LOL!'s Market Timing Newsletter

[NW-Bound]

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.

[LOL!]

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.

[NW-Bound]

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.

[Brat]

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?

[NW-Bound]

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.

[LOL!]

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

[LOL!]

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.
244

[LOL!]

Quote:

Originally Posted by LOL! 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.

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

[LOL!]

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.

[LOL!]

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.
1

[LOL!]

Look at IJS go! I should've waited at least another day to sell it.

[LOL!]

The portfolio is still over the hard high trigger point for equities. This doesn't bother me so much, but now that I sold some small-cap value shares last week, the portfolio is overweighted in foreign equities and underweighted in US small-cap value which should be no surprise. So ...
489

I need to sell some large-cap foreign equities and buy some US small-cap value. That will keep the portfolio above the hard high trigger point. I could do this a few different ways.

1. Sell something like VEA or VEU (large-cap foreign) and buy SCV in a Roth. I like this the best only if VEA/VEU go up and something like IJS goes down at the same time, then I think I will do this.

2 If IJS continues to go up, then I'm not gonna buy it until either VEA or VEU go up even more like they did last Friday (~+0.9% vs ~+0.4%)

3. If both VEU/VEA and IJS go down, I will sell VEU/VEA if they go down less than IJS.

4. Otherwise, I will probably wait until something like the above happens or I will re-evaluate.

Note that all the above all depend on what happens and there is no prediction of what will happen afterwards.

Hey, don't forget this is a Market Timing thread, so I'm giving you my thought process before I make transactions.

[LOL!]

Market is open only about 2 hours so far today and IJS was up 0.8% and now is slightly down. VEU / VEA are still up a little.

So Situation #2 in my previous post was what I saw, but now it is situation #1.
I don't know where things will stand later in the day or in the future, so I am going to do one-half of the move I wrote about and wait to do the other half.

Sold some VEA already. I will buy some IJS later today and report back when that happens. Actually, I will submit a limit order now to buy IJS a little bit below current price.

[LOL!]

Update: IJS continues to drop, while VEU / VEA are still slightly up. Since IJS is now trading below where I sold last week, I just changed order to market order and bought IJS below $158 here.

Now I have to decide whether to wait or to trade the second tranche of this. I think I will wait at least 15 minutes and see what happens before making a decision.

15 min later update: I saw a single trade of VEU that was over 100,000 shares and that spooked me, so I sold some VEU. IJS was down more since my earlier purchase, so I bought more shares with the money from selling VEU. Thus, I have completed what I intended to do this morning. Now back to twiddling thumbs.

Thanks for reading.

[LOL!]

So I didn't make the best possible trades of the day which would be selling VEU and VEA early at their highs for the day and waiting to buy IJS at its low for the day, but my new shares of IJS lost less (and some have a gain) after buying them than the shares of VEU & VEA would have lost after I sold them, so I came out ahead of doing nothing. Plus my portfolio asset allocation is now where I wanted it to be.

[LOL!]

And 2 days later ... my sell VEU/VEA and buy IJS are nothing special with just a few dollars difference between having done the trades versus not doing the trades.
914

Portfolio is already up 6-figures here in January, so maybe it is time to step back and hang loose.

With that in mind, I decided to do more rebalancing and sold more shares of VEU (large-cap foreign) and VTI (US total stock market) in a straight-up rebalancing move. I bought some short-term corporate bond index ETF shares and will use some of the money for January bills.

[Sunset]

Quote:

Originally Posted by LOL! ....... .....I decided to do more rebalancing and sold more shares of VEU (large-cap foreign) and VTI (US total stock market) in a straight-up rebalancing move. I bought some short-term corporate bond index ETF shares and will use some of the money for January bills.

Which ST corp bond index etf did you buy and why that one ?

I'm always looking for some solid reasons to put more $$$ into bond type things for rebalancing purposes.

[LOL!]

Quote:

Originally Posted by Sunset Which ST corp bond index etf did you buy and why that one ? I'm always looking for some solid reasons to put more $$$ into bond type things for rebalancing purposes.

Hmmm, I've mentioned two different short-term corporate bond index ETF ticker symbols right on this page: VCSH and SPSB. I'm not sure what to think of your question.

I was buying SPSB this past week because it is a no-commission ETF at TDAmeritrade. I prefer VCSH which used to be no-commission ETF at TDAmeritrade. VCSH and SPSB are no-commission for me at my other broker. I own lots of both of them.

SPSB has a larger bid/ask spread (percentage-wise, even though spread is one cent) than VCSH and limit orders to buy at the bid price for SPSB often do not execute even though trading volume is relatively decent for SPSB. For this reason, I also prefer VCSH.

[LOL!]

I'm disappointed in my small-cap value holdings which are trailing US and foreign large-caps by about 3% in the past 3 weeks to add to their deficit for 2017. So I need to do some brilliant market timing move in order catch up.

759

So I need to a nice move that will make 2% to 3% in the next week or so. Does anybody have any good ideas?

I'm thinking of waiting until something I own drops by at least 1% overnight and then moving a big chunk of bond money into it for a few days. This would increase my allocation to equities and reduce my allocation to bonds, so it could be bad.

I don't want to buy stock in an individual company, but would prefer an ETF. I would also consider an ETF that I don't own. For instance, I'm thinking of something like MTUM which is Ishares USA Momentum.

Anybody got any suggestions for me? It could be a fun way for you to invest vicariously without risk to you.

[LOL!]

Put in some limit orders today to sell VCSH (short-term corp bond) and buy MTUM (US large-cap momentum) and they were executed late in the day while I was out bike riding.
204
The idea is sell MTUM very soon if it goes up.