, I'm so depressed.

IMHO, the best way to deal with bubbles is to only invest to your need of risk, diversify, rebalance and ignore the noise. Perhaps a little tactical allocation, but posters on this board who claim to be able to recognize and call tops, well, let's do it moving forward. The after the fact stuff and the I can't tell you "double secret probation" about it is nothing better than what you can find at Yahoo! and other crappy investment boards.

RM

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Majormajor78
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Post by Majormajor78 » Sun Sep 25, 2011 3:21 pm

monkey_business wrote:
revelo wrote:...For the record, I was 100% bonds from 1999 until Friday Oct 10, 2008, moved 100% into stocks by Monday March 9, 2009 (it will be many years before I forget those dates) and then moved 100% back into bonds by sometime in April 2010, and have moved back to 50% stocks since August, with much of that move yesterday and today...
Yeah, and I shifted my 100% bond allocation to 100% stocks on October 19th, 1987, then shifted everything to 100% tech stocks in the 90s, then sold right before the crash, then put the proceeds into the largest house I could find, and then sold it in 2007. Oh, I also bought the IPOs of Microsoft, Amazon, and Starbucks, and I regularly send stock tips to Warren Buffet.
You too? Damn I thought I was the only one. By the way, next weeks winning Illinois Lotto number will be 06-07-17-21-34 and 48. Your welcome.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."

thefinancialreality
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Post by thefinancialreality » Mon Sep 26, 2011 11:05 pm

Mr. Jean wrote:I'm doing better by making changes in this last year too. Not getting rich, but at least it's still growing.

Here's how mine reads today:

Personal rate of return 08/31/2011
1 year 13.2%
3 years 5.3%
5 years 5.0%

Vanguard believes you should focus on long-term performance, not short-term market fluctuations.
Time is on your side. Important information about personal rate of return »
agreed

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frose2
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Post by frose2 » Tue Sep 27, 2011 6:55 pm

It is always a good time for successful market timing, just as it is always a good time to win a major tennis tournament or to be drafted into the NBA. Problem is, few people have the talent to do any of these things.

In the 1980-2000 time period, because of the bull market caused by the introduction of 401(k)s and maybe other things, you could make money in the stock market the Saint Jack way, with no market timing, inside information, or stock picking skills. I am neutral to negative as to whether this will ever be possible again, at least in inflation adjusted terms with a reasonable measure of true inflation (NOT the CPI).

john94549
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Post by john94549 » Tue Sep 27, 2011 8:00 pm

Folks, lighten up. When Mr. Market seems to be dead set on convulsive swings (up and down), trying to gamble on those swings is so, well, tasty.

If you limit your gambling urge to 5% of investable assets, you satisfy that inner gremlin's urge to bungee-jump while assuring yourself of a safety-net in case the rope breaks. Howza bout dat metaphor?

FWIW, I did some very un-Boglehead trading this year and my rope didn't break. Indeed, I happened to land above the bridge, so to speak, continuing the metaphor. If we assume VTSAX at datum 100, my toes are at 107.5.

umfundi
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Post by umfundi » Tue Sep 27, 2011 9:58 pm

> win a major tennis tournament
A few people do this a few times a year. We know who they are.

> drafted into the NBA
A few people do this every year. We know who they are.

> successful market timing.
No one can do this. We know who they are.

All of us.

Keith
Déjà Vu is not a prediction

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stratton
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Post by stratton » Thu Sep 29, 2011 4:58 pm

Taylor must have calendar of when to post this stuff. :P
...and then Buffy staked Edward. The end.

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