I'm timing the market - who's in?

adindas

Michael121 said:

adindas said:

As previously mentioned people are entitled to their own opinion.

People could easily see that +7%, +5%, +4.5% or even +4% in saving is bigger than the return from the stock market -15% (say). That is where part of the money are sitting waiting allocation for drip-feeding (DCA) in the stock market if they have lump-sum and do not want to throw a few hundred thousands in one go in the stock market. Also, generally, in the bear market the market fall more than it raises.People who can not see this might have the problem with comparing the number which is important in making decision in investment.

I personally and I believe many of sensible people would rather listen to analysts strategist in CNBC, Bloomberg, yahoo finance, CNN finance, reuters, WSJ rather than random people in the internet. And, I wonder why these channels have so many fewer, readers just to watch, listen or read nonsense?? well it might be

I'm sure most of them was calling for spy 4500-5k 2022. 

I do not know about that. But if you watch to these channel  CNBC, Bloomberg, yahoo finance, CNN finance, reuters, WSJ regularly, you would have noticed that most of t hem (if not all) are against to fully invest put all of the money in stock market during the bear market. For retail investor, fully invest would mean you threw all of your money even a few hundred thousands you have at that time to the market. See what happen to these people now following the advice of random people on the internet. In early 2022, they were people very vocal cheering up each other suggesting people to throw all of their hard earning cash a few hundred thousands to the stock market, as doing drip feeding will mean you are timing the market. Sofar, there is no evidence those who were suggesting people to do that have done that themselves.

Some people instead of throwing them all, they put some part of the money to high interest regular saving. I have RSA with Cambridge BS which will mature on early March paying 5%, I also have RSA paying 7% in First Direct that will mature in May among with others paying 4.5%. I believe people who use their common sense, could easily see that these money is currently doing more or have higher probability to earn more than those who blindly threw all of their lump-sum a few hundred thousand in 2022. Those saving earning lower interest rate have been deployed regularly using drip-feeding (DCA). The exception, if they have a crystal ball or belongs to a few who are very lucky they could call the bottom. Keep in mind we are talking about the bear market here, not in the bull market.

Sometimes, common sense work better. If you know a river full of crocodile and experts have been saying that, you still cross that river, than people just wish you luck if  you want to take your chance. But who knows you might be lucky.

MK62

Prism said:

adindas said:

Surprisingly those who were suggesting other people to throw  a few hundred thousands lump sum in one go have never done that themselves and are now silent. Most of the advice not to time the market is referring to the bull market, as in the bull the market, the market goes up more than it falls. so whenever you throw your money it will always go up in the future. It is different with the bear market as the market will go up and down like yoyo before sometimes falling again reaching a new 52-weeks low. The bear market could take months, years before turning into the bull market.

If the expert consensus (if not all) is we are in the bear market and they have been saying what strategy work better, also reflected from their action in the bear market and people still do not get it, that is the problem.

You do not need statistics to know that most people those who have done drip-feeding (DCA) have done better than those who throw lump-sum a few hundred thousand pound in the current market. Unless for person who had a crystal ball or a few people who were very lucky to catch the bottom by randomly throwing their lump-sum money. But considering the bottom were only a few days, that probability is very low. Never mind  the market could go lower this year considering the bear market is not over yet.

Everyone could easily see that +3.9% partly sitting in saving waiting allocation for DCA is higher than negative return say -15% from the market.

Here is an example which hopefully explains why I don't agree with your reasoning.

There are two people, one who invested in equities a while back and the other kept it in cash. However at this moment they have exactly the same amount which is £100k. We are in a bear market as their index has dropped by 20% recently. 

The first person, who is currently invested in equities is getting nervous and their mouse is hovering over the sell button.
The second person, after being advised on a forum to lump sum it all in, is hovering over the buy button.

What would you do if you were them? Are you suggesting that there should be different advice for these two people? Or if you don't think that the second person should lump sum it in then surely the first person should sell out. Then they could drip feed in together over the next year or so. If the first person should sell out, then surely everybody should sell out under the same conditions.

The history of how they got to this point isn't relevant - its what they do today

For reference I have previously lump summed a few hundred thousand pounds in around 10 minutes, which is the time it took to click the buttons. Although I didn't know, it happened to be during a downturn and it was a great bit of luck in hindsight, although that had no affect on my choice.

There are many ways to "cost average" though, not just the methods backtested by financial journalists and companies - some show a different picture......and require no real market timing/forecasting/predicting capabilities.

In all of this though it should be kept in mind that in the majority of cases over the last 22 years (ie since 2000) the differences between LSI and DCA are most likely relatively small (within a few % either way,)......though of course, there are exceptions both ways.

What if you only invest part of your lump sum on "A-day", and then just wait for a lower price than the A-day price to invest the rest......no market prediction involved - just wait for the lower price.......what's the probability then that you'd have been better off just investing it all on A-day?....

adindas

MK62 said:

There are many ways to "cost average" though, not just the methods backtested by financial journalists and companies - some show a different picture......and require no real market timing/forecasting/predicting capabilities.

In all of this though it should be kept in mind that in the majority of cases over the last 22 years (ie since 2000) the differences between LSI and DCA are most likely relatively small (within a few % either way,)......though of course, there are exceptions both ways.

Indeed there are various way of doing DCAs. Some people are combining it with technical Analysts. Keep in mind even the price of particular assets already below (or even far below) the intrinsic/fair value it does not mean they will not be falling again, especially during the bear market. It is not very uncommon an assets are trading far below their fair/intrinsic value.

John Maynard Keynes famous quotation: “Markets can stay irrational longer than you can stay solvent.

In this case the particular assets is not trading on Fundamental value any longer but more to do with exuberance (e.g sentiment in the market). Technical skill analysing price/volume movement to make a good prediction might be more useful than fundamental analysis in this particular case.

And in  your quotation above you are talking about 22 years time span. Well No bear market has lasted that long in the history, even you half that figure.

MK62 said:

What if you only invest part of your lump sum on "A-day", and then just wait for a lower price than the A-day price to invest the rest......no market prediction involved - just wait for the lower price.......what's the probability then that you'd have been better off just investing it all on A-day?....

What you are are actually doing here is not Lump-sum investment (LSI), more close to DCA (e.g enhanced DCA) as you are still holding part of your lump-sum waiting for a new low. I personally am not against sensibly timing the market, most strategists (if not all) are timing the market, All traders are timing t he market.  But many people here on MSE are very allergic with that wordings without practically referring to the market condition whether it is a bull or a bear market.

But you could only do that with certainty or high probability if you have a crystal ball to call the bottom, or you have good skill in technical analysis.

In the bear market the price go up and down, typically trading within a channel and before it might be falling again reaching a new 52-weeks low. But it could also happen the previous low was already a new low and the next low is higher low. Waiting a new low could  mean you will not be investing the rest of your money, you might be missing the next bull run.

Also another thing some people seem fail to recognise when comparing DCA vs Lump-sum is that, if you have a few hundreds thousand pound to throw into the market and you do not want to do LSI (lump-sum), sensible people will put part of the money into high interest saving accounts. There are currently RSA paying 7%, 5%, reasonable number of RSA paying 4.5%, as well one year fixed rate 4.1%.

While there are research showing that DCA performing  better in majority of the bear market, they have not included the fact that some part of the money are sitting in the saving account earning 4%+ (in case of UK) waiting their turn for DCA. So add that 4%+ to the difference between DCA vs LSI. Do people still need statistics to recognise which one win in the bear market ??

MK62

adindas said:

You could only do that with high degree of accuracy of you have a crystal ball, or have good skill in technical anaylysys.

What you might forget here is that, in the bear market the price go up and down typically trading within a chancel and before it might be falling again reaching a 52-weeks new low.

Also another thing some people seem fail to recognise is that, if you have a few hundreds thousand pound to throw the the market and you do not want to do LSI (lump-sum), sensible people will put part of  the money into high interest saving account. There RSA paying 7%, 5%, reasonable number of RSA paying 4.5%, as well one year fixed  rate 4.1%.

While there are research showing that DCA performing  better in majority of the bear market, they have not included  the money sitting in the saving account earning 4%+ (in case of UK).

Add that 4% to the difference of DCA vs LSI do people still need statistics to recognise which one win ??

I think you misunderstand.......I'm not talking about doing any technical analysis or market price predictions, or needing a crystal ball etc........all I'm saying is to either -

a) just invest the whole lump sum on A-day. 

or

b) invest part of the lump sum on A-day and then simply wait for a lower price to invest the rest (for a max of say 12 months, but you can set any time limit you want really).

What you are are actually doing here is not Lump-sum investment (LSI), more close to DCA (e.g enhanced DCA) as you are still holding part of your lump-sum waiting for a new low

Yep.....as I said, there are many ways to "cost average".

BTW, it's not waiting for a new low.....it's simply waiting for a price lower than the A-day price.

adindas

MK62 said:

b) invest part of the lump sum on A-day and then simply wait for a lower price to invest the rest (for a max of say 12 months, but you can set any time limit you want really).

What you are are actually doing here is not Lump-sum investment (LSI), more close to DCA (e.g enhanced DCA) as you are still holding part of your lump-sum waiting for a new low

Yep.....as I said, there are many ways to "cost average".

BTW, it's not waiting for a new low.....it's simply waiting for a price lower than the A-day price.

If this what you mean, you might have a better chance to outperform compared to those who blindly throwing all of their lump-sum money knowing we are in the bear market.

But you are still timing the market. Many people in this MSE forum are allergic with that wordings without differentiating, whether it is the bull of the bear market. Part of your money presumably still sit in RSA paying 7%, 5%, reasonable number of RSA paying 4.5%, as well one year fixed rate 4.1% currently better than the return from the stock market. Also, because in the bear market there is more chance that the market fall more than it raises.

There are already research showing that DCA, investing in a smaller chunks has a higher probability to outperform Lump sum in the bear market.

There has not been any research like what you are proposing to split money into 2-3 big chunks (or whatever) waiting for a price to reach lower than the A-day price. The risk here is also the same with what previously mentioned, you might not get price lower than the A-day price you are expecting.

So for people who do not want to perform technical analysis, at least skills like watching regular news, causing this bear market in the first instance such as inflation, War in Ukraine, Energy /Food Shortages, Global supply chain, Chips shortages is still needed

MK62

adindas said:.

There has not been any research like what you are proposing to split money into 2-3 big chunks (or whatever) waiting for a price to reach lower than the A-day price. The risk here is also the same with what previously mentioned, you might not get price lower than the A-day price you are expecting.

You may not, and that's a risk, but what do you think the odds were of that if investing, for example, in the S&P500 or the FTSE All Share over the last 23 years?

As for research, you may be right........but it's not that hard to do your own if you can find the data you want and are handy with spreadsheets........

NedS

MK62 said:

adindas said:.

There has not been any research like what you are proposing to split money into 2-3 big chunks (or whatever) waiting for a price to reach lower than the A-day price. The risk here is also the same with what previously mentioned, you might not get price lower than the A-day price you are expecting.

You may not, and that's a risk, but what do you think the odds were of that if investing, for example, in the S&P500 or the FTSE All Share over the last 23 years?

As for research, you may be right........but it's not that hard to do your own if you can find the data you want and are handy with spreadsheets........

Exactly. The FTSE100 is near an all time high at 7800. What are the chances that the FTSE100 will never be lower than 7800 again, and that right now we are at a never to be seen again low. Near zero I'd say. It is possible, but I would not be committing any new capital to the markets today as it is a near certainty that better opportunities will be available shortly.

NedS

Trading update:

Sold a further 5000 CTY shares today at 425.2515p with fees of £12.95. Net position is now:

Shares: 5000

Cash: £50,684.76

zagfles

MK62 said:

adindas said:.

There has not been any research like what you are proposing to split money into 2-3 big chunks (or whatever) waiting for a price to reach lower than the A-day price. The risk here is also the same with what previously mentioned, you might not get price lower than the A-day price you are expecting.

You may not, and that's a risk, but what do you think the odds were of that if investing, for example, in the S&P500 or the FTSE All Share over the last 23 years?

As for research, you may be right........but it's not that hard to do your own if you can find the data you want and are handy with spreadsheets........

I happen to have a spreadsheet of the Dow from 1985 to 2021 with month start/high/low figures, which I used in a previous market timing discussion with jamesd. Was easy to amend to test this sort of thing.

First test:

Compare investing £100 every month at the start of every month (A-day) with waiting for a target market drop of %x and then investing, or never investing if the target isn't hit.

If the market does drop by x%, then you win, you've bought cheaper and got 100/(100-x) shares, eg if x is 10% then you've got 111.1% of the shares you would have got had you invested on A-day.

If you lose, ie the market is never 10% lower, the loss is far greater, you have [A-day price]/[price now]% of the share value you would have had, "now" being July 2021 as that's when my data goes up to.

I averaged this for every month between 1985 and 2021 with various values for x. Obviously if x is low eg 1%, then you win most of the time, but the gain is only just over 1%, so the gain is small, but when you lose, you lose far bigger. If you set x bigger eg 20% the the gain is bigger when you win but of course you win far less of the time.

Results are pretty conclusive, if you wait for a drop of 5% you'll get 87% of what you would have got without market  timing. A drop of 10%, you get 73%, And it gets worse with bigger values for x. The only value that wins is 1%, and that was trivial, 100.06%

Second test: Probably more realistic, as mentioned above cut losses after 12 months if target drop isn't hit and buy then.

So here, the upside is as before, ie 100/(100-x)% if the target is hit.

Downside if target isn't hit is [A-day price]/[price 12 months after A-day]%

Here, waiting for a 5% drop averages 98%, 10% averages 95%, then it stays around 92-95% whatever values you use. So smaller losses, but still losses. Using very small values for x there's a very slight average gain, 1% is 100.63% 2% is 100.7%, 3% is 100.28%. But probably not worth daily price monitoring for a 2% drop to make on average 0.63% more!

adindas

zagfles said:

MK62 said:

adindas said:.

There has not been any research like what you are proposing to split money into 2-3 big chunks (or whatever) waiting for a price to reach lower than the A-day price. The risk here is also the same with what previously mentioned, you might not get price lower than the A-day price you are expecting.

You may not, and that's a risk, but what do you think the odds were of that if investing, for example, in the S&P500 or the FTSE All Share over the last 23 years?

As for research, you may be right........but it's not that hard to do your own if you can find the data you want and are handy with spreadsheets........

I happen to have a spreadsheet of the Dow from 1985 to 2021 with month start/high/low figures, which I used in a previous market timing discussion with jamesd. Was easy to amend to test this sort of thing.

First test:

Compare investing £100 every month at the start of every month (A-day) with waiting for a target market drop of %x and then investing, or never investing if the target isn't hit.

If the market does drop by x%, then you win, you've bought cheaper and got 100/(100-x) shares, eg if x is 10% then you've got 111.1% of the shares you would have got had you invested on A-day.

If you lose, ie the market is never 10% lower, the loss is far greater, you have [A-day price]/[price now]% of the share value you would have had, "now" being July 2021 as that's when my data goes up to.

I averaged this for every month between 1985 and 2021 with various values for x. Obviously if x is low eg 1%, then you win most of the time, but the gain is only just over 1%, so the gain is small, but when you lose, you lose far bigger. If you set x bigger eg 20% the the gain is bigger when you win but of course you win far less of the time.

Results are pretty conclusive, if you wait for a drop of 5% you'll get 87% of what you would have got without market  timing. A drop of 10%, you get 73%, And it gets worse with bigger values for x. The only value that wins is 1%, and that was trivial, 100.06%

Second test: Probably more realistic, as mentioned above cut losses after 12 months if target drop isn't hit and buy then.

So here, the upside is as before, ie 100/(100-x)% if the target is hit.

Downside if target isn't hit is [A-day price]/[price 12 months after A-day]%

Here, waiting for a 5% drop averages 98%, 10% averages 95%, then it stays around 92-95% whatever values you use. So smaller losses, but still losses. Using very small values for x there's a very slight average gain, 1% is 100.63% 2% is 100.7%, 3% is 100.28%. But probably not worth daily price monitoring for a 2% drop to make on average 0.63% more!

The expert opinion, DCA vs LSI  (lumpsum) to invest a few hundred thousand pounds is during the bear market. In the bull market, unless you are using technical Analysys with the skills of an acute trader, timing the market during the Bulll is not really worthy as in the bull market there is higher probability the market will go up than down. It is the opposite in the bear market
Keep in mind a trader are trading in both directions e.g going long and short.
People could easily see those who have a few hundreds thousand pound early 2022 to throw the the market and they do not want to do LSI (lump-sum), sensible people will put part of  the money into high interest saving account. There RSA paying 7%, 5%, reasonable number of RSA paying 4.5%, as well one year fixed  rate 4.1%. 

Add that 4% to the difference of DCA vs LSI do people still need statistics to recognise which one win ??

Between 1985 and 2021 is not the bear market.