Market timing

[easysurfer]

We have to cut swodo some slack.. He didn't say mrket timing was better, but just that he sorta got cold feet an decided to throw in the towel.

 

[haha]

My comment is that it's easy to be wise on a message board, but not quite so easy when you're on record for the exact timing and amount of your trades. The date of your post indicates that you may well have sold your IRA funds at yesterday's closing price. If so, you are now down about 1%, based on today's strong stock market performance. Naturally you may very well make that up in coming days, if you're indeed right about future bumps in the road. But I'd like to see what you do as it happens. Care to go on record with what you've sold and for how much, so that we can track your performance? And of course please update your trades as you make them, so we can see if you get back into the market with a profit or a loss.

And you are paying him how much for this entertainment and (hoped for) schadenfreude?

 

[48Fire]

OK I give up. I just moved all IRA funds to a money market fund. ( I'm retired).
I believe that with the tapering of QE interest rates can only rise, driving down bond fund prices and adversely affecting equities. Can't see how you can avoid large losses in the short run. Not a market timer until now, but I now believe it to be wise to stay out of the market for 3-4 months until the Treasury quits meddling and the market achieves some sanity.

Comments please.

I believe there is going to be a big correction as well, so I have a lot of money in cash. In my case, I am 5 weeks into ER , and I want to preserve what I have for 72t. After that, I plan to adjust AA until I reach me ER AA.

 

[pb4uski]

OK I give up. I just moved all IRA funds to a money market fund. ( I'm retired).
I believe that with the tapering of QE interest rates can only rise, driving down bond fund prices and adversely affecting equities. Can't see how you can avoid large losses in the short run. Not a market timer until now, but I now believe it to be wise to stay out of the market for 3-4 months until the Treasury quits meddling and the market achieves some sanity.

Comments please.

Foolish move in my opinion - market timing rarely works - not so much because people don't get out at the right time but more because they rarely get back in at the right time.

I think the flaw in your thinking is that rising interest rates/falling bond prices will adversely affect equities. The only reason the fed will allow interest rates to rise is because the economy is becoming better and the favorable impact of the better economy will benefit equities a lot more than higher interest rates will detract from equities.

I'm an investor not a trader. While I concede that the market has had a nice run and a correction is likely, I'll just ride the correction down and then next rally back up. I won't try to make a smidgen more by a 3-4 month market timing move that could easily end up going bad.

 

[ShokWaveRider]

OK I give up. I just moved all IRA funds to a money market fund. ( I'm retired).
I believe that with the tapering of QE interest rates can only rise, driving down bond fund prices and adversely affecting equities. Can't see how you can avoid large losses in the short run. Not a market timer until now, but I now believe it to be wise to stay out of the market for 3-4 months until the Treasury quits meddling and the market achieves some sanity.

Comments please.

I am with you. All in Cash for a few months. Slept VERY well last night.

 

[MichaelB]

OK I give up. I just moved all IRA funds to a money market fund. ( I'm retired).
I believe that with the tapering of QE interest rates can only rise, driving down bond fund prices and adversely affecting equities. Can't see how you can avoid large losses in the short run. Not a market timer until now, but I now believe it to be wise to stay out of the market for 3-4 months until the Treasury quits meddling and the market achieves some sanity.

Comments please.

I am with you. All in Cash for a few months. Slept VERY well last night.

Just wondering, to each:

What is your plan to get back into the markets?

 

[ERD50]

Just wondering, to each:

What is your plan to get back into the markets?

+1 There have been plenty of times that I thought I should get out, but often, the market just would have went on w/o me. Would I get an entry point well below where I got out? Would I just jump back in when it got close to where I got out (and then maybe see it drop more)? Tough calls, IMO.

To each their own, but I think Id lose more sleep worrying about that then I would with the roller coaster market.

-ERD50

 

[Chuckanut]

What is your plan to get back into the markets?

+1

The problem with market timing is that you have to make two correct decisions. One to get out and another to get back in.

My crystal ball is broken and my time machine is not working. So making just one of those calls correctly is tough for me. Academic studies indicate that making yearly AA adjustments works pretty well. That is enough market timing for me.

 

[karluk]

OK I give up. I just moved all IRA funds to a money market fund. ( I'm retired).
I believe that with the tapering of QE interest rates can only rise, driving down bond fund prices and adversely affecting equities. Can't see how you can avoid large losses in the short run. Not a market timer until now, but I now believe it to be wise to stay out of the market for 3-4 months until the Treasury quits meddling and the market achieves some sanity.

Comments please.

It looks to me as if we have here a great object lesson in the dangers of market timing. As it turns out, the markets have responded with strong gains in the four weeks since OP wrote that he was sitting out of the market for the next few months in the face of what he perceived to be unavoidable large losses. As measured by representative Vanguard funds, Vanguard total stock market index (VTSAX) has since gained over 5%, Vanguard International stock index (VTIAX) has gained over 8%, and even Vanguard total bond index (VBTLX) is up 1%, not including dividends. A typical balanced portfolio consisting of 60% stocks and 40% bonds with a 75%-25% split between domestic and foreign stocks would now have missed out on 4% in gains in less than a month.

Nor was OP's move to the sidelines particularly poorly timed. He had several chances in the week or so following his original post to get back into the market at a slightly lower price than what existed on August 21. But considering his announced intention to sit out of the market for 3-4 months, I am skeptical that he made any purchases at all in late August. As other posters have noted, successful market timing requires two good decisions - when to get out, and when to get back in. Get both right and you're golden. Get only one right, and you lose.

So what's next? Assuming OP is still sitting with large amounts of cash, he now is faced with a dilemma - buy back now at higher prices, or continue to wait for the arrival of the "unavoidable" large losses. I'm not sure what I would do in his shoes. I'm just glad I avoided the market timing trap in the first place.

 

[Lsbcal]

I am not against market timing but have seen precious few good ideas on it.

Market timing that is not based on extensive back testing is generally what we get to hear about. Most of the "debunking" of timing methods is based on attacking poorly conceived MT approaches.

If a really good MT system was found, we would not get to hear about it.

 

[Dennis]

From a Retired Old Guy now..

1. This is why I moved into using Balanced Funds back in the 90's..
2. Same to me as hiring a FA to run the show for me
3. Thus They can Take the Blame and I can stay out of the Dog House ( or Garage in my Case)..

IF a Bal Fund does the same as a Portfolio of Funds? Why should I knock myswelf out and Try to Screw it up?

All I have to do is Focus on Just Put Enough $ in it per it's Limitations..of what it does..

I added an Aggressive Multi Bond fund, PONDX/PIMIX

A Combo of VWIAX/VWINX and BERIX has done the job good enough for me..
and It's Broad based into LC, MC and SC's enough for my blood..

BTW- they are the 2 Funds I Recommend to my Family for their Core Funds to get started with.. and to anyone else Getting started on Saving and Investing..

It's the old Vegas Trick- Don't try to make More with less, you will take Too many Risks and that is what they want you to do, to loose your $ to them..

Only those with Extra $ they an afford to Loose -50% of , should be Betting more than those kinds of Bal Fund Do..
FYI- that's a ave of about a 35/65 portfolio BTW..

And what's VWINX done since it got started some 40 yrs ago? But don't tell others, Wall Street and FINA and even Jack Bogle don't want to let that secret out..( Didn't Jack Bogle Run Wellington and their Bal Funds and got fired? and went out and Set up those Indexes to Compete and Take $ away from them...

If want to Market Time? I tell others Go ahead and try and then after you Fail enough, just own 2 bal funds.. A VWELX for when you want to be Aggressive and a VWINX when you don't want to be..

Or a VWINX and a PRWCX..

Hope that Helps!

 

[F4mandolin]

Wasn't there a thread some years ago where the guy was all worked up about getting out at DOW 14,000, then getting back in if went over? We warned that he might get whip=sawed, but it looks like it could have worked out for him (which doesn't change if it was a good idea or not).

But then, he would have had to have been in something that gave at least the divs of S&P500. That wasn't so easy to do and still be liquid enough to get back in. And that would just put you even with doing nothing (though maybe avoid drawing down while it was down).

I wonder how that worked for him? I'm not sure I could find the thread, anyone recall it?



-ERD50

I don't think this was me....but my memory stinks. This is what I did. Put money back in as the market dropped. I am reasonably better off because of this. If I get ready to go out for a run and see a big rain cloud coming....I put on my rain coat. Occasionally it doesn't rain on me....usually I am right.

 

[LOL!]

The OP still has a chance because of the projected shutdown of the US government due to lack of funds, passage of bills, etc. That ought to produce some interesting market timing possibilities. Anyways, I am cheering him/her on!

 

[RAE]

OK I give up. I just moved all IRA funds to a money market fund. ( I'm retired).
I believe that with the tapering of QE interest rates can only rise, driving down bond fund prices and adversely affecting equities. Can't see how you can avoid large losses in the short run. Not a market timer until now, but I now believe it to be wise to stay out of the market for 3-4 months until the Treasury quits meddling and the market achieves some sanity.

Comments please.

You will find that a lot of folks here have no use for market timing, but I personally have no problem with what you did, if it works for you and the situation you are in. In other words, if you have other sources of retirement income (pension, SS, 401k, etc), and the the IRA is something you prefer to be conservative with (perhaps as a small supplemental source of retirement income), then hey, who are we to criticize your approach? I also took some IRA $$ off the table recently, as I am basically in the situation described above, and I'd rather conserve principal than take a big loss. Sure, you (and I) may miss out on some gains over the next few months if the market continues upward, but that personally would not bother me one bit. I do think this market has been propped up for far too long with this QE nonsense, and it's gonna come back to earth at some point. I have no idea when that will be, but I personally sleep better at night with my IRA out of the market for the time being. YMMV...........

 

[Animorph]

One key thing that can make this work is to have many opportunities to give it a try. As a one-shot thing it's pretty much just a bet. But if you can do it 100 times and be right 51% of the time you might come out ahead.

 

[Dennis]

Sorry, but some will probably not like this but after Many yrs. of Following the Leader and Indexing..Down the Yellow Brick Road...

And If you're Right more than wrong, will you still come out ahead? I don't think so..Your $ makes +50% , but then why isit every 4-5 yrs it's Looses -40% ? Just look at the Tot. Losses of the VFINX btwn 00-02' and again in 08' and 1st qtr of 09'..etc.. And if you loose -40% you end up being in the Hole by -10% aren't you? $1,000+ 50% = $1,500 -40% = $900...
Timing is the key! But not what you think! It's when your Getting ready to cash in and Retire .. and being Too Greedy that comes back and Gets you..

What if you could make the same as a 70/30 Port of using LC's but only having 40% In Other Equity Indexes? and thus run a 40/60 port and end up making the same at the end of your Earning yrs b4 retirement....

40% In VIMSX .. Just compare it since it came out in 98' to VFINX .. And Read Em' and Weep! and the same for past 10,5 yrs! I think we have been Misled..!

1- I think The S&P500 is a Conspiracy supported and Monopolized by Corp America.. And ever wonder why CNBC and others Don't Talk much about using Mutual Funds?
2- If Real Growth is In Mid Size Co's, why hasn't that been the 1st Index and The Most Indexes Advocated? Why did it take so Long for them to Come out? and Compare VFINX to VIMSX starting at the same time..(98') & to past 15,10, 5 and 3 yrs..
-After I realized this and As soon as VIMSX came out, I droped the VFINX/S&P500 From my Port and Went into Mid and Never Looked back eversince.. and I even added Non Index MC Funds since ..

Of course I am Biased- Seeing I Ran my own Small Business for Yrs.. and ever since I got out of the Army in 1968..

I think it's too bad the likes of Wellington Funds ( VWELX & VWINX) didn't build thsoe funds based upon the MidCap instead of LC's, I bet those funds wood have done at least 2% apy better by now..if not More...

Mid Caps , be they Indexes or Non Index Funds..
While not the only one's, just the One's I own> VIMSX, AKREX,HFCSX,POAGX, PRNHX and Not Knowing which is the best of the rest? Equally Invested in each..

And You can leverage and get More Bang for you buck now with your Bond $.. using a PONDX/PIMIX.. Leveraged 150%, thus you can Put in -50% less and get the same as being 100% more in Reg. Bond Fund..

It's too bad we ave Investors Couldn't Get leveraged Bond funds alot earlier , but Then Co.'s Like Pimco & Vanguard Wouldn't have succeeded as well..I have no doubt they influenced Leveraged Funds Not being made available to the rest of us.. and still do.. If I could Leverage Long VBMFX by 50% I would Own it..

Use stocks to Make your $ and use your Bonds as your Banker to buy those Stocks when they're On sale..

History may not Repeat, but it sure does Rhyme alot, doesn't it?

My$ where my Big mouth is..

My Shared Port @ 2013E&B

& Learn how to Leverage @ Products | Direxion
and Do what the Pro's have been able to do for Yrs..with alot less On the Line..

Best of Luck!

 

[clifp]

It looks to me as if we have here a great object lesson in the dangers of market timing. As it turns out, the markets have responded with strong gains in the four weeks since OP wrote that he was sitting out of the market for the next few months in the face of what he perceived to be unavoidable large losses. As measured by representative Vanguard funds, Vanguard total stock market index (VTSAX) has since gained over 5%, Vanguard International stock index (VTIAX) has gained over 8%, and even Vanguard total bond index (VBTLX) is up 1%, not including dividends. A typical balanced portfolio consisting of 60% stocks and 40% bonds with a 75%-25% split between domestic and foreign stocks would now have missed out on 4% in gains in less than a month.

Nor was OP's move to the sidelines particularly poorly timed. He had several chances in the week or so following his original post to get back into the market at a slightly lower price than what existed on August 21. But considering his announced intention to sit out of the market for 3-4 months, I am skeptical that he made any purchases at all in late August. As other posters have noted, successful market timing requires two good decisions - when to get out, and when to get back in. Get both right and you're golden. Get only one right, and you lose.

So what's next? Assuming OP is still sitting with large amounts of cash, he now is faced with a dilemma - buy back now at higher prices, or continue to wait for the arrival of the "unavoidable" large losses. I'm not sure what I would do in his shoes. I'm just glad I avoided the market timing trap in the first place.

Nice analysis. I don't agree with Ha I don't think this schadenfreude, but rather an object lesson..

I don't have a problem with limited amount of market timing. I suspect that even those who claim not to do it all are somewhat guilty, changing when they rebalance, or being a little flexible on there rebalance bans.

As both this forum and FIRECalc show there is little difference in survivability from a 40/60 mix to 80/20 for 3.5-4% withdrawals.

I am certainly guilty of it and don't even feel bad being a dirty market
But in my case it is a rare situation where I move my AA 5% at time, even during 2008 I basically made two 10%+ shifts from bonds to stocks.

No we don't know how much of the OP assets were in the IRA nor the starting and ending AA. If it was only 20% and the AA went from 50/50 to 100% cash he only missed on less than 1% hardly a big deal.

If on the other hand the IRA was 50% of his assets and IRA went from 75/25 to 100% cash then he missed out on 2%. If the money is still sitting out sidelines a year from now and the market is up another 10%. This is how retirement finances get screwed up.

 

[frayne]

To each his own. Time and time again it has been proven, market timing is a fool's game. As JB would say "Stay the Course"

 

[karluk]

The OP still has a chance because of the projected shutdown of the US government due to lack of funds, passage of bills, etc. That ought to produce some interesting market timing possibilities. Anyways, I am cheering him/her on!

Hmm, "cheering him/her on" is a little farther than I would go, but I certainly wouldn't mind seeing OP's prediction of a big downturn come true. In addition to the general motive of not wishing ill to anyone (and therefore not wanting to see OP sitting on the sidelines while the market continues straight up), I have the personal incentive that a correction would help me. I've hit my rebalancing targets several times this year already, and so have been a net seller of stocks in an up market. I wouldn't mind at all being able to rebalance back into the market at lower prices.

I think the main reason that "market timing" is frowned upon while "rebalancing" is considered ok is that rebalancing never causes one to sell so many stocks that one eventually will need to buy back into the market at potentially higher prices. If the market continues up, I will just sell more stocks to reestablish my target allocations. Someone who has already sold all of their stocks in expectation of a big decline needs their guess to be right, or they're out of luck.

 

[Dawg52]

I don't have a problem with limited amount of market timing. I suspect that even those who claim not to do it all are somewhat guilty, changing when they rebalance, or being a little flexible on there rebalance bans.



I am certainly guilty of it and don't even feel bad being a dirty market
But in my case it is a rare situation where I move my AA 5% at time, even during 2008 I basically made two 10%+ shifts from bonds to stocks.

Exactly what I was thinking. If one rebalances at a certain time each and every year, I wouldn't consider those dirty market timers. But if one rebalances at various times of the year and tweaks their AA a little due to market conditions, I would consider those market timers. Many do that including me. But I admit, cashing all out seems a little extreme to me.

 

[martyb]

Timing last year and so far this year has paid off for me. Don't want to push my luck though...I'm getting close to setting up an A/A that I can stick to. Once I'm no longer able to add funds to my TSP, I'm not gonna be feeling so brave....

 

[easysurfer]

I'm from the different approach in that I'm trying to be passive (lazy) and just rebalance once a year but if my target allocations drift by more than 5%, I'm fighting the temptation to rebalance earlier than annually.

 

[madbrain]

One key thing that can make this work is to have many opportunities to give it a try. As a one-shot thing it's pretty much just a bet. But if you can do it 100 times and be right 51% of the time you might come out ahead.

Or not, the transaction costs on doing it 100 times might erase any gains.

 

[Mulligan]

To each his own. Time and time again it has been proven, market timing is a fool's game. As JB would say "Stay the Course"

Although I don't have a big pile of money in stocks, I have learned I am no good at market timing. Hell I can't even "mini market timing". I learned (relearned) that lesson again just this year with my Roth contribution. Had the $5500 ready to deposit first of January. Had the bright idea of "making a few extra bucks" by letting the market drop a bit then buy. Well I waited and waited before finally giving up on this folly idea two weeks before the deadline in April and missed out on some gains.

 

[stepford]

I exhibited spectacularly bad timing last week. Rotating about 120K out of S&P500 into short/intermediate bonds I had given myself a sell level of 1680. And the next day Larry Summers withdraws and the market goes up 1%, then a couple of days later the Fed decides not to taper and the market promptly rockets up to 1720 plus. So I threw out over $3K by not waiting a week. Grrr.

Seriously though, this is exactly why I NEVER move more than 10% of my assets at a time. I've guessed wrong and right over the years, but burned myself often enough that I believe in dollar cost averaging (in AND out) as an article of faith.