Reduced Stock holdings to 25% today from 50%

[eta2020]

Quote:

Originally Posted by haha Buy and hold isn't easy either when a strong down market turns that into days and weeks and months of losses. Ha

But buy and hold is predictable. With market timing you have to be right 2 times: when you get out and when you get back in.

I bet most of fund managers are way more skilled in making such judgements versus majority of this forum. Yet on the long run they have difficulty beating index.

It is one thing to have good luck and be right once and another to do it over and over. One time wrong and you shoot yourself into a foot, twice and you shoot yourself in both feet.

We have this topic here about once every 2 weeks......

[Birchwood]

I'm 64 yrs old and currently about 45% equities in drips, individual stocks and mutual funds. I also have a considerable cash position. I am scared of the timing strategy and even the professionals are not good at it.
Even with a 10% correction, I am willing to ride it out and live on my cash.
Even in a terrible downfall, the market usually recover in two years. I hope.
If I need money for very big expenses, I will not hesitate to sell my stocks, anytime, winner or loser.

[haha]

Quote:

Originally Posted by eta2020 But buy and hold is predictable. With market timing you have to be right 2 times: when you get out and when you get back in. ...

Just continue reciting that to yourself. Perhaps it will make you feel better when things go bad the next time.

What I wonder is why you b&h boys are often trying to show we timers how stupid we are, but timers don't give a whit what you guys do.

Something very interesting in that.

[karluk]

Quote:

Originally Posted by haha Just continue reciting that to yourself. Perhaps it will make you feel better when things go bad the next time.

You're kidding, right? This is far from a mantra designed to make buy and holders feel better. Market timers really do have to make two correct decisions. For the parameters of this thread, for example, suppose that the market goes down a little, but OP expects a big decline so he continues with his 25% allocation. Then the market goes back up and reaches his 2020 buy target. What does he do? He could have reentered the market at a small profit when he had the chance, but now he's in a situation where he has committed himself to buy back at a loss. In other words, one good decision to sell, plus one bad decision to not buy back at a small profit = net loss. He needed to make two good decisions, but only made one. Hence he loses, just as the buy and holders said he would.

[karluk]

Alternatively, suppose OP is 100% correct that a big decline is looming. He has sold at the right time, but unfortunately random market gyrations cause the S&P 500 to reach 2020 before the crash begins. OP buys back at a loss and consoles himself that at least he limited his losses after a wrong guess. But the guess wasn't wrong at all. The S&P starts a long decline to 1,000, with OP just as committed to the stock market as before he made his ill-fated market timing experiment, thus adding self-inflicted losses to the ones meted out by the stock market.

As before, one good decision + one bad decision = net loss.

[ESRwannabe]

I've been getting a little paranoid with the bull run as well and I've very recently done a few things to prepare for a correction.

1) Sold off individual stocks and replaced them with the vanguard high div yield index which has a mandate similar to what I tried to do on my own.

2) Took about 15% off the table as cash.

3) Changed my Roth IRA from 100% REIT index to a balanced fund (the vanguard managed payout fund).


So, not a huge change in terms of stock percentage, but more cautious overall.

[karluk]

I have my own recent experience with market timing. On Monday I sold a small amount of an international stock fund, intending to simultaneously buy it back in another account. Unfortunately, I neglected to place the buy order. Luckily for me, the international fund was down on Tuesday, so I was able to place the buy order on Tuesday and emerge with a $5.70 profit. So to anyone who believes that market timing never works, I can say from my own personal experience that sometimes it does.

On the other hand, I would have been even better off waiting until today to place the buy order. Hmm, maybe I'm not so smart after all.

[ESRwannabe]

Just to add my two cents. My big concern is that stock buybacks have been a large part of the rally and I feel like that is coming to an end. Just what my spidy sense is telling me.

P.S. I'm curious to see how vanguard's low volatility fund works out. Their managed payout fund has 20% in it.

[NYEXPAT]

Congrats! It is looking like a nice call, hope you stuck to your guns.

[Running_Man]

It is still early and nothing really has occured as of yet, although the price action was not ideal from a bull standpoint. In the words of my favorite businessman, Willie Wonka, "The suspense is terrible, I hope it'll last!"

[Lancelot]

^ I would echo NYEXPAT's comments.

Kudos, well done.

[Running_Man]

Quote:

Originally Posted by eta2020 But buy and hold is predictable. With market timing you have to be right 2 times: when you get out and when you get back in. I bet most of fund managers are way more skilled in making such judgements versus majority of this forum. Yet on the long run they have difficulty beating index. It is one thing to have good luck and be right once and another to do it over and over. One time wrong and you shoot yourself into a foot, twice and you shoot yourself in both feet. We have this topic here about once every 2 weeks......

Buy and hold does offer advantages in that it takes decision making to two decisions, you create a "risk profile" and then set your allocations per this profile, maybe with the help of a financial adviser maybe as a result of studying John Bogle. Then your only other decision is when to re-balance. now done, you can enjoy life as your market allocation insures your retirement.

This has major advantages, one does not need to think about global debt moving from 160% of global GDP in 2009 to 215% of global GDP at the end of 2013 and what effect that debt change has done to the level of equity levels for the past 5 years nor the actual risk contained in your "risk profile". Nor why in the late '90's the correlation between US small and large company stock prices was .62 but now in the last 5 years the correlation has moved to .95. and the correlation between international stocks and US large cap stocks have moved from .69 to .91.

As the belief has permeated the average individual that you can reduce risk by buying a wide array of different asset classes of stocks, the actual risks of holding these asset classes have merged, causing an increase in risk because the investors holding these myriad of asset classes believe their market losses are mitigated. Modern financial institutions and trading instruments make it easy to get into and out of all these asset classes quickly. I suspect there is a large number of younger investors who do not truly understand that the risk in their international stock holdings are now highly correlated and dependent for success with a continued increase in US large cap stocks.

A mini- preview of this risk change occurred in 2008-2009 at that point the correlations had moved to about .80 - .83 and the resulting joined carnage lead Bernstein to see that someone who has accumulated a vast wealth via buy and hold cannot handle a 50% decline in their retirement portfolio as the close up view of the abyss of late stage portion of their life in poverty causes fear to overwhelm the buy and hold acumen in staying invested for the eventual recovery that follows. As all asset classes together worldwide sank, and the diversification they counted on did not provide protection faith in the philosophy melted among a goodly portion of this 2 decision crowd. And a buy and hold investor needs these people to be an acceptable minority of the total to avoid even more serious declines, (or the help of central banks willing to perform coordinated helicopter maneuvers that far surpass the abilities of any army helicopter pilot.)

I am not predicting a major market crash, what I am trying to point out is that the buy and hold crowd has a large unseen market risk they are not even aware exists, and actually actively scoff at, not unlike financial institutions which never believed US house prices could possibly fall and therefore protected their new packages of securities and magically made risky loans safe. But should the buy and hold crowd continue to decide that additional risk is what they want in the near term, I will try and jump on the helicopter before it gets too far off the ground for me to jump on.

[nash031]

Quote:

Originally Posted by Running_Man I am not predicting a major market crash...

Sounds to me like this is exactly what you are doing, you're just rationalizing it with all kinds of numbers and assumed psychology about a group of millions of people. The problem with your psychiatric analysis of the buy and hold crowd is that many of us actually did watch 50% of our nest eggs melt away over the course of seven or so months in 08-09, but still held through it, and have enjoyed the following recovery. I did not see a reason to reduce my stock holdings then, and I do not see one now. My tolerance for risks and acceptance of the market's inherent volatility has not changed, and my need for the money now has not changed either. When that does - and only when that does - will I change my AA, not because of correlations, P/E ratios, what Cramer says, or whichever way the wind is blowing.

I don't think the bulk of buy-and-holders are unaware of the risks you discuss. I think most of us choose that risk over the risks associated with market timing and making the assumption that we understand things better than everyone else.

If you're not predicting a major market crash, I don't know why you all of the sudden changed your asset allocation so drastically. I also understand that I'm not going to convince you your action was incorrect. I do not mean to waste my time trying to do so.

The fact that there are still many people out there acting out of fear (my perception of your action) buoys my opinion that this bull run still has legs... but even if it didn't I wouldn't change a thing!

Good luck! I hope it works out for you.

[ERD50]

Quote:

Originally Posted by Running_Man ... what I am trying to point out is that the buy and hold crowd has a large unseen market risk they are not even aware exists, and actually actively scoff at, ...

An example of something I covered (or tried to, maybe I was unsuccessful in my communication) in the 'pet peeve' thread - a poster making a broad generalization about a group of people, esp when that broad generalization helps to defend their own narrative.

I'm pretty sure that the vast majority of B&H on this forum at least, are well aware of market risk. I don't know of anyone who 'scoffs at it'. There are a very few that I'm aware of, who are near 100% equities, and they seem to be well aware of the risks, yet still feel that they can ride them out and are likely to come out ahead, just as history indicates.

Regardless, I don't see what effect the B&H 'crowd' has on your decision. If anything, the B&H crowd makes it tougher for you to succeed, as they won't be jumping out on a dip and driving the market lower.

Even if this play works for you, it's somewhat akin to buying a winning lottery ticket and then claiming that buying lottery tickets is a sound financial decision. The play may work, it may not - but it is a lot tougher to say it was a good decision, even in hindsight.

-ERD50

[Options]

God I'm tired of these timing threads. Why do people insist on thinking they're the smartest person in the room despite all that's been written indicating just the opposite? An apt post from JoMoney at the BH forum would apply to this thread:

"The forecasts and expectations of the future are wrong as often as they're right, too often they're focused on the results of the recent past because the future is unknowable. Sometimes it repeats, sometimes it's misleading, a broken clock is right twice a day.

....

"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

[haha]

Quote:

Originally Posted by ERD50 An example of something I covered (or tried to, maybe I was unsuccessful in my communication) in the 'pet peeve' thread - a poster making a broad generalization about a group of people, esp when that broad generalization helps to defend their own narrative. I'm pretty sure that the vast majority of B&H on this forum at least, are well aware of market risk. I don't know of anyone who 'scoffs at it'. There are a very few that I'm aware of, who are near 100% equities, and they seem to be well aware of the risks, yet still feel that they can ride them out and are likely to come out ahead, just as history indicates.

These arguments do not appeal to me as arguments. Investing isn't a democratic process, I have no need to convince others to my position, as it really cannot affect my results. Still, at least 75% of discussions here are things in which we have no stake, like other people's personal lives. So random discussion has always been the meat and potatoes of the forum

I am sure you realize that "history" does not really indicate anything. There isn't much of it, and one never throws a rock into the same water of the flowing river. I believe that the underlying premise of many or perhaps most retired buy and holders is that prices may go down, but they will necessarily come back. I would guess that many Japanese investors believed this in late 1989. It's 25 years and counting, and it still isn't back for them. Japan is not a small unimportant country.

Some of us were retired in 2000, more of us by 2008. But we are older now and attitudes change. All it would take is a big down draft that seems to shrug off Janet's rescue operations, and we will see a fair amount of panic, except among people that are greatly over-financed or have high cash flow relative to their needs. (Perhaps among those who can live well enough without periodic inflows from asset sales.) But anyone who follows the SWR idea does not fall into that camp, again unless they are greatly over-financed.


Personally I would own very little equity, if I wouldn't have large tax obligations on sales in my mostly taxable accounts. As it actually stands, I just hope that business conditions don't go to hell if there is a big down move, so that my holdings will continue to generate cash flow and dividends.

Ha

[ERD50]

Quote:

Originally Posted by haha These arguments do not appeal to me as arguments. ... Ha

I was only disagreeing with Running_Man regarding his statement that (bold this time)'the buy and hold crowd has a large unseen market risk they are not even aware exists, and actually actively scoff at...'. I don't think many B & H types here are unaware that there are risks to B & H.

Now, what one might choose to do in the face of those risks varies. I can't disagree with your analysis at all. I know that you feel it is prudent to take some equities off the table when certain conditions exist. And I personally fear I may get out too soon, and then never have a good opportunity to get back in. There's risk in everything, all we can do is choose the path that makes us the most comfortable (least uncomfortable?).

-ERD50

[CaliforniaMan]

I guess being a buy and hold type for all of my retirement accounts for the past 30 years or so gets you kind of comfortable with being uncomfortable. Plenty of unknown market risks along the way. Actually can't remember when I last scoffed at 'em though.

For some reason the financial unknowns don't trouble me much now as other unknowns. Recently looked at the deceased list of my high school classmates. Too many friends gone, some relatively young. Hey, whatever happens financially we will survive. On the other hand life is not survivable. I definitely don't scoff at that. I've got better things to do than try to outsmart Mr. Market.

[CaliforniaMan]

Another thought on market timing, casinos and skinner boxes. I recall some long long ago class in psychology. To test learning a behavior animals were put in boxes with a response lever and a food dispenser. If they pushed the lever, they would get a pellet. So they measured how long it took for them to learn. Then they stopped giving pellets and measured how long it took for them to unlearn the behavior.

Of course after a while of getting no more pellets, the animals learn to stop wasting their time pushing the lever. However.... if instead of stopping they simply very seldom gave a pellet, the animal would become obsessed with pushing the lever.

I always thought this was a great metaphor for gambling in general. You can loose most of the time, but if you win even only occasionally, you have a great psychological incentive to keep pushing that lever. I think that occasional win in some ways the most insidious problem with gambling in general and market timing specifically. It is the drug that keeps you going, and eventually destroys even that occasional big win you could have had.

Besides, it is really tiring to keep pushing the lever.

[Chuckanut]

I consider adjusting my AA every year or so to be the only form of market timing that I'm comfortable with.