LOL!'s Market Timing Newsletter

I am down today, after 2 weeks of going up every day. Compared to Monday 9/25, I am still up 2.5%, compared to S&P going up 2.1%. Not too shabby for being 74% in stocks, although that includes a few percents that are practically sold due to covered calls getting in-the-money.

I would not be surprised that a correction hits at any moment now.
 
I would be surprised to see a correction (>=10% drop in major stock market averages) at any moment now. We can discuss what might cause such a thing: North Korea seems to be the likely source I would think, but that's all I can think of. I don't think Politics will do it as that has become terribly predictable.

Now I can see market averages doing the "trading range" thing of bouncing around for awhile, but I enjoy the volatility and usually make money from that kind of thing.

As for my portfolio, it is back to what I call "Asset Allocation Nirvana" with no foreseeable need to place any trades. Equities are the right percentage; bonds are the right percentage; cash is at zero percentage.
688
 
What if this does become the greatest bull market of all time? Amazing how much more wealth this will bring all of you.
 
A correction can start just by some investors deciding that they should book some gains after an extended rise, and take some money off the table. Selling begets more selling, the same way an avalanche starts.
 
Astounding...
The average Bull Market period lasted 9.0 years

with an average cumulative total return of 472%.

• The average Bear Market period lasted 1.4 years

with an average cumulative loss of -41%.
 
LOL! said:
Now I can see market averages doing the "trading range" thing of bouncing around for awhile, but I enjoy the volatility and usually make money from that kind of thing.
Click to expand...
I haven't posted in this thread in a while, so I thought it was time for an update.

I've been doing quite a bit of traveling and haven't been following things closely. But it turns out it didn't matter at all. Both the bond and equity markets haven't really done much since the post I quoted above. Maybe up 1% for equities and down and back up. Bond funds went down and up, too. The 60/40 funds that I usually mention in the "YTD performance" thread are up between 0.5% and 0.9% in the past 5 weeks. Here's a morningstar chart:
6wXsr9l.png


So nothing to see here. I don't see any major movements happening for the rest of this year even though I would welcome them in either direction.
529
 
NW-Bound said:
In view of the reconstruction after the hurricanes, how about building material companies?

If one is so inclined, can go deeper than the retail stores and find out about the sources, meaning the producers and manufacturers.
Click to expand...

Thought I would give y'all an update on this play.

Right on the date of the above post (2017/9/06), I put about 2% of portfolio into 4 building material stocks. I just sat down to compute the gain of these shares, and it's 9.3% today. I was a bit late to the party, because some quicker guys already bid up these stocks up a few percent compared to where they were before I bought.

The S&P advances about 4.6% over the above time period. So, this play works out so far. Maybe just coincidental? Could be.

Will keep y'all posted and entertained, if I remember to check back on this. I am getting old, yet still have a lot other things to keep my mind busy on.
 
Some nice things happening in the stock market today. Bond ETFs up and stock ETFs down on a little newsy news.

So sell VCSH (short-term corporate) and AGG (aggregate bond index) in an IRA to raise cash and use the cash immediately to buy IJS (small-cap value).

I'll probably lose at least half my shirt on this, but so what?

Oh, i'll try to reverse the trade in a day or so if IJS goes up.
738
 
So the market closed with the bond ETFs that I sold closing lower than their sale price, but still relatively way up for the day. I expect next week, they will drop back down. And the IJS I bought also closed up significantly from purchase price. I decided to hold it at least until Monday and make a decision then on what to do with it.
 
Friday's trades worked out better than I expected with IJS up more than 3.3% and AGG down enough that the round-trip combination of the 2 trades will net more the 3.5% in one day, so I have submitted a limit order to sell the IJS today at a little bit higher than the current high price of the trade.

That doesn't mean it will go through, but psychologically I have done two things by submitting the order: I have exhibited self-control and I have also sort of put the decision out of my hands (given up control) because if the order is not executed then I won't have as much regret as selling now at a lower price and having the price go up. Got that? A little cognitive dissonance or mental accounting going on here.

Also, I may change my mind as the day develops.
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And I didn't change anything, so by not selling today, I saw most, but not all, of today's gains slip away. Ugh!
 
OK, that's it, I sold all the IJS bought on Friday before all my profits went away.
 
I had been thinking I should reduce my stock AA down from 70%+, when the "Wh***" proclamation occurred on 12/03/17 and provided a powerful impetus. I have had a good year, so do not want to tempt fate and push my luck.

Hence, I have 1) sold some stocks outright, or 2) sold out-of-the-money covered calls, or 3) sold the shares, then sold put options to buy them back below current values. As I hold many individual stocks and never sell or buy a lot in a single day, it will take a bit of time to reduce my stock holdings down to 50%AA.
 
That's quite a big change, I think. I never could figure out how to put some options into my asset allocation calculation. Are cash-backed puts cash? Or something else? What about covered calls?

Lots of things happening this week, so I intend to be re-active as always and not pro-active. Something's gotta happen before I make a change.
 
The put and call options I sell are out-of-the-money. If stocks go up more than I think is reasonable, I will have to sell them. If stocks go down more than a few percent in the next month or so, I will be forced to buy them. This means my stock AA will vary between 70% to 50% (to be decided), depending on how the market moves.

This is based on my thinking that stocks are more than fairly valued, and they will be range-bound in the immediate future, meaning next year. If they never hit the call and put options, that's very fine by me, and I pocket the option premium.

If I am wrong, and the market goes up a lot, I miss out some compared to staying at the 70% AA I have been at, but I am not completely out of the market hence still make some money.

If the market goes down a lot, I will lose money, but less than if I do nothing.

So, the cash that secures the puts is cash, until the market drops then they become like stocks even before the option holders exercise them.

Conversely, for the stocks that I sell covered calls on, if the market keeps on rising, they will contribute to my net worth until the strike price is exceeded, then the stocks and these options will behave like cash, even before the options get exercised.

Note that I only do this on some of the stocks I hold, not everything.
 
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DH is kicking 80, I am a couple years behind. Right now our IRAs are in VWENX (Wellington), 65% stocks. Our other investments (Roth, & taxable) are in BKH.B (Berkshire Hathaway). The net result is that our asset allocation is heavy in stocks (70%). I know I need more bonds and if I did I would exchange our Wellington for Wellesley Income (38% stocks). It is tough for me to make that change because stocks have been so kind to us and bonds at the moment, IMHO, are stinky. Age wise I know I should but at a gut level I hate to do that.

Has anyone else had that dilemma?
 
70% in stock is quite heavy. I have been doing that, and I am only 61. However, I don't think I will cut back my stock AA when I get older. Rather, if I cut back, it's because the potential reward is reduced. The higher the stock P/E goes, the tougher it is for it to go even higher. It is easy for a C student to improve to a B, but where does a straight-A student go? The best he can do is to maintain status quo.

I will admit that I am a stock lover, and do not care for bonds. I have been balancing between stocks and cash for years. I can get some return from my cash by selling out-of-the-money put options. They have the side benefits of forcing me to buy stocks low when they dip.

But, but, but I never get myself into a situation when I am 100% in stocks. I don't think I ever had any lower than 20% cash. Even without SS, that's enough for me to live on to survive the 7-year biblical feast-and-famine cycle.
 
2017 has been another great year for the Market Timing portfolio. My 60/40 portfolio has outperformed its benchmarks again this year, so it's Onward to 2018 and hopefully Upward!

The portfolio is heavily small-cap tilted with less than 50% of equities in large-caps. Small-cap value funds did relatively poorly in 2017 and the portfolio was overweighted in them. But the portfolio was also overweighted (relative to benchmarks) in Foreign Equities with about half of equities dedicated to foreign countries.

Another negative in 2017 was the allocation to VCSH (short-term corporate bond index fund) which returned about 1% less than a total US bond index fund.

But it seems everything canceled out and perhaps some of the Market Timing moves helped. At least the total performance in the end was above the benchmarks.

A final positive was that the Roth IRAs had the biggest gains. Plus the taxable portfolio which was 100% equities was so tax-efficient that the foreign tax credit covered all the taxes due on the non-qualified dividend income. The qualified dividend income was not taxed or taxed at 0%. And once again there were no net realized capital gains to be taxed, so no taxes there either.

I hope everyone did better than expected in 2017 and all the best for 2018, too!

877
 
So the portfolio has hit another hard rebalancing trigger point today, but I'm going to step over the line and join the Irrational Exuberance Party and not rebalance just yet.

Instead, I am going to wait until any one of my bond ETFs drops close to 0.5% in a single day (not counting going ex-dividend)
or
any one of my equity ETFs pops close to 2.0% in a single day.

I can set some alerts at my brokers so I don't even have to watch the market to see these events happen ... they will just e-mail me when one occurs.

I'm telling y'all this because if I don't make it public, then I would probably not actually do it, so thanks for helping me out here. :)

This maneuver should help ensure that I stay ahead of my 60/40 benchmarks because I will have more equities than 60% for awhile ... that is, I am cheating.

And if equities tank from here, then I won't have to sell equities anyways.
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LOL! said:
Instead, I am going to wait until any one of my bond ETFs drops close to 0.5% in a single day (not counting going ex-dividend)
or
any one of my equity ETFs pops close to 2.0% in a single day.
Click to expand...
Bond funds have not dropped 0.5% in a single day, but are down about 0.4% since I posted the above.

Today some small-cap value equity ETFs are up 1.8% which is getting close to the "2% in a single day" trigger.

I'm making some plans and will update later.
815
 
Update: I submitted a limit order earlier today to sell some shares of IJS (small-cap value) and it hasn't executed although a trade happened about 2 cents under my limit at a gain of 1.98% for the day.

There is still a chance though that somebody gets too euphoric in the last 30 minutes of the trading session. :) Or maybe I drop my pants and lower my limit price.

Update:

And look at that! IJS order executed in the last 5 minutes (before 2 pm EDT). Proceeds were used to buy a short-term corporate bond index fund. So that was an act of rebalancing.

But even better: I had to use 2 accounts to accomplish what I wanted to do and do a double trade in order to rebalance and keep bonds out of Roth:

Roth:
IJS -> VTI

401K
VTI -> SPSB

and a triple bonus:
IJS closed lower than I sold it for.
VTI closed higher than I re-bought it for.
SPSB closed higher than I bought it for.

No commissions and no tax consequences as well.

Sometimes in these double trades, one loses a little bit to friction, but not today.
 
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A check of portfolio asset allocation shows that it is still overweighted to equities, so more rebalancing needs to be done from stocks to bonds. Yesterday's exchange was less than 2% of portfolio value, so not enough to move the needle very much.

Despite the relatively higher gains of US Small-Cap Value yesterday, SCV performance trails everything else for YTD and past 3-months, so in reality I should be buying it and not selling it. The performance lag would have even been worse if things had not popped by 2% yesterday.

YTD US and international large caps are about 3.5% while small caps are about 2.9%.

I guess I don't know what to do next, so i will plan to do nothing.
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