Author Topic: Why isn't "buying low" considered to be timing the market?  (Read 11899 times)

rach

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Why isn't "buying low" considered to be timing the market?
« on: December 14, 2012, 01:32:52 PM »
There are many people who suggest investing extra cash at the moment due to the uncertainty caused by the Fiscal Cliff.  My question is: why isn't it considered market timing to wait until stocks appear to be low before buying?  Is the difference simply that you're not aiming to sell them in short order?  Does buying stocks when low for a buy-and-hold strategy exempt you from being accused of attempting to time the market?

I have some extra cash that could be invested at the moment but was planning just to wait until I make my usual monthly investment (two weeks from now).  Should I put the money in now?  I guess there's not a lot of point in waiting anyway.

Thanks.

iamlindoro

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #1 on: December 14, 2012, 02:23:45 PM »
I suppose it hinges on an expectation that over long periods, the market averages in an upward direction.  It's also based on an assumption that you're not waiting for the market to come down to invest.  I invest $5K monthly, regardless of the level of the market.  If the market is notably down and I am capable of doing so, I try to reduce my consumption to increase the amount I am able to invest at that time.  I am, in effect, paying my investments a bonus knowing that over decades, the extra money invested will add up.

To me, this is sort of a hybrid of dollar cost averaging and value cost averaging-- neither aims to time the market, as the investment occurs regardless.  That is, I dollar cost average in general, and when possible and there is a market downturn, I attempt to augment my investment.

JohnGalt

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #2 on: December 14, 2012, 02:46:03 PM »
Buying low is timing the market.  Many of us are just fine with some macro market timing (some are fine with even more market timing).  Market prices tend to increase over time - so, while I invest regularly, I do keep some reserve cash to throw in extra after a big dip.  Some will dogmatically argue that any market timing is bad - and that's fine - you just need to decide for yourself what you're comfortable with.

grantmeaname

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #3 on: December 14, 2012, 03:14:56 PM »
Buying low is timing the market.
This. It is timing the market -- it's exactly what timing the market is.

KingCoin

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #4 on: December 14, 2012, 06:59:58 PM »
Yes, "buying low" is unambiguously market timing.

There are two major problems with this strategy:

1) How do you define low? Is the S&P low now? I mean, it's basically the same level it was 13 years ago. Is 1300 low? Is 1000 low? There are plenty of doom and gloom types calling for a sub 800 S&P over the next few years. Maybe that's low. Maybe it's based on average P/E ratio, draw-down from peak, or some other metric. In short, if you're able to identify when the market is "low" and when it's "high" it would be easy to generate extremely outsized returns. The fact that almost no one is able to do so (especially trading liquid stocks), should give you confidence that identifying lows and highs is a fairly quixotic endeavor. It's the same problem with buying "cheap" stocks. It sounds simple and obvious when baldly stated, but devilishly difficult in practice (yes, I know about Warren Buffet).
2) You have to sit on cash while waiting for "low" which can cause you to miss big returns. The market could rally to 2000 while while you're waiting for that 1000 low. When do you throw in the towel? You can add some sort of "stop" to the upside, but then you're probably just complicating things without adding any real expected value.

So feel free to invest the money now. The primary argument for investing on a schedule is to maintain discipline. If you invest like clockwork, there's no risk of chickening out when things are ugly and investing when it looks like smooth sailing.

NWstubble

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #5 on: December 14, 2012, 08:12:44 PM »
There are many people who suggest investing extra cash at the moment due to the uncertainty caused by the Fiscal Cliff.

I am trying to wrap my head around this. The logic being that the FC has caused some of the recent (minor) declines, but that the Washington types will come to an agreement and prevent us from going over the cliff, leading to market recovery?

Is that right?

Or you could invest extra now and no deal is reached, leading to further market declines.

Wait, hold on, my crystal ball seems to be clearing...

iamlindoro

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #6 on: December 14, 2012, 08:23:19 PM »
I don't think of it in immediate terms, personally-- but I do see some wisdom in doing what I can to divert a little extra to investments when the market is off its highs.  I don't reserve anything for a down market, but I do expend a little effort to squeeze out some extra dollars when there is a noticeable downtick.  Since we are all laboring under the assumption that the market will inevitably move higher, and thus we are always defining a new peak, a substantial tick down of over a few points honestly motivates me to place a little extra investment above some everyday expenses (eliminate this week's meal out to add $20-30 to my regular investment, etc).

Now, could you argue that I could make those same sacrifices regularly?  Sure.  But as with most people I have my small comforts that are sometimes worth the expense to me.  When the market is noticeably down, I am equally happy making a temporary adjustment to increase my investments.

If the net result is me getting more money into my long term investments, I think it's a net positive for me.

arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #7 on: December 15, 2012, 09:12:47 AM »
It's the most tempting form of market timing, to me.
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smedleyb

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #8 on: December 15, 2012, 06:22:03 PM »
Buy at the sound of cannons; sell at the sound of trumpets.

I currently hear neither, but I do discern a vague horn in the far distance. 

mmmsc

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #9 on: December 16, 2012, 12:42:23 AM »
Tempting but probably hurtful in the long run. A better method is to set a portfolio allocation strategy (ie: 30% US Equities 20% International Equities 10% REIT 40% Bonds using broad base low fee index funds or ETFs) and rebalance on a regular basis (1-4 times a year). This way you will always be selling your best performing assets(high) and purchasing the poorest performers(low). No need to follow macro/micro economic trends. Actually there is no need to follow the noise at all. Set and forget. The beauty is that you will most likely out perform 80% of the rest of investor/speculators over the mid to long term.

PS Don't use the allocation above. Everyone's risk tolerance, situation, timeline is different. Portfolio allocation is the most important element of your investing choices. The percentage of your portfolio that you decide to place in stocks, bonds,gold or rental housing etc will have far more to do with your final results than trying to pick the perfect entry and exit points.

Nords

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #10 on: December 16, 2012, 10:32:46 AM »
There are many people who suggest investing extra cash at the moment due to the uncertainty caused by the Fiscal Cliff.  My question is: why isn't it considered market timing to wait until stocks appear to be low before buying?  Is the difference simply that you're not aiming to sell them in short order?  Does buying stocks when low for a buy-and-hold strategy exempt you from being accused of attempting to time the market?
I think the difference between "value investing" and "market timing" is that the former has been proven to beat the market averages while the latter has difficulty beating random chance (especially after taxes, fees, & trading costs), let alone the markets.

I think that the amount of money you invest over time, and the consistency of investing it, has a much bigger impact on the final result than the timing of each individual purchase.  I wouldn't worry about when to invest the next batch of bucks because you're more likely to subject yourself to decision fatigue.  Just put the process on auto-deduction and go enjoy life.
« Last Edit: December 16, 2012, 10:35:12 AM by Nords »

tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #11 on: December 18, 2012, 08:17:02 AM »
Buy at the sound of cannons; sell at the sound of trumpets.

I currently hear neither, but I do discern a vague horn in the far distance.

I agree with this....there are times when the markets are obviouslly overheated and oversold.  We seem to be in a period in between and the regular investing and portfolio allocations work the best during these times. 

The fiscal cliff will only be a buy if it is not resolved - an I mean both sides say the talks are over and we are going over the cliff and even then the dip will be a temporary over reaction.  So we are in a holding pattern right now and there is equal chance of the market going up or down depending on the outcome. 

Beyond that 2013 will be largely flat - if there was no fiscal cliff GDP is expected to grow at 2-3% but the changes due to the fiscal cliff (as resolved or not) will take 1-2% out of the economy with the tax increases and spending cuts so net growth once it is agreed will be a paltry 1%b at best and you will see continued unemployment and slight improvement in housing due to the low interest rates.   

Ishmael

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #12 on: January 03, 2013, 06:05:53 AM »
"Be brave when others are fearful, and fearful when others are brave."
- Warren Buffet

The simplest and most effective investing advice I've ever seen. I invested every penny I could scrounge up in 2008-2009 (which unfortunately was not a lot) and did ridiculously well on it. I bought a few shares of Apple stock at ~$90 then, and watched it run up to $650 before I sold it.


chucklesmcgee

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #13 on: January 06, 2013, 04:42:03 PM »
I agree with this....there are times when the markets are obviously overheated and oversold.

No there aren't. At any and every point of the market there are experts predicting massive booms "DOW TO 20,000" and busts. Market economists tend to be able to predict recessions at rates which are well below chance. Are you smarter than these experts? Or are you just looking at economic periods ex-post?

Jamesqf

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #14 on: January 06, 2013, 08:10:01 PM »
Market economists tend to be able to predict recessions at rates which are well below chance. Are you smarter than these experts?

Apparently yes :-)

The factor you're not considering there is that market economists get paid for making predictions, not for making correct predictions. It's really not much different from the psychic scams: make predictions with a scattergun, and tout the few that hit their targets as though you used a scope-sighted rifle.

As for being able to do some basic market timing...  Well, how many of you bought real estate in '06-'07, or thought money-out refinancing was a good idea then?  (I admit I was a little early: I thought real estate was over-priced in '04 or '05.)  How many of you thought that the last quarter of '08 was a really good time to sell our stocks?  Or did you sit tight and wait for better conditions?  That's market timing, isn't it?

smedleyb

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #15 on: January 06, 2013, 11:29:54 PM »
I agree with this....there are times when the markets are obviously overheated and oversold.

No there aren't. At any and every point of the market there are experts predicting massive booms "DOW TO 20,000" and busts. Market economists tend to be able to predict recessions at rates which are well below chance. Are you smarter than these experts? Or are you just looking at economic periods ex-post?

That's incredibly useful information for a market timer.

Thanks!

marty998

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #16 on: January 06, 2013, 11:48:05 PM »
You have to define low or define high to figure out if you bought low or sold high, and you can only do that in hindsight because the market can keep falling or keep rising creating lower lows or higher highs.

The stockmarket is a leading indicator, it is generally 18 months ahead of the real economy, because it takes a long time for a big economy to move but a short time for the stockmarket. Recent Aus examples are the 1987 crash - recession came in 1990-1991 and the GFC. Market started falling end of in 08 but it wasn't until 09 that the real economy started feeling the pinch.

So using recessions to predict the market won't work. You'll be too late.

arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #17 on: January 06, 2013, 11:55:26 PM »
So market up in the last few years (including 2012) = good economy coming?

Sounds as plausible as any other prediction.
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marty998

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #18 on: January 06, 2013, 11:58:30 PM »
You have to define low or define high to figure out if you bought low or sold high, and you can only do that in hindsight because the market can keep falling or keep rising creating lower lows or higher highs.

The stockmarket is a leading indicator, it is generally 18 months ahead of the real economy, because it takes a long time for a big economy to move but a short time for the stockmarket. Recent Aus examples are the 1987 crash - recession came in 1990-1991 and the GFC. Market started falling in 08 but it wasn't until 09 that the real economy started feeling the pinch.

So using recessions to predict the market won't work. You'll be too late.

marty998

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #19 on: January 07, 2013, 12:01:12 AM »
blah what happened there? edit a post after someone else posts and you quote yourself?

tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #20 on: January 07, 2013, 11:37:46 AM »
Market economists tend to be able to predict recessions at rates which are well below chance. Are you smarter than these experts?

Apparently yes :-)

The factor you're not considering there is that market economists get paid for making predictions, not for making correct predictions. It's really not much different from the psychic scams: make predictions with a scattergun, and tout the few that hit their targets as though you used a scope-sighted rifle.

As for being able to do some basic market timing...  Well, how many of you bought real estate in '06-'07, or thought money-out refinancing was a good idea then?  (I admit I was a little early: I thought real estate was over-priced in '04 or '05.)  How many of you thought that the last quarter of '08 was a really good time to sell our stocks?  Or did you sit tight and wait for better conditions?  That's market timing, isn't it?

+1

Just because your not smart enough to know or don't have the courage to go against the herd doesn't mean its not obvious and I also am not saying that these periods of extreme oversold/undersold times are regular in nature.  Will I get the timing spot on, absolutely not.  In 2006, I moved most of my non-retirement investments to cash and apparently ended up giving up a few more points of upside and when the market tanked I put a bunch back to work but was early and the markets went down another 20% but I didn't sell.  My biggest regret was that I didn't apply this logic to my 401k and didn't put all of my cash back to work when the market tanked.

In my view the market we are in is probably fairly valued and while there may be downside because of our politicians I don't think it is enough to be out of the market entirely. I think the market could see 10-15% decline in the next few months/near term but could see a 15% gain in the next 12-18 months - so I will hold what I have, continue to invest periodically, and if there is a decent drop then I will put more of my cash to work. 

Jamesqf

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #21 on: January 07, 2013, 11:50:07 AM »
There's also the issue of what I might call micro-timing versus macro-timing.  Can anyone predict whether the market is going to be up or down tomorrow, or next week?  I sure can't, and I doubt if anyone can.  But if the market takes a sudden nosedive, like it did in '08, '87, or several other times, can I confidently predict that it will recover in a year or two?  Well, it's worked for me.  In '87 I was just out of school, a year or two into my first good job, and about $10K savings in the bank.  Put it in stocks, and by '89 had made enough profit to buy my first house. 

Same logic applies to things like the housing bubble.  You may not be able to predict fluctuations, but you sure can tell when things start acting like a bubble.

tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #22 on: January 07, 2013, 12:08:49 PM »
Same logic applies to things like the housing bubble.  You may not be able to predict fluctuations, but you sure can tell when things start acting like a bubble.

Yep - and more often than not the idea of "Regression to the mean" is the best indicator. 

arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #23 on: January 07, 2013, 05:21:00 PM »
Wouldn't regression to the mean indicate strong returns going forward, due to the underperforming 2000s?
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tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #24 on: January 07, 2013, 05:45:05 PM »
Wouldn't regression to the mean indicate strong returns going forward, due to the underperforming 2000s?

Not necessarily, it depends on the timeframe/perspective.  For the stock market (call it VTI) I actually think (checked it with a rough spreadsheet chart) that we are right about at the mean for the last 20-30 years.  The problem with your perspective is that it is relatively short and when you look at the charts there was an irrational run-up during the dot com, then a fall out, then another irrational run-up caused by an inordinate amount of corporate and private debt, and then a fall out, and now a more rational run up (with some muted earnings growth but also with some deleveraging).  Look at the charts and historical P/Es - as I said I think we are finally more normal right now and swings should be comparable and back to the days (for now) of 10% corrections, so it is not bad to keep a some on the sidelines but overall people should be invested right now.   




arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #25 on: January 07, 2013, 05:57:06 PM »
Not necessarily, it depends on the timeframe/perspective. 

Nice, you jumped exactly to the point I was getting to!  :D

Since we can cherry pick any timeframe we want (a day, a month, a year, 3 years, a decade, 60 years, whatever), how can we tell any regression to the mean?  Without knowing the future, we don't know what the mean will be, or if the next set of timeframe will over or underperform whatever mean for whatever timeframe you pick.
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tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #26 on: January 07, 2013, 07:11:43 PM »
Not necessarily, it depends on the timeframe/perspective. 

Nice, you jumped exactly to the point I was getting to!  :D

Since we can cherry pick any timeframe we want (a day, a month, a year, 3 years, a decade, 60 years, whatever), how can we tell any regression to the mean?  Without knowing the future, we don't know what the mean will be, or if the next set of timeframe will over or underperform whatever mean for whatever timeframe you pick.

Fair enough, but clearly you need timeframe that includes enough data/experience to make it worthwhile but if you look at the dot.com bubble and housing bubbles over just about any timeframe (short or long) they clearly stand out and they clearly reverted - so even though you can cherrypick you can't hide from the truth when things are clearly over/under sold.


arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #27 on: January 07, 2013, 08:50:45 PM »
Oh, I don't disagree in principal.  In practice, hindsight is 20-20, but besides that, actual usage still seems tough to me.

I'm attempting a small version of that buying housing right now, but I'm really buying it because it cash flows nicely, rather than it happens to be low versus some magical historical number.  I don't care what the values are going forward if rents remain steady or rise.  So revert to the mean or not, it's mostly irrelevant to why I'm buying.

I think plenty would look back and say selling housing in 06 was the move, due to the obvious bubble.  I think very few actually did.  Ditto going all in on stocks during the bleakest days of 08-09.  Some people bought some, but nowhere near what they would if they actually had knowledge of the future.  Calling a bubble or trough is much easier later. 

As the saying goes, in theory, theory and practice are the same.  In practice, they are different.
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tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #28 on: January 08, 2013, 07:00:57 AM »
Oh, I don't disagree in principal.  In practice, hindsight is 20-20, but besides that, actual usage still seems tough to me.

I'm attempting a small version of that buying housing right now, but I'm really buying it because it cash flows nicely, rather than it happens to be low versus some magical historical number.  I don't care what the values are going forward if rents remain steady or rise.  So revert to the mean or not, it's mostly irrelevant to why I'm buying.

I think plenty would look back and say selling housing in 06 was the move, due to the obvious bubble.  I think very few actually did.  Ditto going all in on stocks during the bleakest days of 08-09.  Some people bought some, but nowhere near what they would if they actually had knowledge of the future.  Calling a bubble or trough is much easier later. 

As the saying goes, in theory, theory and practice are the same.  In practice, they are different.

I didn't say it works perfectly and your absolutely right that the vast majority of people wouldn't have the fortitude or forsight to do it - but that doesn't mean it can't be done.

To some extent you timing the market based on cash flow for properties is similar because when you looked at the run up the P/E's (cash flow) or more imporatantly EBITDA multiples were through the roof and during the down turn that changed.  No different if you looked at a house in vegas in 2007 - the NOI/Value would likely have produced a low yield and not worthwhile and no the inverse is true.

As the vegas market recovers and jobs stabilize housing will appreciate because the affordability but that capital appreciation may increase volatility in your occupancy rate or result in lower rents. That is the typical trend. 

Tyler

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #29 on: January 09, 2013, 01:20:34 PM »
Buying low is absolutely market timing if you are trying to predict the low yourself (via trends, valuations, quant systems, newsletters, or simply gut feel). 

Buying low as a byproduct of of rebalancing a diversified portfolio with set asset percentages removes market timing from the equation. 

What you choose depends on your personal belief regarding whether you can predict the future.

tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #30 on: January 09, 2013, 02:23:32 PM »
Buying low is absolutely market timing if you are trying to predict the low yourself (via trends, valuations, quant systems, newsletters, or simply gut feel). 

Buying low as a byproduct of of rebalancing a diversified portfolio with set asset percentages removes market timing from the equation. 

What you choose depends on your personal belief regarding whether you can predict the future.

Agreed - but what I am saying is not so much about predicting the future and is more about recognizing statistical improbabilities that can't last.  It doesn't matter if most people can recognize it or not and act on it or not - it only matters if you do it.  Actually it doesn matter, because if most people could recognize it and acted on it, we never ever have a bubble or crash. 
   

Tyler

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #31 on: January 09, 2013, 03:24:26 PM »

Agreed - but what I am saying is not so much about predicting the future and is more about recognizing statistical improbabilities that can't last.  It doesn't matter if most people can recognize it or not and act on it or not - it only matters if you do it.  Actually it doesn matter, because if most people could recognize it and acted on it, we never ever have a bubble or crash. 
   

The trick is the timing.  If one is able to consistently predict not just the ultimate statistical trend but also the top and bottom dates, you'll find him buying an island rather than surfing Money Mustache.  ;)


tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #32 on: January 09, 2013, 03:36:37 PM »
That is why I don't consider it timing the market because I already said you can't precisely time the tops and bottoms.  But I can increase or decrease my exposure based on risk/return profiles.

Tyler

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #33 on: January 09, 2013, 04:28:00 PM »
The problem I've seen with statistical analysis tools is that they work great until they don't.  Experts love to talk about how well their tool matched the market the past 10 years and how much a theoretical portfolio would have made in that time, but don't mention that they had to change their formula 5 times over that period because it would break along the way and that they don't have a quarter of the money their model predicts they should.

Beyond that, seeking empirical patterns in the individual emotional decisions of millions of people, the market manipulations of politicians, and the risky trading schemes of Wall Street reaches beyond my personal faith in statistics. 

That said, if you have a system that works for you and the perseverance to stick to it, good for you.  Investing is just as much about sleeping well at night as it is about making money, and my hope is that we're all so blessed to have confidence in our decisions. 

« Last Edit: January 09, 2013, 04:41:43 PM by Tyler »

arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #34 on: January 09, 2013, 07:50:34 PM »
It doesn't matter if most people can recognize it or not and act on it or not - it only matters if you do it.  Actually it doesn matter, because if most people could recognize it and acted on it, we never ever have a bubble or crash. 
   

Right, but since the market isn't rational, even if you are technically correct, the market may decide you're wrong, and you lose.  I.e. you decide stocks are too hyped, so you short, and they keep going up.  Or - a better example - you decide they're low historically due to an irrational drop, and buy, and they keep plummeting.  You may be right, but since most people don't recognize it the way you do, you could still get owned trying to time the market against the market.

As the saying goes, the market can stay irrational longer than I can stay solvent.
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Jamesqf

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #35 on: January 09, 2013, 07:54:52 PM »
The trick is the timing.  If one is able to consistently predict not just the ultimate statistical trend but also the top and bottom dates, you'll find him buying an island rather than surfing Money Mustache.  ;)

True, but you don't have to precisely predict top & bottom dates to make profitable buy/sell decisions.  As for example all the people that sold during the later parts of the '08 crash.  Sure, if we could have recognized that particular day in October of '07 when the market hit its peak and sold then, we'd be sitting pretty.  But those of us who missed that. and yet didn't sell anywhere on the steep drop (or better, bought near the bottom) are now much better off than those who did sell.

mmmsc

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #36 on: January 10, 2013, 11:34:49 AM »
Comments on market timing. Notice the range of investment styles. Yet none of these successful investors believe in market timing.

Warren Buffett
"Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.?"
"We continue to make more money when snoring than when active."
"The only value of stock forecasters is to make fortune-tellers look good."
"My favorite time frame is forever."
Peter Lynch
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."?
"I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."
Jason Zweig
"Whenever some analyst seems to know what he's talking about, remember that pigs will fly before he'll ever release a full list of his past forecasts, including the bloopers."
Charles Ellis
"'Market timing' is unappealing to long-term investors. As in hunting deer or fishing for rainbow trout, investors have learned the importance of 'being there' and using patient persistence -- so they are there when opportunity knocks."
Jonathan Clements
"What to do when the market goes down? Read the opinions of the investment gurus who are quoted in the WSJ. And, as you read, laugh. We all know that the pundits can't predict short-term market movements. Yet there they are, desperately trying to sound intelligent when they really haven't got a clue."
Alan Abelson
"Do you know what investing for the long run but listening to market news everyday is like? It's like a man walking up a big hill with a yo-yo and keeping his eyes fixed on the yo-yo instead of the hill."
Bernard Baruch
"Only liars manage to always be out during bad times and in during good times."
Mark Rieppe
"Market timing is impossible to perfect."
David L. Babson & Company
"It must be apparent to intelligent investors that if anyone possessed the ability to do so [forecast the immediate trend of stock prices] consistently and accurately he would become a billionaire so quickly he would not find it necessary to sell his stock market guesses to the general public."
Financial Publications
"Let's say it clearly: No one knows where the market is going-experts or novices, soothsayers or astrologers. That's the simple truth." -- ?Fortune
"A decade of results throws cold water on the notion that strategists exhibit any special ability to time the markets." --? The Wall Street Journal

arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #37 on: January 11, 2013, 04:55:33 PM »
As the vegas market recovers and jobs stabilize housing will appreciate because the affordability but that capital appreciation may increase volatility in your occupancy rate or result in lower rents. That is the typical trend.

I'd be interested to hear why you think that.

If anything I'd think jobs stabilizing = higher rents and occupancy (both from people moving to Vegas or not leaving, and having money to pay their bills) and stabilized housing = higher rents (due to price to rent ratios).

I.e. right now rents are lower due to it being cheap to buy a house.  If and when prices rise again it becomes more costly to buy, so rents can rise accordingly.

Isn't that a more typical trend?
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tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #38 on: January 11, 2013, 07:32:54 PM »
As the vegas market recovers and jobs stabilize housing will appreciate because the affordability but that capital appreciation may increase volatility in your occupancy rate or result in lower rents. That is the typical trend.

I'd be interested to hear why you think that.

If anything I'd think jobs stabilizing = higher rents and occupancy (both from people moving to Vegas or not leaving, and having money to pay their bills) and stabilized housing = higher rents (due to price to rent ratios).

I.e. right now rents are lower due to it being cheap to buy a house.  If and when prices rise again it becomes more costly to buy, so rents can rise accordingly.

Isn't that a more typical trend?

Actually it is the opposite....the primary component to both ownership and rentals is income - meaning it doesn't matter what home prices or rental rates are.  The secondary component is affordability and confidence.  Right now housing in vegas, as I know and as you just said, is at an ridiculously affordable price, but the problem is there mortgage qualification remains difficult and people still lack confidence in employment - even if they have jobs. As employment stability returns more people will be able to qualify for mortgages, those same people that are renting from you, and it becomes a matter of math.  If you buy a place for $100k and are charging $1000/month in rent, if those same renters on broad scale get stable jobs a $100k mortgage will yield PITI of $700/month.  Ultimately this is what keeps housing to rent in check.   Rental rates in just about every market saw zero growth from the late 90s to after the crash in 2008 because home ownership was easy to obtain - think about that, no rent growth for over a decade yet expenses/taxes continued to rise.  But then after the crash when people lost their homes  and others couldn't afford or qualify for mortgages rental rates have increased 5-7% on average nationwide since.  Eventually this gets to a p oint where either people can't afford the rent or becomes a far better value proposition to buy.  Vegas right now, along with other badly beaten markets, falls into the better to buy category so once the qualification and confidence things subsides buyers will be plentiful which will curb rental growth.

The good news is that when this happens it should result in appreciation of the house that you were renting out, so you still win. 

Incdentally, that is why rentals don't work where I am....real estate is to high but average incomes aren't high enough to support comparable rents.
« Last Edit: January 11, 2013, 07:42:48 PM by tooqk4u22 »

arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #39 on: January 11, 2013, 09:03:20 PM »
Hmm.  From my studies of housing, I disagree with a number of those things.

Certainly income has a lot to do with both rent and prices, but increased income = higher in both.  Thus appreciation in prices leads to higher rents.  Look at somewhere like NYC versus Detroit.  There's a ridiculously strong correlation between housing costs and rents, and this is due to income.

There are more wrinkles in the market (such as availability of credit, as you mention, consumer confidence, etc.), but inflation (and specifically wage increases) leads to both appreciation and higher rent.

When housing prices go up to where it's much more expensive to buy than rent, then rents will start rising to catch up in general (a few markets where it is always better to rent being the exception, rather than the rule).

Yes, if more of my renting pool becomes owners then it could affect vacancy, but that's assuming a steady population and housing, as well as assuming people renting apartments won't want to move to renting SFRs if they aren't buying.

Regarding rental rates not rising for over a decade in the mid 2000 - can you provide a link?  I think they did rise.  Not mildly, obviously not keeping up with house prices, but those were in an asset bubble, 

In any case, I don't think credit markets will ever (in my lifetime) be as silly as they were in the mid-2000s.  Homeownership was so easy to obtain, it depressed rents.  Going forward it is my belief that there will always be people locked out due to poor credit, even as some begin to qualify again. 

Given that, I just can't see normal (non-bubble) inflation based housing and wage appreciation leading to declining, rather than rising, rents.
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tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #40 on: January 12, 2013, 06:29:32 AM »
I understand why you think that.  NYC is not the norm and while there are apartments that are ridiculously expensive there are some that aren't - but the are ridiculously small.  Also, it is not uncommon for multiple people to live in an apartment.  NYC is land locked and has some rent control.

Rent growth might have grown a bit but if it did it was less than inflation and expenses increased so the NOI stayed flat or decreased.  I would need to search for the stats but see the attached chart that shows apartment prices to cap rates (Price x cap rate = NOI) you will see over the last decade NOI has declined sligthtly and this was the case in the late 90s.

Professional apartment developers are now doing new construction targeted at a 7% estimated cash return on cost - leveraged is higher at around 10-12%.  Think about that 7% for taking on development and lease-up risk on top of just buying an existing operating property.  This is because of really low interest rates - a few years ago it would have been 9% COC.

While renting single family homes and large complexes are different, they are correlated.

You are right that there will always be a rental market but it will normalize in markets such as yours where things overshot on the upside and now overshot on the downside.  The purchase market doesn't need to get as silly as it did - you can get 10-15% returns right now because it is extremely dislocated.    Research the price to rent ratio and the affordability rate - those to things will be extremely telling of where it will go. 

Your best proxy for what it will look like when the foreclosure stock is cleared and local economy/jobs stabilize is probably in that 1998-2004 period. 


arebelspy

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #41 on: January 12, 2013, 08:10:07 AM »
Of course cap rates dove - prices were skyrocketing!  That doesn't mean rents dropped.

And if cap rates are ridiculous now (which they are), it's because prices are so low.

When the prices of homes rise, the cap rates will fall, even with rents staying the same or rising.

A cap rate halves with the price of a place doubling, even if rent stays the same.  This is what happened in the early 2000s.  Then when the price of the place rises even further, the cap rates get out of whack the other way (too low) and get fixed by either prices falling (if it was a bubble that raised prices) or rent rising (if it was natural rise due to inflation).

I'm expecting the latter.  Either way, it may take awhile for rents to rise, as cap rates will fall to a reasonable level as prices stabilize, then fall to too low when prices rise due to natural inflation.  But I still say it doesn't make sense to say all the houses appreciate (to where it's much more expensive to buy than rent) and all wages increase (all due to inflation) and rents drop.

Absolutely price to rent ratios and affordability is where it will go - and those will remain constant or rise as prices do, once it's at a normal stabilized level.  98-04 isn't a good example of historical price to rent ratios OR affordability.
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tooqk4u22

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Re: Why isn't "buying low" considered to be timing the market?
« Reply #42 on: January 12, 2013, 09:00:00 AM »
I just think you have it backwards with value determines rent when in fact it is the other way around....and when more people in your area can qualify and are confident they will buy because it is so affordable. And when that happens your rent will be flat or lower due to increased vacancy and collection loss as you will have to rent to lower quality of tenants and then supply/demand/availability/accesibility will normalize and rents will begin to grow again.  I still think there are two years of good rent growth before this happens.