Author Topic: When is it okay to try to time the market?  (Read 1159 times)

BlueHouse

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When is it okay to try to time the market?
« on: February 12, 2018, 09:57:22 AM »
Over the past year, I've made more than I ever thought possible in the market.  In some investments, I doubled my money.  If I were gambling, I'd think "wow, I made a huge amount...don't get greedy, get out".  So why shouldn't I take some of the earnings out as capital gains, put those into something less risky (like pay off a debt for a known savings on interest), and then just earn as much as I can as fast as I can to start buying back into the market at a lower price? 

All the pundits are saying to expect more volatility in the short term and many are saying to expect lower returns in the long term.  If I believe this, wouldn't it make sense for me to try to time the market?
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TheAnonOne

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Re: When is it okay to try to time the market?
« Reply #1 on: February 12, 2018, 10:18:07 AM »
Ultimately, it's your money. Paying off debt isn't a horrible idea.

If your like most here, piled into VTSAX INDEX, timing the market is a losing game. You may win once and a while but overall, it's a loss. It also adds a whole emotional level to investing, which is why. . .

*literally most people lose money in the market*

Let that sink in.

MDM

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Re: When is it okay to try to time the market?
« Reply #2 on: February 12, 2018, 11:47:11 AM »
There is a difference between timing the market (aka thinking you know better than everyone else) vs. rebalancing to a pre-set asset allocation, based on specific predefined criteria.

Rob_bob

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Re: When is it okay to try to time the market?
« Reply #3 on: February 12, 2018, 11:49:53 AM »
If you can afford to set aside some "play money" that might give you the opportunity to get trading out of your system.  Only use what you originally set aside, don't add to it if you are down.  If you do real well take some profits off the table from time to time and add it to your long term portfolio.

BlueHouse

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Re: When is it okay to try to time the market?
« Reply #4 on: February 12, 2018, 12:08:35 PM »
If you can afford to set aside some "play money" that might give you the opportunity to get trading out of your system.  Only use what you originally set aside, don't add to it if you are down.  If you do real well take some profits off the table from time to time and add it to your long term portfolio.

this may cure my desire to "beat the market".  Thanks.  I think I'll carve out a bit of play money. 

I'm also very aware that I didn't start making huge strides in investment saving until I stopped trying to beat or time the market and wrote out an investment policy and followed it.  It still doesn't cure my desire to win. 
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Cycling Stache

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Re: When is it okay to try to time the market?
« Reply #5 on: February 12, 2018, 12:49:49 PM »
Over the past year, I've made more than I ever thought possible in the market.  In some investments, I doubled my money.  If I were gambling, I'd think "wow, I made a huge amount...don't get greedy, get out".  So why shouldn't I take some of the earnings out as capital gains, put those into something less risky (like pay off a debt for a known savings on interest), and then just earn as much as I can as fast as I can to start buying back into the market at a lower price? 

This analysis is completely wrong, although interestingly so, because the logical flaw might not be obvious. 

Assuming you don't have any special skills in gambling or in investing, the key difference is the expected win rate.

In gambling, the house wins, and your most likely expectation is that you will lose.  The longer and more often you play, the more likely that you will lose.  Thus, if you happen to be in the statistically unlikely position of being up, you should stop immediately because the odds with each and every play are that you will lose.  Of course, those are the same odds all the time, so the best time to stop is always as early as possible.  Indeed, the sense that your odds change based on a winning or losing streak is a common error called the "gambler's fallacy."

In the market, stocks go up over the long term.  That means that each dollar invested is statistically likely to appreciate in value.  If you don't know when stocks will go up or down (you don't), then you should always invest at the earliest possible time, and stay invested, because the odds each additional day are that you will be up rather than down.

dycker1978

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Re: When is it okay to try to time the market?
« Reply #6 on: February 12, 2018, 12:58:19 PM »
If you can afford to set aside some "play money" that might give you the opportunity to get trading out of your system.  Only use what you originally set aside, don't add to it if you are down.  If you do real well take some profits off the table from time to time and add it to your long term portfolio.

this may cure my desire to "beat the market".  Thanks.  I think I'll carve out a bit of play money. 

I'm also very aware that I didn't start making huge strides in investment saving until I stopped trying to beat or time the market and wrote out an investment policy and followed it.  It still doesn't cure my desire to win.

Umm... by your admission you are winning since you stopped trying to time the market.  Sit back relax and enjoy it, don't throw money away by trying to time the market. 

bridget

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Re: When is it okay to try to time the market?
« Reply #7 on: February 12, 2018, 01:42:42 PM »
Over the past year, I've made more than I ever thought possible in the market.  In some investments, I doubled my money.  If I were gambling, I'd think "wow, I made a huge amount...don't get greedy, get out".  So why shouldn't I take some of the earnings out as capital gains, put those into something less risky (like pay off a debt for a known savings on interest), and then just earn as much as I can as fast as I can to start buying back into the market at a lower price? 

This analysis is completely wrong, although interestingly so, because the logical flaw might not be obvious. 

Assuming you don't have any special skills in gambling or in investing, the key difference is the expected win rate.

In gambling, the house wins, and your most likely expectation is that you will lose.  The longer and more often you play, the more likely that you will lose.  Thus, if you happen to be in the statistically unlikely position of being up, you should stop immediately because the odds with each and every play are that you will lose.  Of course, those are the same odds all the time, so the best time to stop is always as early as possible.  Indeed, the sense that your odds change based on a winning or losing streak is a common error called the "gambler's fallacy."

In the market, stocks go up over the long term.  That means that each dollar invested is statistically likely to appreciate in value.  If you don't know when stocks will go up or down (you don't), then you should always invest at the earliest possible time, and stay invested, because the odds each additional day are that you will be up rather than down.

This is true if Blue House is invested in index funds, but the OP says that some of the investments have "doubled" in the past year.  Sounds like there might be some individual stocks in there, or funds that aren't broad-based index funds?  The index has been good the past year, but it hasn't doubled. 

Once you get out of index fund territory, the maxim you cited doesn't apply.  Individual companies or narrow funds can and do tank for good sometimes.   

ChpBstrd

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Re: When is it okay to try to time the market?
« Reply #8 on: February 12, 2018, 04:33:47 PM »
Zoom a ^SPX chart in and out a few times. Note how at large time intervals (e.g. a 50 year chart) the market rises fairly reliably. But at shorter intervals (i.e. days/weeks) the price is utterly random/unpredictable. This is why most people lose money with market timing. They're making a series of trades in the short term unpredictable market instead of the long term predictable market.

matchewed

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Re: When is it okay to try to time the market?
« Reply #9 on: February 13, 2018, 07:18:23 AM »
If you can afford to set aside some "play money" that might give you the opportunity to get trading out of your system.  Only use what you originally set aside, don't add to it if you are down.  If you do real well take some profits off the table from time to time and add it to your long term portfolio.

this may cure my desire to "beat the market".  Thanks.  I think I'll carve out a bit of play money. 

I'm also very aware that I didn't start making huge strides in investment saving until I stopped trying to beat or time the market and wrote out an investment policy and followed it.  It still doesn't cure my desire to win.

See I don't get this mentality in general. Engage in an activity to get a fix in order to prevent you from getting your fix elsewhere. Instead of buying an eightball why not just do a line instead to get it out of your system?

You are having a desire to do an activity which may harm you so the solution you take is to engage in that same activity on a minor scale in the hope that it scratches that itch. What if it is a successful activity? Then you've proven to yourself it can work and then why not do the same activity with higher risk (read more money)? My point is you may reinforce a bad decision by using this mental model.

CorpRaider

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Re: When is it okay to try to time the market?
« Reply #10 on: February 13, 2018, 07:24:22 AM »
I wouldn't start ad-hoc timing based on punditry or your market feel.  It might result in you becoming less stable and more prone to fear and intuition based errors.  Feeding the beast, if you will. 

Maybe you could allocate some small percentage to a trend following system, or if you are really just uncomfortable with the equity swings, you have too much equity, so adjust your allocation to take down the equity exposure and up some bonds or cash or whatever.
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v8rx7guy

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Re: When is it okay to try to time the market?
« Reply #11 on: February 13, 2018, 08:50:56 AM »
I think we are going to see a lot of posts like this when the first major market downturn happens in the history of this forum.

Telecaster

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Re: When is it okay to try to time the market?
« Reply #12 on: February 13, 2018, 09:22:28 AM »
All the pundits are saying to expect more volatility in the short term and many are saying to expect lower returns in the long term.  If I believe this, wouldn't it make sense for me to try to time the market?

The pundits have no idea if the markets will be more or less volatile.   But logically, the markets can't grow faster than earnings for any long period time--and they have been.  So it isn't crazy to suggest returns will be lower in the future.   I don't know how you trade on that information, however. 

aboatguy

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Re: When is it okay to try to time the market?
« Reply #13 on: February 13, 2018, 11:36:13 AM »

libertarian4321

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Re: When is it okay to try to time the market?
« Reply #14 on: February 14, 2018, 03:43:23 AM »
If you can afford to set aside some "play money" that might give you the opportunity to get trading out of your system.  Only use what you originally set aside, don't add to it if you are down.  If you do real well take some profits off the table from time to time and add it to your long term portfolio.

this may cure my desire to "beat the market".  Thanks.  I think I'll carve out a bit of play money. 

I'm also very aware that I didn't start making huge strides in investment saving until I stopped trying to beat or time the market and wrote out an investment policy and followed it.  It still doesn't cure my desire to win.

I have foolishly avoided timing the market since 1986.

So of course, I haven't "won."  Nothing dramatic here.  I just kept investing steadily no matter what the pundits and gurus said.  Paid no attention to the froth and blather, whether the market was up or down.

I can't help thinking that a multi million dollar portfolio ain't bad for a loser.

Who knows, with a net worth nearly $5 million (which is going to take a big "hit" soon as we fund a scholarship program at my wife's old HS- so we'll be a bit north of $4.5 million), my boring old "buy and hold" strategy may have even done better than some of the market timing "winners?"

Nah, probably not.  Go ahead and show us that you can do what Warren Buffet admits he can't do. 

Go ahead and try to time the market.

I'll be curious to see how that works out for you...


BlueHouse

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Re: When is it okay to try to time the market?
« Reply #15 on: February 14, 2018, 10:07:56 AM »
Guys,
I'm not actually trying to "win".  I'm extremely risk averse and I'm trying to cut future losses.  I fully understand the math and the long-term outlook, but my age and my proximity to FI make my choices a little more favorable for more conservative policies.   

I'll try to explain it this way: 
1.  I already have my "old man money" set.  Based on conservative calculations, I don't have to work another day in my life and I will be FI in 4 years time, as long as I don't touch any of that "old man money" during those 4 years.
2.  For the "next 4 years money", I could earn just enough to pay my bills, but my tax situation is better if I earn top dollar and stash top dollar in tax-advantaged accounts.  Part-time work is not an option right now.
3.  So I look at it like:  how much is enough?  I don't want to blow the money I have now because there may not be time in MY timeline to get it back.  That's all there is to it.

If we have another 2000 or 2008, then my 4 year plan is screwed.  Yes, I'm timing the market because I think the market is high enough for me to seal in those gains and prepay some other part of my lifestyle.  Or you could say that my risk posture has changed and now I want a more conservative asset allocation. 

Help me find the downside of this goal.  And for those of you worried about me getting high on the rewards, you don't have to worry.  I'm not an addict for high-risk. 

Sometimes nothing can be a real cool hand

MDM

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Re: When is it okay to try to time the market?
« Reply #16 on: February 14, 2018, 10:16:01 AM »
Or you could say that my risk posture has changed and now I want a more conservative asset allocation. 
If that is true, and not merely something one could say, then go forth and rebalance.

matchewed

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Re: When is it okay to try to time the market?
« Reply #17 on: February 14, 2018, 10:30:13 AM »
Guys,
I'm not actually trying to "win".  I'm extremely risk averse and I'm trying to cut future losses.  I fully understand the math and the long-term outlook, but my age and my proximity to FI make my choices a little more favorable for more conservative policies.   

this may cure my desire to "beat the market".  Thanks.  I think I'll carve out a bit of play money. 

I'm also very aware that I didn't start making huge strides in investment saving until I stopped trying to beat or time the market and wrote out an investment policy and followed it.  It still doesn't cure my desire to win.

So which is it? Are you trying to "win" (whatever the hell that means), or are you not trying to "win" (again wthtm)?

As MDM already pointed out then just adjust your AA accordingly and execute.

BlueHouse

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Re: When is it okay to try to time the market?
« Reply #18 on: February 22, 2018, 06:10:19 PM »
Guys,
I'm not actually trying to "win".  I'm extremely risk averse and I'm trying to cut future losses.  I fully understand the math and the long-term outlook, but my age and my proximity to FI make my choices a little more favorable for more conservative policies.   

this may cure my desire to "beat the market".  Thanks.  I think I'll carve out a bit of play money. 

I'm also very aware that I didn't start making huge strides in investment saving until I stopped trying to beat or time the market and wrote out an investment policy and followed it.  It still doesn't cure my desire to win.

So which is it? Are you trying to "win" (whatever the hell that means), or are you not trying to "win" (again wthtm)?

As MDM already pointed out then just adjust your AA accordingly and execute.
okay, Done.  Matchewed, if you're trying to point out that I contradicted myself, that was the point of the second quoted post where I said "okay, not actually trying to win".  I thought it might be obvious that I meant "oh, okay, so I shouldn't have written it that way, here's what I really meant".  So, when you ask "which is it"?  I think you already knew the answer.  (don't be a dick)

Is anybody going to take issue with the fact that I rebalanced at a time when the Dow graph was near its 52-week high?  Is anybody going to have a problem with what I rebalanced into?   I'm actually feeling pretty darn good about my decision and I feel like I cut a lot of risk from my overall portfolio by transferring out of the market altogether and into another asset class. 



Sometimes nothing can be a real cool hand