Market timing !?!

[Sam]

Let me be the first to admit. On my annual 1040, I have a negative $3,000 capital gain for the past five years, and shall continue to do so for 4 more years! I excel in market timing!

[bosco]

Quote:

Originally Posted by mickeyd My research shows that market timing (MT) is generally a result of hubris. It's that investor who has figured it all out and he will make those skillful buys/sells that will assure him of spectacular returns. Oh, sure most of his MT moves are losers, however he, conveniently, recalls only the winners, never the losers.

Please share your "research" with us. Or is it actually just the same old personal opinions? I thought so. Or is your research actually about hubris? The type of investor you are describing is not really a timer--he/she is just someone following their gut without a system. There are timers that keep good records and don't forget the losers.

I've said it before and I'll say it again, (although it's probably a waste of time on this board which has a very strict code of 'financial political correctness'). The purpose of market timing is often NOT to attempt to beat the market. Frequently, it is a tactic to attempt to control risk and prevent drawdown--to preserve principle. If you can get 80 or 90% of the market's gains by only being exposed 50 or 60% of the time, you can do well on a risk-adjusted basis.

I no longer practice market timing. I found it to be too much work and not compatible with my emotional temprament. But it can work if it is done with a written plan (in other words, without involving one's emotions), and done coldly and consistently. Much like other types of investing.

[mathjak107]

problem is as we all experienced we tend to give up way more than the 20% of the potential gains. remember fabians timing scheme. "we will give up the 10% at the top and 10% at the bottom and keep the 80% in the middle. his system worked great....well that is until it didnt work great. it failed miserably eventually

heres the problem. most people who attempt to preserve their gains , cut losses or beat the market by timing usually sell out after a drop as they are basically nervous nelly personalities with a this time its different and its going way down outlook

this is the exact opposite personality trait thats needed to buy in when the markets are beaten to death and the word stocks make you vomit....

hense usually you sell out after the drop and buy back in after it came back way to far.

[tryan]

Used to listen to Brinker on the radio (don't have time for it now) ... he would "justify" his market timing saying - "If you held onto your stock portfolio thru the depression, you'ld have lost 90% of your money. Those are the swings we try to avoid." Would also have a similar reference to the Japanese market of late.

He won't disclose his MT model ... but it seems to have done pretty well (sans a QQQ call). Sold off 60% equities in Jan 2000 ... moved it back in March 2003.

To each his own.

[bosco]

Quote:

Originally Posted by mathjak107 problem is as we all experienced we tend to give up way more than the 20% of the potential gains. remember fabians timing scheme. "we will give up the 10% at the top and 10% at the bottom and keep the 80% in the middle. his system worked great....well that is until it didnt work great. it failed miserably eventually heres the problem. most people who attempt to preserve their gains , cut losses or beat the market by timing usually sell out after a drop as they are basically nervous nelly personalities with a this time its different and its going way down outlook this is the exact opposite personality trait thats needed to buy in when the markets are beaten to death and the word stocks make you vomit.... hense usually you sell out after the drop and buy back in after it came back way to far.

there are far better systems out there than Fabian's scheme. But you are right, it is hard to capture all the gains. A timing scheme will always underperform during a robust bull market, and is vulnerable to whipsaws during sideways markets. But they do have their place, and they tend to get short shrift on this board.

Fabians system had me go to 100% into cash two days before the crash of 1987 (actually, it executed the day before--I was po'd at the time since the dow dropped 100pts that day). Paradoxically, it was that experience that caused me to abandon the system. It was pure dumb luck and could just as easily have given the signal the day after. However, Fabian's newsletter did get me looking into the whole timing thing. Like most timing systems, it waited far too long to buy back in after the bottom.

Like I said, it's not for me. It's hard to use timing systems and be appropriately diversified. I don't have an "all in or all out" temprament. But again, many if not most of the best timing systems are designed to avoid downside risk and participate in the majority of the upside move, NOT to try to beat the market.

I do agree that people making decisions based on gut-feel are playing with fire.

[Running_Man]

To me, every market participant is a market timer. IF you are 100 percent stocks all the time then you are unequivical that the best time to be in stocks is all the time. And how stock perform while you are alive will be your return.

It is easy enough to stay mostly in stocks when they have trended up for multi-decades. Have a time again like 1966- 1982 and long term bonds at 14 percent and it would be interesting to see how many 80-100 percent stock holders would be switching into long term bonds. Of course in 1982 that would have been the absolutely right thing to do as your 30 years wouldn't expire for another 5 years and 14 percent from the US government is a nice investment.

I think what is being called market timing is real market trading where you are in and out of different investments based on a perception or system.

[Alex]

When it comes to Asset Allocation, I am Popiel-head (my sick twist on the Bogleheads ) - I just set it and forget it, just like the "showtime" rotisserie oven that Ron Popeil sells on TV. I have no innate ability to predict the stock market, so I don't even try. to me, "Market timing" is all about what time the stores open and close........

[tednvon]

Hello again.

The Firecalc model is set at 75/25% when you run the program. If, for me, the 25% represents at least 5 years of living expenses in cash/CD, is the 75% in equities a benchmark for optimal return plus safety. I notice a lot of "rebalancing" vs. timing from the veterans on this board. If I rebalance every year to keep 25% equal to 5 years expenses, is long term 75% equities what Firecalc is saying is optimal?
Guess I am wondering if as I go to full retirement, (now 1/2 time) if I need to look at more fixed income in the 75%....I know a lot has to do with risk tolerence, but your thoughts are appreciated...

All the best..Ted

[MasterBlaster]

The stock allocation comes out of studies of historical data.

For every retirement duration there is an optimal stock allocation versus bonds that give the best outcome.

For a 30 year retirement it just turns out that an optimal stock allocation is 75%. That's what Firecalc uses for the default. Note that you can over-ride the defaults.

take a look at this discussion for more info:

http://www.retireearlyhomepage.com/restud1.html

[tednvon]

Thanks...Ted