Why is 'Timing' the market bad ?

it is all very well saying everything looks expensive, but il faut parier - i.e. you have to hold something. if you think everything except cash looks expensive, then hold cash - simples! (and in effect, your opinion is that cash looks cheap.) but i'm guessing that's not what most people posting in this thread think.

most posters aren't mentioning alternatives. jamesd has mentioned (selective use of) p2p as a possible alternative to holding equities. the basic idea of perhaps getting 10% returns - if defaults don't go through the roof - does compare favourably to average historical returns from equities (of perhaps inflation + 5%). personally, i think i'd find that too much effort to do it properly - i.e. to go for those higher returns while keeping a very careful eye on the risks (of individual loans, and of platforms). i know there are "hands off" p2p options, but they pay lower rates, and may not be worth the risk.

however, i think the idea of swapping bonds for p2p is misleading. that ought to increase expected returns, because it's increasing the risk! p2p is more like equities in risk (though the returns come in a different way - mostly steady interest, with occasional - and probably clustered - defaults).

coming back to equities today, there is a big difference from selling equities because they've gone up a lot or because the bull market has run for so many years (those are bad reasons, IMHO) and selling because valuations are extremely high (that's a better reason, IMHO).

and most equity markets are not currently at very extreme valuations. perhaps a little high, but not extremely. and selling when valuations are a little high is a poor strategy, because they can remain high for many years, and go even higher, before eventually crashing down again. and meanwhile, you miss out on many years of equity return (from dividends, and earnings growth). so if you go to cash, it's not a great strategy. (but if you have a plan to go to p2p, where returns might be as good as equities anyway, that may be different.)

shiller (who has a much better record as forecaster than hussman) is not currently calling a bubble in shares. nor in bonds.

shiller's PE10 measure makes US equities currently look a little, but not very, expensive. some care should be taken with this measure, however. it has spent most of the last 25 years saying that US equities look at least a bit expensive. there are a few technical reasons why the PE10 should be higher recently (viz. accounting changes, and more share buy-backs). and as i already explained, that equities are slightly expensive is not always useful information.

now, if you're not thinking of getting out of equities, but of switching some of your US equities allocation to parts of the world where equities seem cheaper, then IMHO that's more reasonable. it may be the wrong move. US equities may be more highly valued for good reasons: because their economy is stronger. i certainly wouldn't avoid investing the US altogether. but varying the proportions a bit won't do you too much harm (or good).

Anthorn wrote: »

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.

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.