Market Timing: Should You Attempt It?
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- Kirk
- Rande
- mdorsey
- Rande
- Kirk
- R_Lewis
- Rande
- SteveT
- Slick
- KLR
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» Kirk - Re: How's your portfolio doing these days? Crummy? Excellent!
In response to message posted by KLR:Good article and good advice.
I heard that the Janus, GO GO GROWTH, Funds were something like 18% in cash "waiting".... for the right time to buy technology again. They were SO WRONG buying all the over priced stuff on the way up it makes me wonder why they think they can do well for investors going forward? I guess they are waiting for a bell to ring... Meanwhile, people like myself have been buying what we think are quality tech stocks all along since December when some like LRCX and AMAT bottomed. Of course, many have kept going down (Like Agilent)... but they should do better once the economy turns.
-- posted by Kirk
» Rande - Are you a market timer, emotionally wrapped up in the day-to-day
Are you a market timer, emotionally wrapped up in the day-to-day? Too much attention to Greenspan might give a clue...Long-term investors should ignore Al
http://cbs.marketwatch.com/news/story.as...
WASHINGTON (CBS.MW) -- Long-term investors should pen a "Dear John" letter to Fed Chairman Alan Greenspan.
It should say something like this: "Dear Al, I know you're a Very Important Person and the Federal Reserve has a lot of power to affect the economy. But I'm not going to get overly excited about what you did today because 20 years from now, this Fed decision won't be a big deal. Sorry, but it's in my best interest to ignore you. Hope you understand. Sincerely, The Small Long-Term Investor."
On Tuesday, the Federal Open Market Committee reduced the target for the fed funds rate by 0.25 percent to 3.5 percent, which was what the market had expected. It hasn't been this low since 1994. The Fed also cut the discount rate to 3 percent. See story.
But long-term investors should separate the noise (such as macroeconomic events like monetary policy changes) from news, said John Bajkowski, financial analyst at the American Association of Individual Investors, an investor education group in Chicago.
"Day to day activity by the Fed is market noise," he added.
Instead, investors should focus on information that "really impacts what you own, any information on stocks and mutual funds that would cause you to re-evaluate your investment," he said. These may be news of slowing EPS growth, shifts in industry trends, and others.
"Don't switch everything around because of what the Fed does," Bajkowski cautioned. "But focus on your long-term goals."
If not, you're essentially market timing, the financial analyst said. While timers -- people who buy and sell securities for the short-term by betting on the movement of things such as economic indicators -- try to do it well, it's difficult for most people to be successful at it.
However, as a long-term player, you don't have to worry about market timing -- and you have an influential investor in your corner.
Buffett turns a deaf ear
"I am not a macro guy," billionaire investor Warren Buffett had said to Business Week in a rare 1999 interview. "I don't think about it. If Alan Greenspan is whispering in one ear and Bob Rubin in the other, I don't care at all. I'm watching the businesses."
"I don't read economic forecasts. I don't read the funny papers," he added in his characteristically candid way.
That's exactly what a long-term investor should do: Focus on your stock's business rather than Fed action or economic indicators. After all, it is a company's prospects that ultimately drives its stock.
In addition, "it's very difficult to guess where the economy is going. It's easier to study and understand a company than guess where interest rates are headed," Bajkowski said.
Another reason is that while a Fed move or economic number might boost certain industries or sectors, they don't necessarily do anything for the particular stock you own, according to Ray Perryman, president of The Perryman Group, an economic consulting firm.
"It's not the sort of thing that could make or break long-term growth in the economy" for the next 15 to 20 years, he said.
Instead, a greater influence in the long run is continued gains in the production of goods and services, Perryman added.
Here, Perryman sees a robust future for the U.S. economy. He said technological changes, medical research advances such as genomics, the advent of "smart" materials and other shifts in capability would give the economy strong legs in the long run. In addition, the interaction of an increasingly global economy would help as well.
What investors should do
But there are some things a long-term investor could do without delving into market timing or jeopardizing a portfolio.
In explaining its decision, the Fed said the economy is still at risk, opening the door to further rate cuts ahead if the situation doesn't improve, said Arnold Kaufman, editor of the S&P Outlook, an investment publication put out by Standard & Poor's.
That means the stock market could dip further, especially in the seasonally weak month of October.
"This is a buying opportunity for the long-term investor," he said.
Therefore, don't get upset when the market turns down in reaction to the Fed, Bajkowski said. (That's exactly what the market did on Tuesday -- in recent trading, the Dow went down 151 points, the Nasdaq by 45 and S&P by 13.)
Why? "It's an opportunity to get a (stock) bargain," the financial analyst said. "The beauty of being a long-term investor is that you can take advantage of other people's mistakes and overreaction."
-- posted by Rande
» mdorsey - Know when to say when
TradecraftTake the Money and Run
By Jonathan Hoenig
August 23, 2001
IF YOU THINK knowing when to get into a stock is tough, try deciding when to get out. While we ideally want to stay with a position for as long as possible, there's no federal law that says you must hold Intel (INTC) until your dying day. A trader is just like a trapeze artist, who, while swinging high above the circus crowd, must master not only grabbing onto the next bar, but letting go of the one that came before it.
When it comes time to prune your portfolio, the first stocks you should consider selling are your losers. There are the obvious tax advantages of doing so. But even more important is the likelihood that losing stocks will stay losing stocks. Very seldom does one of my holdings come back from the grave.
But what about selling your winners? You might have some. Although the major averages are under water year-to-date, there are actually plenty of stocks that are doing quite well..........
-- posted by mdorsey
» Kirk - Market Timing definition
In response to message posted by Mark_J:Yes, by timing his buys and sells of stocks, Kirk is, by definition, a market timer.
False. Get yourself a dictionary before you try to pass yourself off as an expert and tell them what I am and am not.
Selling a stock when it hits a PRICE TARGET has NOTHING to do with market timing.
Now you might call it "long term trading" and argue that it is not a good way to make money according to the books on efficient market theory... but I have found it works well for me so I do it.
Here is a definition of "Market Timing"
http://www.investorwords.com/cgi-bin/sea...
"Attempting to predict future market directions, usually by examining recent price and volume data or economic data, and investing based on those predictions. also called timing the market."
Clearly "Market Timing" is mostly TA and says "FUTURE MARKET DIRECTIONS" . What I do can NOT be accurately called market timing even if I was selling SPY as it hit price targets as I am reallocating assets when I take profits and I HOPE the market or security still goes up. Unlike a market timer, I am taking profits because I KNOW that one can not predict the future. Now if I were to sell 100% of my security with the intention to buy it ALL back at a lower level after selling at a higher level, then you might call it market timing.
Market timers don't sell with the hope what they sold keeps going up. That is ludicrous. I want the market to keep going up after I take profits. Take my handling of UTEK in my newsletter. On 12/28/00 I sold 20% of the 1,000 UTEK shares I had purchased at $15 on 9/30/98 in for my newsletter portfolio. I WANTED the remaining 800 shares to go up so I could take more profits, but I was taking profits there at the year end incase people were loading up on winners for window dressing. The stock continued up in 2001 and I took more profits, selling another 200 at $32 and another 100 at 38.75. I had more than doubled my money at $38.75 and sold half my shares. This is pretty common and nobody calls it market timing. What is nice about the technique is it builds cash reserves when a stock is going up so you can then use the cash to buy the shares back as I did when I bought 200 shares back at $22.75. IF I still like the company and it goes even lower and I don't have another stock I like better for asset allocation and expected future performance, then I could buy even more.
Again, taking profits when a stock is going up has NOTHING to do with market timing.
-- posted by Kirk
» Rande - Deja vu
Anyone ever hear of this guy? Following is an excerpt from a PR Newswire (8/23/01). All sounds so familiar, doesn’t it? Only thing missing is a syndicated radio talk show, and an independently-verified track record, of course. It says Sosnowy did host a radio show called “Money Talks” – maybe that’s what Brinker means when he sometimes says, “Often imitated, but never duplicated.” Or is it the other way around? This guy’s had a “model” since 1970. Maybe he doesn’t have the marketing skills it takes to hook up with a major radio network. Anyway, seems there’s a whole sub-culture of market timers out there. Weird. Here’s a little déjà vu for ya:PR Neswire, August 23, 2001
Now in his fourth decade in the investment business, John K. Sosnowy, is nationally recognized as a pioneer in the fields of tactical asset allocation and market timing. In 1970, Sosnowy developed a proprietary econometric model that encompasses fundamental, monetary, and technical indicators in a quantitative, fact-based methodology with disciplined implementation procedures. He is the founder and a past President of the Society of Asset Allocators and Fund Timers, Inc. (SAAFTI), a national trade association for the industry. He is the author of "Lasting Wealth Is A Matter of Timing," considered by many to be the definitive book in this field. His investment philosophy has been featured in Forbes, Newsweek, Financial Planning, Research, Investment Advisor, Texas Business, and many other business and financial publications. Sosnowy has been a guest on Dan Rather's CBS Evening News, and for years, he hosted "Money Talks," a radio talk show about investments. A graduate of Texas Tech University with a Bachelor of Science degree in mathematics, Sosnowy earned a Master of Science in Industrial Engineering and is a member of the American MENSA Society. He entered the investment field in 1969....
-- posted by Rande
» KLR - Re: Deja vu
In response to message posted by Rande:Rande,
Wanna hear (literally) "the rest of the story" right from Mr. Sosnowy himself?....
THE REST OF THE STORY
One of the common criticisms of risk management is that you might miss some of the gains in bull markets and not avoid all the losses in bear markets. The criticism is absolutely true, but there's more to the story.
Let's look at the big quarterly buy-and-hold gains and losses -- gains of more than 5 percent and losses of more than 3 percent. The table below reflects all of these "emotional" quarters on a buy and hold basis and the results with risk management for the same quarters.
You will note the risk management results averaged 3.1 percentage points less than the buy-and-hold in the highly profitable quarters -- that's to be expected. On the other hand, the risk management results outperformed buy-and-hold by an average of 8.9 percentage points in the worst losing quarters.
My Conclusion: Risk management substantially reduced losses in the worst times and nearly matched the big gains of buy-and-hold in the best times. That is exactly what risk management is supposed to do....
-- posted by KLR
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