Timing the market

meester

Most people seem to buy at the top and sell at the bottom. The equity income boom got people into income shares, which have in some cases tanked by 50%+, despite being supposedly bullet proof. Then people piled into China, and now all into commodities. On timing, people bought last year, things looking good, come January this year, sell into cash.

Now the markets have gone up 10%+ recently, and people are piling back in again.

Yet wise men (George Soros here http://news.bbc.co.uk/1/hi/business/7408620.stm) say, and logic would suggest, that the economy is in a lot of trouble.

So what do you do?

Do you say, 'things are looking hairy, I'll move into cash' (but if you'd done that in January you'd have lost money), or do you buy and forget?

[Deleted User]

It is all about time IN the market - not timing the market.....;)

nrsql

Say that to the people who bought just before the last crash.
It matters a lot what you invest in and the time you buy otherwise there would be no point in managed funds - the only reason they exist is timing.

purch

Most people seem to buy at the top and sell at the bottom

Not wanting to start an argument...........but do you have any proof to back-up that statement ?

dunstonh

Say that to the people who bought just before the last crash.

Any of whom with a half decent balanced portfolio would have gone on to recover that and nearly, if not double their money. (ignoring single fund investors as that is poor quality investing)

meester

purch wrote: »

Not wanting to start an argument...........but do you have any proof to back-up that statement ?

I'm just going by the many posts in here that follow any kind of market correction. People start to sell, and then after the market's gone up again you start to see the posts about buying again.

dunstonh

The typical joe public novice investor buys above their risk profile and buys after gains have been seen. Often on the back of newspaper tips or past performance tables. Its a generalisation of course but one that is generally correct.

The novice investor also tends to sell on a drop and then becomes one of those that harps on about never investing in the stockmarket again because they lost money. When in reality, had the invested correctly they would never have been in that situation and it had nothing to do with the stockmarket but their greed and poor research.

That reads harsher than it is meant to be but it happens so often.

nrsql

dunstonh wrote: »

Any of whom with a half decent balanced portfolio would have gone on to recover that and nearly, if not double their money. (ignoring single fund investors as that is poor quality investing)

As opposed to the people who bought after the crash and saw a much greater return.

Balanced portfolio = mediochre returns.
ie,e you are trying to mak sure you get reasonable returns rather than best returns.
You should be able to do better by looking at hot spots and value and weighting your portfolio accordingly (or paying fund managers to do it for you).

dunstonh

Balanced portfolio = mediochre returns.

Balanced as in diversified and rebalanced. Certainly not mediocre

You should be able to do better by looking at hot spots and value and weighting your portfolio accordingly (or paying fund managers to do it for you).

But then you are playing a timing game which will come off sometimes and go wrong others.

meester

nrsql wrote: »

As opposed to the people who bought after the crash and saw a much greater return.

Balanced portfolio = mediochre returns.
ie,e you are trying to mak sure you get reasonable returns rather than best returns.
You should be able to do better by looking at hot spots and value and weighting your portfolio accordingly (or paying fund managers to do it for you).

So are you in or out at the moment?

If you are out, when did you leave the market?

nrsql

Does it really matter - it's the theory that counts.

If you must know I weight my holdings rather than leave the market usually.
I reduced UK and finance and asia exposure towards the middle of last year (weight more towards resources). I got back in a bit whan the market went down a lot earlier than I expected and am now back to being more defensive as I think it's too high. OK I've been lucky but as long as I'm lucky more often than not then I'll do better than a passive portfolio. (In fact this portfolio is doing a lot better than my more static and balanced one).

It's what I would expect an active fund manager to have done but those who don't want to time the market presumably will try not to use active funds.

By mediochre returns I mean less than would be received by being in the hot sectors/shares/funds.
By spreading risk you also reduce returns - not every investment can be the best. If you have two investments you will get the average of them and unless they perform equally then you will not do as well as you could. Note I'm not advocating a single investment just pointing out that the more you have and the less you try to time things the more mediochre the return will be. Most people (including me) are happy with that but should realise that is what they are doing.