Why is 'Timing' the market bad ?

BrockStoker

grey_gym_sock wrote: »

and i wouldn't call it market timing when you don't intend to increase risk again in the future. it's when you do - e.g. you're holding cash now, but intend to plough it all back into equities later on - that it's clearly market timing.

Which is exactly what Warren Buffet is planning to do with BH's humungus cash pot. He's waiting for the next big correction/crash according to what I've been reading.

If it's good enough for Warren...

grey_gym_sock

BrockStoker wrote: »

Which is exactly what Warren Buffet is planning to do with BH's humungus cash pot. He's waiting for the next big correction/crash according to what I've been reading.

he always holds a lot of cash, to take advantage of opportunities which may crop up (which could be after a crash, or just that shares in a specific company are cheap).

i have not read anything suggesting that he is holding more cash than usual, or that he's sold shares to increase his cash pile (with a view to buying shares back later on).

buffett generally doesn't attempt to call the direction of stock markets. he concentrates on buying shares in companies which he considers high quality and cheap (cheap for the quality).

BrockStoker

grey_gym_sock wrote: »

he always holds a lot of cash, to take advantage of opportunities which may crop up (which could be after a crash, or just that shares in a specific company are cheap).

i have not read anything suggesting that he is holding more cash than usual, or that he's sold shares to increase his cash pile (with a view to buying shares back later on).

buffett generally doesn't attempt to call the direction of stock markets.

All valid points.

As I understand it, he is holding off buying what he would otherwise have bought, until there is a crash/sizable correction. Would that not qualify as market timing, if it's true?

grey_gym_sock wrote: »

he concentrates on buying shares in companies which he considers high quality and cheap (cheap for the quality).

I'd like to think that I do that too (as far as possible), although I hold funds rather than stocks.

jamesd

grey_gym_sock wrote: »

how many p2p platforms are there that it's worth using? if it's (say) 5, then the platform risk is in a sense comparable with putting all your equity investments in 5 individual companies. which most would regard as extremely reckless. with equities, it's much easier to be diversified enough that you don't care about any individual company going bust.

The loans aren't to the P2P company. Even cash isn't in their own bank account but in a client account. The key diversification is the companies you lend to and few would want to restrict their lending to only five borrowers.

There are potential fraud risks, though, so diversification across platforms is useful. Unlike a share dealing platform you don't have FSCS protection for that risk.

Thrugelmir

BrockStoker wrote: »

As I understand it, he is holding off buying what he would otherwise have bought, until there is a crash/sizable correction. Would that not qualify as market timing, if it's true?

Buying in the quantities he does. There must be willing sellers of large lines of stock. Simply not possible to trade in the open market without influencing the price against yourself. Buffet buys as he sees long term value. As with Tesco's even the best get it hopelessly wrong. As the Company's own performance will impact it's share price irrespective of market trends.

elephantrosie

jamesd wrote: »

Congratulations. I hope that you sustain that during the next 45% equity drop.
It's a reasonable example of what it set out to be. A portfolio of trackers with medium-high volatility that so far has not lived through a period of substantial bear market. If you want to beat it you might consider swapping out some of the fixed interest for some P2P and maybe considering whether it has an appropriate asset mix for the current situation.

I stopped giving substantial descriptions of my whole investment mixtures quite some time ago for a range of reasons including:

1. People showing signs of copying me, when I have a volatility and risk tolerance well above average, so that is something I think I need to discourage by making it hard to do.
2. A material proportion of what I now do is in opportunities that could vanish if they became too well known. To protect my own returns I need to avoid saying things that can point people to what I do in those areas.
3. I don't want to do the work.

I've a high P2P weighting and a global tracker is my largest equity holding, with the same one also the largest Slow and Steady holding. My actual P2P return in recent years is higher than the return of the Slow and Steady portfolio and its fixed interest part, with far lower volatility in both that and my overall mixture.

How old are you and what is your full time job? I just wonder how can anyone spend so much time doing homework on investment, with the exceptions of retirees and full time investors.

bigadaj

elephantrosie wrote: »

How old are you and what is your full time job? I just wonder how can anyone spend so much time doing homework on investment, with the exceptions of retirees and full time investors.

Just do some reading, there is a huge free resource available in the Internet.

For many people the answer is just watch a bit less telly, less time at the pub etc, a couple of hours a week in reading and research will give you a good understanding of investments within a few months.

StevieJ

JohnRo wrote: »

That's easy to say now...

..not so easy when you've never experienced that sort of stock market carnage, the sky is falling in, walls are shaking, the ten o'clock news is wall to wall doom and gloom every night, your portfolio is many thousands in the red and everyone is predicting a long grinding road back.

You can hardly sleep with worry about how long it might take to recover this time as the losses mount and you start debating whether it's better to get out now before it sinks another five or ten grand then you can always buy back in when it does.

And there is always some clown on Bloomberg, just when the market is in the depths of despair (say ftse below 3500) insisting that the market is likely to fall to 1800. No it ain't easy.

jamesd

elephantrosie wrote: »

How old are you and what is your full time job? I just wonder how can anyone spend so much time doing homework on investment, with the exceptions of retirees and full time investors.

I started here back in 2005-6. It doesn't take much time when spread out over a decade.

My full time job has nothing to do with investing or financial advice and I'll soon have access to pension money. Back in 2005 I set myself the objective of accumulating enough so that I wouldn't run out of money if I didn't work. Took me less than ten years and also less than ten to get to my initial retirement income target level, though I've changed that now. My savings ratio - percentage of income saved - has averaged more than 60% and I've accumulated more than 90% of my total of (gross pension contributions plus net pay) for all of those years combined at the moment.

grey_gym_sock

jamesd wrote: »

The loans aren't to the P2P company. Even cash isn't in their own bank account but in a client account. The key diversification is the companies you lend to and few would want to restrict their lending to only five borrowers.

There are potential fraud risks, though, so diversification across platforms is useful. Unlike a share dealing platform you don't have FSCS protection for that risk.

apart from the risk of fraud (or of huge administrative errors, which could have similar consequences), you're also dependent on the p2p company's underwriting process. picking the individual loans you invest in (which i assume is how you personally are doing p2p - i.e. not using any automatic investment option) doesn't eliminate that dependency.

you want the platform to weed out any fraudulent borrowers. and to make a realistic assessment the risk of loans, rejecting any that are poor risks. if the platform is setting the interest rate, you want them to set a realistic rate for the risk level. in all cases, you want them to give you accurate and reasonably complete info about the loan, the borrower, and the security.

there may very well be a conflict of interest between a platform, which wants to grow its business by having more money lent through it, and lenders, who don't want excessive risk, and certainly don't want the platform to understate the risks of a loan.

from what i've read of people discussing p2p platforms on here, some of these issues are far from being purely theoretical.

in a sense, by scrutinizing the info a platform provides about loans, you're carrying out double due diligence, of the individual loans, and of the platform itself. nonetheless, some of the risk - of there being a flawed underwriting process, or inadequate info about loans provided to lenders - remains at the level of the p2p platform.