Author Topic: Welp, I'm going to take a stab at timing the market  (Read 21544 times)

davisgang90

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Re: Welp, I'm going to take a stab at timing the market
« Reply #150 on: March 30, 2019, 04:43:29 AM »
I keep tabs on this thread more than my own investments!  Set and forget.

never give up

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Re: Welp, I'm going to take a stab at timing the market
« Reply #151 on: March 30, 2019, 07:19:36 AM »
Yep I only know what the market has been doing because of this thread. Other than that I havenít got a clue.

I think this is a really useful thread for anyone new to investing. By all means try to time the market if you want. You may get lucky, you may not. If like me though you havenít got a clue, just keep buying at whatever asset allocation makes you happy and ignore the noise of global political events, that are offputting when new to investing. The key for me (once scared of investing) is to perceive the stocks I buy as me purchasing a bit of the world economy rather than a slip of paper that may rise or fall over the next couple of weeks. Iím not gambling here Iím investing for my future. It really has helped me stop worrying about market falls.

The media here (Iím in the UK) are starting to talk up a global recession (bless them) so junioroldtimer may still be able to buy in at a lower point at some point in the future. However Iím not selling and will just keep buying. Best of luck to the OP.

philli14

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Re: Welp, I'm going to take a stab at timing the market
« Reply #152 on: March 30, 2019, 10:19:07 AM »
PTF. Has been fun catching up on the thread.

Alchemisst

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Re: Welp, I'm going to take a stab at timing the market
« Reply #153 on: March 30, 2019, 07:08:39 PM »
I have been looking into this also and I believe the PE10 ratio is important - the average of the past 10 years earnings of the market divided by current price. Historically the average has been around 15, and over 15 leads to below average returns over the next 10 years, over 25 is negative returns. The market is currently at 30 I belive.

Some good charts/info here:

http://www.early-retirement-planning-in ... eturn.html

http://www.early-retirement-planning-in ... ictor.html

http://www.early-retirement-planning-in ... heory.html

http://www.early-retirement-planning-in ... 6-VII.html

There is also a market timers thread on bogleheads that has been pretty active lately:

https://www.bogleheads.org/forum/viewtopic.php?t=276618

waltworks

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Re: Welp, I'm going to take a stab at timing the market
« Reply #154 on: March 30, 2019, 10:40:08 PM »
The last time Schiller PE/10 was at or below 15 was the 1980s, dude, except for a very brief period in 2009 when it got close. There are also all kinds of problems with comparing earnings pre-GAAP mark to market (90s sometime?) which depresses the modern PE numbers in comparison. 

I expect lower returns than historical averages due to P/E ratios being high, sure. But the alternative is to sit on cash and I *know* that is a crap move. PE has a numerator AND a denominator, remember. High PE ratios don't mean you can expect to buy in cheap after a crash - they can also mean that prices grow slower than earnings for a while.

-W

ChpBstrd

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Re: Welp, I'm going to take a stab at timing the market
« Reply #155 on: March 31, 2019, 08:39:32 PM »
The last time Schiller PE/10 was at or below 15 was the 1980s, dude, except for a very brief period in 2009 when it got close. There are also all kinds of problems with comparing earnings pre-GAAP mark to market (90s sometime?) which depresses the modern PE numbers in comparison. 

^ YES.

I would like a 2nd opinion besides PE ratio. Ideally, that would be the price to free cash flow (i.e. free cash flow yield) of the S&P 500, charted over the course of decades. Apparently, Google can't find it. Anyone know where I could locate historical data on this metric?

FrugalSaver

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Re: Welp, I'm going to take a stab at timing the market
« Reply #156 on: April 01, 2019, 05:17:00 AM »
I remain long-term optimistic on the US stock market but I'm short-term pessimistic. I think the sitting president is going to be impeached and there's going to be a knock-down, drag-out fight in which the markets temporarily plummet as all this Russia stuff comes to light.

I'll let you guys know how I do. I intend to sell 893 shares of VTSAX. I will buy back in when the price is significantly cheaper.

Current VSTAX price: $68.18

Cross your fingers for me or call me crazy. We'll see how this goes.

This has not aged well. Careful where one gets their propaganda. It can cost you a fortune

sol

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Re: Welp, I'm going to take a stab at timing the market
« Reply #157 on: April 01, 2019, 09:17:36 AM »
Careful where one gets their propaganda. It can cost you a fortune

In this case it's cost him about $3k, based on moving $60k of assets, or roughly 5% of his fortune in less than two months. 

There are worse ways to lose your money. 

But he's not sunk yet. Missing out on a 5% rise after you pull out of the market hurts, but it's not fatal.  We've certainly had days in the market where we dropped more than 5% in a matter of hours, so maybe he's hoping for some sort of economic catastrophe?  You know, the kind your every-day average guy sits at home and prays for, where millions of people are out of work and children go hungry?  Where pillars of our economy crumble to dust, and the national debt skyrockets, and our foreign adversaries lick their chops at the prospect of America's downfall? 

This sort of steady average climb is always the problem for market timers, though.  At this rate, in another few months we could have a full blown recession and the market could drop 20% and he would STILL have lost money on the trade.  Even if you can correctly predict a coming crash, if you get the timing wrong by a matter of months you can miss out on more in gains that you avoid in losses, making the whole thing a losing strategy even if you're mostly correct.

I'm still playing it safe.  I'm fully invested in the stock market at percentages dictated by my asset allocation, just like I have been for the past 10 years.  Some day the market will tank and I'll lose big, but my losses will be much smaller than my gains over that 10 year period.  I accept this volatility as a necessary part of the market making me so very very rich in the long run.

Telecaster

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Re: Welp, I'm going to take a stab at timing the market
« Reply #158 on: April 01, 2019, 11:57:27 AM »
The last time Schiller PE/10 was at or below 15 was the 1980s, dude, except for a very brief period in 2009 when it got close. There are also all kinds of problems with comparing earnings pre-GAAP mark to market (90s sometime?) which depresses the modern PE numbers in comparison. 

I expect lower returns than historical averages due to P/E ratios being high, sure. But the alternative is to sit on cash and I *know* that is a crap move. PE has a numerator AND a denominator, remember. High PE ratios don't mean you can expect to buy in cheap after a crash - they can also mean that prices grow slower than earnings for a while.

-W

^ This simple fact is misunderstood by many people.  A higher than average PE implies lower than average long term future returns.  Nothing wrong with that.  Mathematically you can't be above average all the time.   A high PE ratio does not imply the market is about to crash.  It might crash.  Or it might simply go sideways for a period of time. 


HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #159 on: April 01, 2019, 01:39:05 PM »
   A high PE ratio does not imply the market is about to crash.  It might crash.  Or it might simply go sideways for a period of time.

If you really think it indicates these two options statistically, then it would make sense to take your money out during such indicators and put it somewhere earning some interest.  The PE ratio has been high for 27 years.  What do you think is going to change in the next few decades?

The problem is that a "high PE ratio" keeps getting adjusted upward over time, the "experts" have to keep adjusting it upward as new data contradicts what they had predicted.  They used to say low 20's was considered high, and over 25 was considered "extreme".  Now 30 is the new marker.

The wild card in all of this is that companies are going to see profitability shoot the roof over the next few decades as AI takes over.  How will that impact the PE ratio?  I'm sure this is being priced in already to some extent.
« Last Edit: April 01, 2019, 01:44:41 PM by HBFIRE »

Raeon

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Re: Welp, I'm going to take a stab at timing the market
« Reply #160 on: April 01, 2019, 07:55:32 PM »
Part of me wants to move from 95/5 stocks/bonds to 80/20 until the next big drop but I just can't justify creating a tax event to do so.  Even if the market were to go sideways for awhile or drop I'm not sure it'd be enough to offset the tax hit.  Instead, newly earned/deposited money went into bonds last month and I continue to keep my speculation within my "play money" retail account to scratch the itch. (~5% of stash)

There seems to be a big drop every decade or so on average.  What's everyone's thoughts on leveraging some margin when the next one hits?  Even if I don't perfectly catch the bottom the big dips never seem to last long so it doesn't seem like I'd get eaten up too much in interest while waiting for a turnaround.  Once it returns to pre-drop levels (or even just a reasonable return) I would back out of margin and go back to plain money again.  It's an idea I've been toying with to keep from sitting on the sidelines in an irrational bull market but still capitalize on those nasty 20%+ drops.  As far as I can see the biggest risk lies in incorrectly identifying the bottom and getting in too soon, thus multiplying your losses to the point of not being able to break even.  [Again, this would be in my play money account]

theolympians

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Re: Welp, I'm going to take a stab at timing the market
« Reply #161 on: April 01, 2019, 10:47:02 PM »
Part of me wants to move from 95/5 stocks/bonds to 80/20 until the next big drop but I just can't justify creating a tax event to do so.  Even if the market were to go sideways for awhile or drop I'm not sure it'd be enough to offset the tax hit.  Instead, newly earned/deposited money went into bonds last month and I continue to keep my speculation within my "play money" retail account to scratch the itch. (~5% of stash)

There seems to be a big drop every decade or so on average.  What's everyone's thoughts on leveraging some margin when the next one hits?  Even if I don't perfectly catch the bottom the big dips never seem to last long so it doesn't seem like I'd get eaten up too much in interest while waiting for a turnaround.  Once it returns to pre-drop levels (or even just a reasonable return) I would back out of margin and go back to plain money again.  It's an idea I've been toying with to keep from sitting on the sidelines in an irrational bull market but still capitalize on those nasty 20%+ drops.  As far as I can see the biggest risk lies in incorrectly identifying the bottom and getting in too soon, thus multiplying your losses to the point of not being able to break even.  [Again, this would be in my play money account]

Is that "market timing"?   :)

secondcor521

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Re: Welp, I'm going to take a stab at timing the market
« Reply #162 on: April 01, 2019, 10:53:03 PM »
Part of me wants to move from 95/5 stocks/bonds to 80/20 until the next big drop but I just can't justify creating a tax event to do so.  Even if the market were to go sideways for awhile or drop I'm not sure it'd be enough to offset the tax hit.  Instead, newly earned/deposited money went into bonds last month and I continue to keep my speculation within my "play money" retail account to scratch the itch. (~5% of stash)

There seems to be a big drop every decade or so on average.  What's everyone's thoughts on leveraging some margin when the next one hits?  Even if I don't perfectly catch the bottom the big dips never seem to last long so it doesn't seem like I'd get eaten up too much in interest while waiting for a turnaround.  Once it returns to pre-drop levels (or even just a reasonable return) I would back out of margin and go back to plain money again.  It's an idea I've been toying with to keep from sitting on the sidelines in an irrational bull market but still capitalize on those nasty 20%+ drops.  As far as I can see the biggest risk lies in incorrectly identifying the bottom and getting in too soon, thus multiplying your losses to the point of not being able to break even.  [Again, this would be in my play money account]

Is that "market timing"?   :)

Only when other people do it.  :)

Telecaster

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Re: Welp, I'm going to take a stab at timing the market
« Reply #163 on: April 02, 2019, 01:03:55 AM »
   A high PE ratio does not imply the market is about to crash.  It might crash.  Or it might simply go sideways for a period of time.

If you really think it indicates these two options statistically, then it would make sense to take your money out during such indicators and put it somewhere earning some interest.  The PE ratio has been high for 27 years.  What do you think is going to change in the next few decades?

It might make sense to you, but it doesn't make a lick of sense to me.  I made a point of agreeing with Waltwork's post that going to cash based on PE was meritless.

The part of my post that you didn't quote was the important part, namely  "A higher than average PE implies lower than average long term future returns.  Nothing wrong with that.  Mathematically you can't be above average all the time.  "

If we go back 20 years the PE/10 was 32 (that's higher than average) and the next 20 years the S&P gained (including dividends) about 6.6% a year, which is lower than the all-time long term average (as far back as we have data) which is about 9%.  So yeah, the starting valuation matters.  But it is stupid to give up the 6.6% hoping for a better entry point.  Sometimes the better entry point never happens.

And again, you can't be above average all the time. So just accept "below average" and forget about timing the market.

Raeon

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Re: Welp, I'm going to take a stab at timing the market
« Reply #164 on: April 02, 2019, 07:44:42 AM »
Definitely still market timing lol, you're right. I guess it just feels like timing based on a reaction to a wild market event vs a proactive hope for one.
Probably not justifiable from an investment perspective, but I do enjoy the gamble from an entertainment perspective.

ChpBstrd

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Re: Welp, I'm going to take a stab at timing the market
« Reply #165 on: April 02, 2019, 09:10:51 AM »
Part of me wants to move from 95/5 stocks/bonds to 80/20 until the next big drop but I just can't justify creating a tax event to do so.  Even if the market were to go sideways for awhile or drop I'm not sure it'd be enough to offset the tax hit.  Instead, newly earned/deposited money went into bonds last month and I continue to keep my speculation within my "play money" retail account to scratch the itch. (~5% of stash)

There seems to be a big drop every decade or so on average.  What's everyone's thoughts on leveraging some margin when the next one hits?  Even if I don't perfectly catch the bottom the big dips never seem to last long so it doesn't seem like I'd get eaten up too much in interest while waiting for a turnaround.  Once it returns to pre-drop levels (or even just a reasonable return) I would back out of margin and go back to plain money again.  It's an idea I've been toying with to keep from sitting on the sidelines in an irrational bull market but still capitalize on those nasty 20%+ drops.  As far as I can see the biggest risk lies in incorrectly identifying the bottom and getting in too soon, thus multiplying your losses to the point of not being able to break even.  [Again, this would be in my play money account]

My IPS says to hold most of my equity allocation in a protected put strategy. E.g. Buy 100 shares of SPY and buy one put option. SPY is my tool of choice because options are available with 2+ years duration, meaning that time decay occurs about as slowly as possible AND I have a good amount of time to wait out a bear market. Then I have a rule that I will sell my puts if SPY drops 20% from the most recent high, no matter how scary it is at the time. Proceeds are to go into more shares of the stock.

I set this strategy about a year ago and it served me well in early January 2019 when I followed my rule and sold the puts for a few thousand in profits and bought more shares near what happened to be the bottom. I am now buying the puts back for half what I sold them for, and/or rolling forward in time. I have to sell some (but not all) of the shares I bought in January to buy the puts.

My portfolio value still dropped in the 4th quarter, because options do not move dollar-for-dollar with shares. Had markets continued to drop 2008-style, I would have simply "missed out" on a big part of the losses.

This is not market timing because no prediction about future performance is made. If stocks go up, that's fine because my hedge allowed me to tolerate a higher stock allocation than I'd normally hold, and that higher allocation offsets the losses on the hedge. If stocks go down, that's fine, I'll just make profits from selling my puts when we're 20% down (and the puts are maybe 100% up). The strategy only assumes 20% downturns will occur about as often as they've always occurred.

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #166 on: April 02, 2019, 10:46:42 AM »


It might make sense to you, but it doesn't make a lick of sense to me.  I made a point of agreeing with Waltwork's post that going to cash based on PE was meritless.

The part of my post that you didn't quote was the important part, namely  "A higher than average PE implies lower than average long term future returns.  Nothing wrong with that.  Mathematically you can't be above average all the time.  "

If we go back 20 years the PE/10 was 32 (that's higher than average) and the next 20 years the S&P gained (including dividends) about 6.6% a year, which is lower than the all-time long term average (as far back as we have data) which is about 9%.  So yeah, the starting valuation matters.  But it is stupid to give up the 6.6% hoping for a better entry point.  Sometimes the better entry point never happens.

And again, you can't be above average all the time. So just accept "below average" and forget about timing the market.

No, I would not pull my money out because I don't think those are the 2 options.

Your quote was
It might crash.  Or it might simply go sideways for a period of time.

  If these are really what you think the options are, logically pulling your money out would be a good play.  Maybe this is not what you meant?   Sideways does not mean gaining 6% a year.  Sideways would be akin to the Japan market.  Either of these options is horrible for an investment.  Hence if you really think these are the two possibilities, keeping invested would be like banging your head against a wall.  The bottom line is we don't know what the markets will do.  If the PE ratio was an accurate predictor indicator, market timing would be a valid strategy.
« Last Edit: April 02, 2019, 10:56:51 AM by HBFIRE »

tyort1

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Re: Welp, I'm going to take a stab at timing the market
« Reply #167 on: April 02, 2019, 11:43:44 AM »


It might make sense to you, but it doesn't make a lick of sense to me.  I made a point of agreeing with Waltwork's post that going to cash based on PE was meritless.

The part of my post that you didn't quote was the important part, namely  "A higher than average PE implies lower than average long term future returns.  Nothing wrong with that.  Mathematically you can't be above average all the time.  "

If we go back 20 years the PE/10 was 32 (that's higher than average) and the next 20 years the S&P gained (including dividends) about 6.6% a year, which is lower than the all-time long term average (as far back as we have data) which is about 9%.  So yeah, the starting valuation matters.  But it is stupid to give up the 6.6% hoping for a better entry point.  Sometimes the better entry point never happens.

And again, you can't be above average all the time. So just accept "below average" and forget about timing the market.

No, I would not pull my money out because I don't think those are the 2 options.

Your quote was
It might crash.  Or it might simply go sideways for a period of time.

  If these are really what you think the options are, logically pulling your money out would be a good play.  Maybe this is not what you meant?   Sideways does not mean gaining 6% a year.  Sideways would be akin to the Japan market.  Either of these options is horrible for an investment.  Hence if you really think these are the two possibilities, keeping invested would be like banging your head against a wall.  The bottom line is we don't know what the markets will do.  If the PE ratio was an accurate predictor indicator, market timing would be a valid strategy.

Yeah, its funny, people are often like "wait, PE ratio means I might not get 9% return on my money in the future", and then they proceed to do things with their money that will almost certainly GUARANTEE not getting 9%.  Like "Hey, stocks might only get me 5% so I'm going to cash where I might end up with zero percent".  Good lord have these people never taken a statistics class or understand the nature of probability? 

Telecaster

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Re: Welp, I'm going to take a stab at timing the market
« Reply #168 on: April 02, 2019, 01:47:58 PM »
  If these are really what you think the options are, logically pulling your money out would be a good play.  Maybe this is not what you meant?   Sideways does not mean gaining 6% a year.  Sideways would be akin to the Japan market.  Either of these options is horrible for an investment.  Hence if you really think these are the two possibilities, keeping invested would be like banging your head against a wall.  The bottom line is we don't know what the markets will do.  If the PE ratio was an accurate predictor indicator, market timing would be a valid strategy.

Either you didn't read my post carefully or I'm not making myself clear. 

I'd best repeat this part again so it is front and center:

 
Quote from: Telecaster
I made a point of agreeing with Waltwork's post that going to cash based on PE was meritless.

What I am saying--and I've said this several times but I'll say it again--Higher than average PE predicts lower than average future returns.   And there's nothing wrong with below average future returns.   It is mathematically impossible to be above average all of the time. 

How you construct that "below average" means you should go cash is beyond me.

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #169 on: April 02, 2019, 02:12:27 PM »

Either you didn't read my post carefully or I'm not making myself clear. 

Ok I guess I misunderstood your statement then when you said either things will crash or go sideways. 

It might crash.  Or it might simply go sideways for a period of time.

To me sideways means no gains as in what we saw with Japan -- in that case you would not want to be invested.  If the options were truly sideways or crash, going to cash would be a no brainer.  Also, history does not bear out that PE ratio can predict future returns.  Even recent history has gone counter to this notion.  This is why the "experts" keep adjusting the markers.
« Last Edit: April 02, 2019, 02:19:33 PM by HBFIRE »

ChpBstrd

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Re: Welp, I'm going to take a stab at timing the market
« Reply #170 on: April 02, 2019, 08:11:57 PM »
What I am saying--and I've said this several times but I'll say it again--Higher than average PE predicts lower than average future returns.   And there's nothing wrong with below average future returns.   It is mathematically impossible to be above average all of the time. 

I wouldn't call it mathematically impossible. If a country's expected growth rate went from, say, 2% per year to 5% per year, for enduring reasons such as market liberalization, a reduction in corruption, resolving a debt or currency crisis, etc. then it would make sense for PE ratios to be permanently higher. The expected growth rate of the country would have increased. Similarly, if a country was hit by a series of crises that depressed earnings for decades and lowered PE's, then a resolution of those crises might lead to normalization in PE ratios, which would bring them above the long-term average.

None of these scenarios necessarily describes the U.S, which is moving backwards in terms of governance, solvency, and stability. However, there are some underreported good things happening in the areas of culture, education, basic research, human resource management, and of course I.T. that make for a long-term bullish case. The math would only be impossible if one assumes flat growth, but that is one scenario among many.


Radagast

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Re: Welp, I'm going to take a stab at timing the market
« Reply #171 on: April 02, 2019, 09:30:27 PM »
I wish that we had a way to call bullshit on people's political beliefs as easily as their stock market beliefs. The stock market is just a fraction of American society, ie. society is considerably more complex and less predictable. Yet everybody thinks they are always correct 100% of the time. You would think that people would step back and think "wow my stock market belief has proven to be utterly wrong! Maybe I should stop and challenge all these other deeply held convictions I hold about even more complex matters about which I have even less understanding!"

Eric

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Re: Welp, I'm going to take a stab at timing the market
« Reply #172 on: April 03, 2019, 01:01:46 PM »
To me sideways means no gains as in what we saw with Japan -- in that case you would not want to be invested.  If the options were truly sideways or crash, going to cash would be a no brainer. 

Dividends exist, and generally pay more than cash, so even literal sideways with 0 increase in the raw measure of the market index would still mean you'd come out ahead by staying invested.

Also, history does not bear out that PE ratio can predict future returns.  Even recent history has gone counter to this notion.  This is why the "experts" keep adjusting the markers.

So you think Shiller won a fucking Nobel prize for something that doesn't actually work?  That's a pretty bold claim.  While we don't know what will happen in the future, CAPE has very high correlation to 10 year real returns in the past.

https://www.kitces.com/blog/shiller-cape-market-valuation-terrible-for-market-timing-but-valuable-for-long-term-retirement-planning/

secondcor521

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Re: Welp, I'm going to take a stab at timing the market
« Reply #173 on: April 03, 2019, 01:10:24 PM »
Shiller didn't win the Nobel Prize for CAPE10.

Cite:  https://www.econlib.org/library/Enc/bios/Shiller.html

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #174 on: April 03, 2019, 01:31:34 PM »

Dividends exist, and generally pay more than cash, so even literal sideways with 0 increase in the raw measure of the market index would still mean you'd come out ahead by staying invested.


You'd lose to inflation, there are other places to put your money with a guaranteed inflation return.

Eric

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Re: Welp, I'm going to take a stab at timing the market
« Reply #175 on: April 03, 2019, 01:35:17 PM »
Shiller didn't win the Nobel Prize for CAPE10.

Cite:  https://www.econlib.org/library/Enc/bios/Shiller.html

Okay, "technically" he didn't win explicitly for CAPE alone.  He won for "for their empirical analysis of asset prices" but his main contribution to that is/was CAPE. 

https://www.nobelprize.org/prizes/economic-sciences/2013/shiller/facts/

Eric

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Re: Welp, I'm going to take a stab at timing the market
« Reply #176 on: April 03, 2019, 01:36:18 PM »

Dividends exist, and generally pay more than cash, so even literal sideways with 0 increase in the raw measure of the market index would still mean you'd come out ahead by staying invested.


You'd lose to inflation, there are other places to put your money with a guaranteed inflation return.

Cash loses to inflation too.  Not sure how pointing out inflation helps your point at all.

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #177 on: April 03, 2019, 01:50:32 PM »

Cash loses to inflation too.  Not sure how pointing out inflation helps your point at all.

Not if its kept in a decent savings/high yield checking.  Even bonds would be superior to sideways returns.  My point is that if you really expect returns to be sideways or negative based on indicators you think are "reliable", then you should be a market timer.   Also, dividends are just taken from the market share price.  You gain nothing but pay more in taxes.
« Last Edit: April 03, 2019, 01:53:59 PM by HBFIRE »

Eric

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Re: Welp, I'm going to take a stab at timing the market
« Reply #178 on: April 03, 2019, 02:10:26 PM »

Cash loses to inflation too.  Not sure how pointing out inflation helps your point at all.

Not if its kept in a decent savings/high yield checking.  Even bonds would be superior to sideways returns.  My point is that if you really expect returns to be sideways or negative based on indicators you think are "reliable", then you should be a market timer.   Also, dividends are just taken from the market share price.  You gain nothing but pay more in taxes.

I think you should make up your mind.  First you claimed it was a "no brainer to be in cash" for a sideways market.  Now you state that bonds would be better.  Then you claim that "you gain nothing" when receiving a dividend, but that's patently false.  Dividends are part of total return.  And since this discussion is focusing on a sideways market, in that case, dividends are the sole return.  Claiming they are subject to inflation is obvious, but everything is subject to inflation so it's a moot point.

Either way, investing is nearly always going to win, because even sideways markets have returns. Indicators are reliable, but not for short term market timing.  You really should read that Kitces post. I'll link it again for you.


https://www.kitces.com/blog/shiller-cape-market-valuation-terrible-for-market-timing-but-valuable-for-long-term-retirement-planning/

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #179 on: April 03, 2019, 02:13:04 PM »

I think you should make up your mind.  First you claimed it was a "no brainer to be in cash" for a sideways market. 

No, I'd never take my money out of the stock market.  But that's because I don't think the PE ratio is a reliable indicator.  It seems you've lost track of what the discussion was.  I was responding to a user who said the current ratio indicates an imminent crash or sideways returns.  My comment was that if he really thinks that, he should immediately remove his investments and put it into something that will provide a return.
« Last Edit: April 03, 2019, 02:16:02 PM by HBFIRE »

Eric

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Re: Welp, I'm going to take a stab at timing the market
« Reply #180 on: April 03, 2019, 02:35:29 PM »

I think you should make up your mind.  First you claimed it was a "no brainer to be in cash" for a sideways market. 

No, I'd never take my money out of the stock market.  But that's because I don't think the PE ratio is a reliable indicator.  It seems you've lost track of what the discussion was.  I was responding to a user who said the current ratio indicates an imminent crash or sideways returns.  My comment was that if he really thinks that, he should immediately remove his investments and put it into something that will provide a return.

I'm following along.  I agree with everything Telecaster said.  You're either taking what he said out of context or focusing to much on the idea that sideways means zero returns.  It does not.  Here was the whole statement, with context:

The last time Schiller PE/10 was at or below 15 was the 1980s, dude, except for a very brief period in 2009 when it got close. There are also all kinds of problems with comparing earnings pre-GAAP mark to market (90s sometime?) which depresses the modern PE numbers in comparison. 

I expect lower returns than historical averages due to P/E ratios being high, sure. But the alternative is to sit on cash and I *know* that is a crap move. PE has a numerator AND a denominator, remember. High PE ratios don't mean you can expect to buy in cheap after a crash - they can also mean that prices grow slower than earnings for a while.

-W

^ This simple fact is misunderstood by many people.  A higher than average PE implies lower than average long term future returns.  Nothing wrong with that.  Mathematically you can't be above average all the time.   A high PE ratio does not imply the market is about to crash.  It might crash.  Or it might simply go sideways for a period of time.

A high CAPE absolutely does imply lower than average forward looking returns, whether you believe in it or not.  The threshold for what is "high" has shifted over time, but it still exists, and when CAPE is high, future returns are likely to be lower than when the opposite is the case.  Telecaster's statements above in no way, shape, or form imply that anything imminent is about to happen nor that anyone should time the market based on CAPE. His post and the following one are saying the exact opposite of that, stating that lower than average returns still mean it's good to be invested because they are better than the alternative.

I agree that CAPE is not a reliable indicator of an imminent crash, but no one ever claimed it was.

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #181 on: April 03, 2019, 02:44:37 PM »

the idea that sideways means zero returns.  It does not.  Here was the whole statement, with context:

Sideways indeed means negative returns, as inflation eats away at your money.  As mentioned, you can match or even outperform inflation with safer investments if you think the market will be headed sideways or negative. 

Eric

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Re: Welp, I'm going to take a stab at timing the market
« Reply #182 on: April 03, 2019, 02:47:51 PM »
Welp, I tried.  I didn't realize you were being intentionally obtuse when I started.  But it's clear now!

waltworks

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Re: Welp, I'm going to take a stab at timing the market
« Reply #183 on: April 03, 2019, 02:55:14 PM »
Well, my point was that P/E can stay stable while share prices skyrocket - if earnings skyrocket too. Likewise P/E can drop to be super low without share prices losing anything at all if earnings go up.

I mean, 3 or 4 years ago P/E was up close to 25. That didn't make it a bad time to invest, because even though P/E has dropped since then, earnings have risen a ton and so have share prices.

Note that I'm not saying stocks will never crash, or that investing now guarantees you anything. But if you're waiting for P/E at historical averages to invest, I think you'll be waiting a long time. We've been stable around 20 or so for almost 30 years now, albeit with a couple wild swings up crazy high. If I were a betting man, I'd bet on 20 being the new normal.

Oh, wait, I am betting on that. All the time when my dividends reinvest.

-W

dougules

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Re: Welp, I'm going to take a stab at timing the market
« Reply #184 on: April 03, 2019, 03:44:26 PM »

the idea that sideways means zero returns.  It does not.  Here was the whole statement, with context:

Sideways indeed means negative returns, as inflation eats away at your money.  As mentioned, you can match or even outperform inflation with safer investments if you think the market will be headed sideways or negative.

What investments are guaranteed to keep up with inflation?  The only thing I can think of are TIPS.  Returns on those are pretty low right now, so you're paying for that really low risk with a really low reward. 

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #185 on: April 03, 2019, 03:46:30 PM »

What investments are guaranteed to keep up with inflation?  The only thing I can think of are TIPS.  Returns on those are pretty low right now, so you're paying for that really low risk with a really low reward.

Currently high yield checking accts are paying 3.3%.  Highest savings rate is at 2.45%.  Both of these are above current inflation rate.  TIPS is another option.

sol

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Re: Welp, I'm going to take a stab at timing the market
« Reply #186 on: April 03, 2019, 03:55:44 PM »

Currently high yield checking accts are paying 3.3%.  Highest savings rate is at 2.45%.  Both of these are above current inflation rate.  TIPS is another option.

TIPS are the only option that I know of.  They were created for this specific purpose.

Neither checking nor savings count are guaranteed to match or beat inflation.  The fact that some of them are beating inflation right now is no more relevant than is the fact that stocks are also beating inflation right now.  That can all change next week.  There is no guarantee that your high yield checking account will actually pay 3.3% over the course of the next year, or three or ten. 

Telecaster

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Re: Welp, I'm going to take a stab at timing the market
« Reply #187 on: April 03, 2019, 11:17:26 PM »

No, I'd never take my money out of the stock market.  But that's because I don't think the PE ratio is a reliable indicator.  It seems you've lost track of what the discussion was.  I was responding to a user who said the current ratio indicates an imminent crash or sideways returns. 

Yes, and we've been trying to correct your misconceptions ever since.   This is what I said:

Quote from: Telecaster
A high PE ratio does not imply the market is about to crash.


Only a liar or a person with  limited mental abilities would conclude that means there will be an imminent crash.  Yet you're all in.  Good luck with your investing. 


Full_Beard

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Re: Welp, I'm going to take a stab at timing the market
« Reply #188 on: April 04, 2019, 11:11:34 AM »
Timing the market works for few and fails for many. Tracking the OP's decision is fine, but trying to find any meaning as to whether his decision a month ago was wise or foolish based on day-to-day changes is about as useful as checking your portfolio's balance every day.

As for pulling out, I agree that it shouldn't be based on pure politics -- impeachment, Russia, etc. But, if you're concerned about the effects from President Trump's trade policies, his disintegrating rapport with foreign leaders, the long-term effects from his tax cuts, the potential effect from his verbal barbs at the Fed, etc. In other words, if you're looking around at the state of play and you have a lack of confidence in what the next 1-2 years will bring, then there might be some financial moves (other than selling all to time the market) that create a more conservative profile and make you feel better. If you feel better riding out the waves, don't do a thing. There are logical reasons to ride the waves based on history. But, your comfort/anxiety can be factored into the process.

The Shiller PE ratio is a useful indicator for managing expectations for future 5- and 10-year averages. It's not a market timing tool.

Dabnasty

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Re: Welp, I'm going to take a stab at timing the market
« Reply #189 on: April 04, 2019, 12:25:17 PM »
No, I'd never take my money out of the stock market.  But that's because I don't think the PE ratio is a reliable indicator.  It seems you've lost track of what the discussion was.  I was responding to a user who said the current ratio indicates an imminent crash or sideways returns. 

Yes, and we've been trying to correct your misconceptions ever since.   This is what I said:

Quote from: Telecaster
A high PE ratio does not imply the market is about to crash.


Only a liar or a person with  limited mental abilities would conclude that means there will be an imminent crash.  Yet you're all in.  Good luck with your investing.

I think what really happened here is that HBFIRE read the last part of what you said

Quote
A high PE ratio does not imply the market is about to crash.  It might crash.  Or it might simply go sideways for a period of time.

And assumed you meant those were the only two options, which of course is not what you said. In fact if you put it back into context that's pretty obvious.

Quote
This simple fact is misunderstood by many people.  A higher than average PE implies lower than average long term future returns.  Nothing wrong with that.  Mathematically you can't be above average all the time.   A high PE ratio does not imply the market is about to crash.  It might crash.  Or it might simply go sideways for a period of time.

Which you explained but it didn't get through for some reason.

The part of my post that you didn't quote was the important part, namely  "A higher than average PE implies lower than average long term future returns.  Nothing wrong with that.  Mathematically you can't be above average all the time.  "

No, I would not pull my money out because I don't think those are the 2 options.

Your quote was
It might crash.  Or it might simply go sideways for a period of time.

  If these are really what you think the options are, logically pulling your money out would be a good play.  Maybe this is not what you meant? Sideways does not mean gaining 6% a year.  Sideways would be akin to the Japan market.  Either of these options is horrible for an investment.  Hence if you really think these are the two possibilities, keeping invested would be like banging your head against a wall.  The bottom line is we don't know what the markets will do.  If the PE ratio was an accurate predictor indicator, market timing would be a valid strategy.

Does this make sense now @HBFIRE? There was never really disagreement about what a high PE ratio indicates, just an incorrect assumption about what somebody meant.

tyort1

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Re: Welp, I'm going to take a stab at timing the market
« Reply #190 on: April 07, 2019, 10:08:25 AM »
You know, in my own investing mindset, I used to be tempted to try to time the market on occasion.  But threads like this one and the epic (and continual) failures demonstrated in them has pretty much cured me of that mindset completely. 

So, OP, I'm sorry you've lost out on some gains, but just know that your posting has helped others to learn a valuable lesson.  Thank you.

JAYSLOL

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Re: Welp, I'm going to take a stab at timing the market
« Reply #191 on: April 07, 2019, 11:23:10 AM »
Update this week?

waltworks

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Re: Welp, I'm going to take a stab at timing the market
« Reply #192 on: April 07, 2019, 01:48:07 PM »
Swiping a bit from @sol:

junioroldtimer sold 892.949 shares on February 7th at $67.59 each, converting $60,354.43 into cash.

On Feb 14 the closing price was $68.85, meaning that he had cost himself $1,125.11 after one week of trying to time the market.
On Feb 22 the closing price was $69.98, meaning that he had cost himself $1,866.26 after two weeks of trying to time the market.
On Mar 01 the closing price was $70.28, meaning that he had cost himself $2,402.03 after three weeks of trying to time the market.
On Mar 08 the closing price was $68.62, meaning that he had cost himself $919.73 after four weeks of trying to time the market.
On Mar 15 the closing price was $70.56, meaning that he had cost himself $2,652.05 after five weeks of trying to time the market.
On Mar 22 the closing price was $69.49, meaning that he had cost himself $1,696.60 after six weeks, plus $333.61 in dividends not paid is $2,030.21.
On Mar 29 the closing price was $70.43, meaning that he had cost himself $2,535.97 after seven weeks, plus $333.61 in dividends not paid is $2,869.58.

And now, on April 5th the closing price was $71.94, meaning that he had cost himself $3884.32 after eight weeks, plus $333.61 in dividends not paid - a total of $4217.93.

That's almost 7% of his initial investment.

I agree that tracking it week to week is a bit silly, but I think it's worth keeping this at the top of the forum so that folks considering a similar strategy can see it. And like Sol, I'm actually hoping the OP gets a chance to buy back in at a discount.

-W


JAYSLOL

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Re: Welp, I'm going to take a stab at timing the market
« Reply #193 on: April 07, 2019, 09:15:18 PM »

I agree that tracking it week to week is a bit silly, but I think it's worth keeping this at the top of the forum so that folks considering a similar strategy can see it. And like Sol, I'm actually hoping the OP gets a chance to buy back in at a discount.

-W

Thanks.  Agreed, these market timing threads should be strung around the neck of this forum like cloves of garlic to ward off the market timing vampires. 

bisimpson

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Re: Welp, I'm going to take a stab at timing the market
« Reply #194 on: April 08, 2019, 11:29:52 AM »
You know, in my own investing mindset, I used to be tempted to try to time the market on occasion.  But threads like this one and the epic (and continual) failures demonstrated in them has pretty much cured me of that mindset completely. 

So, OP, I'm sorry you've lost out on some gains, but just know that your posting has helped others to learn a valuable lesson.  Thank you.

I agree. I know all the catch phrases like ďitís not timing the market, itís time in the market,Ē but seeing it play out is truly a cautionary tale. Even if the market drops 15% from this point, Iím not sure that the gain that he would make is worth the risk. And he still has to call the bottom.

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #195 on: April 08, 2019, 12:05:02 PM »
You know, in my own investing mindset, I used to be tempted to try to time the market on occasion.  But threads like this one and the epic (and continual) failures demonstrated in them has pretty much cured me of that mindset completely. 

Agreed.  Of course I've never had substantial assets in a big downturn (i had nothing invested in the great recession).  That will be the true "test" for myself, and I'm sure there are several threads that went through that period to look to.  I am not going to pretend in our current long bull market that it will be easy for me to deal with seeing things drop by 50%.  I like to think I'll be fine emotionally, but I have to be realistic -- long term investors frequently write about the sense of panic they deal with, even after going through several downturns.  I guess its the price we pay for higher returns.  As Buffet loves to say ďYou only find out who is swimming naked when the tide goes out. ď   I feel like it's hard to know what asset allocation I'm emotionally "comfortable" with without going through a huge downturn.  Sure, I can intellectualize it and rationalize what I'm comfortable with, but how can I really viscerally know?  I "think" I'm fine with my current allocation, but am I really?  I guess I'll find out.  Small downturns are a good time to always be evaluating the allocation jitters I guess.
« Last Edit: April 08, 2019, 12:15:29 PM by HBFIRE »

BicycleB

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Re: Welp, I'm going to take a stab at timing the market
« Reply #196 on: April 08, 2019, 02:13:56 PM »
Small downturns are a good time to always be evaluating the allocation jitters I guess.

@HBFIRE, great point!

sol

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Re: Welp, I'm going to take a stab at timing the market
« Reply #197 on: April 08, 2019, 03:44:54 PM »
I've never had substantial assets in a big downturn (i had nothing invested in the great recession).  That will be the true "test" for myself, and I'm sure there are several threads that went through that period to look to.

This forum has a wealth of history from people going through this "testing" process.  My impression from reading a bunch of them is that basically nobody gets nervous about their asset allocation and then switches it to something more conservative in time to avoid a crash.  Either people get nervous and switch to cash/bonds too early, and miss out on prolonged bull market runs, or they don't get nervous at all and let it ride through thick and thin.  A very few unlucky souls have watched a crash unfold and then gotten nervous and switched to cash bonds, essentially dooming themselves by selling low and not rebuying ever. 

So if you're the type of person who is has internalized the investing advice here and will ride the market up and down, then congratulations you're done and your investing life will be relatively stress free.  But if not, and you're the type of person who is just waiting for your turn to freak out (and cash everything out) you're basically doomed to guess wrong one way or the other.  Sorry.

But someone is busily switching their asset allocation to all-cash basically all the time, so eventually someone is going to guess right and avoid a dip.  The problem we've had is that all of the folks who fall into that bucket and came here to brag about missing a week or two of negative returns have miraculously disappeared from the forum when the market strongly rebounded the following month or quarter.  Remember, you have to guess right twice in a row, at the top AND the bottom, to win that bet.  We have seen a few lucky souls do one or the other, but not do both on purpose.

HBFIRE

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Re: Welp, I'm going to take a stab at timing the market
« Reply #198 on: April 08, 2019, 03:54:28 PM »

So if you're the type of person who is has internalized the investing advice here and will ride the market up and down, then congratulations you're done and your investing life will be relatively stress free. 

I have, at least on an intellectual level.  I guess I'm trying to be honest with myself that being able to withstand a massive downturn on a visceral level is something else entirely, and until I have gone through that I won't know how I'll handle it.  Unfortunately, as a human, logic alone isn't always enough.  I like to review this thread every now and then just to keep my perspective.  https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939
« Last Edit: April 08, 2019, 03:57:52 PM by HBFIRE »

BigMoneyJim

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Re: Welp, I'm going to take a stab at timing the market
« Reply #199 on: April 08, 2019, 07:19:08 PM »
Well this is brutal. I haven't been tempted to market time...ever? But I did change my total stock allocation from 60% to 75%+ about the time this thread started.

Not because I thought it was a particularly good time to do so. I just have almost 2 years' worth of cash in taxable accounts, a pension in 6 years and SS in 13 years. With the fixed income closer than it was 20 years ago and accessible cash, my long term strategy is now to go more aggressive with my nest egg since I'm more confident my pension and SS will be there when I get there.

I did notice that at the time, even though I "missed" the big drop in October as a strategy-shift opportunity, year-to-year was flat at the time this thread started. So I made the change feeling satisfied enough that at least year over year wasn't a full bull. I still have all my cash; I just moved a bunch out of bond index funds and into stock index funds.

I'm as shocked as anyone that it's skyrocketing so quickly.

I was recently tempted to try picking individual stocks, because I feel like I can predict some trends better these days. But then it hit me that I'm awful at predicting who profits from those trends. Here's something I posted on another forum in 2005. I pretty much called the cloud but got the major players wrong. A bookseller is the leader-by-far for IT infrastructure services? More index funds, please!

Quote
As for how it bodes well for the economy keep reading for a laugh. GM and/or Ford go bankrupt, screw their workers royally but reorganize much leaner and in-the-black and manage to create a few desirable and reliable models. Boeing sells more planes because airlines hate the mammoth A380 and the Boeing fits at any existing gate and existing maintenance hangars. IBM sells higher margin hardware and maintains its reputation as a reliable quality vendor that's worth the price for its products. IKEA and the Gap become popular in China as their economy grows and their workers earn more. Either Microsoft pulls another ace from its sleeve and maintains its dominance everywhere or Red Hat and IBM become major beneficiaries of MS's decline by selling enterprise virtualization hardware and consulting services in traditional form or in prepackaged application servers that are easily customized for the end user by a couple hours of a low-paid tech's time.