Selling everything when the market reaches a new all time high

economic

Ray_Singh-Blue wrote: »

Just tested the original "sell everything" strategy which I mentioned reading about in a book in the OP. Again using monthly S&P500 data, Jan 1950 to Dec 2016.

Summary: it is a very bad idea.

Detail: The suggestion was to sell everything at an all time high, and not buy back in until the market is 10% below its peak.

As someone has pointed out, this results in a lot of time out of the market. In fact you would have been out of the market for 35 of the last 66 years. Notably, you would have sat out the 7 year period from February 1991 to June 1998. You would last have "sold everything" in February 2013, and would have spend the last four years in cash waiting for the S&P to drop to 90% of its current record level, while painfully watching it climb to new heights.

Excluding dividends, over 66 years this ingenious investment strategy provided an annual return of 3.7%. While simply buying and holding, returned 7.7%

Put another way, had you invested $10,000 in January 1950 and played the clever market timing game described above, you would now have $108,275. However, if you had invested $10,000 in the S&P500 in January 1950 and simply left it, it would now be worth $1,333,073. In both cases, assume you simply gave away all the dividends to the local cats home. Obviously the cats home would have done significantly better had you chosen the buy and hold strategy, too.

I wish I could remember the name of book, so I could recommend avoiding it. It was published by FT press I think.

thanks for the analysis. even though it doesnt really change my decision (im holding) it helps me sleep a bit better at night knowing i dont have to worry about corrections etc. still a decent amount of cash is always good to have so i would never go all in.

chucknorris

Crashy must be having an effect on me, I've just sold some ISA & SIPP. I'm just a bit wary that my markets, property and equities seem quite high at the moment.

economic

chucknorris wrote: »

Crashy must be having an effect on me, I've just sold some ISA & SIPP. I'm just a bit wary that my markets, property and equities seem quite high at the moment.

i thought you bought equities for the income?

chucknorris

economic wrote: »

i thought you bought equities for the income?

I definitely do, but I think that you also have to be wary of the asset price too, I am mainly in the ftse 100 at the moment (a volatile index) and it is starting to look a bit toppy to me. So I sold about 160k today, and moved it into cash (within the wrapper).

AnotherJoe

economic wrote: »

ive been overweight US banks for over a year now so along with my tracker funds i have bought US banks. also various other US and UK single name shares. goign forward i am looking for part of it to go to a developed market investment grade bond fund (waiting for rates to nudge higher) and maybe london property once prices drop a bit. im only 33 so time is on my side but i realise i need to invest sooner rather then later.

do you have any suggestions?

Drip feed it. What you invest in drip feeding-wise is a different matter.

Though for someone as young as you, I'd say "how can you lose?" by taking a 20+ year view on healthcare / biotech.

I'm moving (well, pretty much moved now) from focussing on specific sectors to more global generalist funds, but i do have a few % on those two to spice things up a bit

I generally stay away from finance, its too opaque, if I hold (say) a technology company i can get a feel at least for what its doing, with a bank, who knows what sort of mess lies under the covers.

economic

chucknorris wrote: »

I definitely do, but I think that you also have to be wary of the asset price too, I am mainly in the ftse 100 at the moment (a volatile index) and it is starting to look a bit toppy to me. So I sold about 160k today, and moved it into cash (within the wrapper).

do you buy ETFs or trackers? i know the pros and cons, just wondering what you find better and why, asking you as i know you have substantial amounts invested and obviously the experience too.

economic

AnotherJoe wrote: »

Drip feed it. What you invest in drip feeding-wise is a different matter.

Though for someone as young as you, I'd say "how can you lose?" by taking a 20+ year view on healthcare / biotech.

I'm moving (well, pretty much moved now) from focussing on specific sectors to more global generalist funds, but i do have a few % on those two to spice things up a bit

I generally stay away from finance, its too opaque, if I hold (say) a technology company i can get a feel at least for what its doing, with a bank, who knows what sort of mess lies under the covers.

thats a good idea, i will look into biotech/healthcare as well as technology and energy funds focusing on new technology (clean energy, AI etc).

i worked in banking so know a bit but even so you are absolutely right, its a very complex balance sheet and many many moving parts. its been my best investments by far (on a risk adjusted basis) returning me around 40-50% (including the pound falls). if you own a global or US tracker then you will own some US bank shares by default and is a lot of the reason why the DOW has gone up so much.

jimjames

economic wrote: »

its comments like this that make me think there is a lot of (perhaps well intentioned) theory that actually does not make sense. markets may not grow long term forever. there are secular bull and bear markets. where you buy now may have been a very poor investment in 20 years time and you may not ever recover your money again.

Effectively if you don't believe in capitalism then investing isn't the thing to do. But there's no reason why a well diversified portfolio shouldn't still do well over the next 20 years. If we get hit by a comet then I don't think we'd care how our investments were doing anyway.

Saw this earlier

http://www.hl.co.uk/news/articles/why-we-believe-this-bull-market-has-much-further-to-run

bowlhead99

jimjames wrote: »

articles/why-we-believe-this-bull-market-has-much-further-to-run

realanswer/because-if-we-sound-like-we-believe-it-then-our-investors-will-stay-invested-and-we-charge-them-45p-per-hundredpounds-invested-per-year

AnotherJoe

chucknorris wrote: »

I definitely do, but I think that you also have to be wary of the asset price too, I am mainly in the ftse 100 at the moment (a volatile index) and it is starting to look a bit toppy to me. So I sold about 160k today, and moved it into cash (within the wrapper).

Being in the footsy 100 is not really what it sounds like though. It sounds like you are spreading your investments across 100 companies. In reality half if it is in just the top 20 companies which are a very unbalanced set of sectors / industries, and the rest being so small as a % are close to irrelevant, especially the bottom 50.
When you say the footsy is high you are really saying that a handful (well and a footfull) of Pharma and mining companies are toppy. And maybe they are. I do have a few of them just for income so I'm not too bothered by their actual price but I'd never buy them for growth, they are too big to grow much.