Sell High Buy Low and Repeat

[ferco]

Did anyone "sell" / convert a significant portion of their tax deferred portfolio at the market high in Oct 2007 ( Dow 14,000), and place in cash holding position.....then "buy" / convert back to the original holding at the bottom Mar 2009 ( Dow 6,000).

This intuitively / intellectually sounds like a "smart" move, moving forward, since I presume Dow will again reach 14 k or higher and then have a market correction. It would seem that one would profit handsomely, but seems a bit too obvious.

My financial planning friend advises against this course of action , stating that this is like trying to predict the market.....DUH ! He believes the Dow will go even higher ( than 14 k) and that one should, be allocated between: Total Stock, Total Bond and International and ride it out over the next 8-10 years

Your thoughts

PS: I like Vanguard, he likes his brokerage company which doesn't offer Vanguard !!

 

[REWahoo]

Did anyone "sell" / convert a significant portion of their tax deferred portfolio at the market high in Oct 2007 ( Dow 14,000), and place in cash holding position.....then "buy" / convert back to the original holding at the bottom Mar 2009 ( Dow 6,000).

I'm sure someone will be along shortly to say they do this sort of thing all the time...

 

[Dawg52]

I buy high and sell low all the time. Burp............

 

[dmpi]

I waited until after the crash to sell low. But on a good note: 1) I didn't sell everything and 2) I bought 5 years CDs at 4.8%.

 

[Animorph]

Yes, I did sell pretty high and buy pretty low. And yeah, it's tough to do.

I was retiring in 2007 and was seriously concerned about a consumer spending decline due to the negative saving rate. Clearly something that is not sustainable. The housing problem was also a concern, but not as much. I moved to about 30% cash and some additional hedges that left me about 50% long in the market. If nothing happened, I would spend the cash eventually. If a bear market hit, I would have cash to meet expenses until it recovered.

The market went up about 10% after I had my cash ready.

DW decided not to retire with me, so I ended up with a lot of cash. I sold the hedges after the market hit -20% and started going up again. I made a little, but not much. Kind of chickened out there.

With the excess cash I bought equities in roughly equal chunks from -25% to -45%. No way to tell when the market might start going up, but -25% is a good discount. At the very bottom I hit another trigger point and used my HELOC for a final equity buy. Of course it was total doom and gloom at that time. I left enough cash for only a few months of expenses.

The market started to recover soon after that. When I had to sell a little bit to meet expenses I was making a profit. Eventually my portfolio reached its previous peak value, despite making some small withdrawals. Even better than it seems, because I'm about half foreign equities.

When the market again peaked, it exceeded my retirement portfolio projections. I sold some equities again, essentially making future year withdrawals early since the prices were right.

Now I'm again buying equities as the market hits my trigger points on the way down.

It's a fairly mechanical process, sell when portfolio is larger than expected, buy in steps with spare cash if the market is more than 20% down. I'm not making market direction guesses or completely moving to cash. I am trying to smooth out the variability of a 100% equity portfolio. And the fact that I can eventually use any excess cash for retirement expenses ensures that I'm not keeping cash on the sidelines forever.

 

[winger]

Sounds like a good plan. Let us know how it works out.

 

[samclem]

Your thoughts

I like your friend's investment ideas but I prefer your investment vehicles.

Getting in and out of the market at the right time is very easy in retrospect.

 

[FIREd]

Sounds great. Just make sure to let your friends at ER.org know when you spot a market top or bottom.

 

[clifp]

I find that mastering the secrets of buying low and selling high, is the secret to become fabulously wealth. I have been using patented Whee-Whee system since I was 25 and between 1985 and 2000 I got in and/out the market so successfully that enabled me to retire and move to Hawaii before I was 40.*

Seriously, your friend is right. You can spend hours trying to evaluate if the market on absolute or relative basis is overbought or oversold and be constantly moving money. Or you pick an asset allocation that you feel comfortable with and once a year or so rebalance. I think they work equally well, but the data suggests that I am wrong and the folks who don't try and time the market do better in the long run.

 

[ShortInSeattle]

We did "sell high" but it was a total accident. We were changing our investment strategy and were lazy about executing so everything was sitting in cash when the bottom fell out. We did purposely try to buy near the bottom. We noticed in 2008 that everyone on the financial networks were freaking out, AIG was crumbling, and so was WAMU, a classic "blood in the streets" moment so we plowed everything back into indexes on that day.

It ended out working nicely, but I don't think it's possible to time the market. We were lucky to be in cash when things tanked. We had no guarantee things would go up when we bought that day. We just figured the market (given our long time horizon) was probably on sale that day.

 

[kumquat]

Yes, I did, with a small amount of my holdings. But for me it was mega-corp options that topped in june 08.

Please don't ask me what percentage of my portfolio I used to follow this stategy. I will add (inflates chest) that I didn't sell low.

 

[LOL!]

Market timing is easy. Haven't you seen the market timing newsletter that posts trades and advice in near real-time right here on this forum? The link is right here: http://www.early-retirement.org/forums/f44/lol-s-market-timing-newsletter-57042.html

The OP's friend should be able to easily buy Vanguard ETFs in any brokerage account, so they could have VTI, VXUS, and BND.

 

[FIRE'd@51]

The only way to get a guaranteed "buy-low sell high" payoff over a specified time period is to purchase a call option (or a protective put which is the same thing). Unfortunately, one must pay an insurance premium for this guarantee. IMO, most market timers think (incorrectly) that they can create this insurance for free, or at least for less than the insurance premium embedded in the option price.

 

[donheff]

Never thought of that. Next time the market is at a high just before it is going to drop 10% of more I'm going to 100% cash. Seriously, calling it at Dow 14,000 might work again or might fail miserably. Lots of people sit out huge run ups waiting for the inevitable downturn they thought they were just ahead of. When it finally comes, they just as reliably miss the lucrative early days of the upturn. If you like this sort of thing wouldn't it be more fun to sell on daily up ticks of say greater than 1.5% and buy on the next week's dips in volatile markets like we have been experiencing for a year?

 

[MichaelB]

Did anyone "sell" / convert a significant portion of their tax deferred portfolio at the market high in Oct 2007 ( Dow 14,000), and place in cash holding position.....then "buy" / convert back to the original holding at the bottom Mar 2009 ( Dow 6,000).

I did. Between '07 and '09 we have a fair number of sells and buys. Some were embarrassingly bad, so I don't talk about them. The net result was slightly better than if I had just sat by and watched the whole thing, except Uncle Sam was better off. But there are a couple of transactions that show selling at the top and buying at the bottom, and those are the ones I mention when people ask about my investing prowess.

There is absolutely no doubt this can be done. All you need to do is trade often enough and you are bound to hit some highs and lows. And if you're really lucky you'll come out ahead.

 

[Andre1969]

I didn't sell off at the 2007 peak, but I did cut back on my investing, instead paying down on the HELOC and letting my checking account build up. I had a gut feeling that something was coming, but I had no idea how bad it would be.

I started ramping up investing again in October 2008. It wasn't the bottom of the market yet, but I figured it had fallen enough that it was a good time to start investing again. I kept at it pretty rigorously through maybe March/April 2010, and then cut back. A lot of these funds came from raiding my HELOC.

This was in after-tax accounts, though. I had been contributing the max to my 401k and Roth IRA through the whole period. I haven't done much after-tax investing since that early 2010 timeframe though. My car got totaled from a hit-and-run in late 2009, and I used the last bit of credit on my HELOC to buy another one. By this time my portfolio was hitting new highs again, so I figured I'd better cut back on the investing, and instead concentrate on paying down the HELOC again, and then I'd just invest more if the market tanked again.

However, that opportunity never came. I did see a 12-13% hit in the summer of 2010, but it bounced back and then some by September. In 2011, I cashed in a little bit at what was a new high at the time, and bought some back over the summer as the market dipped. In August my portfolio took a 14-15% hit, and didn't fully recover until January of this year.

I sold off a little more back in February, and again in April, and bought a bit back in May. This year though, my portfolio didn't take too much of a hit. Dropped about 5% in May, versus April. Back up to a new high as of Friday. Of course, the year isn't over yet!

 

[Donzo]

I did not sell anything during the downturn, just held tight (white knuckled). But I did keep throwing money into index funds all the way down(starting at 13,700) and a good amount in 09 when the market was near its lowest point. It payed off - my port. totals are higher now than they were at 14,000 and that includes all the spending/living expenses along the way.
I'm feeling quite smart

Now to figure out when to make a large re-allocation to get more dry powder....

 

[teejayevans]

Now to figure out when to make a large re-allocation to get more dry powder....

I don't time the market, but I am skimming off some profits, because of uncertainty of economic conditions as well as not knowing what US tax law will be in 2013. It's re-balancing more than anything else. I don't make big bets, because I don't want big losses.
TJ

 

[easysurfer]

IMO, occasionally, it's not that difficult to buy low and sell high, it's the repeat part which is tricky .

To DCA and rebalance is much easier, I think.

 

[scrabbler1]

I sold high and bought low in late 2008 but there was some luck in it.

When I ERed at the end of October, 2008, part of my ER plan was to liquidate my company stock (which I had to do when I left the company; it had not yet gone public) and buy into a corporate bond fund. Because the company stock was evaluated only once every 3 months, its last evaluation at the end of September, its price had dropped only a tiny bit (about 2%) while the rest of the market was crashing later in September and into October.

Meanwhile, the price of the bond fund had been dropping throughout the second half of 2008, nearly bottoming out by the time I bought into the fund in the middle of November. As a result, I was able to buy about 25% more shares of the bond fund than I had anticipated, significantly aiding my ER budget, without being forced to sell anything at too low a price to accomplish this.

I did some rebalancing into early 2009, buying into some stock funds at very low prices although the bund funds I used to rebalance were also low, just not as (compartatively) low.

 

[Tadpole]

I timed the sell perfectly but I missed the buy entirely.

 

[unclemick]

Did anyone "sell" / convert a significant portion of their tax deferred portfolio at the market high in Oct 2007 ( Dow 14,000), and place in cash holding position.....then "buy" / convert back to the original holding at the bottom Mar 2009 ( Dow 6,000).

This intuitively / intellectually sounds like a "smart" move, moving forward, since I presume Dow will again reach 14 k or higher and then have a market correction. It would seem that one would profit handsomely, but seems a bit too obvious.

My financial planning friend advises against this course of action , stating that this is like trying to predict the market.....DUH ! He believes the Dow will go even higher ( than 14 k) and that one should, be allocated between: Total Stock, Total Bond and International and ride it out over the next 8-10 years

Your thoughts

PS: I like Vanguard, he likes his brokerage company which doesn't offer Vanguard !!

Right! That's what 'my friend' does for me - actually it's a computer(no name) hidden away at Vanguard that sells high and buys low daily in my Target Retirement.

They call it rebalancing.

heh heh heh - after 40 years(1966-2006) I tossed in the towel and went full auto with retirement money.

 

[Alan]

I missed the "sell high" but did plenty of the "buy low" in 2008. We were only 2 years away from ER and at minimum expenses, maximum savings so we continued to max out 401k's and IRA's all through '08, putting most of it into equities as we were out of balance on our target AA.

Like Unclemick, now that we are retired, we have most everything in VG and Fido target or balanced funds and let their computers do the buy low sell high thing.

 

[target2019]

I'm participating in live technical analysis project at a Morningstar forum (Portfolio design and analysis). My project data is at this link. The summary chart shows you the particular challenge of using an indicator to sell and buy. It is relatively easy to sell a portion or all of an investment according to a moving average signal. Getting back in according to a pre-set signal is more difficult for Jill or Joe average investor.

The proponents of long term moving average signals to exit and re-enter usually describe the strategy as mitigation effort. You may partially exit and give up some upside, but when the big one comes you have preserved more of your investment.

I think I've read at least a hundred variations on the theme. For instance, some may exit a fund that has lost momentum, and move to fund(s) that show momentum. If you grab historical data and play out a strategy like this, it is tempting to apply such tactics to a portion of your portfolio. As for me, I continue to look and evaluate, and only used such tactics once, in the flash crash. I forgot to watch the signal closely, and did not get back in at the indicated time. That's the challenge of being a working stiff. I simply don't have time to implement all the alerts that would be necessary. I also have very little investing acumen.