Author Topic: Timing the market on a monthly basis  (Read 915 times)

Comar

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Timing the market on a monthly basis
« on: December 04, 2017, 05:17:22 AM »
I know the common wisdom is to invest often and not try to time the market with large sums of money. However what do you think about trying to buy the dip on a monthly basis? Let's say you have a thousand dollars each month to invest. You wait for a dip in the market, if it doesn't dip you buy before the month is out. Repeat next month.

I'm just asking about your thoughts out of curiosity. In my country we have a small market and it's very volatile. I have bought when it dips quite often.

People say don't try to time the market, you might miss growth and it may never take a dip to its current status. Is this math or wisdom different for shorter time intervals?

matchewed

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Re: Timing the market on a monthly basis
« Reply #1 on: December 04, 2017, 05:35:55 AM »
Timing the market is timing the market regardless of the time frame. If your particular market is so volatile that you feel forced to buy on the dip to make yourself feel good about the investment then maybe it is just too volatile for you and you should look into ways to mitigate that volatility with other investments.

Comar

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Re: Timing the market on a monthly basis
« Reply #2 on: December 04, 2017, 05:56:39 AM »
I feel comfortable with the market and will continue buying into it even without trying to time it.My question is perhaps if shorter time intervals and increased volatility could change your buying behavior. And maybe if people have any experience to share?

aperture

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Re: Timing the market on a monthly basis
« Reply #3 on: December 04, 2017, 05:59:51 AM »
There are some stats that I have seen posted (perhaps from "A Random Walk") that show that if you miss just a handful of days over decades long periods of time in the market, you can completely miss a bull market. I want to be in the market as early as possible. That is my version of timing the market. Best wishes, aperture.
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Linda_Norway

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Re: Timing the market on a monthly basis
« Reply #4 on: December 04, 2017, 06:12:11 AM »
I buy monthly or even more often when I think I will have more than enough money to survive the rest of the month. I own stock in 5 or 6 index funds. I tend to buy the fund that has a little dip at that moment.

L.A.S.

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Re: Timing the market on a monthly basis
« Reply #5 on: December 04, 2017, 06:46:03 AM »
How do you know when the dip will be or whether you are in it?

The stock market squiggly line always looks perfectly understandable, and timing it looks doable, in the rearview mirror.... But forward looking, we don't know what is going to happen next in the short term.

It is impossible to analyze in a forward looking way whether we are "at a new peak" which means the market will next fall, or "at a new trough" "or bottoming out" which means the bottom of a dip and a good time to buy.  In the former case, the market could just keep going up, and in the latter, the market could just keep going down for a while.  Because it is impossible to analyze market dips and squiggles, people who try necessarily resort to emotional analysis: whether "it feels like a trough" or "feels like a peak."  Emotional investing is a recipe for disaster.  It is very easy to get carried away, abandoning any semblance of a strategy, and lose, or miss out on, a lot of money.

Linda_Norway

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Re: Timing the market on a monthly basis
« Reply #6 on: December 04, 2017, 08:03:31 AM »
How do you know when the dip will be or whether you are in it?

Was this a question for me? I just look at the graph that shows the value of the stock. If it is pointing downward it is at least in a little dip compared to the ones pointing upward.

Retire-Canada

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Re: Timing the market on a monthly basis
« Reply #7 on: December 04, 2017, 10:01:29 AM »
However what do you think about trying to buy the dip on a monthly basis?

As long as you invest that $1K each month dip or not I suspect that in the long run after decades the difference between doing what you are suggesting and say buying on the 1st day of each month will be next to zero. If it makes you feel better go nuts, but if you think you are going to come out ahead I think you are fooling yourself.

waltworks

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Re: Timing the market on a monthly basis
« Reply #8 on: December 04, 2017, 10:48:30 AM »
How do you identify a dip, though? If the market drops 1% next thursday, that's only good for you if it didn't gain more than that 1% over the intervening week (ignoring the missed dividends, of course).

The idea is slightly less stupid than larger timescale market timing, assuming you will buy each month no matter what. But it's still stupid.

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ILikeDividends

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Re: Timing the market on a monthly basis
« Reply #9 on: December 04, 2017, 12:29:43 PM »
I know the common wisdom is to invest often and not try to time the market with large sums of money. However what do you think about trying to buy the dip on a monthly basis? Let's say you have a thousand dollars each month to invest. You wait for a dip in the market, if it doesn't dip you buy before the month is out. Repeat next month.

I'm just asking about your thoughts out of curiosity. In my country we have a small market and it's very volatile. I have bought when it dips quite often.

People say don't try to time the market, you might miss growth and it may never take a dip to its current status. Is this math or wisdom different for shorter time intervals?
This is really just dollar-cost averaging at irregular intervals, not timing.  True timing requires that you buy lows and sell tops.  In other words, you have to be correct (or lucky) on both sides of each trade.

You might get lucky, and pick the low within a given month.  But if you don't, you will, by definition, just as likely buy the high at the end of the month.  I wouldn't expect a statistically meaningful difference, over the long term, from just buying on the 1st of every month.
« Last Edit: December 04, 2017, 01:07:05 PM by ILikeDividends »

matchewed

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Re: Timing the market on a monthly basis
« Reply #10 on: December 04, 2017, 01:23:31 PM »
I know the common wisdom is to invest often and not try to time the market with large sums of money. However what do you think about trying to buy the dip on a monthly basis? Let's say you have a thousand dollars each month to invest. You wait for a dip in the market, if it doesn't dip you buy before the month is out. Repeat next month.

I'm just asking about your thoughts out of curiosity. In my country we have a small market and it's very volatile. I have bought when it dips quite often.

People say don't try to time the market, you might miss growth and it may never take a dip to its current status. Is this math or wisdom different for shorter time intervals?
This is really just dollar-cost averaging at irregular intervals, not timing.  True timing requires that you buy lows and sell tops.  In other words, you have to be correct (or lucky) on both sides of each trade.

You might get lucky, and pick the low within a given month.  But if you don't, you will, by definition, just as likely buy the high at the end of the month.  I wouldn't expect a statistically meaningful difference, over the long term, from just buying on the 1st of every month.

It's pouring in a larger amount of attention and energy into waiting for the right time to invest when the benefit won't really be there.

I don't think market timing requires both buying lows and selling tops. Waiting to invest when the market dips is just as much market timing as buying that low and selling on the up.

ILikeDividends

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Re: Timing the market on a monthly basis
« Reply #11 on: December 04, 2017, 01:50:17 PM »
I know the common wisdom is to invest often and not try to time the market with large sums of money. However what do you think about trying to buy the dip on a monthly basis? Let's say you have a thousand dollars each month to invest. You wait for a dip in the market, if it doesn't dip you buy before the month is out. Repeat next month.

I'm just asking about your thoughts out of curiosity. In my country we have a small market and it's very volatile. I have bought when it dips quite often.

People say don't try to time the market, you might miss growth and it may never take a dip to its current status. Is this math or wisdom different for shorter time intervals?
This is really just dollar-cost averaging at irregular intervals, not timing.  True timing requires that you buy lows and sell tops.  In other words, you have to be correct (or lucky) on both sides of each trade.

You might get lucky, and pick the low within a given month.  But if you don't, you will, by definition, just as likely buy the high at the end of the month.  I wouldn't expect a statistically meaningful difference, over the long term, from just buying on the 1st of every month.

It's pouring in a larger amount of attention and energy into waiting for the right time to invest when the benefit won't really be there.

I don't think market timing requires both buying lows and selling tops. Waiting to invest when the market dips is just as much market timing as buying that low and selling on the up.
Ultimately we probably don't disagree on much.  Since there's a monthly time-out for each increment invested, I'll concede that it's akin to dollar-cost averaging with just a sprinkle of timing.

Everyone's cash portion of their asset allocation should provide for an appropriate, "waiting to invest when the market dips" scenario.  Warren Buffet does that quite successfully, and I don't think he could be even remotely considered a market timer.

We do, unquestionably, agree that there won't be any significant benefit to the OP's approach.
« Last Edit: December 04, 2017, 01:52:45 PM by ILikeDividends »

Comar

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Re: Timing the market on a monthly basis
« Reply #12 on: December 04, 2017, 02:38:32 PM »
I like your term "irregular dollar cost averaging" ILikeDividends. I'd like to continue using that instead of "timing the market" and I'd like to expand on my thoughts.

Let's assume my approach is not based on feelings but actual numbers. We study a person who invests 1k the 1st of each month. Then we compare it with a person who doesn't buy until the last day of the month unless the market drops 1%. The same for a person who doesn't buy until the last of the month unless there is a 2% drop. Then 3% 4% etc.

This way we should be able to compare the best result looking at historical data. If let's say buying each time the market drops 2% is the best historically speaking my approach must have some logic. After all, aren't most of us advocates of passive index fund investing because historically that has turned out pretty good?

Wouldn't ee have to respect the statistics just like some forum members are telling the "pay down the mortage" people to do?

matchewed

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Re: Timing the market on a monthly basis
« Reply #13 on: December 04, 2017, 03:03:31 PM »
I like your term "irregular dollar cost averaging" ILikeDividends. I'd like to continue using that instead of "timing the market" and I'd like to expand on my thoughts.

Let's assume my approach is not based on feelings but actual numbers. We study a person who invests 1k the 1st of each month. Then we compare it with a person who doesn't buy until the last day of the month unless the market drops 1%. The same for a person who doesn't buy until the last of the month unless there is a 2% drop. Then 3% 4% etc.

This way we should be able to compare the best result looking at historical data. If let's say buying each time the market drops 2% is the best historically speaking my approach must have some logic. After all, aren't most of us advocates of passive index fund investing because historically that has turned out pretty good?

Wouldn't ee have to respect the statistics just like some forum members are telling the "pay down the mortage" people to do?

Then do the leg work and provide the statistics. The burden of proof is on you. Look up the frequency of a 1% drop, 2% drop...etc. Then figure in all the opportunity costs of not investing and waiting for the drops compared to just automating the system on X day.

There is some math on the mortgage debate that is intuitive-ish.  It is not so intuitive in regards to this subject. You may think it is because you're just buying on the dips, but you're not considering the loss of returns waiting all month for a dip. Ultimately I think you'd be doing a larger amount of work for little to no gain. Which doesn't seem to add value. I think that amount of work and optimization could be better spent elsewhere in the pursuit of FIRE.

EfficientEngineer

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Re: Timing the market on a monthly basis
« Reply #14 on: December 04, 2017, 03:17:45 PM »
I aim for value investing so I definitely prioritize undervalued opportunities, which could be called buying the dip.  However I find the most attractive opportunity there is at the time amongst all equities and purchase that, so I don't sit on the sidelines long.

ILikeDividends

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Re: Timing the market on a monthly basis
« Reply #15 on: December 04, 2017, 04:30:57 PM »
I like your term "irregular dollar cost averaging" ILikeDividends. I'd like to continue using that instead of "timing the market" and I'd like to expand on my thoughts.

Let's assume my approach is not based on feelings but actual numbers. We study a person who invests 1k the 1st of each month. Then we compare it with a person who doesn't buy until the last day of the month unless the market drops 1%. The same for a person who doesn't buy until the last of the month unless there is a 2% drop. Then 3% 4% etc.

This way we should be able to compare the best result looking at historical data. If let's say buying each time the market drops 2% is the best historically speaking my approach must have some logic. After all, aren't most of us advocates of passive index fund investing because historically that has turned out pretty good?

Wouldn't ee have to respect the statistics just like some forum members are telling the "pay down the mortage" people to do?
I don't think back-testing the method would yield anything meaningful.  The 1% guy will always buy early more often than the 2% guy.  The 2% guy will always buy early more often than the 3% guy, and so on.

For instance, say the person who "wins the test" is the one who bought early after a 3% drop.  There is no reason to expect that s/he would continue to win going forward into the future.

It might be interesting to do it, but I would wager that the difference in results would be trivially tiny over the long term, in any case.
« Last Edit: December 04, 2017, 05:08:15 PM by ILikeDividends »

Radagast

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Re: Timing the market on a monthly basis
« Reply #16 on: December 04, 2017, 08:15:00 PM »
As others have said, dollar cost averaging by buying on the same day every month is already somewhat similar this.

This will probably be a huge waste of time. You will probably get a better rate of return washing ziplock bags and planting tomatoes in front of your windows. Certainly by getting a side job.

So, if you do follow through, automate as much as possible. For example set a limit order which is lower than the current market price by 1/2 the monthly standard deviation over the past year. Then forget about it until next month, when you add more money and reset the order. Do not watch the market every minute waiting for an arbitrary dip, there are better things to do. It would help if you had non-correlating assets with similar volatility, for example in the US, stocks, long term bonds, and gold, that way if whatever you are trying to buy soars upward, you can instead buy something that is headed down.

At the end, you lowered your average purchase price by, say 3% (optimistically). On an annualized basis, that is basically nothing after a decade or two. You would be better off leaving right now to check the ground for loose change.

Question to ask yourself: is this something than an algorithm could do better than you could? If so, why isn't it?