Examples of your own "market-timing"

[Ryan]

IMPORTANT: Most would say buying/selling securities on a value basis cannot routinely be done profitably with the limited resources us mere-mortals have, and is generally taken to be a terrible idea. But, some people carry modest amounts of "play" funds meant solely for these types of moves so they protect their larger portfolio from their own meddling, and others routinely make shrewd moves. On the average, just holding and re-balancing an asset allocation gets the same results but with less fees and effort. As you probably know, most professionals cannot beat the market, especially after accounting for fees-- https://www.youtube.com/watch?v=mOS4wAsBnvM.

Anyway, is anyone willing to share their examples of market moves you've made based on your own valuation being different from the contemporary market's price? How'd it work out?

Two examples I've seen here-- investing in Apple during a market downturn and recently buying index funds with cash that was being held specifically for a discounted investment purchase.

[Donnie]

Here are a few from best to worst.  I don't buy individual stocks or try to time the market anymore.

• Bought Amazon in 2012, then bought again on the dip in 2014.  It's up 444%.


• Bought Google in 2012 after they bought Motorola and the stock traded down in the first quarter.  Margins declined from the lower margins on Motorola hardware.  It's up 222%.


• Bought Apple in 2012 when the stock went down.  It's up 104%.


• Bought Vanguard energy ETF after energy cracked in 2015.  TLH in 2017, lost 33%.


• Bought DDD in 2013 on the 3D printing fad, TLH in in 2017, lost 75%.

[Radinomics]

I sold Apple stock for GE in 2015.

And thus ended my history of trying to time the market.

[LasixDrip]

I’m actively putting more towards the mortgage right now that could otherwise be invested.

[Zaphod]

Im routinely in and out of the market to a certain extent and either increasing/decreasing my beta to it. I often wish I had better control to not do so, so have mainly switched to beta weighting and using different vehicles to gain similar exposure on decreased money in the market.

In my play account I change things all the time depending on the situation/setup/r/r.

As for debt/investing Im putting more towards debt now, but thats a career/life stage decision and independent of the market.

[Hatton]

Apple $13.46 split adjusted 12/4/2008.  Now $172.43.  This why some will always invest in individual stocks.  I now index.

[HandFellow]

When I first started learning all this stuff, I thought I would be smart and do a roth conversion of my 403b during the last year of training.  So I did that and the remaining funds I sold and kept in the 403b.  I did this because I saw how expensive the funds were.   A high ER is worse than cash, right?.  So now I had two accounts all in money market because I was scared of expense ratios and the market had just spiked a peak.  So I sat on those funds for 18 months (2015 to early 17) before finally beating my analysis paralysis (among some other things).

[Donnie]

thevaluedoc wrote:

But there are plenty examples that the market does not gain in real or even nominal terms  over the majority of one’s productive investment lifetime (US 1930-1950, US 1966-1980, Japan 1989-present, etc).

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For the record, this isn't a completely accurate statement.  Annualized real return from January 1930-January 1950 was 2.8% with dividends reinvested.  Total real return was 72.95%.  1966-1980 did show a negative real return, but that increased to a 1.9% real annual return by 1986.

At any rate, you can get whatever answer you want through carefully chosen start and end dates.  Most people don't have the misfortune of investing their entire life savings only at the market the peak.

I agree that market positive market returns are not guaranteed even over long periods of time, but investing in the market regularly is not market timing.  Buy and hold investors do not time the market because of the assumption that markets are efficient.  Efficient markets result in a positive expected return to the market at all times because companies are profitable and valuations are fair.

If you want to suggest that buy and hold investors are timing the market, then you need to prove that the markets are not efficient in some form.

[Antares]

Recent example: just prior to market close last Thursday (Feb 8), I had cash sitting around in my accounts and those of my children. I had the unprovable and possibly wrong headed idea that the 10% dip was technical and probably over. I didn’t like all the cash sitting around. So I took the opportunity to put half the cash into the market. Cheerfully, the market has gone up every day since, so it looks like a good call at this moment. Of course I could have been wrong and I’d now be kicking myself for not waiting. But I was partly correcting an error I had made by having more cash than I should have, and the opportunity to correct that was part of the motivation, and I’d thought I’d found an ok time to fix my error.

[Neuro-doc]

My example is of a failure to act on my impulse to time the market.

I had ridden out 2008 and on paper lost over $1MM net worth, but had stuck with my investment plan of 60:40 equity:bonds and had plowed all my new savings into equities through the downturn and rebalanced to 60:40. (As I have posted previously, repeatedly buying equities in a persistently falling market is not an easy at the time, though in hindsight the benefits are obvious.)

We were both working full time, our house was paid off, and so were were doing just fine despite the turmoil in the markets and the $1MM fall in net worth on paper.

In Feb 2009, I thought that the madness must be near an end. Surely markets had hit bottom. We were young, financially secure, had a long investment time horizon, and in an ideal position to take on more risk. I sat down with my wife, and said we should mortgage the house and go all in on the markets. She was less enthusiastic. I think the phase "we should think about it" was used. No decision was made. Nothing was done. No shift in the 60:40 asset allocation was made, no money was borrowed, and the chance of a lifetime was lost. In hindsight the market hit bottom a few days after that conversation. We would be well into an 8 figure net worth if only.....

I think about that conversation almost every day (personal finance version of PTSD ?? )  (slightly exaggerated). My son (finance major) reminds me about it often (true). The non-decision has become part of our family folklore.

 

[Zaphod]

Neuro-doc wrote:

My example is of a failure to act on my impulse to time the market.

I had ridden out 2008 and on paper lost over $1MM net worth, but had stuck with my investment plan of 60:40 equity:bonds and had plowed all my new savings into equities through the downturn and rebalanced to 60:40. (As I have posted previously, repeatedly buying equities in a persistently falling market is not an easy at the time, though in hindsight the benefits are obvious.)

We were both working full time, our house was paid off, and so were were doing just fine despite the turmoil in the markets and the $1MM fall in net worth on paper.

In Feb 2009, I thought that the madness must be near an end. Surely markets had hit bottom. We were young, financially secure, had a long investment time horizon, and in an ideal position to take on more risk. I sat down with my wife, and said we should mortgage the house and go all in on the markets. She was less enthusiastic. I think the phase “we should think about it” was used. No decision was made. Nothing was done. No shift in the 60:40 asset allocation was made, no money was borrowed, and the chance of a lifetime was lost. In hindsight the market hit bottom a few days after that conversation. We would be well into an 8 figure net worth if only…..

I think about that conversation almost every day (personal finance version of PTSD ?? )(slightly exaggerated). My son (finance major) reminds me about it often (true). The non-decision has become part of our family folklore.

 

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No big deal, you're doing great. I cant believe she entertained it at all, my wife might have freaked out and she is super on board with craziness, Im impressed.

I had that happen on Feb 5th, had a couple leftover SVXY 110 puts and a good bit of UVXY 12/15 calls. Market looked like it might stabilize in the am so I closed both positions for a good bit over a 100% gain said oh well, friday didnt carry into monday and it was still profitable. Well that was the only 10 mins of calm that day and UVXY hit over 40 and SVXY opened the next day at 10 bucks! Oh well. Right call, right position, no patience (options expire and time value can disintegrate so didnt want to lose what profit I had).

[Donnie]

thevaluedoc wrote:

Donnie wrote:

thevaluedoc wrote:

But there are plenty examples that the market does not gain in real or even nominal terms  over the majority of one’s productive investment lifetime (US 1930-1950, US 1966-1980, Japan 1989-present, etc).

Click to expand…

For the record, this isn’t a completely accurate statement.  Annualized real return from January 1930-January 1950 was 2.8% with dividends reinvested.  Total real return was 72.95%.  1966-1980 did show a negative real return, but that increased to a 1.9% real annual return by 1986.

At any rate, you can get whatever answer you want through carefully chosen start and end dates.  Most people don’t have the misfortune of investing their entire life savings only at the market the peak.

I agree that market positive market returns are not guaranteed even over long periods of time, but investing in the market regularly is not market timing.  Buy and hold investors do not time the market because of the assumption that markets are efficient.  Efficient markets result in a positive expected return to the market at all times because companies are profitable and valuations are fair.

If you want to suggest that buy and hold investors are timing the market, then you need to prove that the markets are not efficient in some form.

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My original point was that price and time are not exclusive. Hence, “timing” the market is implicit with any investment. If that is not the case, then how do you separate price from time?

I agree that buy and hold is probably a good bet most of the time, but it is not infallible. I think it is probably better to refer to Graham for buy and hold (rather than EMH) where in the short term the market is a voting machine while in the long term it is a weighing machine.

My bad for Jan 1930 to Jan 1950, should have said Sept 1929 to Jan 1949 with a total real return of 2.5%. Whether that is cherry picking or not, many people at that time did have their life savings severely impacted. I’m sure many would have loved to have continued investing regularly (and buy stocks selling for pennies on the dollar) at that time but no one could because very few had any money (like any downturn). Rather, many had to sell their investments at a loss in order to make ends meet. Not saying now is a rerun of the 1930s, but it is an example of how buy and hold doesn’t always work out.

As for EMH, it always seems that EMH is en vogue during the good times and becomes a dog during the bad times. And, just to be clear, I am not saying that I have some magical insight that will enrich me that is unbeknowst to others. But if EMH truly existed, why are there market crashes? What changes the span of a few days where the market drops by 10-30%? What key piece of info was revealed to the market in just a few days to make the market change so rapidly? If the valuations were fair after the drop, then how were they fair a few days before the drop?

Even now, how do we have an efficient market if the Swiss National Bank can print money out of thin air to buy billions in Apple stock? If the markets were really efficient, how is Tesla stock trading at >$300/share when it is likely to be insolvent within 1-2 years (if not now) without a takeover? How is Tesla even considered a profitable company when they lose money with every car they produce?

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I don't know what point you are trying to make.  Is the market instantaneously efficient and always in equilibrium?  Almost certainly not.  Is the market efficient enough for a buy and hold investor who holds for a long period of time?   Almost certainly yes.

By buying and holding regardless of market conditions, you are saying that you believe the markets are always fairly valued and have a positive expected return.  You are saying there is no way for you to know whether stocks are over or undervalued.  Say what you want about the strategy, but it isn't market timing.

The probabilities of banks printing money gets factored into prices.  When they actually do print money, the prices jump unless the market priced in a 100% probability.

Same stuff you mention about TSLA could have been said about Amazon, Facebook, Myspace, or any number of other early stage companies that either went boom or bust.  The presence of high valuations of non-profitable or even insolvent businesses doesn't mean the market is inefficient.  Options have value.  Here's one of my hot tips, if you prove to yourself by reading some articles and doing some back of the envelope work that a business or markets are overvalued, you are doing it wrong.

Pulling exactly specific dates is obviously cherry picking.  Here is a chart I put together last year.  It is based on annual returns with dividend reinvestment starting at 12/31 of each year.  There are no 20 year returns with a negative nominal return.  I may be able to find some specific 20 year periods with negative returns, but what is the point of that?



 

[MPMD]

thevaluedoc wrote:

 

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The point I have been trying to make is that everyone is timing the market, even buy and holder.

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Despite my very partially-informed skepticism of "buy and hold" is this genius plan, I find this argument that buying and holding is "timing the market" to be specious.

It's like saying that atheism is a religion.

By this logic burying your cash in the backyard is timing the market as well.

[Zaphod]

MPMD wrote:

thevaluedoc wrote:

 

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The point I have been trying to make is that everyone is timing the market, even buy and holder.

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Despite my very partially-informed skepticism of “buy and hold” is this genius plan, I find this argument that buying and holding is “timing the market” to be specious.

It’s like saying that atheism is a religion.

By this logic burying your cash in the backyard is timing the market as well.

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Its impossible not to time the market really if broadly defined. We're given this very specific time period that belongs only to our similar cohorts and cant really do much about it.

 

[Donnie]

thevaluedoc wrote:

Donnie wrote:

I don’t know what point you are trying to make.  Is the market instantaneously efficient and always in equilibrium?  Almost certainly not.  Is the market efficient enough for a buy and hold investor who holds for a long period of time?   Almost certainly yes. 

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The point I have been trying to make is that everyone is timing the market, even buy and holder. You just said it yourself, you believe that the market is efficient enough for a buy and hold investor to hold an asset for a long enough period of time to increase in value. That over 20 years or whatever time frame buy and hold will get a positive return. People can rationalize it in terms of EMH or whatever, but, in the end, no one is putting money into an investment with the expectation that it will lose money or be stagnant. Regardless of the approach, everyone is buying stocks one day with the expectation that the price will be higher somewhere in the future be it 20 min, 20 hours, 20 weeks or 20 years. That is human nature. I agree, that over the long periods of time it is a pretty good bet (and very likely a better bet than shorter time frames) that equities will increase in value, at least nominally. But that is an assumption based on past experience nothing more.

Donnie wrote:

By buying and holding regardless of market conditions, you are saying that you believe the markets are always fairly valued and have a positive expected return.  You are saying there is no way for you to know whether stocks are over or undervalued.  Say what you want about the strategy, but it isn’t market timing.

EMH says that markets are always fairly valued but where does it say there will be a positive expected return (I have tried to look and cannot find it, and if you find it please make sure the reference isn’t just repeating a bunch of platitudes). As Buffet has said, there is a big difference between markets being fairly valued most of the time (not EMH) and all of the time (EMH). And, being a buy and hold, does not mean you are investing in an agnostic fashion. You are doing it with the expectation/knowledge of previous history that over a long enough period of time there will be a positive return (as the last few posts illustrate). Again, which is completely reasonable but it is timing the market.

But this whole idea of buy and hold has been around along alot longer than EMH (or what was officially proposed by Fama). In the 1920s it was buy and hold stocks like RCA, in the 1960s it was buy and hold conglomerates, in the 1970s it was buy and hold the Nifty Fifty, in the 1990s it was buy and hold tech, not it is buy and hold indexes or whatever.

Donnie wrote:

Here’s one of my hot tips, if you prove to yourself by reading some articles and doing some back of the envelope work that a business or markets are overvalued, you are doing it wrong. 

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LOL. Thanks for the tip. Actually, I take a while to study my investment plans but are you implying something else?

But its ok to admit that buy and hold is actually market timing. Don’t worry, admitting you are timing the market is the first step in this 12 step process. It will make you feel better!

Donnie wrote:

Pulling exactly specific dates is obviously cherry picking.  Here is a chart I put together last year.  It is based on annual returns with dividend reinvestment starting at 12/31 of each year.  There are no 20 year returns with a negative nominal return.  I may be able to find some specific 20 year periods with negative returns, but what is the point of that? 

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Negative real returns (assuming you meant real returns in the last sentence) do matter, more than nominal. For extreme examples, see Venezula and Zimbabwe. At some point, this paper wealth has to be realized in to actual goods and services (e.g. pay for retirement). You can have an annual positive nominal gain, but if the real returns are negative it means retirement becomes harder to pay for. And if nominal gains were the only thing that mattered, why not just put all money into a savings account, you will never have a negative nominal return (and comparisons of which asset classes to invest in is a whole different thread).

One last note. Although these hypothetical graphs are always nice to see, that is an idealized scenario. Good luck seeing that level of return in real life. It doesn’t take into account that guy/gal who lost his/her job during a recession, didn’t have any money to regularly invest in the stock market when it had the best potential return, had to sell his retirement accounts that had lost half the value to pay for the kids college and/or the mortgage on a house that is underwater in value and finally a year or two later found a job where he/she is working twice as hard for half the pay. These people aren’t losing money because their panicked and sold early. They lost money because in the real world no one is guaranteed to have a consistent job with a good 401k where they can keep putting the monthly allocation in during good times and the bad time. And even the docs are not always immune to this risk.

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I think you have swerved off into Crixus land, but I'll give it one more shot.

1. EMH implies a fair value where fair value means that the price reflects all known information.  An efficient market will never value a stock to generate a negative return because that is not an appropriate return for stocks.   Stocks can generate negative returns despite an efficient market because bad things happen.  When bad things happen stocks go down because the probability of the bad thing happening went from less than 100% to 100%.


2. I guess your argument is that because buy and hold investors expect stocks to go up, that represents market timing.  I do not think those words mean what you think they mean.
   
   
   
   1. Positive return on stocks is not based solely on historical performance.  Companies generate profits.  If I buy a profitable company, I will earn a return on that company.  If I price it appropriately, the return will be positive.  I may over pay for the company, resulting in a negative return, but the market efficient value would not price the company to generate a negative return.
   
   
   2. A T-Bill has a positive expected return.  If I buy one and hold to maturity, is that market timing?
   
   
   
   


3. Modern portfolio theory is the foundation of the Boglehead philosophy.  MPT advocates holding a diversified basket of assets.  MPT shows that diversification is the only true free lunch since you can get the expected return of the asset class with lower volatility than individual assets.  It has been around since the 50's.  Not sure what you are talking about with RCA and conglomerates, but it's a non sequitur.


4. Speaking of non sequiturs, you are using Zimbabwe and Venezuela as examples?  Well functioning legal and regulatory systems are key to an efficient market.


5. The chart isn't hypothetical.  It's the actual market since 1871.  It takes into account all the scenarios you mentioned, which (shocker!) have nothing to do with the market timing argument.  I agree real return is better than nominal, but I already had a chart for nominal returns and didn't want to remake it for real returns.

Hope this helps.  Best of luck!