Market Timing Article today.............

[Cut-Throat]

Another article in the paper today regarding Market Timing. Posted this chart that I thought was interesting. From the period 1984-2000.

We're all smarter than those chumps. Right? - Well not me and maybe not Unclemick.

 

[wabmester]

I'm probably repeating myself here, but....

The period from 1984-2000 was unique.   Stocks went up on their longest and steepest run ever.   Interest rates started at their highest and ended at their lowest.   The result?   Wonderful cap gains to those who simply bought and held during this period.

Chances that this will be true for the 2000-2016 period?   Close to zero.   But you pays your money and takes your chances....

 

[Cut-Throat]

I'm probably repeating myself here, but....

The period from 1984-2000 was unique.   Stocks went up on their longest and steepest run ever.   Interest rates started at their highest and ended at their lowest.   The result?   Wonderful cap gains to those who simply bought and held during this period.

Chances that this will be true for the 2000-2016 period?   Close to zero.   But you pays your money and takes your chances....

The point was not the next period would be the same. The point was the difference in returns of trying to actively manage vs. sitting still.

So I suspect that no matter what the next period in history does, the differences of investing style will remain similar.

 

[Nords]

One way to examine the question...

... would be to repeat the study using data from 1966-1982.

 

[cute fuzzy bunny]

Good point Nords.

This is data mining.

 

[Cut-Throat]

Re: One way to examine the question...

... would be to repeat the study using data from 1966-1982.  

Might even be worse in that time frame. Unclemick stood still, lots of folks unloaded all their stocks in the 1970's and bought Gold at $900 an ounce (I know some of them).  

 

[retire@40]

I'm probably repeating myself here, but....

The period from 1984-2000 was unique.   Stocks went up on their longest and steepest run ever.   Interest rates started at their highest and ended at their lowest.   The result?   Wonderful cap gains to those who simply bought and held during this period.

Chances that this will be true for the 2000-2016 period?   Close to zero.   But you pays your money and takes your chances....

History does repeat itself. The beauty of the stock market is that it does things that nobody expects. I remember when the Dow dropped 500 points in one day and everyone gave up on the stockmarket since it had become too risky and you could lose all your money. The Dow was around 2000 at that point.

I predict another big runnup in the stockmarket in the next 5 years. Let's see who's right in 5 years.

 

[unclemick]

If you are in the ER phase - who really cares what the DOW does - at least within 'reasonable' limits - beyond a 6000 point drop - I might get a little nervous. Slice and dicer's and balanced index cats like me supposedly have this covered.

Now - in the accumulation phase - early 'bad' markets are good. My modest flat from 1966-1982 looked like a 'hero' when the market got better - glad to have put in all that DCA and reinvested dividends.

I'm still kicking myself for all the taxable money I wasted on real estate, gold, dirty blonds, sports cars, penthouse living, heh, heh, heh. Er - maybe not totally wasted.

Hindsight is 20-20, had I bought say Dodge and Cox, Wellington, Wellesley when avialible - Hmmm.

 

[ak4195]

yale hirsch,and sy harding easily beat all these groups hands down without much work year over year,using extremely simple seasonal timing tendancies that have been backtested for decades.Worth a look imho,John Mauldin takes to task the "Buy n Holders Forever" group in his weekly email article this week as well.Ill not waiste my time trying to recap there methods or thinking since i would do a terrible job--ak4195

 

[Cut-Throat]

yale hirsch,and sy harding easily beat all these groups hands down without much work year over year,using extremely simple seasonal timing tendancies that have been backtested for decades.Worth a look imho,John Mauldin takes to task the "Buy n Holders Forever" group in his weekly email article this week as well.Ill not waiste my time trying to recap there methods or thinking since i would do a terrible job--ak4195

Bet they got a book too!

 

[wabmester]

History does repeat itself.

That's an interesting idea. Let's see where we'd be if we got an immediate repeat of that extraordinary run.

Bonds yielded about 14% in 1984 and fell to about 7% in 2000. To fall another 7%, they would have to yield zero. So, let's rule out another bond rally like that one.

The Dow went from about 1100 to 11000 during the same period. Another 10x gain would put the Dow at over 100,000. Anything's possible, right?

But how did stocks get that high? P/E ratios went up and dividend yields went down. Dividends went from about 5% to about 1%. So a repeat of history would take dividend yields to about 0.2%. P/E ratios went from about 10 to 30, so we'd be looking at an average P/E of about 90 if we got a repeat.

And there's no need to check back in N years to see who was right. We're all making our bets with real money, so I assume we all think we've read the tea leaves correctly. Let the chips fall where they may

 

[Whakamole]

There seems to be a lot of money floating around - bonds are expensive (relative to the amount of interest you get), stocks are expensive, real estate is expensive...

 

[BigMoneyJim]

And there's no need to check back in N years to see who was right. We're all making our bets with real money, so I assume we all think we've read the tea leaves correctly. Let the chips fall where they may

The problem is we have no choice but to bet. CDs and stuffing money into the mattress are risky, too. The chips will fall whether we want them to or not. I'm not sure we all think we've read our tea leaves correctly or we wouldn't feel the need to discuss it and/or defend our positions (amateur psychology analysis here).

On the other hand, we could just spend it all today and not worry about investment returns....

 

[unclemick]

Media is required to produce -blah, blah, blah - or perish. Male hormones are male hormones - so taking a flyer here and there is a biological imperative. On balance nothing much has changed -except some newer toys - IRAs,401k, index funds, modern portfolio theory, and my favorite - autodeposit of dividends.

Young and saving - DCA into a diversified, low cost mutual fund - "Press on regardless",(Bogle if you don't like De Gaul) or funds and stay disciplined (Bernstein and slice and dice crowd).

In ER - watch your cash flow (Tom Cruise's 'show me the money' if you are tired of the Nowegian widow).

For the coming fall - remember this:

"90% of the game is half mental."
Yogi Berra

 

[wabmester]

On the other hand, we could just spend it all today and not worry about investment returns....

As long as you spend today on things you'll continue to need tomorrow, that's not a bad idea. It'd be great if there were a futures market for consumables. We could simply prepay for all of the food, energy, shelter, and transportation we needed for the rest of our lives.

Or buy a large chunk of land where you can store stuff. Instead of replacing your car every 10 years, buy 3 cars now and store 2 of them. If you drive 10,000 miles a year, buy a tank to store at least 7500 gallons, and you're covered for the next 30 years....

 

[unclemick]

Wab

Back when I lived in Colorado (70's) there were nutcases who did exactly that - 10-20 yrs of freeze dryed food, gold/silver coins - the guy I bought my 61 Pontiac beater from (73) had a 10k 57 Chev on blocks in his garage(?collectible or to be driven in the future?).

I don't remember how you were supposed to 'freeze dry' twenty years of water though - heh, heh, heh, heh.

Seriously - some buying ahead - is an effective strategy against a long period of 'high' inflation.

 

[Hyperborea]

If you drive 10,000 miles a year, buy a tank to store at least 7500 gallons, and you're covered for the next 30 years....

Gas will break down over long term storage. You would need to add a chemical stabilizer (like that used for storing cars or lawn mowers over the winter) though I'm not sure that it would be good for 30 years.

 

[ak4195]

"Or buy a large chunk of land where you can store stuff. Instead of replacing your car every 10 years, buy 3 cars now and store 2 of them. If you drive 10,000 miles a year, buy a tank to store at least 7500 gallons, and you're covered for the next 30 years.... "


This whole summer/fall,ive thought about wouldnt it be nice if you could pre pay gasoline?Lock in a particular price times X gallons.It would be completely volluntary,cash/credit up front.payable on delivery,sort of like a personal futures account.

 

[Cut-Throat]

There seems to be a lot of money floating around - bonds are  expensive (relative to the amount of interest you get), stocks are expensive, real estate is expensive...

I was listening to a financial program last spring and a guest on the program had made the comment that the money that was lost in the stock market in the 2003 downturn (not the  earlier tech bubble) was basically sitting in Money Market funds on the sideline. Not sure how the guy came to this conclusion. Maybe Wab might know - he looks at this sort of stuff.

Anyway, it is a bit of a challenge to find cheap investments today - I think. - I mean, maybe it's always like this and the bargains are only in hindsight.

 

[wabmester]

That's not something I follow -- I just stuff my mattress with cash and hope it doesn't catch on fire.

But I think the M2 money supply tracks money market accounts. It basically trends up with inflation, but it did dip from Sep 2003 - Dec 2003, which was probably when most people were piling cash back into stocks.

http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

 

[unclemick]

? Hmmmmm - A lifetime supply of dryer sheets with an online calculator to estimate 'expected number of recyles per sheet' based on historical performance per brand. Probably using data only going back to 1946 - earlier data being corrupted by clothes line bias.

 

[Whakamole]

This whole summer/fall,ive thought about wouldnt it be nice if you could pre pay gasoline?Lock in a particular price times X gallons.It would be completely volluntary,cash/credit up front.payable on delivery,sort of like a personal futures account.

You used to be able to do that, sort of. Years ago, Priceline let you bid on gas - you'd buy a certain number of gallons for a certain price. It would have made a useful hedging strategy.

 

[Michael]

There seems to be a lot of money floating around - bonds are expensive (relative to the amount of interest you get), stocks are expensive, real estate is expensive...

The extra money comes from the fed. They print more money, loan it to banks, and the banks buy treasury bills with it. This keeps interest rates down, and raises inflation. Because of this, people that used to invest in commercial paper and bonds can no longer earn a decent after tax/inflation return on bonds/commercial paper, so they switched to stocks and real estate. This lowers the dividend yield on the S&P, and raises home prices.