Selling everything when the market reaches a new all time high

Mogley

I have read most of this thread and find it very interesting seeing peoples attitude to the markets being at an all time high. I thought the whole idea of investing was so that the markets you are invested in keep growing and growing. The high point therefore doesn't matter. Just keep investing. The only point in which anybody investing for the long term should time the market is when they're investments have an equivalent value in cash to satisfy their specific savings goal(s).
This is easy for me to say as I am relatively new to investing (passively) and have time on my side. I'll continue to drip feed within my own predetermined balance of funds, re-balancing occasionally when weighting dictates.

Good luck with timing the market .

Ray_Singh-Blue

Linton wrote: »

A major factor behind the VWRL being up 29.3% is because the £ is down 16.5% against the $ in the past 12 months. Would a 13% rise in one year have spooked you?

Interesting question. No 13% wouldn't.

I think when I started this thread the figure was closer to +20% which must be my "spook point" & the spook has been steadily building since. +30% does indeed feel pretty spooky.

It is strange, I thought I had the whole risk tolerance sussed, for example I am sure I could cope with a 30% or 40% decline without panic selling, Indeed I would buy more. But this is something different. I haven't bought anything for 6 months & keep hovering over the sell button, despite having a written investment statement calling for 60% equities.

Pincher's advice sound closest to where I am at the moment - to sell half & see what happens. But this would be a departure from the plan I have followed strictly for a couple of years, so I'm here wrangling...

economic

Mogley wrote: »

I have read most of this thread and find it very interesting seeing peoples attitude to the markets being at an all time high. I thought the whole idea of investing was so that the markets you are invested in keep growing and growing. The high point therefore doesn't matter. Just keep investing. The only point in which anybody investing for the long term should time the market is when they're investments have an equivalent value in cash to satisfy their specific savings goal(s).
This is easy for me to say as I am relatively new to investing (passively) and have time on my side. I'll continue to drip feed within my own predetermined balance of funds, re-balancing occasionally when weighting dictates.

Good luck with timing the market .

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. no ones sure at all what will happen. key thing is to try remain diversified in order to protect you as much as possible. its a nasty world and a lot can happen.

Mogley

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. no ones sure at all what will happen. key thing is to try remain diversified in order to protect you as much as possible. its a nasty world and a lot can happen.

They may not grow in future and that's the risk we are willing to take by the very nature of investing. It's a far better situation than spending the money now living for the moment and not saving/investing for the future. Most people on this thread already have significant sums invested and buy/sell decisions are not taken lightly. My backside would be twitching at the thought of changing my portfolio mix by more than 20% at a time on such large sums of money! As you say though, diversification is key!!

BrockStoker

Also a little tempted to sell here. What worries me is that a lot of my funds have reached inflection points in the last year, and if I were to sell (what had gone up) now, I'd be selling the goose that keeps laying the golden eggs so to speak.

I also think currencies could remain unsettled for a lot longer than I initially thought, so I don't think there's any rush to cash in. All my funds are for the medium-long term anyway, and I'm not sure where I could put the cash if I sold up. The last thing I want is to be stuck with too much cash!

Ray_Singh-Blue

Following an abnormally good year, are markets more likely to have a bad year? My head says yes but perphaps the data says something different...

I'm at a loose end so just copied and pasted 66 years of data for the S&P500 from Yahoo finance. (I know we are talking about a different index, but data was easy to find for the S&P500).

I calculated the performance over the previous year, for each of the 794 one month periods. These ranged from -44.9% for the year to February 2009, to +52.9% for the year to June 1983. Average performance was +8.8%

Then I looked only at years where the performance in the preceeding year had been greater than +30%. Out of the 794 possible (non-calendar) years, 66 performed greater than +30%.

What I was interested in, was the performance of the index in the following year, at each of these abnormally good points in history.

I was suprised to find that after an abnormally good year, the average return the following year was +10.1% (highest +35.4% in the year to September 1954, following a return of 38.4% in the year to September 1953; lowest -20.7% in the year to August 1987 following a return of 30.4% in the year to August 1986).

This was not what I expected. I'm no statistician so do not know if this is significant. But am feeling so conflicted! Maybe I'll just stay the course... I think you may have talked me down for now MSE, thanks!

ChesterDog

That's very interesting, but I personally don't find it very surprising.

One-year periods probably don't tie in significantly to the trend of the markets.

Also, I think people have a strong psychological tendency to regard a market 'high' as a peak. Obviously it may be just that, but equally obviously...

It all comes down to timing the market. As far as I am concerned, if your likely return over a ten year period (with all its ups and downs) isn't good enough for you, then you shouldn't be in the market.

Ray_Singh-Blue

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.

Thrugelmir

Mogley wrote: »

I have read most of this thread and find it very interesting seeing peoples attitude to the markets being at an all time high. I thought the whole idea of investing was so that the markets you are invested in keep growing and growing. The high point therefore doesn't matter. Just keep investing.

Why are the markets continuing to grow at the current time? Answer that and it's really self explanatory. People invest for reasons not on whims.

economic

Thrugelmir wrote: »

Why are the markets continuing to grow at the current time? Answer that and it's really self explanatory. People invest for reasons not on whims.

- signs of economic growth
- bond market turning into a bear market
- increasing inflation expectations
- savings rates too low
- capital flight out of bankign system/ countries
- trump policies spilling over to rest of world (US leads world growth)