Staying in vs timing the market, a look at 2008

Investment Analysis Clubs Saul’s Investing Discussions
21

What I was saying is that your chances, as an individual investor, of getting back in at the bottom are very small, because no one knows where the bottom is, and it never feels like the bottom when you are there.
As an investor you should at least know if your investment is overvalued and then sell it, also you should be able to identify investments that are undervalued and buy them.
Since Value=Price only in the long run (One year is not enough, probably five years or more) you should be able to take a long horizon look with these investments.

For the whole market (Whilshire 500 and S&P 500) both the Case Schiller PE and the Buffet Value Index (Whilshire 5000 / USA GDP) all pointing to grossly overvalued market. This market is due for a correction (it is already happening) or for a bear market (may happen).

What I know for sure is that if you have overvalued investments like AMZN NFLX CYBR one should sell ASAP. Staying in the market without knowing the value of what you hold is a dangerous proposition.

2 Likes
22

Great points all, but this isn’t the board for it. We can agree, or agree to disagree, but lets keep this board clear for its designed intention: investing discussion. There are other boards available for this.

Excuse me?

The thread was started telling people they should not EVER try to time the market. The post was written by “Saul”, and since this is “Saul’s Investing Discussions” I am going to presume that it is appropriate to discuss what the founder of the board finds appropriate to discuss, even if it is to disagree with him.

For my part I don’t know anyone who stayed out when the market was dropping in 2008 and then bought in at or near the bottom and made a killing that way. I say I don’t know anyone who did it, I actually have never even heard of anyone who did it. I’ve never even heard of anyone who claimed to have done it.

Hi. I’m Goofyhoofy. I left the market in 2008, entirely, and bought back in a couple of months later (and made some very decent dough.) However the market faltered again a few weeks later and I exited and put about half the money in FDIC CD’s, valuing “safety” over “return.” (I did it in 1999, 2008, and again prior to the August correction, FWIW.)

I have “timed” the market about six times, four of those successfully. The other two were unsuccessful in the respect that I didn’t make money, but then neither did I lose anything (except a couple hundred bucks in transaction fees). The most recent time was in August, when I exited just prior to the correction (on the 20th) and re-entered on the 26th. I realize that some will call it bragging, but I cannot make the counterargument without noting that I “made” over $100,000 on the timing. That may not be “a killing” but it is pretty good walking around money.

I tried to do it again about a week ago but was hoist by my own petard: I was shifting funds from Schwab to Scottrade and there is a holding period of 7-10 business days, which I was in when the market began to stumble again. Nevertheless I sold half the next day, as soon as the funds were available in the Scottrade account. I have had this same discussion on another board, and bothered to document it:

http://imgur.com/a/OQXaB
(Notes: some allocations changed on re-entry. This is only my own Traditional IRA. Not shown are my Roth, my wife’s Roth, My wife’s T-IRA, or our joint account, all of which followed similar, but not identical trajectories.)

One might note that the “timing” on this latest exit is net positive on every single trade, some by nickels, many by dollars, some in fairly large amounts. That is no guarantee that I will find the perfect bottom, however, and I’m sure I won’t (as I never have.) Heck, there is no guarantee that this will be net positive when it’s all done, I don’t know … yet. I don’t have to. I do intend to preserve capital and perhaps make a nice profit along the way, and I have done so several times now. In 1999, when I sold everything, in 2008 when I sold everything, and back in August when yes, I sold everything, almost save a couple of things in the taxable account with large unrealized gains. (This latest time I sold only half, as I detail here: )
http://boards.fool.com/i-notice-that-very-few-posters-here-p… and
http://boards.fool.com/let-me-be-more-specific-which-posters…

And when someone says “Well, did you get out at the very top? And get back in at the very bottom?” (ring a bell if this sounds familiar) I get a little huffy and try to explain. Again. To people who simply will not listen because they are so sure it is impossible. Which, I explain again it is not, if you are willing to admit and accept something less than perfection.
http://boards.fool.com/how-well-did-you-time-the-market-did-…

OK, enough with those links. I note that a rather esteemed poster, Mungofitch, has a system for timing the market which others often recommend. I don’t, because I’ve never investigated it. whafa has a system which seems excessively pessimistic to me, but what do I know? I haven’t used that one either. I do what I do, which is NOT TO SIT ON MY BUTT WHEN THE WORLD IS COMING DOWN AROUND ME. When is that? I don’t know, but when Lehman fails, or the China market crashes, or the tech boom is imploding, or…

Hi Goofy,
What I was saying is that your chances, as an individual investor, of getting back in at the bottom are very small, because no one knows where the bottom is, and it never feels like the bottom when you are there.
What you were saying is an impassioned political statement about WHY the market and the economy bounced back.

I’m sorry Saul, but if you don’t think it’s important to understand WHY the market came back so smartly, then there is no hope. We have recessions all the time. Always have had. Here’s a chart of them. Notice anything? You had better know if the market is going to come back smartly or not, and the single biggest determinant of that is, uh, political:
http://66.147.242.158/~papolicy/wp-content/uploads/2009/06/F…

It is crucial to understand the macroeconomic implications of what is going on because it directly impacts all investments. On the other hand, if you don’t care if your shares go down 50% and stay down, then feel free to ding my post as “political.” I would argue that your happiness is misplaced, like being happy at being the tallest midget in the room, but that’s how I see it. You posted that no one has ever timed the market. You’ve never heard of it. You’ve never even heard anyone claim it.

Now you have. If you look beyond the limited horizon of “buy and hold forever” you will likely find many, including several right here on the Motley Fool. I have made this argument on this very board before. Indeed, you responded to the post!
http://boards.fool.com/why-dont-i-try-to-time-the-market-bec…

If you demand to find those who got out perfectly at the top, and got back in perfectly at the bottom, well, then you win. Otherwise the advice to “sit back and do nothing” is terrible. Terrible terrible terrible.

28 Likes
23

Goofy, I looked at each of those links, but never saw an explanation of how you time the market. Can you please explain your methodology?

I keep abreast of the macro picture, which you mention, and yet I find markets utterly unpredictable. Take this latest downdraft, for example: I don’t see anything in the macro picture that is substantially different than it has been for a long time now: China worries, a tiny rise in interest rates (which everyone has known about forever), low oil prices, middle east troubles, slow domestic economic growth, a belligerent North Korea, a strong dollar, and general global economic malaise.

Nor does the market correlating with oil prices make any sense to me: low oil should broadly be neutral to positive for most U.S. companies. China continues to grow, albeit at a slower pace, and sales to China make up a minuscule part of U.S. GDP anyway. Global economic malaise certainly doesn’t help, but our domestic economy has been gradually improving for years in spite of it.

So I guess what I’m saying is: I don’t see any rational reason for the market to suddenly dip now, or at least any new reasons that haven’t been around for a long time (but maybe I’ve missed something there). So what’s your methodology for determining that a significant dip is about to happen in the very near future? And then how do you decide that the dip is over?

Neil

36 Likes
24

Everyone has the right to his or her own opinion, Goofy had good results with timing the market and selling in and out, but I doubt if many people can do it. In the initial post on this thread, I described how fast my portfolio reversed at the bottom in 2008. Here’s what happened with the S&P 500. Do you, personally, think that you are nimble enough to keep up with these bounces? Do you have the temperament to try?

On Thurs Nov 20 the market closed at 752 down 6.7% from the day before, continuing a rapid decline that looked like it would never end.

On Friday, Nov 21 it closed at 800 up 6.3%. No one in his right mind would decide that that meant that this express train on a down slope had turned around for good!

After all, on Oct 13, the S&P had risen 11.6 % in a single day day (over 100 points), to 1003. Would you have bought back in after an almost 12% rise in one day? But then it resumed its slide from 1003 to 752. Would you sell again when it started back down? At what price?

And then on Oct 28, the S&P had risen 10.8% in a single day (more than 90 points), to 940.5 from 849. Did that mean 849 was the bottom? No way! It then continued its relentless slide. How are you going to decide?

No one dreamt that that measly little 48-point rise on Friday Nov 21 from 752 to 800 was a bottom. How could you imagine it after two 11% rises had petered out? You would wait for the fall to resume. But it was the bottom for me, and the bottom for four months for the S&P!

On the next Friday, Nov 28, after only a few more trading days because of Thanksgiving, the S&P was already up 19.1% at 896.2.

Would you have gotten yourself back fully invested that fast? Would you have hoped for another fall all the way back down? Or bought in at 19% above the bottom? Almost everyone waited for the market to go back down.

Sure enough, the next Monday it had dropped almost half way back at 816. Everyone who waited and stayed in cash in was smugly relieved. But it was never close to that again for months. The next day it was up 4% to 849, the day after it was up to 870, and it finished the month of December at 903.

It got as high as 934 in January. Wow! It’s holding the gains and moving on up. You are back in now for sure! But in March it got back down into the 600’s! 600’s! (676, to be exact, well below Nov 20, although my own portfolio never fell back to where it had been.) You panicked and sold out again, somewhere along the way down to 600. However, the S&P finished 2009 at 1115, up 65% from that bottom at 676..

The point is that if you tried to time this market you would have gone crazy, sold in and out many times, and probably would have lost money, but if you stayed in, you would have been all the way back, and more, at the end of 2009. And this was the worst financial meltdown in 70 years, since the Great Depression. Lehmann Bros and General Motors and other banks and auto companies were going under. We have nothing like that now. It’s you who have to decide if you have the temperament for trying to constantly guess when to buy and sell, or whether for you it’s better to just decide which stocks to buy.

(As an aside, note that the S&P wasn’t down as much as I was in 2008, but it only rose from 903 to 1115, or 23%, in all of 2009, while my more adventurous and beaten down stocks rose 111% in 2009).

Saul

36 Likes
25

How to time the market

Read lots of books especially those by Marty Zweig. Who first lead me to the concept.

Go to the Mechanical Investing board and read. Even a 1/10 of all the posts, the last 25,000 or so ,should give you an idea.

Actually the bottoms of bear markets , beginning of bull markets (almost but not quite the same) are the easiest places to pick , price wise, even if not time wise.
And yes I did get back in within a few percentage points of the 2008 bottom. But being new to the methodology I did it with only a smallish percent of my funds.
Timing is a way of strategic diversification for me , if you do it it all your money it isn’t diversification.

here is only one of many examples of a good timing tool

http://stonewellfunds.com/CoppockEqualWeight.jpg

And I already posted one system (not for picking bottoms) which is the 10 month simple moving average of the SP500 Do on a monthly chart not a daily chart! Get out when the SMA is below the SP 500, get in when it is above. This one only takes 5 minutes to do once at the beginning of each month. There are others equally as easy. , Institutions especially mutual funds can’t use these techniques for multiple reasons.

But this subject has been beat to death at this point and has veered from Saul’s intentions. So I won’t post any more on it for a while. Because my methodology is not intended for individual stocks and will not help a bit on picking stocks or telling you what or when to buy or sell. Except for that part of stock price that is determined by sector selection, the general market.

But there is abundant evidence that general market or even industry group is the biggest mover of most stock prices . There are always exceptions - the oil company that brings in a 10,000 bbl oil/day well in a huge field where they one all the leases. But I invest based on odds whenever I can. Though admittedly I have a weakness for new innovative technology and sometimes pay too much for it.

My timing is almost all based on hard data, mostly but not entirely price… Unlike GoofyHoofy I am unable to make money on economics. Neither can most economists. But he may have some special talent at that.

4 Likes
26

Unlike Goofy, I let people smarter than me do the timing. I front ran the Mungofitch 99 day rule and left money on the table. (Never front run the Mungofitch 99 day rule.)

I failed to exit in 99 and in 2008. Not this time.

Slow learner I guess.

Cheers
Qazulight

1 Like
27

Great points all, but this isn’t the board for it. We can agree, or agree to disagree, but lets keep this board clear for its designed intention: investing discussion. There are other boards available for this.

Take care.

Jeb

Have you even bothered to read this thread?

This is probably one of the most insightful threads I have ever read on a public investment board, and you are throwing around sanctimonious snipes. Maybe your standards are much higher than mine…but I doubt it.

If you don’t like the thread, then just ignore it.

The rest of us can learn from thoughtful, un-aligned engagement from experienced individuals who have really invested some intellectual capital here, in relation to macro investment strategy.

Seething

Cham

23 Likes
28

There were many of us who held more cash than usual in 2008 and then did major buying in the first half of 2009. I actually started some buying in Sept 2008 when there were many strong values appearing, that proved to be early.

In general I think it is mistake to let yourself be spooked by every market crisis. You will lose out in the long run doing that. I was too cautious after the 1987 crash and learned that lesson.

Right now I am close to 15% cash in most accounts. I have had trouble finding strong values for the last couple of years. Others on the DMC board have as well (e.g. the martian). I am a far more conservative investor than Saul. I am semi-retired and many of my clients are older and need to have capital preservation.

The recent drop has started to create some attractive values, but I have not dived in as of yet.

sw

2 Likes
29

http://www.businessinsider.com/stanley-druckenmiller-success…

Stan Druckenmiller, speech made about 10 months ago
Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”
Interestingly, his further point in this regard was not the popular, “don’t fight the Fed.” In fact, it was just the opposite:
“80% of the big, big money we made was in bear markets and equities because crazy things were going on in response to what I would call central bank mistakes during that 30-year period.”
…And “Too loose monetary policy” has severe repercussions:
“The problem with this is when you have zero {{ cost??}} money for so long, the marginal benefits you get through consumption greatly diminish, but there’s one thing that doesn’t diminish, which is unintended consequences.”
What’s more, he says it’s happening again today:
“So that’s why, if you look at today… I’m experiencing a very strong sense of deja vu… If you look to me at the real root cause of the financial crisis, we’re doubling down. Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us there and enabled those bad actors to do what they do.”
The trouble is we only discover the consequences once it’s too late for the Fed to really do anything about it:

When the risk curve limb breaks off the tree I do not want to be near the end of the branch along with all the big heavy money.

So caution is the word, use the small advantages you have.

Btw note the words “unintended consequences” which are not the same as “unexpected consequences” of ZIRP . Bernake probably knew the piper would have to be paid , but it wouldn’t be on his watch and his pension is safe. Maybe even his reputation is safe since economists and more the media often have trouble connecting the dots. Maybe there was nothing else could do. By putting it off he made the banks sounder , very important in keeping recession from turning into depression.

2 Likes
30

…I have “timed” the market about six times, four of those successfully…

Let’s think about this. If I went to the casino and won 4 of 6 hands of blackjack, would I conclude that I have a winning system/insight…or that I was just lucky?

Goofy, you may be right about your gut/insight, but I think even you would agree that 6 data points is not sufficient to draw the conclusions you have drawn…and certainly not to recommnend similar action to others.

Cheers!
Murph
Home Fool

19 Likes
31

I’d like to call your attention to the very real possibility that the world isn’t coming to an end this year, even though Mr. Market is going through one of his manic-depressive periods when he thinks so, and is pricing our stocks accordingly. He may soon be thinking that everything will be rosy forever, and price them that way. Don’t be deceived by either one.

Saul

23 Likes
32

Let’s think about this. If I went to the casino and won 4 of 6 hands of blackjack, would I conclude that I have a winning system/insight…or that I was just lucky?

Just for a little devils advocate, in the average lifetime, how many real, meaningful, opportunities does an investor get to make a macro decision of the exposure of their portfolio to risk assets? Or in other words “market timing their investments.”
Perhaps part of the problem is picking the correct 6 hands to use as your sample size. Unfortunately in order to do that it requires looking at more than just the performance of the businesses.

More good reads below. I think trading psychology can very easily be transferred to investor psychology. Similarly I like to look at charts with weekly, monthly, and even quarterly bars and see how the picture changes when I watch the trend rather than how long it took for the bars to play out.

http://traderfeed.blogspot.com/2016/01/money-management-in-t…

http://traderfeed.blogspot.com/2015/04/you-cant-win-if-youre…

1 Like
33

formatting fail, lets try again

Let’s think about this. If I went to the casino and won 4 of 6 hands of blackjack, would I conclude that I have a winning system/insight…or that I was just lucky?

Just for a little devils advocate, in the average lifetime, how many real, meaningful, opportunities does an investor get to make a macro decision of the exposure of their portfolio to risk assets? Or in other words “market timing their investments.”
Perhaps part of the problem is picking the correct 6 hands to use as your sample size. Unfortunately in order to do that it requires looking at more than just the performance of the businesses.

More good reads below. I think trading psychology can very easily be transferred to investor psychology. Similarly I like to look at charts with weekly, monthly, and even quarterly bars and see how the picture changes when I watch the trend rather than how long it took for the bars to play out.

http://traderfeed.blogspot.com/2016/01/money-management-in-t…

http://traderfeed.blogspot.com/2015/04/you-cant-win-if-youre…

1 Like
34

I’d like to call your attention to the very real possibility that the world isn’t coming to an end this year, even though Mr. Market is going through one of his manic-depressive periods when he thinks so, and is pricing our stocks accordingly. He may soon be thinking that everything will be rosy forever, and price them that way. Don’t be deceived by either one.

This is also an excellent point. Lots of indicators and metrics are stretched to historical extremes. Some things at new records.
Bear markets actually spend most time rallying between huge drops, and bull markets tend to grind upwards with some corrections along the way.

Great post here on the macro picture - http://northmantrader.com/2016/01/17/pendulum-swing/

2 Likes
35

Interesting thread. I hope those that try to time the market have success, but, as for me, I just try to keep it simple and stick to the Buffett maxim about buying good businesses at reasonable prices. It appears to work pretty well over the long run.

I’ve been at this for almost twenty years and I’ve never been able to recognize a market top or bottom. I’ve never seen Buffett try to do this so I figure why should I. If he doesn’t feel he is smart enough to do it, then I know I’m certainly not. The only time I heard him talk about selling his stocks in mass was in 2008 if Congress had not passed TARP, but he was confident they would come to their senses and do so. If they hadn’t, he felt we would very likely be headed for another Great Depression. Under that circumstance, I probably would have sold too. Otherwise, I’m content to hold for the long term. I’m sure that’s too simple for some, but it’s worked well for me.

Don

2 Likes
36

Great post here on the macro picture - http://northmantrader.com/2016/01/17/pendulum-swing/

Hi Mike, interesting link. Even this guy who has been predicting a market decline now seems to think it’s way oversold, with doom and gloom everywhere.

37

"…recessions, more frequent recessions, steeper recessions, and longer lasting recessions, with concurrent underperformance by the stock market during all those periods. …

History matters."

“Great points all, but this isn’t the board for it. We can agree, or agree to disagree, but lets keep this board clear for its designed intention: investing discussion. There are other boards available for this.” - Jeb

How is discussing economics, recession, inflation, etc., not germane to “investing discussions”?

3 Likes
38

This has been a very interesting thread indeed. I know that some people seem to feel that they can play the timing the market game. I can’t. I don’t have the temperament for it. I can’t sit on the sidelines and root for stocks to go down because I’m out of the market and get worried when they start going up. I know that if I had followed someone’s prescription and sold out in Sept 2008, I would have panicked when the market rose 12% in a day in mid October and bought back in. It’s just me, and it pays to know yourself. On the other hand, my method has worked for me long term, since 1989, which puts me in my 27th year of doing this successfully, supporting my family with it for the last 20 years with no other source of income, so I’ll stick with it.

Saul

22 Likes
39

Saul, exactly. That’s why I was also saying that now is not the time to be making the decision to reduce risk. The time to potentially lighten up on risk was anytime in June, July, October, November, or December… if that is a part of a strategy anyone chooses to take.

Now gotta let the market make it’s next move, and hopefully it’s move is a positive one. It’s entirely possible that this may be it and we march on to new highs after a great earnings season. Or maybe some relief before another leg of correction, or maybe things collapse.

At the very least, signs point to a probable short term bounce here. Hopefully that lets the market get its footing back. I do still think we are in for a volatile year, with swings both to the upside and downside. Personally I want to reduce the volatility of my own portfolio a bit if that’s the case.

The cool thing is, there are plenty of potential profits to go around. Here’s hoping we all get some of them.

Interesting thread indeed.

1 Like
40

We are talking about humans here. It takes an incredible psychological strength to take a 50% loss and stay the course. It appears that you may be one of those rare individuals but don’t make the mistake to assume that this is common. Most people will not do that. They will talk a good game about “buy and hold” and then panic and run when the market loses 30% and their life-savings threaten to evaporate right in front of them.

Thing is, if you are one who simply can’t 1) learn about market history, 2) understand that when you own a stock, you own a fraction of a business, such that if the business performs well long-term, eventually the stock will as well, and 3) accept the fact that periodically the market panics, but this is always temporary…well, then, you probably should not invest in stocks.

2 Likes