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Is Buying on Panic "Market Timing"?
Old 10-13-2008, 07:17 PM   #1
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Is Buying on Panic "Market Timing"?

I think I have a problem with the basic concept that shifting from cash to equities for long-term investment after a large market drops is market timing. I agree that the daily, weekly, monthly and yearly up-and-down shifts in the market are impossible to predict. However, the fact that equities were on sale now, 2001-2002, 1987, 1974, etc was clear even at the time. Sure, hitting the exact bottom is impossible, but the fact that you are getting more bang for your buck after a major collapse is clear, and we would not be invested in the market if we were not convinced that it is going up in the long term.

Do you consider this market timing?
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Old 10-13-2008, 07:27 PM   #2
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If you have a written "Investment Policy Statement" that clearly states that you are gonna rebalance when your percentage of equities falls below a certain value (or when your percentage of equities goes above a certain value), then buying on panic is not market timing.

But who cares what you call it? It ain't a bad thing to be called a market timer if you make money doing it.

It's trivial to rebalance on market drops because you see them in hindsight. And it doesn't really matter at all if you get the exact bottom or not.

It is harder to rebalance on market tops because you can't tell if it's a market top at the time. Contrast that with the fact that you know it's a market drop because even the news media gets this right.
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Old 10-13-2008, 07:34 PM   #3
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yes

unless you are rebalancing of course

Audrey
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Old 10-13-2008, 08:57 PM   #4
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My "written policy statement" says that I should increase my percentage of equities to when I hear "Great Depression" more than 10 times a day, and decrease my percentage of equities when my mother-in-law is talking about how good a job she does at picking individual stocks.
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Old 10-13-2008, 08:59 PM   #5
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My "written policy statement" says that I should increase my percentage of equities to when I hear "Great Depression" more than 10 times a day, and decrease my percentage of equities when my mother-in-law is talking about how good a job she does at picking individual stocks.
There's this ok investor, made some money for people now and then. His name escapes me, but I think he summed up that approach with something to do with being greedy when others are fearful and fearful when others are greedy.
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Old 10-13-2008, 09:08 PM   #6
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My "written policy statement" says that I should increase my percentage of equities to when I hear "Great Depression" more than 10 times a day, and decrease my percentage of equities when my mother-in-law is talking about how good a job she does at picking individual stocks.
Perfect!! I agree. Same goes for houses. Several years back when I started seeing the "Flip this House" shows on TV I told DW that it was a sure sign of the coming collapse.

Timing can be treacherous but sometimes the signs are just too big to ignore and if you have enough discipline you can enhance returns. I only wish I'd listened to my gut last year and pulled back more than I did. I wasn't really paying much attention to the market but the credit/housing bubble should have been a sign. I didn't realize the impact we'd see and wasn't aware of the leveraging and insanity of the CDSs going down on Wall St.

Live and learn. Maybe next time!
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Old 10-13-2008, 09:20 PM   #7
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I think it's value investing, not market timing, to buy when people are selling in panic. If you have cash or new money to invest, then you have to make some assessment of where to put that, and the exact timing. If people have been selling equities like mad, it stands to reason the values are better in equities.

I increased my buying last Thursday, bought more Friday, and still more today. I don't know if it's THE bottom but it clearly was A bottom, and sentiment, and the political environment changed radically this weekend.
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Old 10-13-2008, 09:20 PM   #8
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Yes, it is.

However, standard advice works best for standard times, and quite possibly not for extremely unusual times, as these days have recently been.

Cheers.
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Old 10-13-2008, 09:33 PM   #9
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It pays to always have a little extra cash on the side to take advantage of market down turns...
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Old 10-13-2008, 09:44 PM   #10
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There's this ok investor, made some money for people now and then. His name escapes me, but I think he summed up that approach with something to do with being greedy when others are fearful and fearful when others are greedy.
Oh, yes, I think I've heard of him too. Buffet or something, wasn't it?
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