Reduced Stock holdings to 25% today from 50%

[ERD50]

.... So selling out at 1980 with a plan to get back in at 2020 makes no sense to me. I could understand getting out now, since the PE10 is sort of high, but then the buy back would have to wait until the PE10 went way down, not up more!

Yes, this is exactly what I don't understand about the OP's plan. What's magical about a 2% difference in market levels to trigger anything, either way (esp the sell-low-buy-high part of it)?

-ERD50

 

[ExFlyBoy5]

Scooping up at a "discount rate" would be market timing.

Nope..the amount I use to buy doesn't really change but if they are purchased at a discount, then I'm not complaining!

Sent from my mobile device so please excuse grammatical errors.

 

[donheff]

It sounds like you have locked in on a loosing strategy for the upside (get back in at 2020) but haven't defined what you will do on the downside. That is what makes me steer clear of substantial market timing. If you just wait long enough, the market will plummet. But when do you get back in? It only takes a few days to miss most of the upward momentum, particularly if you are worried about false recoveries.

 

[Gazingus]

I went from 100% equities to 80 % equities and 20% "dry powder" (cash and bonds). Does having dry powder to take advantage of a correction make you a market timer?

 

[Jaded salami]

I went from 100% equities to 80 % equities and 20% "dry powder" (cash and bonds). Does having dry powder to take advantage of a correction make you a market timer?

Yes, it does. But maybe that depends on whether you have smart money or dumb money.

 

[Running_Man]

It sounds like you have locked in on a loosing strategy for the upside (get back in at 2020) but haven't defined what you will do on the downside. That is what makes me steer clear of substantial market timing. If you just wait long enough, the market will plummet. But when do you get back in? It only takes a few days to miss most of the upward momentum, particularly if you are worried about false recoveries.

What I am doing is actually a conservative move by nature, to my way of thinking. I am not risking money I should not be investing, nor according to any retirement planning models I have used am I putting my retirement at risk by reducing my market exposure to 25%.

If on the other hand a significant decline happens instead I am quite comfortable that I will find a point below where we are now to get back into the market. It is actually a major decline at a start of a retirement that actually can cause a portfolio to fail, and this is a small speculative low cost hedge against this, with specific near term targets to guide me. Falling commodities, oil prices, reversal in the long term bond market, falling gold & silver, an under performing Russel 2000 and a long term meandering around 2000 on S&P 500 are giving me cause for concern.

I am foregoing at worst a .5 % positive impact from my investment potential because I believe this might be a major top @ S&P 2000, if it closes at a new high at 2020 that proves I was wrong about that so I get back in to the market.

It is possible my folly will be exposed as soon as tomorrow, it will be interesting to watch for me over the next days. But on my side is that I am not afraid if I am wrong to admit it and get back in, even if it then reversed from a close over 2020, which also could happen.

 

[Elbata]

My bad I suppose. Is the market down or something? What's this all about?

 

[target2019]

I went from 100% equities to 80 % equities and 20% "dry powder" (cash and bonds). Does having dry powder to take advantage of a correction make you a market timer?

Bogle may call it a tactical allocation.

 

[haha]

It sounds like you have locked in on a loosing strategy for the upside (get back in at 2020) but haven't defined what you will do on the downside. That is what makes me steer clear of substantial market timing. If you just wait long enough, the market will plummet. But when do you get back in? It only takes a few days to miss most of the upward momentum, particularly if you are worried about false recoveries.

Right or wrong, this strategy looks to me to be unambiguously defined. He got out earlier this week. He stays out unless the S&P bests 2020. I did not pay close attention to whether this requires a close >= 2020, or just an intraday.

It is obviously a technical idea, with the advantage that he will not get back into a continuing downdraft. He didn't say, but I assume that there will be a new decision rule if the S&P falls to some much lower level tbd, without ever besting 2020.

I never understand the angst about when to get in. If it were me, I am willing not to ride as far as possible once I think value is no longer there. So absent taxes, I would just sell and sit down until value was evident. But some others are different, and his buy back at 2020 handles any anxiety about missing a runaway train. Of course to be consistent, one runs the risk of whip-saws. Buy and hold isn't easy either when a strong down market turns that into days and weeks and months of losses.

Ha

 

[Fermion]

One could certainly exit the market and establish that they would get back in at 2020 or 1700 whichever comes first.

The indexes don't really gap up, so getting back in would mean a opportunity loss of about 1% if you sold out at 2000.

Waiting until 1700 would mean an advantage of almost 15% over the buy and hold crowd.

This is of course ignoring dividends.

 

[eta2020]

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]

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]

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]

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]

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]

... 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