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  • FIRST POST
    • SteveG787
    • By SteveG787 14th Mar 17, 4:58 PM
    • 30Posts
    • 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 2
    • bigadaj
    • By bigadaj 14th Mar 17, 9:50 PM
    • 8,577 Posts
    • 5,389 Thanks
    bigadaj
    I think it's a personal thing, and what you feel most comfortable with. I have been steadily investing since 2009, and have easily doubled my money, it's been a great period to invest.

    I sold 80% of my holdings in February and to lock in those gains I've invested into a with-profits bond (against the advice of many here) which is investment linked and has a minimum guarantee of 103% of my initial investment at the end of the five year term.

    I'm more than happy with the level of gains I have made and now I've locked those gains in with a link to the potential upside in the market. At the end of the period I may drip the money back into the market or I may not. And I'm going to continue drip feeding money into my investment trusts once again.

    I personally feel at the moment there is very little upside in the market currently but plenty of downside, but I could be wrong. It's all about what your circumstances are and what you feel comfortable with.
    Originally posted by longleggedhair
    What's the with profits bond and who is it with?

    Who are the counter parties to any guarantees?
    • kidmugsy
    • By kidmugsy 14th Mar 17, 9:53 PM
    • 8,967 Posts
    • 5,816 Thanks
    kidmugsy
    The life of professional investors is dominated by fear of falling behind their competitors, so they are reluctant to be out of the market at all. They don't mind losing money as long as all the other professionals have lost too.


    There's no earthly reason why personal investors must copy them.
    • BarleyGB
    • By BarleyGB 14th Mar 17, 10:24 PM
    • 179 Posts
    • 153 Thanks
    BarleyGB
    Recently I've read threads here and elsewhere of individuals determined to time the market.

    Two examples spring to mind, one person selling up 22/06/16 and wallowing in his apparently successful market timing a few days later. Wonder if he's bought back in since?

    Another who sold a large portion of funds late Dec 16 convinced the market was in peak territory.

    While potentially locking in profits, assuming neither have bought back in they've missed approx 15-20% and 5-10% additional gains respectively.
    Last edited by BarleyGB; 14-03-2017 at 10:27 PM.
    • jdw2000
    • By jdw2000 14th Mar 17, 10:34 PM
    • 403 Posts
    • 102 Thanks
    jdw2000


    That doesnt put you ahead of the curve. Indeed, assuming 100% equities, that puts you behind.
    Originally posted by dunstonh


    How does a 40% rise over 3 years in 100% equities put him "behind the curve"?
    • longleggedhair
    • By longleggedhair 14th Mar 17, 11:02 PM
    • 190 Posts
    • 255 Thanks
    longleggedhair
    What's the with profits bond and who is it with?

    Who are the counter parties to any guarantees?
    Originally posted by bigadaj
    Sheffield Mutual. Guaranteed by the FSCS.
    • jimjames
    • By jimjames 14th Mar 17, 11:08 PM
    • 11,490 Posts
    • 9,701 Thanks
    jimjames
    How does a 40% rise over 3 years in 100% equities put him "behind the curve"?
    Originally posted by jdw2000
    Presumably it's below the average market rise. 30% in last 12 months or so alone.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • SteveG787
    • By SteveG787 14th Mar 17, 11:21 PM
    • 30 Posts
    • 4 Thanks
    SteveG787
    How does a 40% rise over 3 years in 100% equities put him "behind the curve"?
    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.
    • AnotherJoe
    • By AnotherJoe 15th Mar 17, 1:48 AM
    • 5,637 Posts
    • 5,842 Thanks
    AnotherJoe
    If it was as easy as you think, don't you imagine the institutions with millions of pounds of computing equipment and the best mathematical minds and data mining techniques out there would perhaps exceed your efforts with excel and an unrepresentative data set and have already sorted this out and be offering funds that beat trackers hands down?

    The fact they haven't might make you perhaps give pause as to the fact it isn't that simple, indeed it's not doable. Indeed you can find numerous studies that show using data going back 100+ years, staying invested beats market timing, however simplicities or sophisticated your algorithm is.

    But, if you don't believe anyone here, feel free, put say £10k of your own money in and let us know how you do. Monthly reports perhaps ?

    Though I'd be intrigued if you do that, after it's fallen 10%, so you sell, how do you then establish if its a low so you buy ? Were you perhaps cheating in your back testing and looking at the chart for the future ? You'll find when doing it for real, that chart doesn't exist
    • bigadaj
    • By bigadaj 15th Mar 17, 6:54 AM
    • 8,577 Posts
    • 5,389 Thanks
    bigadaj
    Sheffield Mutual. Guaranteed by the FSCS.
    Originally posted by longleggedhair
    Fair enough, so losing 2% to inflation, locked in for five years and not large amounts given the fscs cover, not an option I'd consider but we're all different.
    • Glen Clark
    • By Glen Clark 15th Mar 17, 7:43 AM
    • 3,610 Posts
    • 2,633 Thanks
    Glen Clark
    Prices are being driven by politics - in the case of housing by restricting the supply with planning constraints whilst stimulating the demand with taxpayers money through so called 'Help to Buy', Housing Benefit, etc. Equity prices are being driven by politics too - QE, and wherever politicians are going to throw taxpayers money. If you know in advance what politicians are going to do you can make big money.
    This has not been lost on the big investors and fund management companies who have taken to hiring 'self-employed' Tory MPs.
    But the rest of us being treated like mushrooms (kept in the dark and fed b*llshit) are safer sticking with index funds and not attempting to time the market.
    For society to function well, people generally need to feel that they have a fair chance of success through their ability and efforts. The more entrenched hereditary elites we have, the less likely people are to feel that way
    • jdw2000
    • By jdw2000 15th Mar 17, 8:24 AM
    • 403 Posts
    • 102 Thanks
    jdw2000
    One of the reasons I like to use the Monevator site, and listen to what they say, is that they are transparent and tell you EXACTLY how to make money out of investing.

    Monevator don't simply say "we're brilliant and make loads of money... read our obscure articles, buy our snake oil, and you too can be rich like us..."


    Have a a read of their "Slow and Steady" passive investment series. It has been going on for years and it's updated every quarter (next update is due at the start of April 2017). This series tells you exactly which funds they are invested in, how much money is invested, detailed spreadsheets on how much it has grown/lost, details of how to re-balance, details of asset allocation, a plan for the future (ie, future asset allocation). Or if you can't even be bothered mirroring what they show you exactly to do, then they simply suggest buying a VLS product which they say does exactly the same job.

    Monevator could not possibly be any more helpful than that. They don't pretend that followers of 'Slow and Steady' will make more money than a top investor, but for a new investor with limited knowledge it is all you need. And you'll probably make more money than most/many "knowledgeable" investors. (They'd never admit that, of course... but neither will they share the details of their portfolio with you like 'Slow and Steady' do).
    Last edited by jdw2000; 15-03-2017 at 8:59 AM.
    • HHarry
    • By HHarry 15th Mar 17, 8:51 AM
    • 377 Posts
    • 247 Thanks
    HHarry
    About 18 months ago the FTSE100 dipped below 6000, having hit nearly 7000 earlier in the year. I chucked in £1500 with the specific intention of cashing out at 7000.

    At 7050 last year I indeed cashed out. But I could have stayed in for another 5% at todays rates.
    I was happy with my strategy - the profit went towards a new tv! - but as others have said there's no way of knowing what the market's going to do.

    A 10% drop could be a bad day, recovered in a week, and you've got out to hastily.
    • Audaxer
    • By Audaxer 15th Mar 17, 8:55 AM
    • 75 Posts
    • 11 Thanks
    Audaxer
    One of the reasons I like to use the Monevator site, and listen to what they say, is that they are transparent and tel you EXACTLY how to make money out of investing.

    Monevator don;t simply say "we're brilliant and make loads of money... read our obscure articles, buy our snake oil, and you too can be rich like us..."


    Have a a read of their "Slow and Steady" passive investment series. It has been going on for years and it updated every quarter (next update is due at the start of April 2017). This series tells you exactly which funds they are invested in, how much money is invested, detailed spreadsheet on how much it has grown/lost, details of how to rebalance, details of asset allocation, a plan for the future (ie, future asset allocation). Or if you can't even be bothered mirroring what they show you exactly to do, then they simply suggest buying a VLS product which they say does exactly the same job.

    Monevator could not possibly be any more helpful than that. They don't pretend that followers of Slow and Steady will make more money than a top investor, but for a new investor with limited knowledge it is all you need. Ad you'll probably make more money than most.many "knowledgeable" investors. (They'd never admit that, of course... but neither will they share the details of their portfolio with you like Slow and Steady do).
    Originally posted by jdw2000
    Thanks jdw2000, I had looked at the Monevator site but had not seen the 'Slow and Steady' pages before.
  • jamesd
    Timing the market is good. It's also bad. The difference is timescales, what you do instead and what your objectives are.

    While fund managers can and do beat the market over extended times and can be selected in advance to some degree, they have a tougher time than private investors. Their problem is the one Neil Woodford experienced back in the years before 2000 when he was avoiding tech. Since he was avoiding the hot sector that caused money to leave the funds to chase the returns he wasn't showing and came close to getting him fired even though he was right.

    Don't expect many professional managers to do that. Their incentives are more based on short term funds under management, not fund investment performance directly. Getting fired for being right isn't career-enhancing.

    In the very short term markets have so much jitter that it's not very easy to gain from timing. Go up to a few months and there are momentum strategies that can work and most money just ignores them, so they can continue to work. Go longer term and the ten year cyclically adjusted price/earnings ratio is inversely correlated with future investment returns in every major equity market. High PE10, low future returns. But it doesn't come with a timing guarantee and you could wait a long time, or a week, for it to come true. As a drawdown strategy it's been shown to be a useful tool and the basis of Guyton's sequence of risk reduction approach, where it works to improve safe withdrawal rates by switching to lower equity percentage at high PE10, then back at lower PE10.

    Say you want to follow that sort of thing, where do you put the money? Bonds are far from being a good choice at the moment. I chose to greatly cut my equity percentage from close to 100% by switching a lot into P2P. With nominal returns in excess of 10% that's well above historic equity returns, though not as good as many equity markets in the last year. Will it work well longer term? I don't know, but probably - assuming that PE10 doesn't stop working as a projector of future returns. But when? Consult your favourite deity. And while it's very unlikely, we could see an equity bull market delivering more than my alternative until I'm dead. Or more likely not and me switching back to equities at nice prices having experienced lower volatility.

    If I hadn't had P2P to use, the trade off between equity and fixed interest would have been far tougher. And I still have a lot of money in equities.

    It'll be interesting to see how my choice has worked out once the required events have happened. Those events are the next big equity drop, me switching back to high equity percentage and a subsequent equity recovery. Until then, I'm content to have some of my money under-perform what is probably, but might not be, the tail end of a long equity bull market.

    And nobody gets to fire me for under-performing the equity markets for a while.

    It'll be interesting to see how it turns out.

    Meanwhile anyone with a nice long time to go until they need the money and a sufficiently high risk tolerance might consider doing what Shiller, he of the PE10, mentioned for young investors: leveraged long term equity tracker investing. Not daft leverage levels! I've used doubly leveraged equity trackers at times and will in the future.
    Last edited by jamesd; 15-03-2017 at 9:03 AM.
    • jdw2000
    • By jdw2000 15th Mar 17, 9:02 AM
    • 403 Posts
    • 102 Thanks
    jdw2000
    Thanks jdw2000, I had looked at the Monevator site but had not seen the 'Slow and Steady' pages before.
    Originally posted by Audaxer
    Really is a great resource.

    http://monevator.com/the-slow-and-steady-passive-portfolio-update-q4-2016/



    They can't be any more helpful or informative than telling you exactly what to do!

    They even go through the problem of switching platform with you when the % fees need to be switched to fixed fees (this is something they'll be doing this year).
  • jamesd
    Really is a great resource.
    Originally posted by jdw2000
    Yes, it is for anyone who wants to follow their poor performance.

    You can stop screaming at me now.

    Let's look at what they wrote:

    "That’s 11.4% annualised, or around a 9% real return – far higher than the historical average of 5% we might expect from a 100% equity portfolio. Happy times.

    By way of comparison, our portfolio’s real return was about 4% annualised when we took a snapshot this time last year.
    "

    Look at that volatility of returns, in six years of largely bull equity markets a swing between 4% and 11.4% six year annualised return. And they haven't even seen a notable bear market yet.

    Contrast with the under-stated 10% nominal that I use for P2P, with low volatility.

    Equities are good and the right place to be for a lot of money long term but it is worth paying attention to what else is around and considering some use of things that have interesting properties. Sometimes you can find interesting niches to exploit, for as long as they last.

    They and I do have something in common, though: "Our biggest holding - the Developed World excluding the UK - put on 29%". Mine too. I'm currently sitting on a 114% gain on my SIPP's Vanguard FTSE Developed World ex-UK Equity Index fund holding.
    Last edited by jamesd; 15-03-2017 at 9:27 AM.
    • jdw2000
    • By jdw2000 15th Mar 17, 9:38 AM
    • 403 Posts
    • 102 Thanks
    jdw2000
    Yes, it is for anyone who wants to follow their poor performance.

    You can stop screaming at me now.

    Let's look at what they wrote:

    "That’s 11.4% annualised, or around a 9% real return – far higher than the historical average of 5% we might expect from a 100% equity portfolio. Happy times.

    By way of comparison, our portfolio’s real return was about 4% annualised when we took a snapshot this time last year.
    "

    Look at that volatility of returns, in six years of largely bull equity markets a swing between 4% and 11.4% six year annualised return. And they haven't even seen a notable bear market yet.

    Contrast with the under-stated 10% nominal that I use for P2P, with low volatility.

    Equities are good and the right place to be for a lot of money long term but it is worth paying attention to what else is around and considering some use of things that have interesting properties. Sometimes you can find interesting niches to exploit, for as long as they last.

    They and I do have something in common, though: "Our biggest holding - the Developed World excluding the UK - put on 29%". Mine too. I'm currently sitting on a 114% gain on my SIPP's Vanguard FTSE Developed World ex-UK Equity Index fund holding.
    Originally posted by jamesd
    We can all pull numbers out of our backside. How about this: My portfolio made 200% in the last 6 months!


    If you think Slow and Steady is not good, then show us your own portfolio. As un-stellar as you think it is, it will have almost certainly beat most investors.
    • k6chris
    • By k6chris 15th Mar 17, 9:39 AM
    • 58 Posts
    • 88 Thanks
    k6chris
    There are two models of investment; to reach a specific capital amount (for example to pay off an interest only mortgage or to buy an annuity) or to fund an ongoing income, for example a pension in drawdown. For the former, as you near the endpoint, either time or value-wise, the impact of a market pullback is very significant and whilst 'timing the market' may not be possible, prudent reduction of the impact of such a pull back can (and perhaps should) be made by reducing the percentage of higher volitile assets into lower volitile ones, for example shares into cash. This is the traditional pension pot to annuity model.

    Where many people struggle is with the second model, that of investing for drawdown. In this model, the primary goal of your investing and drawdown strategy is to provide an ongoing, multi year ability to drawdown an amount of money from that investment. Let's take an example of someone aged 60 with a £100,000 pot who wants to draw down £4,000 a year, rising with inflation (for the sake of easy maths). The focus of the investor should be to have a sound plan that maximises the chance of being able to draw that annual figure for 20-40 years. During that extended time period, it is very likely, based on what has happened in the past, that their investment will suffer a number of subsantial pull backs and that over time will recover (I'm assuming sensibly spread equity portfolio here). To mentally cope with this the investor should focus on the question of being able to get there next "£4k" rather than the fact their portfolio has gone down (or indeed up) by xx%. Ignore the absolute value of the pot and focus on the overall plan; balance of portfolio, drawdown methodology etc.

    That fear, which we all have, of the market crashing 3 minutes after you have pressed the 'invest' button is normal. One way to overcome it, from a mental perspective, is to build into your plan that you will invest a third of the £100k now, then the next third either when the market has either pulled back by xx% or in yy months time (which ever comes first) and the final third after a pull back of zz% or nn months (whichever comes first). Write the plan on a sheet of A4, along with your portfolio rules / logic and your withdrawal rules. THEN STICK TO THE PLAN. If you plans said a 10% pull back, don't fall into the trap of thinking "I'll wait, it might fall futher", because the bigger the pullback gets, the more likely it will 'feel' the wrong time to invest. If you have a plan you can't stick to, then create a plan you can.

    There is no perfect investment strategy, investing is a risk / gamble / has randomness in it. Your plan does not need to be the best plan ever or indeed better than someone elses alledgedly is, it needs to deliver the objective you are aiming for. Focus on what you are trying to achieve in the long term rather than what is happening in the short term.

    Eyes-on-the-prize.....
    Last edited by k6chris; 15-03-2017 at 9:42 AM.
    • TheTracker
    • By TheTracker 15th Mar 17, 10:00 AM
    • 1,029 Posts
    • 1,019 Thanks
    TheTracker
    How does a 40% rise over 3 years in 100% equities put him "behind the curve"?
    Originally posted by jdw2000
    An appropriate benchmark is VWRL.

    VWRL is up 60% in 3 years.

    VWRL is a market-capitalisation-weighted index of common stocks of large and mid cap companies in developed and emerging countries. It covers more than 90% of the global investable market capitalisation.
  • jamesd
    We can all pull numbers out of our backside. How about this: My portfolio made 200% in the last 6 months!
    Originally posted by jdw2000
    Congratulations. I hope that you sustain that during the next 45% equity drop.
    If you think Slow and Steady is not good, then show us your own portfolio. As un-stellar as you think it is, it will have almost certainly beat most investors.
    Originally posted by jdw2000
    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.
    Last edited by jamesd; 16-03-2017 at 7:19 AM.
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