Why is 'Timing' the market bad ?

grey_gym_sock

jamesd wrote: »

All loan offers on a platform are covered by the fair, clear and not misleading requirement. I think that at least one platform is not complying with that requirement to a reasonable extent, indeed, I think it has at times deliberately withheld or misrepresented information. There definitely are conflicts of interest involved, just as there were and to some extent still are in the sale of more general commission-remunerated financial sales business.

If a platform did breach the fair, clear and not misleading rule in a way that under-represented the level of risk, the platform would be likely to be liable to pay redress to the misled investors if there was a loss. One of the platform risks is insolvency due to being unable to pay that bill. The requirement to have a funded, insured or otherwise protected run-off plan in place should protect most lenders after that but not the ones who bought on the basis of misrepresentation.

there is also the possibility that a platform does comply with the fair, clear and not misleading rule, but is just not very good at underwriting.

that would likely result in losses to lenders. the platform would probably not be liable to pay any redress (and if they were, they might not be able to pay, as in the fair, clear and not misleading case).

this is related to the need to rely on your own abilities as an (amateur) underwriter. if the platform is doing their best to be honest with you, but is not very good at filtering out risks it isn't worth taking, are you going to spot those risks?

bigadaj

grey_gym_sock wrote: »

there is also the possibility that a platform does comply with the fair, clear and not misleading rule, but is just not very good at underwriting.

that would likely result in losses to lenders. the platform would probably not be liable to pay any redress (and if they were, they might not be able to pay, as in the fair, clear and not misleading case).

this is related to the need to rely on your own abilities as an (amateur) underwriter. if the platform is doing their best to be honest with you, but is not very good at filtering out risks it isn't worth taking, are you going to spot those risks?

Yes, that's all accepted.

Some platforms have gone under, some loans have defaulted, and in most cases it appears that platforms have risked upsetting the regulator by protecting investors and paying from their own assets or protection funds, to mitigate the risk of bad publicity and upset punters.

You pays your money, or not, and take your profits or losses. Defaults on some platforms are anecdotally high, there a range of business models from unsecured to secured, different assets, different rims and returns.

In fact for the well known platform that does take stick for potentially not being fully transparent this is inherently part of the deal for more experienced investors. Look over at the p2p independent forum, most investors models is often to sell out of loans well ahead of redemption to reduce their default risk, this is obviously doesn't reduce that risk to zero.

BrockStoker

Jon_W wrote: »

I have wondered about this. I am thinking of investing in passive funds but if you were me would you wait until there's a bit of a 'correction'?

If your answer is yes, would you even wait another 2 years sitting on cash if you think that 'correction' will be post-Brexit?

For me it's as much about not investing in something has gone up a lot, as it is about trying to find a "bottom". You can't always get the timing you want, but at least you should be able to get a reasonable price when you buy, if not the "fire sale" price.

I don't think my strategy would work as well with multi-asset funds like VLS. I like to weight my portfolio manually, using specialist funds that focus on particular sectors which I like/understand/follow, and it's a bit easier to work out which way they are likely to go in the future. With a very diverse fund like VLS, you have multiple sectors to try to keep track of, and that makes it much harder to predict what will happen next.

A well diversified fund will also tend to be much less volatile than the types of fund I go for, giving less chance of getting a buy in that's away from the top/getting yourself a significant discount.

If you are just looking for a good entry point (with a fund like VLS, and then hold for the long term), depending on how much you have to invest, it could be a good idea to divide it up into 2-3 portions, invest one part, then another if there is a big dip, and so on. It is a bit of a gamble, but then "cash is king" if there is a correction/crash.

Markets have gone up quite a bit this year, and there are at least a couple of reasonably possible events that could be catalysts for sizable corrections, so while nothing is guaranteed to happen soon, I personally think there will be a useful correction sooner rather than later. Therefore I don't think it's a huge risk to hold on to a bit of extra cash right now and wait, but I always try to hedge my bets in case I get caught out, so I'd never be 100% out of the market.

Some of the funds I hold/or am watching have come down significantly in the last week or two (or four+ in one case), and if they continue to fall in the next week I may consider buying something. For the moment I'm just monitoring the situation, and catching up with what's been going on as I was away for a few days (with no internet) and just got back.

I wouldn't assume that Brexit will be the direct cause of the next correction, but it could easily be, and there are multiple potential flash points between Europe/The Middle East/USA that could easily send shock-waves through markets in the short-medium term. I think the biggest "danger" right now is that the markets have priced in a spectacular (and I think unrealistic) success for Trump, which could easily unwind, and it looks to me like that is starting to happen now.

economic

BrockStoker wrote: »

For me it's as much about not investing in something has gone up a lot, as it is about trying to find a "bottom". You can't always get the timing you want, but at least you should be able to get a reasonable price when you buy, if not the "fire sale" price.

I don't think my strategy would work as well with multi-asset funds like VLS. I like to weight my portfolio manually, using specialist funds that focus on particular sectors which I like/understand/follow, and it's a bit easier to work out which way they are likely to go in the future. With a very diverse fund like VLS, you have multiple sectors to try to keep track of, and that makes it much harder to predict what will happen next.

A well diversified fund will also tend to be much less volatile than the types of fund I go for, giving less chance of getting a buy in that's away from the top/getting yourself a significant discount.

If you are just looking for a good entry point (with a fund like VLS, and then hold for the long term), depending on how much you have to invest, it could be a good idea to divide it up into 2-3 portions, invest one part, then another if there is a big dip, and so on. It is a bit of a gamble, but then "cash is king" if there is a correction/crash.

Markets have gone up quite a bit this year, and there are at least a couple of reasonably possible events that could be catalysts for sizable corrections, so while nothing is guaranteed to happen soon, I personally think there will be a useful correction sooner rather than later. Therefore I don't think it's a huge risk to hold on to a bit of extra cash right now and wait, but I always try to hedge my bets in case I get caught out, so I'd never be 100% out of the market.

Some of the funds I hold/or am watching have come down significantly in the last week or two (or four+ in one case), and if they continue to fall in the next week I may consider buying something. For the moment I'm just monitoring the situation, and catching up with what's been going on as I was away for a few days (with no internet) and just got back.

I wouldn't assume that Brexit will be the direct cause of the next correction, but it could easily be, and there are multiple potential flash points between Europe/The Middle East/USA that could easily send shock-waves through markets in the short-medium term. I think the biggest "danger" right now is that the markets have priced in a spectacular (and I think unrealistic) success for Trump, which could easily unwind, and it looks to me like that is starting to happen now.

can i ask which funds you invest in? thanks

I agree the risks of trump rally correcting are real. if you think the market gives back all the gains since the trump surprise victory, thats about 15% on the dow. that may or may not sound a lot but its by no means a big crash. probably we will get a similar correction like we did in 2015. of course the sectors which has outperformed would correct much more.

i think there are bigger risks. europe is one, china crash landing is another.

BrockStoker

economic wrote: »

can i ask which funds you invest in?

Sure. Here's my main portfolio.

The Biotech Growth Trust PLC 24.72%
Baillie Gifford Japanese Smaller Companies B Acc 11.53%
Artemis Global Energy R Acc 10.88%
Schroder Recovery Z Inc 7.29%
Worldwide Healthcare Trust PLC Ord 7.07%
Stewart Investors Indian Subcontinent A GBP Acc 6.50%
Close FTSE techMARK A Acc 5.56%
Polar Capital Biotechnology R GBP 5.49%
Geiger Counter Ord 4.02%

The last 3 are the latest additions, and everything else has been held for around 15 - 30 months. Geiger Counter is the most recent, and the only fund in negative territory!

I also have another portfolio about 1/3 the size that is all UK (Marlborough Multi-cap Growth and Marlborough Special Situations).

economic wrote: »

I agree the risks of trump rally correcting are real. if you think the market gives back all the gains since the trump surprise victory, thats about 15% on the dow. that may or may not sound a lot but its by no means a big crash. probably we will get a similar correction like we did in 2015. of course the sectors which has outperformed would correct much more.

i think there are bigger risks. europe is one, china crash landing is another.

If the Trump rally unwinds, I think all gains will be erased (the 15% you mentioned), and MORE because of the sudden turn around from euphoria to a great deal of uncertainty of what will come next. It could turn into a very significant correction especially if Trump gets impeached, which I think is a realistic possibility (I have done from the start!).

If one of the other possible events which you or I have touched on (or indeed something else completely unforeseen) comes to pass around the same time (a long shot, but with so many potential flashpoints still a significant possibility IMO) as all the Trump stuff is going wrong, we could have "the perfect market storm".

I don't like to be a doom monger, but in the short time I've been following the markets, the possibilities of things going wrong on a number of fronts all at the same time, right now/in the short-medium term seems significantly increased.

Interestingly, NASDAQ/S&P 500 futures are pointing to a significant down when markets open. Game on, I suspect!

--

For anyone else out there reading this who might be new to investing, now is definitely NOT the time to sell, and probably not the time to buy yet either. If this turns into long drawn out correction as I suspect it might, the next few weeks could be just the start. Of course there are no guarantees, and buying sooner rather than later may make more sense depending on your particular situation and what is happening in the world.

Tip: I closely monitor the top ten holdings of my most important funds, so I can get an idea of what the next fund valuation will be. With concentrated specialist funds you can usually get a good idea if you will be buying on a large dip or an up, the night before you buy (works better with funds invested outside of the UK/Europe because of the time difference - I think we get a slight advantage compared to residents of the countries the funds are invested in).

Knowing the fund you are going to buy very well before you buy helps - in particular knowing what time the valuation point is and how that is connected with the pricing of the top ten holdings of that fund. I also get to know how other funds in the same sector compare, and monitor them as they can also give clues as to what your fund may do if it's similar in composition, but has a different valuation point, although monitoring the top ten holdings closely will be enough to give you a good idea without having to worry about funds you don't hold.

Granted it consumes a bit of time, but I enjoy it, and I believe it gives me a slight advantage to most when it comes to timing my trades.

Apologies for the lengthy post, but I would rather be long winded than vague!

fun4everyone

Nice post for us night owls BrockStoker thanks.


Can I ask if you believe in passive investing for any sectors? I notice you don't have any index funds listed for your main portfolio.


I have constructed my own portfolio recently and most of it is actively managed funds. However for the S&P (large cap USA sector in my mind) I just went with a passive index fund. Is your lack of index funds simply because you prefer an active approach or is it more because you prefer each fund to be far more targeted/specialist than just "large cap USA". Hope that makes sense.

jamesd

Jon_W wrote: »

I suppose people lose jobs = more default.

The two main platforms known for lending to consumers offer a protection fund that would normally pay up in that case: RateSetter and Zopa. Another one has insurance that would pay in an unemployment case.

For loans to businesses the risk depends on the business. Property development loans are fairly common and there could be more and longer delays or a failure to sell for enough to repay the loan. Borrowers on bridging loans might not be able to find a new lender or buyer. Car dealerships might not be able to sell cars as expected and might have difficulty repaying. Same for the wide range of other businesses.

jamesd

grey_gym_sock wrote: »

this is related to the need to rely on your own abilities as an (amateur) underwriter. if the platform is doing their best to be honest with you, but is not very good at filtering out risks it isn't worth taking, are you going to spot those risks?

That's entirely possible and so far I have done fairly well in that area. Notably refusing to do any lending via Bondora outside Estonia, thereby avoiding substantially higher default rates and far worse debt collection performance of those consumer loans. So far my business lending decisions appear to be positive influences on performance, most notably so far a decision to avoid a particular platform that appears to have a negatively evolving bad debt situation.

Whether others can do the same is more questionable, with some signs that many people don't exercise much judgement or do much research or even just proposal reading. People doing that should strongly consider sticking to RateSetter and Zopa, where no additional checking is possible anyway but where to date the underwriting has been of high quality.

When it comes to shares and funds I'm content with my risk decisions. Hopefully you will do no worse.

AnotherJoe

Jon_W wrote: »

So if there was a Brexit vote panic it stands to reason that there will be a panic if we leave without any agreement on access to the single market or of access is somehow limited compared to how it is now.

Which economies shares would that panic affect?
What would such a panic do to the Pound?
How would that affect the prices of non UK shares priced in foreign currencies?
Indeed what would it do to the prices of UK shares whose trading is mostly outside the UK? (clue, look at what happened to FTSE100 in the aftermath of the vote panic)

adindas

SteveG787 wrote: »

Like many people I have made a pretty good gain in my funds over the last few years and have been looking at ways of protecting that gain when the market inevitably turns. On this forum and in other places people say 'Timing the Market' is a "bad" thing, but I am not sure why. As a former engineer my method would be a simple mechanical buy and sell process applied to each fund, if it drops from its top price by more than say 10% then sell, when it rises more than a similar amount above it's low price then buy.
As far as I can see the only problem with this would be if the market turned just after I'd bought or sold in which case I would be left behind and catching up would cost more money.
Obviously this would cost money while in cash and if catching up is required, but I am starting in the position of already being well ahead of the curve (about 40% gain in 3 years).
The intention of this is to protect capital while holding on to much of the gain already made.

Please poke holes and rip to shreds. I realize this is more than likely a bad thing but I'm not seeing it.

This is not an either "timing the market" or "Time in the Market" choice. People have a third option "the combination of the two". Invest it when a good time to invest and forget it.

If you are aiming to invest a large some of money (not drip feeding), and vast majority of people are telling you that we are in the wrong cycle of the financial market to invest then it is not sensible to invest at this time of the market.

Similar to buy property, it is not sensible to buy it when they are at peak like the one in 2000. You might still be making a gain in "time in the market" buying property when they are at peak. But People who bought their property when the credit crunch hit in 2008-2009 and the forget it (the combination of the two) will make the highest gain.

Keep in mind for many people who have not maxed out the the higher interest current accounts and/or RSA there is still a safe option where you could wait while keeping your money up with inflation and wait until the good time to invest a large sum of money. If you ask the commercial unethical financial adviser they might be advising you "the best time to plant a tree was a few decades ago, the second best time is now". But they might have commercial interest for saying so as they might be after a fee when you invest it in the wrong cycle. Also keep in mind it is not their own money they are investing.

I am not a financial analyst I am just applying a common sense and prevent what might be happening like explained in by Snakey in post#2. I might be wrong and therefore open for discussion but I am hoping someone might discuss it or highlight the obvious mistake (if any) of this view.

This is interesting article about "timing the market" or "Time in the Market:
https://www.fool.com/investing/2016/07/01/time-in-the-market-vs-timing-the-market.aspx

http://www.business-standard.com/article/pf/timing-the-market-or-time-in-the-market-114011800697_1.html