Timing the market

[RedmondStash]

OP, if you're concerned enough that your worry is interfering with your ability to enjoy your life, you might want to revisit and adjust your asset allocation to a place where you're more comfortable. But make that adjustment based on your personal overall comfort level, not on your perception of what the market is doing on a daily basis. In other words, don't change it in a bull or bear market; just set it and forget it.

Nobody knows when the market will stop going up (for a while) or stop going down (for a while). All I know is that historically, over time, the market has always, on average, gone up. That doesn't guarantee future performance, but it does mean that everyone over the past 50 years who has said the same thing you have has missed out on earnings if they've sold.

I absolutely believe the market will go down again. And then eventually up. And then eventually down. And so on. What matters is the overall average over the really long term, not the daily or even yearly bouncing around.

If you can watch your portfolio lose 25% of its apparent value and hunker down without selling, and wait it out until it recovers, chances are you'll be fine. That's what we did in 2008, when we lost 1/3 of our portfolio value. We held fast, and eventually, our investments not only recovered but rebounded dramatically. If we'd sold, we would have missed out on that big jump back up.

[o2bfree]

I went to a retirement planning class at a community college a few years ago. It was taught by a very informative and entertaining FA (who to my surprise didn't push his services on us). He said, "If you can time the market, we'd like to talk to you because we haven't been able to do it."

[inline five]

For those who think markets always go up look at Japan.

[GuitarStv]

For those who think markets always go up look at Japan.

For those planning on investing only in a small market rather than the market as a whole, adjust your expectations accordingly.

[GuitarStv]

For those who think markets always go up look at Japan.

For those planning on investing only in a small market rather than the market as a whole, adjust your expectations accordingly.

I see your point, but as a nit pick, Japan's market in 1990 was not small by any means.  China's equities market was relatively small by comparison.  I was doing strategy consulting in asia at the time (Bubble economy), and evryone was very high on Japan, especially with China opening up.  My firm opened their first smalk Beijing office at that time, which now is huge.

Compared to the rest of the world, Japan is a small market.  When people talk about the market always going up, they're talking about the world market as a whole.

[inline five]

For those planning on investing only in a small market rather than the market as a whole, adjust your expectations accordingly.

#4 GDP in the world

Ahead of places like Canada, India, UK, etc

Look at chart of Canadian stock market past history vs Japan. Japan blew up in the 80's/90's with a huge RE boom that crashed. The BOJ has recently resorted to buying stock to move the market which has resulted in their large surge, but it's still half its peak from then.

The US can share many similarities with Japan.

[GuitarStv]

#4 GDP in the world is very small.  Please don't misunderstand me.  I do not and would not advise investing solely in any individual country (be it Japan, Canada, the US, or wherever).

Assuming you'll get yearly 8% returns or that there's no risk involved with investing is, of course, just silly.  Index investing isn't without risk . . . it's just that the long term risk is greatly reduced when you are diversified and you've allocated your bonds/stocks to the levels that make sense for your needs.  If some particular countries suffer a calamity, you have other countries making money for you.  If the whole world market dives down, you can re-balance with your bonds.

The fact of the matter is, while individual markets (like Japan) may go through extended periods of little/no growth . . . the world markets as a whole do always go up.  The average person should be much more afraid of what inflation does to uninvested money than world markets tanking for extended periods of time.

[friedmmj]

#4 GDP in the world is very small.  Please don't misunderstand me.  I do not and would not advise investing solely in any individual country (be it Japan, Canada, the US, or wherever).

Assuming you'll get yearly 8% returns or that there's no risk involved with investing is, of course, just silly.  Index investing isn't without risk . . . it's just that the long term risk is greatly reduced when you are diversified and you've allocated your bonds/stocks to the levels that make sense for your needs.  If some particular countries suffer a calamity, you have other countries making money for you.  If the whole world market dives down, you can re-balance with your bonds.

The fact of the matter is, while individual markets (like Japan) may go through extended periods of little/no growth . . . the world markets as a whole do always go up.  The average person should be much more afraid of what inflation does to uninvested money than world markets tanking for extended periods of time.

I don't disagree with many of your points, but now you are just arguing by defending a bad position (that 44% of the world's market valuation is very small).  How about admit you overstated your point and move on.  It is a rediculous point to defend against me.  I know what i am talking about, and as someone who was advising CEOs of several of the largest market cap companies in the world (e.g. NTT) and some of the future largest market cap companies (e.g. Apple) at that time, in Tokyo. If your age is correct, you were 9 years old at the time. [Edited out some extra personal details]

Anyway, of course it is a good strategy to try to diversify by holding a global index, but my simple point is that it is not a foolproof one.

By the way, you can look up Apples market cap in 1990 vs NTTs and where they are now as an education in relative valuation changes, if you want to illustrate the value of good strategic decision making.  Did you even read the economist link?

Very interesting article!  Thanks for posting. Don't the stats in the Economist graph ignore the fact that a huge percentage of the "American stock market" are comprised of global/multinational US-based corporations?  if so, how is it valid to compare the percentage of US to world GDP to the valuation of stocks that are a mix of US and non-US business entities?

[markbike528CBX]

This is an excellent demonstration of the fallacy of trying to predict the future. What, no market timers in 2016? :).   

mrpercentage and the RED DOW were in 2016.
https://forum.mrmoneymustache.com/investor-alley/here-it-comes-red-dow/

[Schaefer Light]

For those who think markets always go up look at Japan.

I understand your point, but where would you put your money if not in the stock market?  We're all going to be screwed if that happens in the US.

[rachael talcott]

I get it.  I really do.  I've invested in real estate instead.  But the thing that cured me of thinking that I could time the market was a website that lets you try to time the market historically. I couldn't come up with a buy-when-low / sell-when-high strategy that beat buy and hold without rigging the dates to line up with times I knew were especially bad.

http://stockbacktest.com/

[VolcanicArts]

I get it.  I really do.  I've invested in real estate instead.  But the thing that cured me of thinking that I could time the market was a website that lets you try to time the market historically. I couldn't come up with a buy-when-low / sell-when-high strategy that beat buy and hold without rigging the dates to line up with times I knew were especially bad.

http://stockbacktest.com/

The real problem I see is that most people think timing the market involves an all or nothing strategy (I.e. they sell 100% when they think its high and buy a huge amount when they think it is undervalued. I think you might fare better were you to establish a baseline with several different stocks look at their variance (ex top to bottom on 5 year historical chart generally varies by max of 40%), and sell percentages when targets are hit then use those sales to dollar cost average on other picks that are closer to their baseline or below it. Example stock A shows generally a 40 percent variance on 5 year chart, stock B is similar with a 35 percent variance. You buy in on both at a baseline and continue to add to each position. Stock A moves up 20 percent in 6 months, stock B does not move much. So looking at the chart you see an average of 2 20percent runs per year so you sell 30 percent of holdings in stock A and use it to buy stock B. If stock A continues to move up you keep selling percentages based on probability, if stock A falls then you buy back in near baseline and repeat etc.

[Tyson]

I get it.  I really do.  I've invested in real estate instead.  But the thing that cured me of thinking that I could time the market was a website that lets you try to time the market historically. I couldn't come up with a buy-when-low / sell-when-high strategy that beat buy and hold without rigging the dates to line up with times I knew were especially bad.

http://stockbacktest.com/

The real problem I see is that most people think timing the market involves an all or nothing strategy (I.e. they sell 100% when they think its high and buy a huge amount when they think it is undervalued. I think you might fare better were you to establish a baseline with several different stocks look at their variance (ex top to bottom on 5 year historical chart generally varies by max of 40%), and sell percentages when targets are hit then use those sales to dollar cost average on other picks that are closer to their baseline or below it. Example stock A shows generally a 40 percent variance on 5 year chart, stock B is similar with a 35 percent variance. You buy in on both at a baseline and continue to add to each position. Stock A moves up 20 percent in 6 months, stock B does not move much. So looking at the chart you see an average of 2 20percent runs per year so you sell 30 percent of holdings in stock A and use it to buy stock B. If stock A continues to move up you keep selling percentages based on probability, if stock A falls then you buy back in near baseline and repeat etc.

Good lord that sounds like work.  Alternately, you could buy ALL stocks and just sit and hold it.

[ender]

I don't disagree with many of your points, but now you are just arguing by defending a bad position (that 44% of the world's market valuation is very small).  How about admit you overstated your point and move on.  It is a rediculous point to defend against me.  I know what i am talking about, and as someone who was advising CEOs of several of the largest market cap companies in the world (e.g. NTT) and some of the future largest market cap companies (e.g. Apple) at that time, in Tokyo. If your age is correct, you were 9 years old at the time. [Edited out some extra personal details]

Anyway, of course it is a good strategy to try to diversify by holding a global index, but my simple point is that it is not a foolproof one.

By the way, you can look up Apples market cap in 1990 vs NTTs and where they are now as an education in relative valuation changes, if you want to illustrate the value of good strategic decision making.  Did you even read the economist link?

Maybe I'm missing something but Japan had it's peak percentage of the world's economy at 17.8% in 1994?

[Eric]

I get it.  I really do.  I've invested in real estate instead.  But the thing that cured me of thinking that I could time the market was a website that lets you try to time the market historically. I couldn't come up with a buy-when-low / sell-when-high strategy that beat buy and hold without rigging the dates to line up with times I knew were especially bad.

http://stockbacktest.com/

The real problem I see is that most people think timing the market involves an all or nothing strategy (I.e. they sell 100% when they think its high and buy a huge amount when they think it is undervalued. I think you might fare better were you to establish a baseline with several different stocks look at their variance (ex top to bottom on 5 year historical chart generally varies by max of 40%), and sell percentages when targets are hit then use those sales to dollar cost average on other picks that are closer to their baseline or below it. Example stock A shows generally a 40 percent variance on 5 year chart, stock B is similar with a 35 percent variance. You buy in on both at a baseline and continue to add to each position. Stock A moves up 20 percent in 6 months, stock B does not move much. So looking at the chart you see an average of 2 20percent runs per year so you sell 30 percent of holdings in stock A and use it to buy stock B. If stock A continues to move up you keep selling percentages based on probability, if stock A falls then you buy back in near baseline and repeat etc.

Good lord that sounds like work.  Alternately, you could buy ALL stocks and just sit and hold it.

Yeah, but you don't understand.  The guy who doesn't know that dividends get taxed even if they're reinvested is totally beating the market.  You can trust him, because this is the internet and no one would lie on the internet.

[friedmmj]

I don't disagree with many of your points, but now you are just arguing by defending a bad position (that 44% of the world's market valuation is very small).  How about admit you overstated your point and move on.  It is a rediculous point to defend against me.  I know what i am talking about, and as someone who was advising CEOs of several of the largest market cap companies in the world (e.g. NTT) and some of the future largest market cap companies (e.g. Apple) at that time, in Tokyo. If your age is correct, you were 9 years old at the time. [Edited out some extra personal details]

Anyway, of course it is a good strategy to try to diversify by holding a global index, but my simple point is that it is not a foolproof one.

By the way, you can look up Apples market cap in 1990 vs NTTs and where they are now as an education in relative valuation changes, if you want to illustrate the value of good strategic decision making.  Did you even read the economist link?

Maybe I'm missing something but Japan had it's peak percentage of the world's economy at 17.8% in 1994?

The article references percentage of the world equirty market valuation for Japan at 44% not the percentage of the world economy.  The point was the disconnect between market valuation and economy size had grown to a point similar to that of the current USA market cap relative to current world GDP.  The problem I had with that analysis is the huge percentage of USA based corporate profit that comes from International operations

[rachael talcott]

I get it.  I really do.  I've invested in real estate instead.  But the thing that cured me of thinking that I could time the market was a website that lets you try to time the market historically. I couldn't come up with a buy-when-low / sell-when-high strategy that beat buy and hold without rigging the dates to line up with times I knew were especially bad.

http://stockbacktest.com/

The real problem I see is that most people think timing the market involves an all or nothing strategy (I.e. they sell 100% when they think its high and buy a huge amount when they think it is undervalued. I think you might fare better were you to establish a baseline with several different stocks look at their variance (ex top to bottom on 5 year historical chart generally varies by max of 40%), and sell percentages when targets are hit then use those sales to dollar cost average on other picks that are closer to their baseline or below it. Example stock A shows generally a 40 percent variance on 5 year chart, stock B is similar with a 35 percent variance. You buy in on both at a baseline and continue to add to each position. Stock A moves up 20 percent in 6 months, stock B does not move much. So looking at the chart you see an average of 2 20percent runs per year so you sell 30 percent of holdings in stock A and use it to buy stock B. If stock A continues to move up you keep selling percentages based on probability, if stock A falls then you buy back in near baseline and repeat etc.

Well, try it with a backtest and see if it beats buy-and-hold. If it does, let us know!