Why is 'Timing' the market bad ?
Comments
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BananaRepublic wrote: »This has been said before, many times, but prior to the last recesssion people were saying the same thing for years. Had you bailed out then, you would have missed huge gains even allowing for the crash. Of course if you need to preserve the value of your holdings, at the expense of possible future growth, then you are making the right decision.
So therefore if the economy crashed tomorrow I have made the wrong decision in preparing for it? I don't understand your reasoning.
What's the point of making huge gains if that's following by huge losses? But of course you are looking at the last recession with hindsight which is very easy to do.0 -
So therefore if the economy crashed tomorrow I have made the wrong decision in preparing for it? I don't understand your reasoning.
What's the point of making huge gains if that's following by huge losses? But of course you are looking at the last recession with hindsight which is very easy to do.
If, 'if', the economy crashed tomorrow then of course you will have made the right decision. But the point is that no-one knows if there will be a crash for a long time and in that time your 'huge gains' could have become very huge gains.0 -
dunno about anyone but i think Dow can get to 40k. capital flight out of other countries. bond crashes. and dow will be the only safe place to have your assets. im overweight US stocks. happy to ride a bumpy ride to get to 40k. will take a few years.0
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I'm not sure what you mean by "timing the market".
This is what is meant by timing the market...A current favourite topic amongst financial analysts particularly on breakfast tv is that in consideration of past performance we are overdue for a recession. I agree and that was the reason I moved my capital to funds and kept quite a large sum in instant access cash so I can make pots of cash when the market rises after the fall. But I'm not really sure when that recession will happen if at all. All I can say is I'm prepared for it which is I admit is kind of like a communist waiting for the Proletarian Revolution.
http://www.cnbc.com/2017/01/25/a-recession-is-overdue-heres-what-will-trigger-it-commentary.html0 -
Wow 40% gain over three years is quite something. I aim for 6% p.a. lol.
Personally, I avoid like the plague blind investing. That is investing in something I haven't researched.
To be honest if you're investing pence as you suggest in the other thread about Moneybox app then it's pretty irrelevant whether you're timing the market or not, it still won't make a lot of difference. I also found that last comment intriguing when your previous comments suggested that you hadn't done any research on fund platforms.Remember the saying: if it looks too good to be true it almost certainly is.0 -
dunno about anyone but i think Dow can get to 40k. capital flight out of other countries. bond crashes. and dow will be the only safe place to have your assets. im overweight US stocks. happy to ride a bumpy ride to get to 40k. will take a few years.
It's also worth bearing in mind that when the US sneezes.. I'm not particularly overweight US but certainly not cutting either.'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB0 -
So therefore if the economy crashed tomorrow I have made the wrong decision in preparing for it? I don't understand your reasoning.
What's the point of making huge gains if that's following by huge losses? But of course you are looking at the last recession with hindsight which is very easy to do.
Firstly you forget about dividends, which are ignored by the stock market charts, but which make a significant contribution to your earnings. Secondly you don't make huge gains then huge losses, with a zero net gain. What happens is you gain lots, then a crash occurs, you stay in the market, and generally after a year or two you are back to where you were just before the crash, and much better than you were a few years prior to the crash. And from then on you gain again.
This does assume your ability to stay invested, of course.0 -
This bull market in the US started eight years ago and the S&P was up 249% by its anniversary. One thing we can't be is at the start. It's already the second longest and the longest lasted less than a year longer, with none so far lasting longer than ten years.
Depending on how you choose to define a bull market, or read the tea leaves, you can draw whatever picture - and inferences - you like...
I don't personally find the "prices that continue rising without being interrupted by the 20% decline" definition that interesting. 20% declines can just be normal volatility - not something to be so concerned about or impactful upon long term returns as a so-called secular bear market would be; a secular bear market being a lengthy, mean-reversionary period following a secular bull market whose extremes in behaviour, credit, and price require a lengthy resetting period during which those excesses can be worked through.
Consequently, I find the following chart a lot more interesting than the Fortune table:
https://2us9vjrl2kf1np7bx397xl07-wpengine.netdna-ssl.com/wp-content/uploads/2017/01/stock-market-breakouts-consolidation-1982-vs-2000-chart.png
...illustrating as it does the 18 year secular bull market from 1982 to 2000.
Using this template, you can argue a case that a US secular bull market commenced in spring/summer 2013, when the SPX decisively broke out above its 2000 and 2007 market highs and then never looked back. If this new secular bull market enjoyed an 18 year duration similar to the prior one, it would last until 2031, 14 years hence. Of course, lots of volatility along the way would be expected, just as the 1982-2000 secular bull market experienced with events such as 1987's 'crash' and 1997 Asian financial crisis, which the chart above illustrates were something for investors to sit tight through for the good returns still to come.
Now, valuations and interest rates were very different in 1982 than they were in 2013. It would be foolhardy to draw too much comparison about the possible returns possible from any current secular bull market as there is not the same scope for Price/Earnings ratio expansion to occur because of a declining risk free rate as happened from 1982-2000 (and indeed, the opposite impetus may eventually occur). However, it may still be useful to consider the rises that markets have enjoyed these past years within a broader historical context perhaps more appropriate to the timeframes (many decades) that most of us are investing over.
Applying the same approach as outlined above to the UK market would have the FTSE100 only this year potentially entering a new secular bull market...
In summary, I'm offering up here another way of considering the market advances we've enjoyed since 2009. Chris Ciovacco has been doing some great charts along these lines recently, per the video highlighted above. Of course, markets could take some very hefty tumbles at any time, but as was the case during 1982-2000, it's also possible that these just prove to be normal volatility that investors should look through - unpleasant and unsettling at the time, but a normal and necessary part of long term market advances (necessary as they keep valuations and sentiment in check by periodically resetting them somewhat).
Equity prices appear not very attractive presently, but the alternatives seem little better or often even worse. My intention is not to forecast here but merely highlight the possibilities. Other brands of tea leaves are of course available.0 -
That's correct. I also don't consider price rises and falls, the small ex-dividend price fall etc. etc. That's because I'm focussing on Markets and economies. I don't suppose a market which gets the jitters and causes an economy to go into recession considers dividends lol.BananaRepublic wrote: »Firstly you forget about dividends, which are ignored by the stock market charts, but which make a significant contribution to your earnings. Secondly you don't make huge gains then huge losses, with a zero net gain. What happens is you gain lots, then a crash occurs, you stay in the market, and generally after a year or two you are back to where you were just before the crash, and much better than you were a few years prior to the crash. And from then on you gain again.
This does assume your ability to stay invested, of course.
What you say about the market recovering after a crash could be true and in general I hope it is. If it isn't that will effectively trash my strategy. But what about a duble entendre of a double-dip recession? c.f. 2008 and 2012.0 -
OP here. I just want to thank everyone for their replies on this thread, it's been brilliant and I've learned a lot from reading the posts and following the links.
I'd love to be able to summarise the thread (distill the wisdom somehow) but that's beyond me. I will though highlight a few things that are relevant to me -
a) Many posters see "Timing the Market" as being synonymous with "Predicting the Future" ie "Reading the Tea Leaves" and draw the obvious conclusion that it won't work. I think that's too narrow and specific a definition and other methods are not so obviously flawed and easily dismissed.
b) Many posters see this as a method to "beat" the market, ie make more money than staying in. That was not my intention, it was always to protect gains that I had already made (through good fortune rather than any skill of mine). In my mind I am ahead of where I wanted to be and so would be happy to spend some of that (by foregoeing potential gain) to protect capital.
c) It seems to me that some of the alternative strategies that have been put forward could also be described as Timing the Market. Changing the balance of a portfolio based on an external event, political or economic doesn't seem much different than on an analytical basis as I was proposing.
While this fascinating debate has been going on I've been running simulations on Excel against a data set I downloaded from a fund that has been running since the mid 90's. It's very basic with the variables being point of entry, downswing to sell point, upswing to buy point, I need to do a lot more work but my findings so far are -
1) It is possible to beat the market, it just depends on the parameters you use.
2) It is possible to undershoot the market, again it just depends.
3) It isn't really possible to lose all your money, but you may have to wait a very long while to get it back. Anyone buying this particular fund in Jan 2000 would have waited 14 years to be in profit again.
4) 1 & 2 are VERY sensitive to parameter change, a small change of start point can change the whole thing.
Based on point 4 I have to admit that my simplistic method isn't going to be practical and I need to look further. However I do think the basic premise is still valid that if you are ahead on your terms it is not unreasonable to spend some of the gain in protecting the capital. Finding the method to do that is going to be difficult though.0
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