Sold all my stocks

[joeea]

I recall an article I read which showed that, historically anyway, that there were actually only a few days where if you were out of the market, you lost out on the majority of the return. Said another way, the market tends to jump up quickly and significantly.

https://www.edelmanfinancial.com/ed...-stock-market-is-a-guessing-game-you-cant-win

"During the four years ending December 31, 2014, the S&P 500 stock index averaged about 13% a year. ...

That 13% is even more amazing when you compare it to bank savings accounts, money market accounts, CDs and the like.

Over those four years, the market was open for trading on just over 1,000 days.

The point we make during the seminar is this: If you missed the best 14 days out of those 1,000, what would your average annual return have been? Obviously, it would have been less than 13% — but just how much less?

Here’s the answer that amazes many seminar attendees: Your earnings would have been exactly zero. That’s right — the entire profit of the past four years occurred during just 14 days!"

 

[Lsbcal]

Sure,

But I think there are some big exceptions in this case.

I believe that the market rise (aka asset inflation) since and including 2013 was due in large part to aggressive Fed quantitative easing. They were fighting deflation at the time, a lot of Central banks have been fighting it on a global scale. Now they are working hard to take away that punch bowl.

And I believe a lot of the recent partying has been due to the continuation of very low inflation, and interest rates in spite of the Fed raising short term rates and making clear their “quantitative tightening” timeline. Intermediate and long-term rates were very stubborn about going up, and the 10 yr treasury rate even dropped drastically mid year.

The picture has now changed. Interest rates aren’t nearly so friendly anymore.

And, IMO, >3% on the 10 year is going to have a material impact on the housing market. I don’t think we can say “5%” is an OK level that won’t hurt stocks anymore. Maybe it’s 3% - the “new normal”? We’ll find out over the next year or so.

I agree with your comments. That "recent partying" might imply a certain percentage of buying is happy hour induced. So that would be a momentum effect which could unwind and would not necessarily need fundamental forces (earnings, rates) to happen.

Several knowledgeable investors have estimated low returns on average going forward (Bogle, Swedroe, etc). That would be for the years to come. Nobody knows for sure how to time this. But perhaps a mechanical method would work that is not dependent on daily data but is somewhat more broad based and does not catch all the short term declines.

Or instead of timing if one has a very good net worth thanks to Mr Market it might be wise to reduce AA somewhat. After careful thought and analysis. Not that bonds are such a great alternative at the moment.

 

[HadEnuff]

As for me, I didn't have the stones to get completely out, but after some soul-searching and some paper and pencil analysis, I decided to reduce my Stocks-Bonds-Cash from 45-50-5, to 25-25-50.
For me, at my age (64), and with the size of my nut, I decided I could better afford to miss part of a continued run-up, than be caught in a 40% crash, which I personally feel is inevitable.
If I were in my 40s or 50s, with a decade or two left to work, and accumulate a treasury, I'd be much less wary of a drop.

I can't argue with the OP, I think he's much more likely to have made the correct move, than the incorrect move.

 

[Luck_Club]

Some statistics to support the gut feeling...

Using Shiller's data to graph the long term line, through the peaks and troughs of the market, while calculating out inflation... you end up with a linear 7.1% growth for stocks (S&P). This line can be positioned so that the market sits half above and half below that line, and the market positions on top of it over the long haul. So if the history of this dataset is any indication of the next few decades... you can assume (for what assumptions are worth) that half of the next 30 years we'll sit above this line and half of it we'll sit below.

That line, right now... isn't really all that useful day by day, month by month, or even year by year... however regression to the mean suggests that gravity will pull us down or up depending on where we sit compared to this line.

The line... as of October 2017 (last time I computed it) had us at 18,700 for the DOW (that is assuming the DOW is correlated over the long haul to the S&P historical return).

So I don't know how we'll get back to the line... maybe it'll just be 3.5 flat years... maybe it'll be another 25% rise and a sharp correction. I can say, half of the next 20 years are likely to sit below it, and half above it. On average. I do know that, history tends to suggest that at each high, people come up with all kinds of justifications for why we belong there (indicators...economy... "it's different this time"... it always is different this time, ironically... etc...) but we somehow always manage to keep straddling this long term 7.1% (after inflation).

I assume we will continue to do so for the long haul... and on that note, I assume the market is about 33% ahead of itself right now - but that's normal, sometimes it's 33% behind itself (that would be a huge sell off from right now). I guess this is market timing... but it's unemotional analysis as well, so long as the future conspires to mimic the past...

I was 100% stocks until December... I moved to 23% bonds when it passed 24,400, and earlier this month, when the market hit 26,200 I moved another 20% to cash. I am secretly cheering that one on because it came a day or two before the 1000 point drop (it was luck, but I'd like to think my intelligence had something to do with the choice... nah). I'm now sitting with almost 40% of my 401k out of stocks for the first time ever, wondering if I'm stupid as well... I never liked to market time, myself.

It just feels like the right thing to do, right now. meh...

I am also of the camp of asset prices being over valued and requiring careful deliberate selection at this point in the cycle. (stock picking) There have been times in the recent past discussing bonds being too risky in a rising rate environment.

Many during this discussion pointed to BND as set it and forget it allocation. That BND fund has lost 13% on an annual basis so far this year. Since 2017 has managed to earn 2.11%.

Stocks and Bond investing is a high wire act in a low yield high Price environment. Right now I believe we are facing both stocks and bonds coming down in Price to get the fundamentals back in line.

I'll be staying on the sidelines until i hear the talking heads saying how much lower can they go.

 

[REWahoo]

... a 40% crash, which I personally feel is inevitable.

Wow, that's really pessimistic. Certainly that can happen, but a quick look shows the market has declined by 40% only three times in the past 90 years: 1929, 1987, and 2008.

What conditions make you think a decline of this magnitude is looming and inevitable?

 

[ExFlyBoy5]

Wow, that's really pessimistic. Certainly that can happen, but a quick look shows the market has declined by 40% only three times in the past 90 years: 1929, 1987, and 2008.

What conditions make you think a decline of this magnitude is looming and inevitable?

Although not directed to me, it sure looks a lot like 2008. People are overextended, companies are way over valued, real estate has gone mad in many markets (and 100% loans are back...YAY!), and...well, the list goes on and on. I could be 100% wrong, but overall, things don't seem "right"...the growth of EVERYTHING has been just too fast. *IF* I decide to use my law degree to make a little $$$, (just a side hustle, of course ) then I think I would do pretty well in the area of bankruptcy.

 

[HadEnuff]

Wow, that's really pessimistic. Certainly that can happen, but a quick look shows the market has declined by 40% only three times in the past 90 years: 1929, 1987, and 2008.

What conditions make you think a decline of this magnitude is looming and inevitable?

I think "inevitable" was a poor choice of words on my part.

I'll replace that with "a very good possibility",

I think that the "Quantitative Easing" policy that pushed bond rates down to near zero, helped push stock valuations above a sensibly sustainable level, simply because people like me had no place to put money that wasn't either, at risk, or earning nothing, or both.

When people sitting on the sidelines with money saw the market rising, they jumped in and further pushed up valuations.

I think a lot of investors are in equities due to FOMO on the continued run-up, but are scared witless, with their fingers on the button to sell when they decide the fall has started. When it starts, panic, along with programmed selling, will do the deed.

I think interest rates are much more likely to go up, as opposed to stay level or drop, (unless another attempt at QE is in the cards, but that will be AFTER the fall, not BEFORE it), which will also make getting out of equities less distasteful.

I understand there are counter-arguments to my thinking. I'm just not comfortable with them. I feel as if I've seen this movie before, and I know what comes next.

 

[ESRwannabe]

The last epic crash, I went into it with a boglehead type portfolio, i.e. tilted towards momentum and requiring capital gains for most of the profits. That was a good lesson for me to understand that the modern portfolio theory, 4% withdrawal strategy, etc. is not for me.

Even on bogleheads.org, which I followed since back when it was on morningstar, people were panicking and talking about "plan B's". As a result, I completely lost faith in the boglehead strategy of investing.

This next crash I will have reliable cash flow from companies selling essential services and mostly high credit quality fixed income. I think I will be much more comfortable with this strategy, this time.

I hope the crash hurries up and starts already. I have been planning on ESR at 45, which is three years away. If were going to have another epic crash, which I believe we probably will, then the sooner the better.

 

[Scratchy]

I don't see how the second part of the second sentence follows from the first.
And I've seen no evidence that it is correct. Quite the contrary.

Perhaps you have a link to something that backs it up?

The sentence you are referring to is in this paragraph:
"I believe most people on this forum would agree that over the long term equities will rise but over the short term they are completely unpredictable. It seems to me then that the best predictor of long term success is total exposure to equities over time, and that short term jumps in and out (i.e. attempts to time the market) would pay off just about as often as not."

I will explain my thinking. Let's assume for hypothetical purposes that in a given year equities will return 6 %. Now take the case where an investor is going to take short term jumps out and in of the market during the year spending a total of 30 calendar days out of the market. What will be the expected effect on his returns?

I believe that on average, he will lose 6% divided by 12 or 0.5 %. Of course, this is on average, and individual investors may lose much more or much less. But I believe 0.5 % will be the average and to my point above, if the market is truly efficient and unpredictable, it will not make a difference how he picks the 30 days. He may pick them on the basis of market timing, or any other reason.

So I am not recommending market timing, and I do not try it myself. What I am saying is let's be realistic about its costs. I think in the scale of things if one sits out a few days here and there in attempts to time the market, on average it will not be very costly.

Now, if an investor cannot handle the situation where he/she sells and watches the market go up and then is paralyzed and does not get back in for a long time, then market timing can be a disaster. That is because it can cause an investor to spend too much time out of the market. If one is to try, one must be prepared to get back in even at a loss.

Of course, if there are trading costs and tax implications, those may add to the costs of market timing.

 

[220volt]

Market timers indeed avoid worst days, but more importantly, they miss out on best days too where most of your returns will actually come from. Just look at what happens if you only miss 10 best days. Your overall return goes from 9.8% to 6.10% and if you miss 30 best days, it's money in the mattress.

 

[joeea]

The sentence you are referring to is in this paragraph:
"I believe most people on this forum would agree that over the long term equities will rise but over the short term they are completely unpredictable. It seems to me then that the best predictor of long term success is total exposure to equities over time, and that short term jumps in and out (i.e. attempts to time the market) would pay off just about as often as not."

I will explain my thinking. Let's assume for hypothetical purposes that in a given year equities will return 6 %. Now take the case where an investor is going to take short term jumps out and in of the market during the year spending a total of 30 calendar days out of the market. What will be the expected effect on his returns?

I believe that on average, he will lose 6% divided by 12 or 0.5 %. Of course, this is on average, and individual investors may lose much more or much less. But I believe 0.5 % will be the average and to my point above, if the market is truly efficient and unpredictable, it will not make a difference how he picks the 30 days. He may pick them on the basis of market timing, or any other reason.

So I am not recommending market timing, and I do not try it myself. What I am saying is let's be realistic about its costs. I think in the scale of things if one sits out a few days here and there in attempts to time the market, on average it will not be very costly.

Now, if an investor cannot handle the situation where he/she sells and watches the market go up and then is paralyzed and does not get back in for a long time, then market timing can be a disaster. That is because it can cause an investor to spend too much time out of the market. If one is to try, one must be prepared to get back in even at a loss.

Of course, if there are trading costs and tax implications, those may add to the costs of market timing.

I don't know anyone who jumps randomly in and out of the market. Everyone I have ever heard of who jumps in/out is either a market timer or day trader.

I suppose your "low cost for random jumps" theory might be true (or not), but even if so I don't see how that has anything to do with the discussion about market timing or getting completely out of the market.

 

[ESRwannabe]

Wow, that's really pessimistic. Certainly that can happen, but a quick look shows the market has declined by 40% only three times in the past 90 years: 1929, 1987, and 2008.

What conditions make you think a decline of this magnitude is looming and inevitable?

My expectation is a 50% crash or more. How much of asset prices are from stock buy backs using borrowed money and other shenanigans?

There is too much debt at all levels (people, companies, gov). "Main street" is not all that much better off than 2008 IMHO. The central banks cannot extract themselves from the quicksand they created under their feet. I think they will be out of bullets before the next battle even starts.

I think we will definitely have another epic crash soon, but who knows.

 

[Scratchy]

I don't know anyone who jumps randomly in and out of the market. Everyone I have ever heard of who jumps in/out is either a market timer or day trader.

I suppose your "low cost for random jumps" theory might be true (or not), but even if so I don't see how that has anything to do with the discussion about market timing or getting completely out of the market.

Thank you for your gracious concession and my apologies if my comments have not followed the line of discussion as you have prescribed or expected.

 

[4legsgood]

Market timers indeed avoid worst days, but more importantly, they miss out on best days too where most of your returns will actually come from...

Why would missing out on the best days be more important than missing out on the worst days? Thought this was quickly disproven, but persists...

 

[Milton]

I'm not sure why RunningMan feels the need to tells us of his liquidation of stocks? So what?

People post about a lot of stuff on this board.

Whatever you do, don't read this thread about a pair of boots, or this one about starting a low carb diet, or this one about live cameras of eagles' nests. I don't want your blood pressure to elevate any further.

 

[sengsational]

But perhaps a mechanical method would work that is not dependent on daily data but is somewhat more broad based and does not catch all the short term declines.

There is a "rock breaks scissors" excerpt I posted in a thread a long time ago that illustrates something like this. The timing is on a very long time scale, so any action you take today, you have to be able to stick with for the rest of your life, pretty much, because the buy indication may be a very long time coming.

I will explain my thinking. Let's assume for hypothetical purposes that in a given year equities will return 6 %. Now take the case where an investor is going to take short term jumps out and in of the market during the year spending a total of 30 calendar days out of the market. What will be the expected effect on his returns?

I believe that on average, he will lose 6% divided by 12 or 0.5 %. Of course, this is on average, and individual investors may lose much more or much less. But I believe 0.5 % will be the average and to my point above, if the market is truly efficient and unpredictable, it will not make a difference how he picks the 30 days. He may pick them on the basis of market timing, or any other reason.

The only way I'd buy your argument is if the 30 days were picked completely at random.

There are probably not many paraglider pilots here, but I'll make this analogy anyway... You can get yourself oscillating like a pendulum (bad), and if you do what is instinctive with the brakes, you'll make the oscillation worse. The best thing to do is nothing. So what I'm saying is that in the typical short term market timing scenario, doing what is instinctive is going to result is something much more likely to be worse than better than doing nothing.

 

[REWahoo]

This thread has made me aware there are apparently a lot of people here who think we are nearing the point where a significant market crash will occur. Makes me wonder if I should be fearful or greedy.

Too bad Warren isn't a forum member so I could ask his opinion.

 

[aja8888]

This thread has made me aware there are apparently a lot of people here who think we are nearing the point where a significant market crash will occur. Makes me wonder if I should be fearful or greedy.

Too bad Warren isn't a forum member so I could ask his opinion.

Maybe someone in power can lob a call in to Jack over at BHeads?

 

[LOL!]

Should I start a thread: "Sold all my bonds" ?

 

[220volt]

Why would missing out on the best days be more important than missing out on the worst days? Thought this was quickly disproven, but persists...

I'm assuming it is because good days are the ones that produce actual returns so even if you avoid most bad days, your returns will suffer if you miss out on best days. It is not linear. Otherwise, you would be at 0 all the time. At least that is what the JP Morgan's research showed.

 

[HadEnuff]

I would make a distinction between "market timing" and timing based upon where one is in one's life.

As I stated before, if I were looking at a decade or two of still being in the accumulation phase, I'd be more aggressive.
Missing the best possible outcome, for me, is not as important as missing the worst possible outcome.

 

[Pilot2013]

As my wife says, "If you aren't cooking for me, paying my bills, or fornicating with me, then it's none of your damn business!" Some folks on this board should remember that.

Well, when it's posted on the board, it becomes everyones' business, doesn't it? Isn't that the point?

 

[audreyh1]

Having come into adulthood in the late 70's ... I think interest rates right now are fantastic! ( Returns on bonds .... not so much )

It's just too bad I don't need to borrow any money right now.

Sure, but today’s investors having gotten used to much lower than normal interest rates because it has gone on so long.

It’s going to feel quite painful as things adjust.

 

[MichaelB]

Sure, but today’s investors having gotten used to much lower than normal interest rates because it has gone on so long.

It’s going to feel quite painful as things adjust.

If you know there will be a painful adjustment why not reduce holdings now?

 

[NW-Bound]

If you know there will be a painful adjustment why not reduce holdings now?

Because she would no longer be a Boglehead, and would be called an Egghead or something.

As for me, a self-proclaimed market timer, I am not selling because I think the market will rise up a bit more, or at least fluctuates around for a while. My covered call writing will get me some extra cash until I decide to sell.