Market Timing: Should You Attempt It?
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- soonertimer
- KLR
- R_Lewis
- Kirk
- Kirk
- R_Lewis
- mdorsey
- R_Lewis
- mdorsey
- KLR
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» soonertimer - Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Vanguard says nay to mar
In response to message posted by Will_L:I have found that some of the best "teachers" can be some of the worst at actually following the principles behind their own advice! BB was one of the few folks who understood the major impact of rising interest rates. Remember (?) when almost everyone was saying that tech was impervious to rate increases and that tech earnings were linear and ever-increasing. He "jumped the gun" with the QQQ's and risked too much in the process - who can argue with that? That is simply not a fatal flaw (IMO). Honourable folks can certainly disagree.
-- posted by soonertimer
» KLR - It's All In The Timing [oh,oh]
Among financial planners, market timing might as well be a four-letter word. They argue that it's a dangerous and fruitless endeavor, that the prudent and wise investor simply buys solid companies when they're cheap (read: weak) and holds onto them for the long term. And maybe that worked back in the 1950s when the market yielded 5% in dividends and traded at 10 times earnings. It's hard to make the same argument, however, with stocks like Cisco, which, despite its breathtaking fall, is still trading at a hefty premium to the market while paying no dividend...... Stocks aren't chaotic, and although it might seem like it, the Nasdaq didn't move from 5000 to 2000 in a day. The markets move as the seasons do, in observable and traceable trends. In short, there's a method to the madness. Let's say you were shipwrecked, "Cast Away"-style, on a remote island without any access to the outside world. Even if you didn't have a calendar, you would, after a time, get a sense of what season it was. You'd observe the slightly shorter amounts of sunlight or cooler temperatures. You'd watch the birds fly south for the winter. And while you might not be able to nail the exact day [like LiPi], eventually you'd begin to realize that summer was becoming fall. The colder and darker it got, the more evidence you'd have that, in fact, winter was coming. Prediction from observation. It's a guess [like Brinker]...but not a gamble [unlike Brinker]...
-- posted by KLR
» Kirk - Re: It's All In The Timing [oh,oh]
In response to message posted by KLR:You'd watch the birds fly south for the winter. And while you might not be able to nail the exact day [like LiPi], eventually you'd begin to realize that summer was becoming fall.
The problem is most people notice winter is upon them AFTER they have paid higher energy bills. Then they ponder a month or so to pick the best "winter stocks" to own. By the time they buy the winter stocks, it is getting warmer as Spring is weeks away. This is the classic whip-saw effect where they chase the asset class and/or market sector that had good RECENT performance and forget that usually the under performers will outperform next.
I think you either have to stick to a strict value discipline that precludes you from buying a Cisco after a certain point (as happened to me... Cisco NEVER got cheap enough for me except for when LRCX was selling for $3 a share in '98 and I chose the better value.)
IF you don't stick to a value discipline, then a strict diversity approach is best where you let your asset allocation decide what to sell and what to buy.
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-- posted by Kirk
» Kirk - Re: deciding when to get back in
In response to message posted by rich8rd:Kirk:"The problem with market timing is deciding when to get back in."
It was time for me to get out because I don't have the time to get back in. -Richard
I do NOT call that market timing. That is changing your asset allocation to reflect your place in the life cycle. People at retirement should be at an asset allocation of 30% to 60% stocks in most cases with the rest in fixed income. Some can handle a higher equity exposure, but the "fear factor" is not that fun when the market hits prolonged periods of weakness.
IF you are retired and comfortable with a 35:65 equities:fixed asset allocation, then why would you want to risk your retirement on some market timer suggesting you jump back in with your 65% at some arbitrary point in time?
Heck, you might do something really dumb and try to day trade a trading vehicle like QQQ and lose 50% for being wrong! Fine to do with 1% of your funds, but not a good idea to toss in a significant part of your asset allocation. Can you imagine how miserable you would be if you took say 20% of your retirement stash and tried to day trade QQQ and lost 50%? Don't think it can happen? Well, go over to our Brinker discussion and see all the people that tried it and lost big time.
-- posted by Kirk
» R_Lewis - Re: Re: deciding when to get back in
In response to message posted by Kirk:Changing your allocation involves timing. Do you think you can change your allocation at the right time before you retire? I was lucky that I changed at the right time. If you have enough cash you don't need any stocks at my age. I'm short time trading with a small brokerage account just for fun, this is a great trading market.
Richard
-- posted by R_Lewis
» mdorsey - Re: Re: Re: deciding when to get back in
In response to message posted by rich8rd:Retirement for most people would call for a significant percentage of one's portfolio in bonds. My long term target for bonds as a percent of my portfolio is much lower because of a pension. So when I moved to bonds in my portfolio it was mainly for safety. That having been accomplished I must decide when to return to my long term allocation. I will use BB and other sources to help me make that decision.
-- posted by mdorsey
» R_Lewis - Re: Re: Re: Re: deciding when to get back in
In response to message posted by mdorsey:I don't like bonds in my retirement except for some GNMAs, they fluctuate too much. Fortunately I got out of equities in time that I have enough in m/ms,GNMAs and pensions that I'm making more in retirement than I ever made while working. Even after the decline in interest rates.
Richard
-- posted by R_Lewis
» KLR - How's your portfolio doing these days? Crummy? Excellent!
HURTS SO GOODby Bill Valentine For the week ending August 24, 2001
How's your portfolio doing these days? Crummy? Excellent! Worse than the S&P 500? Awesome! That's exactly how you want it to be doing.
Have I lost my mind? To borrow from Brando, "Years ago...why?" But the point I'm trying to make in this week's article is that within a reasonable context, you want your portfolio to be doing poorly right now. That's because the three things your portfolio must be right now are fully invested, diversified, and exposed to aggressive stocks-which means suffering in a down quarter.
Sliding into recovery mode
To understand why requires a review of bear markets. A bear market has two phases, the "slide" and the "recovery." We've already completed the slide and are in the recovery, this quarter notwithstanding. And if you haven't made the changes yet, you'll need to do so quickly.
The slide is the period that starts at the market's peak (the most recent being March of 2000) and ends at the market's bottom (April 4th of this year). In order to do better than the market over the full bear cycle, your portfolio needs to be very different in the recovery phase than it was in the slide phase. During the slide, you want to be less volatile than the market by owning defensive stocks, like pharmaceuticals and utilities, and having some cash cushion. Accordingly, your slide period performance should be market-like or better.
Rising from the bottom
The recovery begins where the market bottoms and is characterized by a lot of plodding around by the market and a few critical, sharp bursts upwards. It's concluded when you've set a new high, surpassing the previous peak, and signaling the first leg of the next bull. But how you do in these early, sharply rising trading sessions determines the bulk of your return for the next two years, believe it or not.
Let me use the previous bear market as an example. Stocks bottomed in October of 1990, went nowhere for three months, then shot up 18% in 20 days. A year from the bottom, the market was up 21% -- 85% of that coming from those 20 days. Two years from the bottom, the market was up 31%--58% coming from that original burst. If you had missed that brief 20-day window, your one-year return would be 3% (vs. 21%), and your two-year return would be 13% (vs. 31%). So far, we're up 8% from April's bottom and I don't believe that the market will give that back.
Not only do you have to be fully invested to benefit from these important few days, but if your goal is to recover your "lost" asset value, you have to be both aggressive and diversified. That means lightening up on defensive names and opting for cyclicals, companies with above-average earnings, and volatile names-spread out across industries, market cap, and geographic location.
(Not that this type of reposturing isn't "market timing" per se since it doesn't involve wholesale dumping of stocks for cash, or vice versa. But there always need be an element of anticipation in determining changes to portfolio, and in that sense, market outlook is driving the intended exposure of the portfolio.)
In today's market, this means an above-market weighting in technology and telecom. Calm your tech-investing fears and buy quality high-flyers. The short-term performance will be poor during the plodding-around-phase of this recovery, but you will more than make up for it on the upside
-- posted by KLR
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