Is anyone tempted to do some "market timing"

[megacorp-firee]

What I can never get clear about is why anyone should feel that it is some sort of breach of faith to do this. Most really successful investors do it to some extent, although they may explain it somewhat differently. Whatever Warren Buffet says, watch the way he acts.

I feel that stocks should be bought like anything else. By a lot when what you want is cheap, buy much less or even sell some when it would take a miracle for cash flows to justify the price of the target company. No one ever said it should be easy. But not easy is not the same as impossible.

And what difference does it make what people on this board think? We all have different goals, different bankroll to spending ratios, different personalities, etc.

I think tax considerations are an important negative to market timing with taxable funds, but other than that, why not?

Don't you think it was easy to see in 2000 that many stocks could not possibly pay out as business investments at the prices they were selling? So all you have to do is take control of your greed, realize that your wife's sister's husband may beat your performance for a while, and you may hear about that from DW. But so what? A seller of grossly overpriced investments has to prevail eventually as long as there are any rational investors left. This appeared to be the case; and lo and behold it was the case. Going on 8 years now and the S&P has gone nowhere. And the dividend would not keep you up with even the low inflation we have had.

Ha

I really don't care if you do or don't ... it's just confuses me and causes mis-communicatons when you do (in this case) market time and say it's not. I try to learn from all who post here and am just observing and commenting.

 

[Maurice]

I'm afraid you'll keep buying more for less of these small value in a few months.

Thats the idea, I would think. Isn't that what buying low is all about?

 

[DangerMouse]

You should not take this as an accusation and be defensive. I know that most (me included) on this forum don't think it is a good idea.

But I do think that market timing is a definition.
It is when you attempt to pick a high point to sell and a low point to buy. I believe that is what you are doing.

I am not being defensive in the sense that I am trying to justify that what I am doing as being the right thing. Rather I am trying to explain why I am doing what I am. Personally I don't really care if everyone else on this forum thinks it's a bad thing, after all DH and I are the only ones that have to live with the results of our actions.

The reason why we are moving our 401k to cash is because we are most likely to leave the US at the end of 2008. At some time in the near future we are going to have to work out a way to withdraw our cash from the 401k and at the same time minimising the tax effect. Reason for that being we don't want to have to submit US tax years for the rest of our lives.

We know that our situation is so different from many on this board as most of our savings are in taxable accounts - we did this because we knew we would RE and didn't know what country we would be residing in. Also we play the lottery which is a big no-no amongst members of this board.

 

[W2R]

As for me, I try not to do any market timing. I am pretty new to investing, but have been doing it long enough to find out that I am no good at predicting market increases and decreases, much less long term or even short term highs and lows.

So, with a lump sum possibly coming my way this spring, I am thinking I should invest a fraction of it each month for a couple of years in order to avoid bad market timing. Decisions, decisions.

 

[tightasadrum]

I thought their would be a significant market correction last year, so I held a higher cash position that I would normally. Now I think we've entered into a recession. Will we see that correction now? Probably so. The question is, how much? I've jumped out several times at the top into cash only to find that deciding when to get back in is very difficult. A friend works on a percentage plan. If a position goes up 20%, he sells. When it goes back down 10% he buys. ( Or was it the other way around??) Let's see, if the S&P drops by 50%, it has to go back up 100% to be back where you started. So I think it's 20% up and 10% down. At least his plan has a mathematical basis, even when the whole mess is random.

I'm still sitting on too much cash, but now interest rates are also going down. What to do, what to do. Market timing is indeed stressful.

 

[FIRE'd@51]

Going on 8 years now and the S&P has gone nowhere. And the dividend would not keep you up with even the low inflation we have had.

While I agree with you about the S&P 500, I challenge your statement about the dividends. In the first quarter of 2000 the trailing 4-quarter dividend of the Vanguard S&P 500 index fund (VFINX) was 1.44 (the highest trailing 4-quarters for that year). For all of 2007, the dividend was 2.49. This is a dividend growth rate of about 7% per year over the 8-year period. So someone living off the VFINX dividends would have seen his income grow at better than 2.5 times the average annual CPI increase.

 

[haha]

While I agree with you about the S&P 500, I challenge your statement about the dividends. In the first quarter of 2000 the trailing 4-quarter dividend of the Vanguard S&P 500 index fund (VFINX) was 1.44 (the highest trailing 4-quarters for that year). For all of 2007, the dividend was 2.49. This is a dividend growth rate of about 7% per year over the 8-year period. So someone living off the VFINX dividends would have seen his income grow at better than 2.5 times the average annual CPI increase.

FIRE'd@51, I wasn't clear. I did not mean that the dividend per se didn't keep up with inflation. As you have shown it did. What I meant to convey was that adding back the dividend to the principal value would not have kept the real principle whole over this time period.

Ha

 

[Zathras]

Not sure how fine a line exists between 'buying low' and 'market timing' in the OP view.
However, I am definately planning to buy low, likely very soon. Where as the OP is talking about moving out of equities into cash, my thinking is opposite. Use income to buy up stocks that are low.
Citigroup is an example, they are around $27.50 right now I believe. Dividend is around 7.5% and P/E is also about 7.6? While Citigroup may very well go down even more in the next few months and may cut it's dividend (3.5% is still pretty nice) I don't think they are going under. So I may take this opportunity to buy on clearance

As for total returns from what I have seen and read, dividend stocks (on average) give greater total returns than non-dividend stocks in recent history:

A calculation of the standard deviation (a measure of an investment’s volatility) of dividend paying versus non-dividend paying stocks from 1985 through 2005 reveals that dividend paying stocks were approximately 37% less volatile over this time period. Additionally, during this same 20 year period dividend paying stocks achieved an average annual total return of 10.79% versus an average of 9.43% for non-dividend paying stocks.

source: Private Wealth Advisors

 

[megacorp-firee]

I am not being defensive in the sense that I am trying to justify that what I am doing as being the right thing. Rather I am trying to explain why I am doing what I am. Personally I don't really care if everyone else on this forum thinks it's a bad thing, after all DH and I are the only ones that have to live with the results of our actions.

The reason why we are moving our 401k to cash is because we are most likely to leave the US at the end of 2008. At some time in the near future we are going to have to work out a way to withdraw our cash from the 401k and at the same time minimising the tax effect. Reason for that being we don't want to have to submit US tax years for the rest of our lives.

We know that our situation is so different from many on this board as most of our savings are in taxable accounts - we did this because we knew we would RE and didn't know what country we would be residing in. Also we play the lottery which is a big no-no amongst members of this board.

Peace DangerMouse. I agree with you on forum 'thoughts' and who has to live with consequences.

NO U.S. TAXES FOREVER? WOW. Wish I could do that. So you either not US citizens and will never come back to the US or are you renouncing your US citizenship?
In either case, best of luck to you on your retirement plans.

 

[JPatrick]

Well let's see..The NASDAQ has fallen for 7 or 8 days straight. Sure seems to me the time is fast approaching where a [-]gentleman[/-], dirty rotten market timer could launch a timed trade with some success Shucks, could even be tomorrow

 

[danm]

That would be catching a falling knife ... but don't let me stop you.

It's also possible to not be a market timer in the short term, but the medium term. I saw and researched this deflationary credit bubble two years ago, sold my house, put all my assets into investments geared for such an event. And here we are.

Well let's see..The NASDAQ has fallen for 7 or 8 days straight. Sure seems to me the time is fast approaching where a [-]gentleman[/-], dirty rotten market timer could launch a timed trade with some success Shucks, could even be tomorrow

 

[Hamlet]

I think I would rather own banks that avoided a lot of these problems than one that stepped right into them with both feet.

Why not own WFC or USB instead? Their dividends are nothing to sneeze at, and I think that they are alot safer than Citigroup's.

I prefer that the management of my bank stocks have a decent idea of how to run a bank.

disclosure-- I own USB

Not sure how fine a line exists between 'buying low' and 'market timing' in the OP view.
However, I am definately planning to buy low, likely very soon. Where as the OP is talking about moving out of equities into cash, my thinking is opposite. Use income to buy up stocks that are low.
Citigroup is an example, they are around $27.50 right now I believe. Dividend is around 7.5% and P/E is also about 7.6? While Citigroup may very well go down even more in the next few months and may cut it's dividend (3.5% is still pretty nice) I don't think they are going under. So I may take this opportunity to buy on clearance

As for total returns from what I have seen and read, dividend stocks (on average) give greater total returns than non-dividend stocks in recent history:


source: Private Wealth Advisors

 

[FinanceDude]

I think I would rather own banks that avoided a lot of these problems than one that stepped right into them with both feet.

Why not own WFC or USB instead? Their dividends are nothing to sneeze at, and I think that they are alot safer than Citigroup's.

I prefer that the management of my bank stocks have a decent idea of how to run a bank.

disclosure-- I own USB

I own USB, but wish I had bought more ADM.......

 

[DangerMouse]

Peace DangerMouse. I agree with you on forum 'thoughts' and who has to live with consequences.

NO U.S. TAXES FOREVER? WOW. Wish I could do that. So you either not US citizens and will never come back to the US or are you renouncing your US citizenship?
In either case, best of luck to you on your retirement plans.

No US taxes forever is the case for us. We are here as alien residents, such a delightful term to be labelled with. We have never done our green card or citizenship because we knew if we went down that route the IRS would have us forever.

Australian taxes are not cheap, but the returns are much simpler and it is possible to call them and get someone on the line who actually does want to give you the correct answer to your question. You don't hear of the ATO hounding anyone to their death over a few dollars.

 

[nun]

I think what I did about a week ago, ie putting 75% of my US funds into MM should really be described as reallocation rather than market timing. Looking at all the signs in the entrails I think 2008 is going to be bad for stocks so I'll sit on some cash for 6 to 9 months and wait until I see housing starts and purchases starting to turn around, and then re-evaluate my allocation

 

[REWahoo]

I think what I did about a week ago, ie putting 75% of my US funds into MM should really be described as reallocation rather than market timing. Looking at all the signs in the entrails I think 2008 is going to be bad for stocks so I'll sit on some cash for 6 to 9 months and wait until I see housing starts and purchases starting to turn around, and then re-evaluate my allocation

I love this board!

 

[JPatrick]

putting 75% of my US funds into MM should really be described as reallocation rather than market timing.

Is that the same as "I just drink to be social?"

 

[Notmuchlonger]

Be interesting if the market shoots up 20% in a few weeks.

 

[Zathras]

Why not own WFC or USB instead? Their dividends are nothing to sneeze at, and I think that they are alot safer than Citigroup's.

I like USB, they are another one I am looking at. The firesale price of Citigroup is just really tough to pass up. I am confident the business isn't going to go under and don't care all that much if the price does go down to $19 as I am confident eventually they will get back up into the $40 range.
Biggest risk is that they cut their dividend by MORE than 50%.

I have had dealing with WFC. I don't like the way they treated me or our business. Personal preference I guess, but I like to use the services/products of the companies I invest in. If I can't do business with them, I won't invest in them.

 

[calmloki]

Ok. I'm a market timer. Bought VFWIX this morning to bring our foreign equities up to 40% of our total. Thought was that the market has taken a nice hit, good time to step into the stream. Stocks play a tiny role in our current bundle of assets, but i expect them to take a larger role in the future. Figure this purchase will reduce our AGI by about the same amount that we will save on interest expense this year by refinancing with PenFed. Making those a tax neutral events. Not planned, just a happy coincidence.

 

[JPatrick]

That would be catching a falling knife ... but don't let me stop you.

It's also possible to not be a market timer in the short term, but the medium term. I saw and researched this deflationary credit bubble two years ago, sold my house, put all my assets into investments geared for such an event. And here we are.

Dear Danm;

Just wanted to thank you for that "falling knife" idea.
Booked and banked 1/2 point plus on MEA, CHU, GTI, OIIM, AND RZ. Alas, your system did not work on NM, but I'm going to try again tomorrow.
CHEERS
Dirty Market Timer
JP

 

[TromboneAl]

Does this happen to any of you?

I did my annual rebalancing, moving a relatively small amount from stocks to cash. Now I find myself hoping that the stock market will go down, so I can feel good about the fact that I took some money out of it. Doesn't matter that I have tons more money still in the market.

 

[free4now]

Emotions are powerful stuff. I end up having thoughts like that all the time. I think that the ability to separate emotional decisions from financial decisions is probably the greatest asset for an investor.

It really is quite easy to lose much more than 1%/yr with emotional buys and sells, and not even realize it.

 

[Maurice]

Does this happen to any of you?

I did my annual rebalancing, moving a relatively small amount from stocks to cash. Now I find myself hoping that the stock market will go down, so I can feel good about the fact that I took some money out of it. Doesn't matter that I have tons more money still in the market.

I have an equally irrational thing going on... my pay is mostly bonus, which comes in mid Feb. So I'll be buying a lot in about 4 weeks. I find myself cheering the market drop, so I can buy more with the same $$$. Despite the fact that I have far more in the market than I plan to add.

 

[kcowan]

I have concluded that the asset allocation/rebalancing mantra is just that. Many people salute it but not many people practice it purely. On another board, they are all buying banks on weakness while still claiming to be true to the mantra.

OK the value of their financial sector holding is dropping like a stone but buying on weakness over many weeks is not what they preach in rebalancing school. ISTM that most people like to take an active part in managing their assets and that is an anethma to the mantra.