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  • FIRST POST
    • SteveG787
    • By SteveG787 14th Mar 17, 4:58 PM
    • 36Posts
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    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 6
    • EdGasket
    • By EdGasket 19th Mar 17, 11:34 AM
    • 3,456 Posts
    • 1,444 Thanks
    EdGasket
    It's tempting to take everything out of shares but how do you know we aren't at the start of another 20 year bull run like in 1980?
  • jamesd
    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.

    The FTSE has had some bull market breaking drops, though I suspect that quite a lot of people wouldn't count the less than one day drop in early 2016 as breaking a bull run.

    It's still entirely possible for there to be a long bull run. It's just not likely. But unlikely isn't impossible.

    Personally, with me making more than 10% nominal a year on P2P and the UK market historic average being a bit over 5% plus inflation it's not a particularly tough decision to cut equity holdings.
    Last edited by jamesd; 19-03-2017 at 8:03 PM.
    • economic
    • By economic 19th Mar 17, 7:55 PM
    • 1,737 Posts
    • 869 Thanks
    economic
    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.
    Originally posted by jamesd
    its irrelevant to look at things like this. the market is always different. what drove the market in the past is different to what is driving it now.

    remain long US and worldwide stocks. add on corrections/crashes.
  • jamesd
    There are always differences in causes.

    I'm not going to short the major markets at the moment but observing that the biggest have PE10s suggesting negative or minimally positive returns is useful.
    • AlanP
    • By AlanP 19th Mar 17, 8:19 PM
    • 897 Posts
    • 617 Thanks
    AlanP
    Directly held P2P loans is what I'm using and normally suggesting instead of bonds at the moment, and of course what I've been doing myself as well as writing about it here for quite a while now. Returns likely to be above the long term equity average at the moment but without the equity exposure. The security is often buildings so that's something to be aware of and manage exposure to.
    Originally posted by jamesd
    Have some P2P loans but that is part of my "cash pot" as opposed to part of the pension pots.
    • grey gym sock
    • By grey gym sock 20th Mar 17, 12:58 AM
    • 4,097 Posts
    • 3,570 Thanks
    grey gym sock
    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).
  • jamesd
    P2P is perhaps lower risk than bonds, certainly lower than equities because it's generally secured lending or backed by a protection fund or both. It largely lacks the capital loss potential due to interest rate rises. A sample of some I have or had, simple (no compounding) interest rates before allowing for bad debt:

    1. £30k at 19% to a car flipper featured in a TV series, secured on the cars. Ended last summer.
    2. £10k at 16% for a holiday park development in Scotland, secured on the land and building that will remain. Guarantee by the loan intermediary to cover shortfalls after security sale.
    3. £10k at 14% for a two storey Portacabin building at Pinewood studios that is doing long term renovation, secured on the building and rental stream from Pinewood.
    4. £5k at 14% to a claims management company for postal marketing, secured on land. Guarantee by the loan intermediary to cover shortfalls after security sale.
    5. Circa £25k at 12% to a car HP seller, secured on the HP payments and, if the borrower defaults and the seller also fails, on the cars. Seller takes the day to day credit risk, swapping out defaulted loans as long as they don't fail.
    6. Circa £23k at 12% to an invoice finance firm, secured on the goods, ultimate buyer and 90% credit insurance or letter of credit from UK bank.
    7. Several tens of k at about 16% (there's a profit share component) to a firm importing and reselling or leasing containers, secured on the containers.

    Those tend to be at the higher risk end of what I'll lend on. I tend not to hold to the end of the loan term, that's when the default risk is highest. At the moment it's easy enough to sell though that's not guaranteed.

    The only default I've seen on that sort of stuff was to another container importing firm where the individual behind it seems to have committed several crimes. Their personal assets, including their home, are now at stake, being subject to an order from the High Court. I'd sold most of this before the default. Much easier to steal and sell containers than buildings or land.

    A fair bit of more banal property bridging loans as well as a range of other stuff. Usually I avoid property development loans, too much chance of those being slow to sell or having completion trouble in a residential or commercial downturn.
    Last edited by jamesd; 20-03-2017 at 4:35 AM.
  • jamesd
    shiller (who has a much better record as forecaster than hussman) is not currently calling a bubble in shares. nor in bonds.
    Originally posted by grey gym sock
    14 March 2017, "ROBERT SHILLER: 'This market is way overpriced'", referring to the US equity markets. "Its most recent reading on Monday was 29.24, a level not seen since the early 2000s when the internet bubble was leaking." It's currently higher than it's ever been except for the internet bubble and around 1929's Black Tuesday. "He did not forecast a short-term decline in stocks, but told Bloomberg that he wasn't buying more." He said he was now buying outside the US in places with more favourable valuations.

    'Shiller says when markets are as buoyant as they are now, resisting the urge to pile in is hard regardless of what else might be happening in society. “I was tempted to do it, too,” he says. “Trump keeps talking about a new spirit for America and so you could (A) believe that or (B) you could believe that other investors believe that.”' Click on the picture of Trump to watch the interview where he discusses both psychological Trump rise factors and the long term issues, while advising most investors to keep some in the equity market but not go overboard. He mentioned both bonds and equities as over-funded in the same sentence. Yet he also observed that in the short term there could be a repeat of the rise from 1997 and described the situation as very uncertain.

    That didn't use the magic word bubble but way overpriced for both US bonds and US equities is a pretty good alternative phrase.

    As you can see from my other posts in this discussion I might well do some short term speculation on a US Trump-related rise in spite of the poor long term context. But that'd be deliberate short term momentum-following speculation, not a long term position.

    If you want to see places that were cheap on 21 Feb there's a handy world map here. Relatively cheap included the UK and most of Europe. Plenty of alternative opportunities to stay in equities at lower prices, if desired.
    Last edited by jamesd; 20-03-2017 at 5:23 AM.
    • Anthorn
    • By Anthorn 20th Mar 17, 5:57 AM
    • 3,101 Posts
    • 798 Thanks
    Anthorn
    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.
    Originally posted by SteveG787
    Wow 40% gain over three years is quite something. I aim for 6% p.a. lol.

    I'm not sure what you mean by "timing the market".

    If we look at the statistics of for example the FTSE (note "example") we can see a series of bulls and bears and also a series of more marked booms and busts, what we simplify as "recessions" which do appear to happen regularly. But I really don't think that can be accurately timed to the effect that it would dictate the best time to buy and/or sell.

    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.html

    With stocks and shares we similarly look at past performance and look for patterns. For example if a share always falls back when it reaches a certain percentage gain and then after that makes more gains we then have a reasonable idea of when to sell and when to buy. But that's not timing it.

    Personally, I avoid like the plague blind investing. That is investing in something I haven't researched. Most of the time I'm successful but not all the time: If anyone is successful all the time then they are a better man (or woman) than I am Gunga Din!
    Last edited by Anthorn; 20-03-2017 at 7:21 AM.
    • BananaRepublic
    • By BananaRepublic 20th Mar 17, 9:30 AM
    • 820 Posts
    • 577 Thanks
    BananaRepublic
    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.
    Originally posted by Anthorn
    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.
    • EdGasket
    • By EdGasket 20th Mar 17, 9:35 AM
    • 3,456 Posts
    • 1,444 Thanks
    EdGasket
    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.
    Originally posted by jamesd
    There was a 20 yr bull run from 1980 to 2000 (crash 87 but recovered)

    This link (previously posted) suggests we are poised for another similar breakout:

    https://www.youtube.com/watch?v=_E503hMQP1M&feature=youtu.be&t=9m20s
    • Anthorn
    • By Anthorn 20th Mar 17, 9:53 AM
    • 3,101 Posts
    • 798 Thanks
    Anthorn
    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.
    Originally posted by BananaRepublic
    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.
    • EdGasket
    • By EdGasket 20th Mar 17, 10:05 AM
    • 3,456 Posts
    • 1,444 Thanks
    EdGasket
    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.
    Originally posted by Anthorn
    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.
    • economic
    • By economic 20th Mar 17, 10:17 AM
    • 1,737 Posts
    • 869 Thanks
    economic
    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.
    • coyrls
    • By coyrls 20th Mar 17, 10:22 AM
    • 851 Posts
    • 865 Thanks
    coyrls
    I'm not sure what you mean by "timing the market".
    Originally posted by Anthorn
    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.html
    Originally posted by Anthorn
    • jimjames
    • By jimjames 20th Mar 17, 1:09 PM
    • 12,017 Posts
    • 10,455 Thanks
    jimjames
    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.
    Originally posted by Anthorn
    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.
    • JohnRo
    • By JohnRo 20th Mar 17, 1:14 PM
    • 2,427 Posts
    • 2,179 Thanks
    JohnRo
    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.
    Originally posted by economic
    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.' - WB
    • BananaRepublic
    • By BananaRepublic 20th Mar 17, 1:28 PM
    • 820 Posts
    • 577 Thanks
    BananaRepublic
    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.
    Originally posted by Anthorn
    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.
    • seacaitch
    • By seacaitch 20th Mar 17, 1:48 PM
    • 68 Posts
    • 123 Thanks
    seacaitch
    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.
    Originally posted by jamesd

    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.
    Last edited by seacaitch; 20-03-2017 at 1:56 PM. Reason: typo; CC ref.
    • Anthorn
    • By Anthorn 20th Mar 17, 1:58 PM
    • 3,101 Posts
    • 798 Thanks
    Anthorn
    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.
    Originally posted by BananaRepublic
    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.

    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.
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