Am I making a mistake by delaying investing?

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If you have a "bad gut instinct" don't do it. Many markets to invest besides FTSE 100 which is generally a terrible index.

jimjames

EdGasket wrote: »

Timing is everything.

If you had bought FTSE in year 2000 near its peak then, you would just about be recouping your money now. However if you bought in 2008, near the low you'd be making 60% gain or so. (Agreed in both cases you'd get some dividends too)

That's just not correct though as you're completely missing out the effect of dividends. "Some dividends" is actually over 100% return over the last 16 years.

My Fidelity tracker was 48p in Jan 2000, £1.10 now

AddictedSaver wrote: »

Everyone knows buy low and sell high but where is the logic in buying when the price is at it's peak? As I said I am going to invest for 20+ years but I'm just scared to invest when the market is sky high.

Many markets are nowhere near previous highs. Even UK if you take account of inflation isn't close to previous peak. As per my example above, even when the index drops you still have reinvested dividends and those buy more units if the price is lower.

talexuser

AddictedSaver wrote: »

Now I've got it sown into my mind that brexit will be the next one.

Obviously if that is your feeling it is wrong for you to invest at this time and you should wait for the next big downturn. But no-one here can predict when that is going to be.

fairleads

masonic wrote: »

Well it seems you are making a false premise of your own then, because many people do invest in market indices through index trackers, and many funds are closet trackers. Even one or two traders who post here can be found musing about their ukx trading results. So research papers that use market index returns will be attributable to real life situations.

But there are plenty of studies that have shown investors who try to time the market suffer a worse outcome than those that remain invested using real data from investment funds. For example, this study, originally published in the Journal of Banking and Finance, and the popular QAIB report from Dalbar. Not to forget reports of Fidelity's study in which they apparently found that their most successful investors were the ones who forgot they had an account. You may object that these studies are focused on the USA and not relevant to you, but most people should have a fair chunk of their portfolio allocated towards the world's largest market and I'm sure you could find equivalent UK-centric studies if you looked hard enough.

Anecdotal evidence from this very forum would suggest a whole series of seemingly knowledgeable posters have got their market timing wrong, with people declaring markets overvalued as early as 2013, some of whom used quite well regarded valuation metrics and data, such as CAPE, to support their position. However, even armed with such an analysis, your powers of prediction are only very modest. I'll refrain from commenting on the virtues of timing your trades based on technical indicators.

All examples in the links provided are presented by institutions that have a vested interest in financial services.

Further, the results presented in those web pages are based upon the behaviour of the ‘average market timing’ investor.
Moreover, the examples provided are exclusive to one asset class, in this case not index funds but investors jumping in and out of mutual funds. Whereas i’m basing my argument on the experience of one ‘market timing’ investor who has jumped in and out in a variety of asset classes- over decades- depending purely upon whether they deem a particular investment /fund/trust or index to be over sold or over bought.
The most difficult part is acquiring the requisite discipline and patience.
And the most interesting part is that it is the actions of the average investor – jumping in and out of the market at the most inappropriate times, drip feeding on a regular basis and/or reinvesting the dividends, for example - that increases the profit potential for the experienced individual market timer.

masonic

fairleads wrote: »

All examples in the links provided are presented by institutions that have a vested interest in financial services.

Further, the results presented in those web pages are based upon the behaviour of the ‘average market timing’ investor.
Moreover, the examples provided are exclusive to one asset class, in this case not index funds but investors jumping in and out of mutual funds. Whereas i’m basing my argument on the experience of one ‘market timing’ investor who has jumped in and out in a variety of asset classes- over decades- depending purely upon whether they deem a particular investment /fund/trust or index to be over sold or over bought.

Oh, so the basis for what you are saying is your personal experience. It may be the case that you are an exceptional market timer and what applies to most people does not apply to you, although you might need to be wary of the Dunning-Kruger effect or the possibility that your results should be attributed to luck.

The most difficult part is acquiring the requisite discipline and patience.

I'd agree with this, but it seems at odds with the rest of your post.

And the most interesting part is that it is the actions of the average investor – jumping in and out of the market at the most inappropriate times, drip feeding on a regular basis and/or reinvesting the dividends, for example - that increases the profit potential for the experienced individual market timer.

Those jumping in and out of the market and overtrading would certainly increase the profit for institutional investors (as this study concludes). But in the UK, for example, private investors make up such a small percentage of trades, their ineptitude is unlikely to translate into much of a benefit to others. Unless you think you are able to outmanoeuvre the institutional investors as well (which you might well believe for all I know).

In any case, you appear to have self-identified as an outlier among private investors, possessing a rare skill of being able to time the market, and through an act of charity, have thrown the rest of us a bone in calling the top of the market. Those who wish to emulate your strategy will now be able to sell their investment portfolios and await further instructions. I do hope you will come back and let us know when we've reached the bottom of the coming crash.

Tumbleweed911

I too am very nervous about the markets at present.

We are in such uncharted waters with the scale of quantitative easing and record low interest rates. So many “ordinary” savers have ploughed into the markets in search of better returns it’s very difficult to see what the true value of anything is.

masonic

Tumbleweed911 wrote: »

I too am very nervous about the markets at present.

We are in such uncharted waters with the scale of quantitative easing and record low interest rates. So many “ordinary” savers have ploughed into the markets in search of better returns it’s very difficult to see what the true value of anything is.

Not to mention the fact we're valuing things in a currency which itself has rapidly devalued.

fairleads

masonic wrote: »

Oh, so the basis for what you are saying is your personal experience. It may be the case that you are an exceptional market timer and what applies to most people does not apply to you, although you might need to be wary of the Dunning-Kruger effect or the possibility that your results should be attributed to luck.


I'd agree with this, but it seems at odds with the rest of your post.


Those jumping in and out of the market and overtrading would certainly increase the profit for institutional investors (as this study concludes). But in the UK, for example, private investors make up such a small percentage of trades, their ineptitude is unlikely to translate into much of a benefit to others. Unless you think you are able to outmanoeuvre the institutional investors as well (which you might well believe for all I know).

In any case, you appear to have self-identified as an outlier among private investors, possessing a rare skill of being able to time the market, and through an act of charity, have thrown the rest of us a bone in calling the top of the market. Those who wish to emulate your strategy will now be able to sell their investment portfolios and await further instructions. I do hope you will come back and let us know when we've reached the bottom of the coming crash.

Forgot to mention that deriving an extra ordinary profit from timing the market is not dependent on calling the extreme top or bottom of the market. And neither does it involve disposing of all one’s holdings. All you need to do is trade the volatility inherent in some of the more popular shares/trusts etc with some of your capital.
I’m sure Woodford/Slater and other Alpha managers prefer buying low and selling higher rather than climbing in to any old share at month end regardless of its valuation. If a trade goes against you, and it can in the short term, it’s just a matter of sitting on it until the outlook and valuation for that particular investment improves, just as the average amateur long only investor, such as yourself, does.

jimjames

Tumbleweed911 wrote: »

I too am very nervous about the markets at present.

We are in such uncharted waters with the scale of quantitative easing and record low interest rates. So many “ordinary” savers have ploughed into the markets in search of better returns it’s very difficult to see what the true value of anything is.

So how has that changed from 2009? Interest rates are barely any different and QE is virtually unchanged. P/E is a measure of value, companies still need to make profits.

masonic

fairleads wrote: »

Forgot to mention that deriving an extra ordinary profit from timing the market is not dependent on calling the extreme top or bottom of the market. And neither does it involve disposing of all one’s holdings. All you need to do is trade the volatility inherent in some of the more popular shares/trusts etc with some of your capital.

This could be achieved by coming up with an asset allocation and rebalancing your portfolio accordingly. Or taking dividends and, rather than reinvesting them in the holdings that paid them out, reinvest them in your holdings that have fallen in the short term. Both sensible strategies. I rather suspect you are alluding to an approach that is a little more tactical than that, but going slightly overweight in certain investment trusts when they are at unusual discounts and taking profits as they move into premium is a strategy I have used, so I am not arguing against using volatility to your advantage - although I think that discussion goes beyond the scope of a thread started by someone new to investing.

However, you stated earlier that the OP should not invest now and should wait for a better opportunity in the future (I'm paraphrasing, of course, but that was the apparent intent). If this isn't the extreme top then there could be months or even years of opportunity cost in the OP holding off, and the next fall when it comes may not take us below current levels on a total return basis. You'd need to have a pretty high conviction that this is in fact the cliff-face of a significant crash in order to encourage someone not to invest at all, as you seem to have done.

I’m sure Woodford/Slater and other Alpha managers prefer buying low and selling higher rather than climbing in to any old share at month end regardless of its valuation. If a trade goes against you, and it can in the short term, it’s just a matter of sitting on it until the outlook and valuation for that particular investment improves, just as the average amateur long only investor, such as yourself, does.

I don't recall seeing the funds managed by those star managers having significant cash positions because they were trying to avoid putting new money into the market. In fact, they have a great track record of generating returns while remaining in the market at all times. If people like their approach, there is no need to do some kind of DIY emulation - they can just buy into those funds and hold them over the long term.