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  • FIRST POST
    • SteveG787
    • By SteveG787 14th Mar 17, 4:58 PM
    • 36Posts
    • 4Thanks
    SteveG787
    Why is 'Timing' the market bad ?
    • #1
    • 14th Mar 17, 4:58 PM
    Why is 'Timing' the market bad ? 14th Mar 17 at 4:58 PM
    Like many people I have made a pretty good gain in my funds over the last few years and have been looking at ways of protecting that gain when the market inevitably turns. On this forum and in other places people say 'Timing the Market' is a "bad" thing, but I am not sure why. As a former engineer my method would be a simple mechanical buy and sell process applied to each fund, if it drops from its top price by more than say 10% then sell, when it rises more than a similar amount above it's low price then buy.
    As far as I can see the only problem with this would be if the market turned just after I'd bought or sold in which case I would be left behind and catching up would cost more money.
    Obviously this would cost money while in cash and if catching up is required, but I am starting in the position of already being well ahead of the curve (about 40% gain in 3 years).
    The intention of this is to protect capital while holding on to much of the gain already made.

    Please poke holes and rip to shreds. I realise this is more than likely a bad thing but I'm not seeing it.
Page 3
    • economic
    • By economic 15th Mar 17, 11:11 AM
    • 1,398 Posts
    • 622 Thanks
    economic
    im up about 8% YTD. there have been various points this year i was thinking of pushing the sell button and time the market. on all occasions i would have lost out. there is no way to tell when the next correction is happening. so im sticking to my long term strategy. add to position as stocks correct.
    • Pincher
    • By Pincher 15th Mar 17, 11:19 AM
    • 6,489 Posts
    • 2,469 Thanks
    Pincher
    You should know what you are playing with.

    I have been looking at ORPEA

    https://www.bloomberg.com/quote/ORP:FP

    They build 5 star retirement facilities, in anticipation of rich baby boomers. I was thinking that was a good idea for years, but the UK scene is so depressing.

    With steady growth like that, why bother timing it?

    Whereas stocks that go up and down like a yoyo, like Lloyds, I just buy some when it dips, and sell when it fizzes. Need to do it inside an S&S ISA, otherwise the CGT calculation is a nightmare.
    What happens if you push this button?
    • coyrls
    • By coyrls 15th Mar 17, 11:25 AM
    • 768 Posts
    • 761 Thanks
    coyrls
    Yeh, that's what I thought. I went into this expecting to average very roughly 7% a year in the long term, that's the curve I meant.

    More counterpoints coming through now, what's apparent is that there's a lot of different ideas of what "Timing" means, probably all valid. What I meant was much more specific and rigid, the 10% change was just an example number but it will be big enough distinguish a downturn from noise. There would be no element of choice, if the fund (and its a tracker fund that I am considering for this) dropped 10% from a peak I would sell, if it rose 10% from a low I would buy. I have run this manually and very roughly on a test fund from 2007 to now and I would have had less than 10 periods out of the market with the only long one being 2008/9. I need to download some data and do this properly but roughly it would have chopped my gains by 20% or so but the drop in 2008/9 would have been 10% and not the 40% the fund showed.

    I'm aware that looking backwards is not the same and there's all sorts of caveats to this but it seems to me that particularly with tracker funds staying invested through a large downturn is unnecessarily risky.

    People readjust their portfolios all the time for any number of reasons, this is just a more mechanical way of doing that.
    Originally posted by SteveG787
    The problem with the mechanism that you want to use is that it wonít work. It certainly wonít work for a fund, as you donít know the price at which you are going to sell or buy but even with something that is market traded such as an ETF or Invesment Trusts or individual shares, you donít get to set the price at which you buy or sell, the market does. Sure you can have automatic or manual triggers but that doesnít mean you can trade at the trigger price. When the market is dropping or rising rapidly, you can be more than your 10% off in the price that you can actually buy and sell at. You are at a further disadvantage as a retail investor because youíre not going to be at the front of the queue for trades.
    • kidmugsy
    • By kidmugsy 15th Mar 17, 3:44 PM
    • 9,282 Posts
    • 6,093 Thanks
    kidmugsy
    A timely view?

    https://www.hussmanfunds.com/wmc/wmc170220.htm
    • bigadaj
    • By bigadaj 15th Mar 17, 7:06 PM
    • 8,989 Posts
    • 5,720 Thanks
    bigadaj
    Congratulations. I hope that you sustain that during the next 45% equity drop.
    It's a reasonable example of what it set out to be. A portfolio of trackers with medium-high volatility that so far has not lived through a period of substantial bull market. If you want to beat it you might consider swapping out some of the fixed interest for some P2P and maybe considering whether it has an appropriate asset mix for the current situation.

    I stopped giving substantial descriptions of my whole investment mixtures quite some time ago for a range of reasons including:

    1. People showing signs of copying me, when I have a volatility and risk tolerance well above average, so that is something I think I need to discourage by making it hard to do.
    2. A material proportion of what I now do is in opportunities that could vanish if they became too well known. To protect my own returns I need to avoid saying things that can point people to what I do in those areas.
    3. I don't want to do the work.

    I've a high P2P weighting and a global tracker is my largest equity holding, with the same one also the largest Slow and Steady holding. My actual P2P return in recent years is higher than the return of the Slow and Steady portfolio and its fixed interest part, with far lower volatility in both that and my overall mixture.
    Originally posted by jamesd
    James, what's your current percentage split between p2p, equities, cash, bonds, properties etc?
    • grey gym sock
    • By grey gym sock 16th Mar 17, 1:21 AM
    • 4,040 Posts
    • 3,502 Thanks
    grey gym sock
    are you kidding? hussman has been giving these dire warnings for many years; he will eventually be "timely", like the stopped clock.

    the performance of hussman's funds has been absolutely dreadful. some have actually lost money overall over the last 10 years - an incredibly bad performance, given the large positive returns from both equities and bonds over that period.

    it's a great example of what can go wrong when you attempt to time the market.
    Last edited by grey gym sock; 16-03-2017 at 1:23 AM.
    • AnotherJoe
    • By AnotherJoe 16th Mar 17, 6:39 AM
    • 6,295 Posts
    • 6,667 Thanks
    AnotherJoe
    Yes, look at what this gurus fund has done.
    20% loss in the last year inspite of a huge market rise.


    1 Year -20.19%
    3 Year -10.98%
    5 Year -9.31%
    10 Year -5.66%
    • ChesterDog
    • By ChesterDog 16th Mar 17, 8:05 AM
    • 735 Posts
    • 1,257 Thanks
    ChesterDog
    I like the irony of the fact that the article criticises those who believe they know what markets are going to do and state their case loudly, before it goes on to do exactly the same thing.

    Hubris at its best.
    I am one of the "Dogs of the Index".
  • jamesd
    James, what's your current percentage split between p2p, equities, cash, bonds, properties etc?
    Originally posted by bigadaj
    Current one is useless due to temporary effects. The more useful non-transient one is a frustratingly low around a third in P2P and around two thirds in equities. Barring unpredictable factors that will change to around fifty percent in each early in the 2018-19 tax year. If I find a useful way to get pension money into directly held P2P it will change to around 75% P2P, which is where I want to be at the moment.

    Transient effects include these that require cash or money market holdings:

    1. A pension pending transfer held in a money market account.
    2. ISA money in P2P that I have to sell to return the money to the flexible ISA before the end of the tax year or lose ISA wrapper amount. Then back out of cash and into P2P again in the new tax year.
    3. Pension contributions below minimum wage that I'll have in cash for a little while and money in bank accounts before cheques get cashed for other investments.

    All of those transient effects mean that for a few weeks I'm at around forty percent in cash and money market holdings. Don't do that unless you're experiencing the same transient things.

    Still, I can hope for a nice fifty percent equity crash over the next few weeks... If that was to happen I'd probably lever up to around 150% equities.

    Once the transient stuff is over with I'm considering something like a third P2P and one hundred percent equities for a while as a Trump/US momentum play, using doubly leveraged long trackers for that part. If I knew of a leveraged S&P500 put write strategy ETF I might use that, it looks like an interesting tool.
    Last edited by jamesd; 16-03-2017 at 8:44 AM.
    • jdw2000
    • By jdw2000 16th Mar 17, 8:29 AM
    • 415 Posts
    • 108 Thanks
    jdw2000
    Yes, look at what this gurus fund has done.
    20% loss in the last year inspite of a huge market rise.


    1 Year -20.19%
    3 Year -10.98%
    5 Year -9.31%
    10 Year -5.66%
    Originally posted by AnotherJoe
    Whose fund is that?
    • jdw2000
    • By jdw2000 16th Mar 17, 8:35 AM
    • 415 Posts
    • 108 Thanks
    jdw2000
    Congratulations. I hope that you sustain that during the next 45% equity drop.
    It's a reasonable example of what it set out to be. A portfolio of trackers with medium-high volatility that so far has not lived through a period of substantial bear market. If you want to beat it you might consider swapping out some of the fixed interest for some P2P and maybe considering whether it has an appropriate asset mix for the current situation.

    I stopped giving substantial descriptions of my whole investment mixtures quite some time ago for a range of reasons including:

    1. People showing signs of copying me, when I have a volatility and risk tolerance well above average, so that is something I think I need to discourage by making it hard to do.
    2. A material proportion of what I now do is in opportunities that could vanish if they became too well known. To protect my own returns I need to avoid saying things that can point people to what I do in those areas.
    3. I don't want to do the work.

    I've a high P2P weighting and a global tracker is my largest equity holding, with the same one also the largest Slow and Steady holding. My actual P2P return in recent years is higher than the return of the Slow and Steady portfolio and its fixed interest part, with far lower volatility in both that and my overall mixture.
    Originally posted by jamesd
    Nobody is suggesting that the Slow and Steady portfolio is a world beater. The clue is in the title "Slow and steady".

    Suggesting ways it can make more money is not the point. The point is that it is a low cost, low hassle, transparent, for-beginners way of making money from the stock market over the long term. It does the same thing that VLS does.
    Last edited by jdw2000; 16-03-2017 at 9:12 AM.
  • jamesd
    It's also not steady, with likely bear market equity drop of around thirty percent.

    If someone just wants VLS then they can buy that. If someone isn't doing that then they should be looking to beat it in some way or it's not worth the extra work. Hence swapping out bonds with poor interest rates and high interest rate rise capital loss exposure for P2P which has quite high interest rates and being normally held to maturity has very low rate increase capital loss potential.

    Or maybe getting a bit more creative and using some doubly leveraged tracker ETFs and higher P2P fixed interest to maintain the equity exposure but with the fixed interest increase lowering the volatility.

    For those who don't know what that means, it has a target exposure of 6% to UK equities using Vanguard FTSE UK All-Share Index Trust. Someone could move 3% of that into P2P and buy GO UCITS ETF Solutions plc FTSE 100 Leveraged (2X) Fund (LUK2) instead. It's FTSE 100 instead of all share but that doesn't make a huge difference, while the two times leverage keeps the ups and downs about the same (there are tracking error issues to learn about to do it properly). Meanwhile, having the 3% in P2P is cutting the drop potential by about a third because the combination is one third P2P and two thirds FTSE. Plus the benefit of the P2P interest.
    Last edited by jamesd; 16-03-2017 at 9:29 AM.
    • jdw2000
    • By jdw2000 16th Mar 17, 9:19 AM
    • 415 Posts
    • 108 Thanks
    jdw2000
    It's also not steady, with likely bear market equity drop of around thirty percent.

    If someone just wants VLS then they can buy that. If someone isn't doing that then they should be looking to beat it in some way or it's not worth the extra work. Hence swapping out bonds with poor interest rates and high interest rate rise capital loss exposure for P2P which has quite high interest rates and being normally held to maturity has very low rate increase capital loss potential.
    Originally posted by jamesd
    So you're criticising it for an imagined 30% equity drop which has not happened to it yet. Also ignoring the fact that it is 40% non-equities (or will be by the time a crash happens).

    This portfolio is aimed at beginners. It will beat most investors with minimum effort. You are criticising a dog for not being a cat.

    And again: their portfolio lays bare all their investments and numbers for the world to see and pore over. You are telling us how much better your portfolio is without any evidence at all.
  • jamesd
    Do you think that we won't see another 45%-50% equity drop? When we do, the bond holdings that I didn't ignore will cut that to more like 30%.

    I do wonder, though, how you know that there won't be an equity crash for the next four years to give it time to shift from 32% bonds to 40% bonds at 2% a year.

    I'm not criticising it for being a dog instead of a cat but for being a dog made out of Lego instead of just buying the actual dog, the VLS. If you want VLS, buy VLS unless you're trying to beat it in some way.

    I'm not trying to replicate this or advocate holding what I hold (don't hold what I hold is what I'd recommend to beginners!). Just saying how it can be beaten with straightforward changes in some of the holdings. Unless you'd care to assert say that you can't get 10% in P2P without capital loss due to interest rate rises? Or perhaps that a switch from 100% tracker to 50% doubly leveraged tracker and 50% fixed interest won't roughly match or beat the former but with lower volatility?
    Last edited by jamesd; 16-03-2017 at 9:56 AM.
    • Malthusian
    • By Malthusian 16th Mar 17, 9:39 AM
    • 2,001 Posts
    • 2,866 Thanks
    Malthusian
    Whose fund is that?
    Originally posted by jdw2000
    Hussman's.

    I tl;dred most of the article but I did like the title "When Speculators Prosper Through Ignorance". Presumably since ignorant people have been prospering, Hussman losing millions proves how extremely clever he is.
    • StellaN
    • By StellaN 16th Mar 17, 10:16 AM
    • 131 Posts
    • 36 Thanks
    StellaN
    After the Brexit vote the markets dipped by about 7% and my wife insisted I move her S&S Isa investments into the Cash Park! I tried to explain that this is probably a nervous jerk reaction and that things would calm down, however she insisted to go ahead and move into cash!

    9 months later and she is still waiting for a time to reinvest whilst my investments have gone great guns! I don't actually know when she will enter the market again but I do know she's lost out big time in the last 9 months by moving into cash!
    Originally posted by MPN
    I personally agree with your particular view, however, a good friend very recently(this week) sold her investments because she was ecstatic about the money she had made over the past 6 years. She is fully aware that she may 'miss out' on future growth in the immediate future but she was more than happy to take her profits out now and will wait to reinvest at a later date!

    It's all a matter of opinion and personal preferences but I can't really blame her for making this decision, although as I said it wouldn't be my choice.
    • jdw2000
    • By jdw2000 16th Mar 17, 10:23 AM
    • 415 Posts
    • 108 Thanks
    jdw2000
    Do you think that we won't see another 45%-50% equity drop? When we do, the bond holdings that I didn't ignore will cut that to more like 30%.

    I do wonder, though, how you know that there won't be an equity crash for the next four years to give it time to shift from 32% bonds to 40% bonds at 2% a year.

    I'm not criticising it for being a dog instead of a cat but for being a dog made out of Lego instead of just buying the actual dog, the VLS. If you want VLS, buy VLS unless you're trying to beat it in some way.

    I'm not trying to replicate this or advocate holding what I hold (don't hold what I hold is what I'd recommend to beginners!). Just saying how it can be beaten with straightforward changes in some of the holdings. Unless you'd care to assert say that you can't get 10% in P2P without capital loss due to interest rate rises? Or perhaps that a switch from 100% tracker to 50% doubly leveraged tracker and 50% fixed interest won't roughly match or beat the former but with lower volatility?
    Originally posted by jamesd
    Slow and Steady pre-dates VLS. It commenced at the beginning of 2011. And for beginner investors, it still serves the same purpose: to break down exactly how to assemble a diversified, global portfolio and how to allocate assets.

    It's a brilliant resource and reference point. And it also makes it very clear, at the end of EVERY update, that VLS is an all-in-one alternative.

    Beginners should not be looking at P2P or trying to beat VLS/Slow and Steady.


    You are not Slow and Steady's target audience.
    • BananaRepublic
    • By BananaRepublic 16th Mar 17, 11:12 AM
    • 810 Posts
    • 563 Thanks
    BananaRepublic
    Do you think that we won't see another 45%-50% equity drop? When we do, the bond holdings that I didn't ignore will cut that to more like 30%.
    Originally posted by jamesd
    I'd ignore bonds unless you need access to the money in the next few years. They serve to reduce short term volatility at the cost of reduced gains. So you bonds might cut the loss at the time of the crash to 30%, but they might have gained much less, so in the long term their net result is reduced gain. And if you are not taking money out, your stockmarket funds will recovery pretty quickly anyway (going by the past).

    I do wonder, though, how you know that there won't be an equity crash for the next four years to give it time to shift from 32% bonds to 40% bonds at 2% a year.
    Originally posted by jamesd
    Crashes tend to happen as a result of long term exuberance where they ignore gravity, followed by a precipitation event which they cannot ignore. Many of us knew the markets pre-2008 were exuberant but few of us foresaw the cause of the mighty crash. Odd really, you'd think places like the Bank of England would have enough clever eco-wonks that they would have foreseen it with ease.
    • kidmugsy
    • By kidmugsy 16th Mar 17, 11:46 AM
    • 9,282 Posts
    • 6,093 Thanks
    kidmugsy
    are you kidding? hussman has been giving these dire warnings for many years.
    Originally posted by grey gym sock
    And in 1999 he was spot on, predicting the 2000 dotcom crash. Were you?
    • talexuser
    • By talexuser 16th Mar 17, 11:54 AM
    • 2,180 Posts
    • 1,654 Thanks
    talexuser
    Odd really, you'd think places like the Bank of England would have enough clever eco-wonks that they would have foreseen it with ease.
    Originally posted by BananaRepublic
    Well they had someone who was clever enough to be deputy governor and write the transparency rules, yet forgot for 3 years to tell them her brother was a senior Barclay's bod.
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