Selling everything when the market reaches a new all time high

Ray_Singh-Blue

I remember reading a book about investment, where the author was suggesting applying a couple of "meta-rules" to an investing strategy. One was never to buy into a market which was within 10% of a recent peak, and another was to consider selling everything when a market set a new all time high.

Here we are with US stocks at an all time high. I am quite heavily invested in US stocks as per the plan, and am wondering if now is the time to start selling.

The hesitation is that this would take me away from my preferred asset allocation of 60% equities. And so I would have to decide on a re-investment strategy. Also I'm aware that holding too high a percentage as cash can have risks too.

Anyone grappled with this sort of decision? How did it work out for you?

dunstonh

People who attempt to time the market usually end up with lower returns than those that carry on with their defined strategy and rebalance.

You never know what is coming. So, trying to time something you do not know is impossible. A crash will come. They are always coming. You just dont know when.

Will it go up another 10% before it drops 20% or will it go up 25% before it drops 20%?
When it drops, will you invest after it has recovered 10% or 20%?
Will you then get caught by a second decline not long after?
What is its a more drawn out decline over a longer period and not a short sharp drop?

If you are ought of the market, then you dividends are gone as well and they are an important part of investing.

Linton

Ray_Singh-Blue wrote: »

I remember reading a book about investment, where the author was suggesting applying a couple of "meta-rules" to an investing strategy. One was never to buy into a market which was within 10% of a recent peak, and another was to consider selling everything when a market set a new all time high.

...

Does the author tell you when to rebuy having sold? That's the difficult bit.

In my view the advice is seriously bad as there is you may be out of the market for a long time losing out on gains and dividends in the meantime. If you have predefined your asset allocation both at the bond/equity level and in terms of sectors or geographies all you need do is rebalance say once a year. This will give you a degree of "selling high and buying low" on long term market movements rather than being distracted by noise.

JohnRo

Anyone grappled with this sort of decision?

All the time and none of the time. I was sorely tempted to cash out of biotech at what turned out to be the recent peak and didn't.

Most of my attempts at timing the markets have seen less than impressive results. Most of my disciplined and planned executions have seen reasonable results.

The money I have in equity investment is, for now at least, all things considered, money I have nowhere else better to put, so plan to use it to generate a compounding income stream in a structured and planned way.

I decided long ago I'm in for the long haul, so stock markets, do your worst.

Off the top my current split is very approx.

75% equities (30/70 income/growth)
15% cash
10% corp bonds

bowlhead99

If the market went up in a straight line, every single day would be a new all time high, yet putting new money in would always be the best possible thing you could do.

Markets do not go up in a straight line and so putting new money in is not always, but is still sometimes, the best thing you can do. You could decide to take it out, but in order for that to be profitable, you would have to know when putting it back in is going to be the best thing to do.

You say you are quite heavy in US stocks "as per the plan". What does the plan say you should do when prices change? If it doesn't, it is not much of a plan. But presumably the "plan" was formulated with some logic. So what does the logic say you should do when the prices change?

If your issue is just that the US equities appear expensive on some measure or other, taking money out of US equities does not need to change your 60% equities asset allocation. You could put the money into non-US equities instead. That would change your ratio of US to non-US equities of course, and might not be in line with your 'plan', unless the plan is for "60% equities avoiding equities that appear expensive according to some measure or other".

A standard thing to do when one asset class becomes more expensive or a large part of your portfolio, is to see whether you are still happy with its weighting compared to other parts of your portfolio. If you are not, what would you be happy with? Shift your allocation to that instead.

You may be thinking that all the main asset classes are all expensive. You then have the choice to switch to just the ones which are expensive but relatively less expensive than the worst ones. However, that concentrates your risk into only a few classes/ sectors and gives considerable scope to be wrong in your assessment of which ones were relatively expensive for what they offered.

Presumably the expensive ones are expensive because a lot of people want them. Do you believe they right to want them? If so, follow the market. Do you believe they are wrong to want them? If so, be a contrarian and risk 90% of the world telling you 'told you so' if it is you that's wrong.

BananaRepublic

How does one know when the market is approaching a high? During the last boom, people were saying to sell up, and yet the market when up and up. So by selling early, you would have missed out on a lot of upside. If it was that easy to make money, then everyone would be bailing out at the right time. They don't, irrational exuberance prevails, until a bust, in which case irrational pessimism rules. Market sentiment and unexpected events are unpredictable.

dunstonh wrote: »

People who attempt to time the market usually end up with lower returns than those that carry on with their defined strategy and rebalance.

They do, as proven by various studies as you well know.And as you well know, generally the best advice is to trickle money in, and then leave it for the long term. Well, it works for me.

Eric_the_half_a_bee

Ray_Singh-Blue wrote: »

Here we are with US stocks at an all time high. I am quite heavily invested in US stocks as per the plan, and am wondering if now is the time to start selling.

Too late. You should have sold three years ago, when they were also at an all time high. Your failure to act has meant you have had to suffer a 30% increase in value since then.

Malthusian

Someone who didn't invest in the UK stockmarket in May 2013 because the market was at an all time high and sat in cash would have missed out on 25% growth today.

Read fewer books about investment, most of them are total rubbish. There is not enough reading time in our short lives to waste it on investment books. Have you really exhausted every single one of those "100 novels to read before you die" lists?

You should "consider" selling everything when the market's at an all-time high? Well that's useful advice [/sarcasm]. You should always consider all options at all times, so that tells you nothing. If you sell all your shares and they then continue to go up and it turns out your poor choice of literature has lost you thousands of pounds, the author can simply say "hey, I only said you should consider it, I didn't say you should actually do it".

Ray_Singh-Blue

bowlhead99 wrote: »

You say you are quite heavy in US stocks "as per the plan". What does the plan say you should do when prices change? If it doesn't, it is not much of a plan. But presumably the "plan" was formulated with some logic. So what does the logic say you should do when the prices change?

It says "consider selling everything when markets reach an all time high". So, voila, consideration. Every now and again I get a rush of blood to the head like this & the advice posted here is generally a great antidote. :beer:

The argument I find most compelling is that it is problematic to know when to buy back in. 10% less that today's level = could be waiting years, or could never happen. 10% less than a future peak could be more than today's level. So will probably adopt my preferred policy of masterly inactivity & do nothing.

However I'm attracted to the idea of not buying any more units until 10% below a recent peak. That feels easier to live with perhaps?

Malthusian

Ray_Singh-Blue wrote: »

However I'm attracted to the idea of not buying any more units until 10% below a recent peak. That feels easier to live with perhaps?

Depends on availability of funds to invest. If you are currently near fully invested and are dabbling with switches or adding a few thousand quid here and there then it probably won't do much harm. If you have £100,000+ to invest from an inheritance or pension contribution then waiting for the market to go down to a certain level could cost you a huge amount of money.

Pincher

If you want to go by Technical Analysis, go and learn TA.

I just go by my left big toe, works just as well.