Stock Market - should I be concerned?

[waltworks]

He posted a real gem of a clown question in the RE forum too asking why leverage RE wasn't a better investment than stocks since "assuming 20% down payment = you get 5x leverage. Unless it's in Florida or California, housing price is unlikely to go down."

-W

The only time you sell when price is LOW is if you think the entire market is going to crash like 2008.

Quite possibly the worst advice I've ever seen on this forum.

[Terrestrial]

The only time you sell when price is LOW is if you think the entire market is going to crash like 2008.

Quite possibly the worst advice I've ever seen on this forum.

+1

Wow.  Just....wow.

[RapmasterD]

Let's say you DID want to time the market. Rather than listen to the boss at work, or looking at a P/E chart, I think you'd want to look at price charts for a holding (e.g., a total stock market fund) compared to both a shorter term and a longer term moving average of that same holding. Unfortunately I can't/won't get more specific....but when I do this looking at "the market," things still look fine to me.

In other words, I think you'd want to base your decision on a consistent quantitative analysis that tells you when to get in and out - one that you won't "break" with emotion or hearsay or 'gut.'

Again, I'm not recommending timing the market per se, but am suggesting a potentially wise course if opting to do so.

LINK: http://www.investopedia.com/articles/active-trading/052014/how-use-moving-average-buy-stocks.asp

I've used, and seen other people attempt to use moving averages in active trading for over a decade now. It's no different than any other technical analysis, it does not work. It used to be a hobby of mine to visit active trading forums, program trading robots based on the buy/sell rules of the thread, run them against decades of historical charts, and publish the results.

On a long enough timeline, they all crashed and burned.

Yup. I tend to agree. Really I do. Most people should simply stay 'in'....

LINK: http://dqydj.net/sp-500-return-calculator/   -- I love playing around with this to make myself feel good about that.

HOWEVER:

a) What I'm thinking of is not a model for "active trading" but a longer term quantitative indication of when to get in and when to get out...an indicator that has you in most of the time and may have you dumping out every few years...and not every few months/weeks/days.

b) That said, taxes COULD fuck you over on this model if you're dealing with a large stock portfolio...meaning that with taxes alone you could be better off simply staying in, unless you selectively only sell lots where you have a loss;

c) At its best, what I'm thinking of is still a blunt butter knife. You WILL still have exposure on the downside. You WILL miss some upside.

[goodrookie]

@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

[Eric]

I think the "trick" is to not do it unless you have a crystal ball.  Which you might, but probably don't.  Otherwise, you're just guessing.  Please remember, time in the market is much more important than timing the market.  Trying to jump out and in every time there's a change will leave you on the sidelines way too often and frankly is a sucker's bet.  The quicker you learn that you can't predict the future, the better investor you'll be.

I mean, you're welcome to attempt this on your own.  No one gives a shit.  Just don't advise others that it's somehow an beneficial strategy.  You have the google, right?  Read some of the gazillion articles about this.

Wait, you aren't NewPerspective's husband's boss are you?

[Dodge]

@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

I would highly advise any investing newbies to disregard this advice.  If you sell every time the market goes down 15%, you'll be selling out your entire portfolio every few years or so, without any concrete way of knowing when to get back in.  This is quite literally the most damaging, wealth destroying advice this forum has seen in quite some time.

[RapmasterD]

@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

I would highly advise any investing newbies to disregard this advice.  If you sell every time the market goes down 15%, you'll be selling out your entire portfolio every few years or so, without any concrete way of knowing when to get back in.  This is quite literally the most damaging, wealth destroying advice this forum has seen in quite some time.

This is where I suggest "investing newbies" put all their money.

Invest in alpaca farms. They are the money-making wave of the future. Get in now while there is still time. You can shear these puppies once per year and make killer profits at flea markets from selling alpaca sweaters, alpaca scarves, alpaca mittens, alpaca socks, etc. Nothing says warm and snuggly-poo like....alpaca. #creepyalpacamanlove

Or...you could just buy and hold VOO (S&P 500 ETF) forever. It's up to you.

[NoraLenderbee]

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

Selling at -15% works if you know that the market is going down further. But how would you know, at the time? If the market then goes -30%, you need a time machine to buy at -15%.
You're getting chaff because it sounds like you're telling people to either predict the future, or to sell low and buy high.

[Terrestrial]

@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

I didn't 'selectively read' anything....all I did was agree with someone who said that was terrible advice.   I second eric...you're welcome to do what you like.  But advocating this as a 'good' strategy is contrary to vast amounts of market research. 

The inherent problem with this is that it's very easy to say that would have been a good idea with 20/20 hindsight.  Nobody is disputing that you are theoretically better off if you sell early into a major crash and then rebuy near the bottom.  But NOBODY KNOWS if you're near the bottom or just getting going.  What if you decide 15% is your magic sell number and the market only ends up going down 16% before surging back...sucks to be that guy I guess (or was he also supposed to have the insight to buy back in?).  Nobody knows what 'early' is, nor do you know when it's about done and time to get back in.   Theories are well and good but that's why this doesn't realistically work well for almost anybody IN ACTUAL PRACTICE.

Your own reasoning on this miracle strategy doesn't even make any sense as you seem to have picked the numbers totally arbitrarily.  Selling at 15% is great but 30% is too late?  Why??  The S&P crashed from a high of about 1550 down to a low right around 700 before it reversed.  About a 55% drop.  If you sold at 30% down that was only a little over halfway through the plummet...why is that apparently the point of being 'too late'...think of all the money people could have saved avoiding that last full 25% of pounding before they bought back in!

[Terrestrial]

Wait, you aren't NewPerspective's husband's boss are you?

Hahaha...well done.

He can't be, though.  The boss' amazing strategy was to sell right at these market highs before the impending crash even starts, not when we're already 15% down.

[waltworks]

As long as you don't try to time the Alpaca market - just go for a broad craft and flea market index fund like VTJNK.

-W

[trailrated]

@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

Anyone else find this to be hilarious paired together?

[goodrookie]

@NoraLenderbee @Terrestrial

Think of this as a loss minimization strategy. Of course, when the market is good like right now, you are not going to use it.
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.
Why not 30, 40% 50%, etc? Because You can't predict the bottom ( see below) and it might be already too late.

How do you know when it bottomed out? You can't. You just wait (at least 3+ months) and see if the whole market is rising in a CONSISTENT fashion. (Take weekly prices or SMA50/200 to see the larger trend.)

To those with reading disability: I am NOT suggesting you buy high and sell low. I am suggesting a road plan when crisis strikes.

Btw, did everyone miss the part that I actually spoke against NewPerspective's husband's boss' plan and gave 4 good reasons why that would be idiotic?

[NewPerspective]

Wait, you aren't NewPerspective's husband's boss are you?

Bahahahahaha!!!


And now I want an Alpaca - freaking adorable!  who knew?!?!

In other news, it is really amazing how emotional investing is (I mean yes, of course it is but wow). My husband is right back to his sensible reasonable self, but he temporarily went insane!

We did sell company stock on Wednesday (although there was some question of, omg, should we have waited, will it go back up soon?!?) and all feels peaceful.  Our regular Vanguard investment is scheduled for Friday as usual.  :-)

[Terrestrial]

@NoraLenderbee @Terrestrial

Think of this as a loss minimization strategy. Of course, when the market is good like right now, you are not going to use it.
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.
Why not 30, 40% 50%, etc? Because You can't predict the bottom ( see below) and it might be already too late.

How do you know when it bottomed out? You can't. You just wait (at least 3+ months) and see if the whole market is rising in a CONSISTENT fashion. (Take weekly prices or SMA50/200 to see the larger trend.)

There are so many things wrong with these broad generalizations/assumptions about percentages and time frames of market movement that I'm not going to tackle them.  Since you seem pretty set in your ways I really hope you try this to 'minimize your losses'.

This is what I will say.  You are dead wrong that this is a 'loss minimization strategy'.  What you advocate is a loss guarantee strategy. Let me explain.  By selling at 15% down you guarantee that you are selling at 15% less (this may or may not be 'losses' depending on your basis, but the point remains) and are locking that in.  Perhaps you will time it well enough to buy back lower and it works out.  Many credible studies have postulated that you won't, at least not consistently. 

Let's be clear, paper losses are not losses.  They are an adjustment to current value of an asset.  If you don't sell it you haven't lost anything.  If you HAVE to sell it you were probably investing money you shouldn't have so sucks for you and better luck next time. 

You know who didn't lose anything in the financial collapse?  Me...and probably a lot of other people on this forum, who left our accounts alone and now have a minimum of 35% more money than in 2007 by not doing stupid stuff.  For those smart enough to leave their accounts alone and also buy regularly on the way down and back up that return is substantially more.

Warren Buffett and countless other professional, successful investors have written extensively about how this type of scheme is total poppycock, fyi.  As a quick anecdote, Buffett's preferred holding period is a one word answer, forever, not 'until the market goes down 15% which probably means it's not just a nuisance pullback but a major crash so sell because the financial system is collapsing but be sure to buy again after the market is stable for 3 months and hopefully that's lower than where you sold but maybe not.' 

[waltworks]

The whole market can drop steadily for several weeks and then... anything can happen. Yesterday, or last week, or last year do not predict anything about how the market will behave going forward. 10%, 15%, 20% drop - doesn't matter. It can plummet the next day or skyrocket for the next decade.

It is, for all practical purposes, random, with (thus far) a historical upward trend. That is a great environment for simply investing the most you can, whenever you can.

-W

@NoraLenderbee @Terrestrial
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.

[Terrestrial]

Think of this as a loss minimization strategy. Of course, when the market is good like right now, you are not going to use it.
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.
Why not 30, 40% 50%, etc? Because You can't predict the bottom ( see below) and it might be already too late.

Want to know when the last time the market dropped 15-20%?  Mid 2011, after the market had been recovering nicely out of the bottom of the collapse.  Since according to our arbitrary guidelines we now know that it wasn't a nuisance pullback but rather an indication of another financial collapse, hopefully everyone bailed.

Except that the market bottomed quickly at almost exactly 20% down and has since gone on to surge 85% in an almost uninterrupted straight line with minimal pullbacks for the last 3.5 years.  Wouldn't have wanted to be in the market for that almost doubling up of money.

Solid advice on loss mitigation.  I think you forgot to mention all the gain mitigation that can go on as well.

[Riff]

Reminds me of what Jack Bogle had to say about the market.

[goodrookie]

@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better. 

That being said, I do agree that "hold and it will recover" method is a sound advice even though it may not the best advice. On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.) The trick is to separate fear (pullback) from real disaster (financial crash). Let's not forget that you have to take action VERY quickly. Once the decline is further (e.g.  to 30%) then you have no choice but to hold and pray.

Lets end this in a civil fashion. Lets all just agree to disagree and agree that NewPerspective's husband's boss gave the wrong advice.

[waltworks]

Dude, coming here with chump stuff like this is just going to get you mocked.

Your method can easily be backtested. Go do it. Then compare to holding. You will lose, horribly, even before accounting for all the taxes and fees you'll pile up. I'm too lazy (and I'm not sure what your rule for buying back in is) and I assume Dodge is too because this comes up so often but you're new here so - go read some other "can I beat the market" threads before you chime in again.

-W

[Kstar]

Well, this has been a fascinating read.  I too am trying to educate myself about all of this, but my knowledge is also very superficial.  Assuming people still have the energy to continue to contribute to this thread,  I have a question for you.

Some background..

I just recently sold some index funds with the intention to turn around and re-invest through a Questrade RRSP (yes, I'm Canadian)  account.  I'm doing this to get some tax relief (I haven't been so great at consistently contributing to the RRSP this year) and also to get out of an arrangement with an MER that is too high for my taste.   

Perhaps the answer to this question is obvious, but should I reinvest right now?

I'm the first to admit I'm quite the novice about all of this - any advice is most appreciated!

[skyrefuge]

That being said, I do agree that "hold and it will recover" method is a sound advice even though it may not the best advice. On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.) The trick is to separate fear (pullback) from real disaster (financial crash). Let's not forget that you have to take action VERY quickly. Once the decline is further (e.g.  to 30%) then you have no choice but to hold and pray.

Let's see, eyeballing the S&P 500 chart, outside of what I assume you consider the two "crashes" of the 2000s, it had >15% declines in 2011, 2010, 1990, and 1987, none of which were harbingers of further losses. So your system maybe works 2 out of 6 times, assuming you also know when to get back in?

Oh god, this is so dumb.

And no, I will not agree to disagree. Normally, I would say "this guy's advice is so patently and obviously dumb that there's no need to point out its dumbness; everyone here is smart enough to see that on their own". But the fact that you're here giving such advice makes me question that premise, so I am forced to speak.

[skyrefuge]

Perhaps the answer to this question is obvious, but should I reinvest right now?

Yes. Both "yes it's obvious", and "yes you should reinvest right now". :-)

(disclaimer: I don't know much about Canadian tax optimization. But it seems like your goal was to reduce your tax exposure and your expenses, and if you can do that without changing your basic investment plan, then fantastic!)

[CanuckExpat]

Nope don't do it. Smile and politely nod, tune him out and don't listen.
Stay the course, stay the course, stay the course..

[dividendman]

@goodrookie - I hope, for your sake, you're trolling.

[Terrestrial]

@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

Do you even think about how ridiculous some of these things sound before you write them?  All i said is the people who didn't sell didn't lose any money and thus didn't need their 'losses mitigated'. 

almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better.

On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.)

Ah...i didn't know that the arbitrary rules don't work if the drop happens TOO quickly.  How silly of me. Just so I'm prepared to mitigate my losses next time, now i know that impending doom is only if the drop takes 6-8 weeks, not 1 month.  What about 10 weeks?  Too long? 

BTW I didn't have to go to any 'fancy studies' to point out why your method is ridiculous.  I looked at a chart for 3 minutes and picked out the most recent period where your advice probably would have really screwed someone.  I'm sure there are many more but it's not worth the effort to look. 

[Terrestrial]

@goodrookie - I hope, for your sake, you're trolling.

I kind of think he is...the question he posed about real estate was almost as bad. 

I keep responding because it's fun to read what he writes though. :)

[goodrookie]

@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

Do you even think about how ridiculous some of these things sound before you write them?  All i said is the people who didn't sell didn't lose any money and thus didn't need their 'losses mitigated'. 

almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better.

On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.)

Ah...i didn't know that the arbitrary rules don't work if the drop happens TOO quickly.  How silly of me. Just so I'm prepared to mitigate my losses next time, now i know that impending doom is only if the drop takes 6-8 weeks, not 1 month.  What about 10 weeks?  Too long? 

BTW I didn't have to go to any 'fancy studies' to point out why your method is ridiculous.  I looked at a chart for 3 minutes and picked out the most recent period where your advice probably would have really screwed someone.  I'm sure there are many more but it's not worth the effort to look.

Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

It's not a rocket science.

[rpr]

Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

It's not a rocket science.

goodrookie -- Just for discussion sake, can you quantify your exit and re-entry conditions please?

It sounds like Exit is when both i)  the drop is 20% and ii) 3 months have gone by.
Entry -- later?? Did you say, wait for the market to have a 3 month gain? How much should this gain be -- 10%? 20%?

[innerscorecard]

Discussions like these are why I always recommend that people first completely understand the efficient-market hypothesis. It's not 100% true, but it needs to be your starting point. Otherwise you'll end up saying some laughable things.

(I talk about why in detail in my most recent blog post.)

[RapmasterD]

innerscorecard - I'm keeping a tab open with your blog. It's quite good. I like your writing style and tone.

[Dodge]

@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

Do you even think about how ridiculous some of these things sound before you write them?  All i said is the people who didn't sell didn't lose any money and thus didn't need their 'losses mitigated'. 

almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better.

On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.)

Ah...i didn't know that the arbitrary rules don't work if the drop happens TOO quickly.  How silly of me. Just so I'm prepared to mitigate my losses next time, now i know that impending doom is only if the drop takes 6-8 weeks, not 1 month.  What about 10 weeks?  Too long? 

BTW I didn't have to go to any 'fancy studies' to point out why your method is ridiculous.  I looked at a chart for 3 minutes and picked out the most recent period where your advice probably would have really screwed someone.  I'm sure there are many more but it's not worth the effort to look.

Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

It's not a rocket science.

Since it seems your wealth-destroying advice has piqued the interest of some other posters, I feel compelled to continue.

"On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come."

So you acknowledge half the time you're wrong?  Please post detailed analysis of:

1.  What your rules are for reentry
2.  How often you would've been right over the last 150 or so years
3.  How often you would've been wrong over the last 150 or so years
4.  How much you gain on average when you're right
5.  How much you lose on average when you're wrong
6.  Show us a graph of the best success
7.  Show us a graph of the worst failure

If you don't have this information, you have no basis to make these claims.

[Eric]

Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

Ahhh, yes.  The classic "I'll know it when I see it strategy".  I bet you're first person to ever devise something so clever.  There probably isn't even anything written on this subject since it's such a new and innovative idea.  Oh, wait....

http://www.forbes.com/sites/rickferri/2014/06/12/the-problem-with-market-timing/
http://www.marketwatch.com/story/why-market-timing-doesnt-work-2013-10-23
http://www.usatoday.com/story/money/columnist/waggoner/2014/09/25/how-to-ease-market-worries/16218337/
http://www.wsj.com/articles/bad-stock-market-timing-fueled-wealth-disparity-1414355341
http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work
http://www.kiplinger.com/article/investing/T052-C016-S001-resist-the-folly-of-market-timing.html
http://online.barrons.com/articles/SB50001424052748704836204578354851782592898
http://moneymorning.com/2014/12/11/the-secret-about-market-timing-i-wish-everyone-knew/
http://www.mainstreet.com/article/investors-must-refrain-from-market-timing-to-avoid-pitfalls
http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion

But no.  All of us and all of the experts, we're all wrong.  Everyone else is wrong but you.  Of course.

[waltworks]

I use a similar technique with roulette. If I can detect where the ball is going to go before it happens, I will be able to make a fat profit!

It's not rocket science.

-W

But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss.
It's not a rocket science.

[DoubleDown]

@goodrookie: If what you are suggesting was possible, you would clearly be a billionaire. You keep saying "it's not rocket science," but none of the brightest minds on Wall Street has been able to pull off what you are advocating. Any of the major investment houses will happily put you in their employ and pay you multi-millions to show them what you know about when to exit the market, and when to re-enter.

[RapmasterD]

Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

Ahhh, yes.  The classic "I'll know it when I see it strategy".  I bet you're first person to ever devise something so clever.  There probably isn't even anything written on this subject since it's such a new and innovative idea.  Oh, wait....

http://www.forbes.com/sites/rickferri/2014/06/12/the-problem-with-market-timing/
http://www.marketwatch.com/story/why-market-timing-doesnt-work-2013-10-23
http://www.usatoday.com/story/money/columnist/waggoner/2014/09/25/how-to-ease-market-worries/16218337/
http://www.wsj.com/articles/bad-stock-market-timing-fueled-wealth-disparity-1414355341
http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work
http://www.kiplinger.com/article/investing/T052-C016-S001-resist-the-folly-of-market-timing.html
http://online.barrons.com/articles/SB50001424052748704836204578354851782592898
http://moneymorning.com/2014/12/11/the-secret-about-market-timing-i-wish-everyone-knew/
http://www.mainstreet.com/article/investors-must-refrain-from-market-timing-to-avoid-pitfalls
http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion

But no.  All of us and all of the experts, we're all wrong.  Everyone else is wrong but you.  Of course.

The Paul Merriman article (second link) and the additional article from him that is linked to within the article are both brilliant. I would recommend a careful, deliberate and unemotional reading of these two...

[innerscorecard]

I use a similar technique with roulette. If I can detect where the ball is going to go before it happens, I will be able to make a fat profit!

It's not rocket science.

-W

But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss.
It's not a rocket science.

It's actually funny you mention that. I have been reading about how Ed Thorpe, who later became a hedge fund manager, used Newtonian physics to model roulette and was able to get a good edge, by using wearable computing devices on his body. The casinos almost killed him for that, of course.

[goodrookie]

Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.

[Eric]

Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.

Isn't the whole goal of hitch hiking to get a ride in a car?

[waltworks]

GR's baaaack!

Woo!

-W

Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.

[Terrestrial]

Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.

Isn't the whole goal of hitch hiking to get a ride in a car?

Eric, I'm slow clapping for you right now. 

[goodrookie]

Hitch hiking and car accident together are rarity. I have never read on the news XYZ died in a car crash while she was hitch hiking.

[DutchGirl]

We are going to sell some of his company stock because we are holding too much and pay some toward our house.   We both feel comfortable with this.

That is actually a very good idea. You don't want too much of your money into the stock of the company you also work for. That is not diversified... So good for you guys, cashing some of it in and putting it somewhere where it will reduce your expenses, making you even more able to weather some storms...

[kudy]

I think it's the other way around... hitch hiking somehow eliminates the dangers of riding in a car, for the hitch hiker.

[dungoofed]

"Don't risk it. Pick up a hitch hiker today" - I can sense a new road safety advertising campaign.

[Runge]

"Don't risk it. Pick up a hitch hiker today" - I can sense a new road safety advertising campaign.

So how can we apply this to stock picking? Is there a hitch hiking index fund I can buy when things are feeling gloomy out?

[SK Joyous]

Dodge, Terrestrial, Eric et al. I just love you guys, you are awesome. If people want to mess up their own finances by timing the market, there's only so much others can do to help - but thank you for stepping in so others don't follow their horrible advice. Lifetime index investor, buying ETFs for free from Questrade, and rebalancing upon contribution every quarter - I'm very happy to be an educated investor, and wish it for everyone

[ChrisLansing]

From what I've read on Joshua Kennon's site for beginning investors it would be a really bad idea to try to time the market.   

I can give you an example of my own stupidity - I reallocated my 403b to all savings because I was upset at having taken losses on stocks several years ago.     Like you I didn't really pay all that much attention to the market.   I got out when it was obvious even to my dog that the market was down.    I didn't get back in until it was obvious even to my dog that the market had rebounded - I missed a lot of upward momentum.     I'd have been better off just letting everything ride out the duration of the ups and downs of the market.     I lost a couple thousand and am just now back to where I was.      Live and learn.   

What your husband contemplates doing is essentially the same thing I did.   He may be smarter than me (who isn't?)  but he still may sell out too soon and buy back in too late.    A lot of really brilliant people have tried to time the market and failed.     

I notice even someone as savvy as Joshua Kennon (or for that matter Warren Buffet) never sell all their stock then buy back into the market later.    They buy and sell individual stocks when it seem appropriates (given their knowledge of the market and their individual stocks  - knowledge which you and your hubby do not possess) but they don't just sell their entire portfolio when they think the market is going down (in fact I think that is when they buy).

Can you talk hubby into doing what he plans with only 10% of the total portfolio?   That way you guys won't get hurt too bad and he can see if it was a winning strategy or not on 10% of the stash rather than all of it.   

But don't listen to me, listen to the experienced people here who are telling you don't do this. 

[Cheddar Stacker]

innerscorecard - I'm keeping a tab open with your blog. It's quite good. I like your writing style and tone.

+1.

Thanks for the recommendation. Good stuff.

[phillyvalue]

I don't know that any of the great value investors - guys like Buffett, Seth Klarman, etc - have ever tried to time the market themselves. Their philosophy is to buy undervalued stocks or other assets when they can. If they can't buy something at what they perceive is an attractive price, then they don't buy anything. The consequence of this is that you will, on average, see guys like Klarman holding significant cash near market tops, not because they are making a macro call, but because they are unable to find things attractive enough to buy. For index investors, this philosophy doesn't make sense. Market timing is making a macro call, which few would argue is a successful strategy.