Simple Timing system

[RockOn]

Quote:

Originally Posted by clifp This weeks market is a pretty good example of the dangers of a simple timing system. If your get out number was say dow 11,000 you sold out on Tuesday. If you got back in on Wed you lost out on 2.5% gain if you waited until Thursday another 2%. IIRC, more than 1/2 of the gains of the market in a year are made in less than 10 trading days,you don't want to be on the sidelines on those days. Who knows maybe it goes below 11,000 tomorrow and you'd have to sell again, but it is an expensive trip in this volatile market.

Whipsaws at their best. You are right. That is the downside of moving average types of timing. I wouldn't try it except possibly when downside risk is running wild. That appears to have let up until at least tomorrow.

P.S. but if I could have bought and sold a heavily traded ETF (to get quick executions within a penny or two of the index price) during the day each time it crossed my number I wouldn't have lost much even if it whipped through a few times a day. If we could get to 24 hour trading, 7 days a week, and heavy bid/ask interest in index ETF's during the entire 24 hours, you might give it another look. No?

[Finance Dave]

The only timing I do is determine my FIRE date...which admittedly moves around a bit as the market over/under performs.

[al_bundy]

Quote:

Originally Posted by clifp This weeks market is a pretty good example of the dangers of a simple timing system. If your get out number was say dow 11,000 you sold out on Tuesday. If you got back in on Wed you lost out on 2.5% gain if you waited until Thursday another 2%. IIRC, more than 1/2 of the gains of the market in a year are made in less than 10 trading days,you don't want to be on the sidelines on those days. Who knows maybe it goes below 11,000 tomorrow and you'd have to sell again, but it is an expensive trip in this volatile market.

looking at the last few years market performance there is usually a 15% on average correction every year, usually in the 3rd quarter. and then a nice rally that takes the indexes 20% to 40% gains in a few months. i've never read of anyone who was serious into timing the market who tried to catch the very top or the very bottom. pretty much everyone says it's best to catch it within 3% - 5%. most importantly catching the top is more important than catching the bottom because preservation of capital will do a lot more for long term returns than capital gains.

and i've never read of anyone advocating a timing system based on 1 day gains or losses. pretty much everyone who does this uses some variation of averaging out the last few weeks action to look at the trend

[ziggy29]

The best timing system is "find out what ziggy29 just bought, and short the bejeezers out of it."

[youbet]

Quote:

Originally Posted by RockOn I wouldn't try it except possibly when downside risk is running wild.

Those looking at history can always point to data that shows downside conditions were "running wild" just before a significant drop in the market. Sadly, those looking ahead hardly ever do better than guessing (at best) and have a feeble record of accuracy.

For myself, if I had bet the farm everytime I was sure that conditions were "running wild" and indicating an impending up or down market move, I wouldn't be FIRE'd today!

[guest]

I guess it is my turn to be slapped around a little but like my daddy said, you’ll be a better man for it! I mostly agree with RockOn.

First, I must confirm my full weak-knee-ness. I had trouble with the market fluctuations and general negative trends a long time ago and after enduring all I could I got out. It was my position that at my “life plan” stage (retire in a year and a half or so) I could not replace my loses (and keep the schedule) and it would be better to get out now while I still had enough to continue my plans. Since then the market has only gotten worse and most investors have lost some percentage of their portfolio. Most likely, a greater percentage than I had lost when I jumped ship. Sleep has come pretty easily after that decision.

But through all my past years investing I have never felt comfortable with just watching the numbers fall away! Some say it is only numbers and “that they never really had that money anyhow”. I believe that is pure balderdash! I jumped ship in 2000 and skipped the market gyrations of that time and rejoined the fracas in 2002. Market timing? It was not my intention, I just felt that there was obvious bad news and I could wait until things settled down! I see RockOn’s point using a black and white number as a guide but isn’t it better just to chill until the general market trends become readable and then move? It doesn’t take a financial wizard to see things are a mess and that there is no real positive news anywhere on the near horizon! Even if I was in the accumulation phase of life right now, I would not be in this market very heavily.

[ERD50]

RockOn - let's back test it. Pick a point, and you also need to decide on a range before you trade. The index could move above/below that point 100 times in a day if it was teetering on the line - you have to have some delta between your sell and buy points. That will force you to sell low and buy high sometimes (maybe not often though - it just depends).

I suspect that between a few sell low buy high rushes, and some daily gaps, that you will lose a fraction of a percent enough times to add up to real money. An option position just might be cheaper. As was pointed out, an option 'collar' can cost nothing, you just trade limited downside risk for limited upside opportunity (plus the spread and fees).

And of course, a back test doesn't prove anything, since the future will be different, but it might give you an idea of what could happen (hey, sounds like FireCalc!).

-ERD50

[samclem]

Quote:

Originally Posted by ERD50 RockOn - let's back test it. Pick a point, and you also need to decide on a range before you trade. -ERD50

I'm sure he'll weigh in, but I think he has rejected this idea.

From his post above:

Quote:

Whipsaws at their best. You are right. That is the downside of moving average types of timing. I wouldn't try it except possibly when downside risk is running wild. That appears to have let up until at least tomorrow.

So, apparently you can't use this method all the time, just when downside risk (subjective? P/E based?) tells you to.

Ahh, technical analysts . . . the battlefield of investing ideas is littered with their bones, yet more are spawned daily.

[RockOn]

Quote:

Originally Posted by samclem I'm sure he'll weigh in, but I think he has rejected this idea. From his post above: So, apparently you can't use this method all the time, just when downside risk (subjective? P/E based?) tells you to. Ahh, technical analysts . . . the battlefield of investing ideas is littered with their bones, yet more are spawned daily.

I've backtested things like this before. It really depends on what was happening in the market. It can make me look like a genius or a fool, depending on how much the number picked is optimized to fit the data.

My thought was that things are "running wild" right now. I watched a run on a bank on TV a few nights ago as an example. I am not talking about falling market prices, I am talking about the possibility of a meltdown. Chances are that will not happen, but a simple timing system may have it place right now. Market timing methods do work at times, the problem is figuring out when those times are.

[Spanky]

Quote:

Originally Posted by RockOn Market timing methods do work at times, the problem is figuring out when those times are.

And there is no shortage of market newsletters to provide simple buy and sell signals.

[Alan]

Quote:

Originally Posted by guest I guess it is my turn to be slapped around a little but like my daddy said, you’ll be a better man for it! I mostly agree with RockOn. First, I must confirm my full weak-knee-ness. I had trouble with the market fluctuations and general negative trends a long time ago and after enduring all I could I got out. It was my position that at my “life plan” stage (retire in a year and a half or so) I could not replace my loses (and keep the schedule) and it would be better to get out now while I still had enough to continue my plans. Since then the market has only gotten worse and most investors have lost some percentage of their portfolio. Most likely, a greater percentage than I had lost when I jumped ship. Sleep has come pretty easily after that decision. But through all my past years investing I have never felt comfortable with just watching the numbers fall away! Some say it is only numbers and “that they never really had that money anyhow”. I believe that is pure balderdash! I jumped ship in 2000 and skipped the market gyrations of that time and rejoined the fracas in 2002. Market timing? It was not my intention, I just felt that there was obvious bad news and I could wait until things settled down! I see RockOn’s point using a black and white number as a guide but isn’t it better just to chill until the general market trends become readable and then move? It doesn’t take a financial wizard to see things are a mess and that there is no real positive news anywhere on the near horizon! Even if I was in the accumulation phase of life right now, I would not be in this market very heavily.

So when did you pull out this time? Interesting that you say you jumped back in during 2002, which for me was my worst year ever (-11%). If you agree with RockOn, do you have a system like he is suggesting for timing or do you time the market using other methods?

[al_bundy]

Quote:

Originally Posted by Spanky And there is no shortage of market newsletters to provide simple buy and sell signals.

people actually pay for these when there is so much information free on the internet

[guest]

Quote:

Originally Posted by Alan So when did you pull out this time? Interesting that you say you jumped back in during 2002, which for me was my worst year ever (-11%). If you agree with RockOn, do you have a system like he is suggesting for timing or do you time the market using other methods?

I retreated back around November or December. This retreat was because I simply felt retirement was too close (5 months now), all my numbers worked, and any more loses would be hard to recover in such a short length of time. The fact that things have just gotten worse makes my decision look good but it is just coincidence.

The 2002 jump back in was not in January...but the exact date I would have to look up. I don't claim to have a system but what I liked about RockOn's approach was he felt the bleeding of the market and wanted to react to stop it. Setting a number got you by the very thing I have a hard time with….dumping money into the market and checking the balance and it shows less and less! I still have to deal with this with my wife’s retirement stuff…..geez. She is diving daily and putting in faithfully monthly.

My approach is to keep informed, read a lot, and listen some. If I see a bank collapse in the news or look at stock numbers diving, mortgage crisis….I can get a good feel that even if it went up today it is going to stay in struggle mode for a while. OTOH, when the news is about global warming (sorry, I couldn’t resist…) and how much my politicians have done for me, maybe some nice news about oil prices and the market numbers are on the plus side for a bit, I would be more inclined to stick around. I did not try to jump around a lot. There have been good times and bad and honestly speaking, I pretty much always tried to stay in and keep pumping the money to it….just not during the long downturns.

[guest]

Just checked and it was October 2002 when I rejoined the land of big gains and possible loses and I "stayed the course" until my jump out at the end of last year.

[Alan]

Quote:

Originally Posted by guest Just checked and it was October 2002 when I rejoined the land of big gains and possible loses and I "stayed the course" until my jump out at the end of last year.

Well good luck in future timing, it's not for me.

[RockOn]

A article on the possible "meltdown" senario. Are we Japan?

How the U.S. Financial Crisis Resembles Japan’s 'Lost Decade' - And How to Play it - Seeking Alpha

I don't subscribe to much of it, but *hit does happen.

If you note in the comments several say it couldn't happen here because the PE was 56 in Japan but is only 18 here. In another Thread someone just pointed out the current Blue Chip DOW PE is now 91....

[NW-Bound]

RockOn,

I just read your introduction post. We are somewhat alike. About same age. FI, but still working part-time for some income. My 2 children in college. Yours about to start. You did not say if you are still married. We've been married 28 yrs. DW already ERed. Neither of us have pension. I also have a big nestegg that I saved and pampered my whole life, and do not want to end up like the couple in the movie "Lost in America".

In your introduction post, you showed apprehension of the economy downturn, and the impending bear market. Same here. I also want to have some protection, yet do not want to miss out if the doomsayers turn out to be wrong. In the long run, up to the end of our life, I believe stock market is the best place to be to beat inflation. Else I would have bailed completely. Sounds familiar? Greed and fear, greed and fear...

The problem is we cannot have it both ways. You cannot get 100% upside of the market, without suffering the (hopefully) short-term drop. I always keep around 30% in cash, meaning money market, CDs, and I-bonds because I am conservative. This year, sensing instability in the market, I have raised that cash level to 50%. And I have been at peace with myself.

Say, if the market really tanks, and loses half its value, I would still have 75% of what I have now. Lots of people would be losing their job. Some other's portfolio would be decimated. There may be social unrest, if it gets that bad. Would I be complaining about having 75c on my dollar?

On the other hand, if the doomsayers are wrong (and I pray they are), and the market starts climbing from here, I would still participate in 1/2 of it. That's the price for me being chicken. I can still buy back, but miss out on the early rise. That's the premium I pay for insurance.

I believe the only thing you can do is to raise your cash level until you can sleep at night. There's no other way. I know about the inflation effect, but hopefully, by the year end or early next year, I will know a better place for my cash.

[unclemick]

Quote:

Originally Posted by 2B I got my BAC from a series of bank acquisitions. My cost basis is about $9 and I've held it since the mid-90s. I hadn't sold because it had a large capital gain I wanted to not take plus it has a good dividend. It's also well less than 1% of my portfolio. It has been a good reminder why I don't invest in individual stocks anymore. I think it will come through this without having to raise capital or cut the dividend. I think they are just being hammered by rumors and panic. But, what do I really know about this? I'll just keep on watching the drama unfold.

Yep - out of the DRIP (early 90's also) file and into my VG brokage account - it's not football season yet - so the Norwegian widow gets hit with overwhelming urge to buy lately - so she has to be shook and told to get a grip.

Luckily there is not a lot of loose money lying around right now.

heh heh heh - Even knowledge of balanced index and modern portfolio theory does not prevent those greed and lust attacks. We all know is just hormones. Right? .

[RockOn]

Quote:

Originally Posted by NW-Bound RockOn, I believe the only thing you can do is to raise your cash level until you can sleep at night. There's no other way. I know about the inflation effect, but hopefully, by the year end or early next year, I will know a better place for my cash.

I think there are quite a few of us out there. I keep looking for ideas to get some exposure yet limit risk. Maybe there will be some products coming out for lower risk people, hedged in some manner to limit risk yet get some upside. It is hard for an individual to find vehicles that do that. The boomers are a huge market for those products IMO.

Options might come the closest but I think the costs are really too high plus some of my retirement accounts do not allow options. Vanguards new payout funds were an attempt but they just don't cut it for me. There is no risk limiting mechanism going on there other than the % in fixed. I could do that myself.

[haha]

Quote:

Originally Posted by RockOn I think there are quite a few of us out there. I keep looking for ideas to get some exposure yet limit risk. Maybe there will be some products coming out for lower risk people, hedged in some manner to limit risk yet get some upside. It is hard for an individual to find vehicles that do that. The boomers are a huge market for those products IMO.

There are 100s of these available right now, and new ones are offered weekly. Go to your broker's website and search under "structured investments" or "structured products". Then you need to develop the ability to evaluate them for yourself, because they are often quite complex.

But they are there, in many different forms.

Ha