Examples of your own "market-timing"

[Donnie]

Zaphod wrote:

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.

 

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Sure, you can change the definition of how market timing is typically defined, but moving in and out of assets because you are born and die is clearly not the same as moving in and out of them because you've got a feeling valuations are low (high) and the barber just confirmed it.

[MPMD]

Donnie wrote:

 

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Sure, you can change the definition of how market timing is typically defined, but moving in and out of assets because you are born and die is clearly not the same as moving in and out of them because you’ve got a feeling valuations are low (high) and the barber just confirmed it.

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I was agreeing with you on exactly that point.

 

[Donnie]

The point is that a rational, efficient market will not price risky assets to generate a negative return. Therefore buying and holding is not market timing because the market is always priced to generate a positive return using EMH. MPT is a key element to buy and hold because holding a single asset has a much higher risk of ruin than a diversified basket of investments. This has been shown mathematically and is intuitively obvious.

If you want to attack the assumptions underpinning EMH or MPT, that’s fine, but it doesn’t mean buy and holders who believe in EMH and MPT are employing market timing. They would just be underestimating the risk involved in their investments, which is likely true anyway.

[Dont_know_mind]

Valuedoc, please re-examine your thinking.
Do you know anyone who became significantly wealthy by doing what you suggest or thinking as you do ?

Your arguments are intellectual straw men.
Yes, there is risk. No there is no certainty.
If you are too risk averse, you will miss out on returns. If you are too risk seeking, you can blow up.

Your argument against induction is specious as it applies to all forms of induction. It is was first elaborated by Hume and then popularised by Bertrand Russell as Bertrand Russell's Christmas turkey. Basically, you can never know if today is a day where you will be fed like the other 364 days or whether it will be Christmas Day and you will instead have your throat cut and end up being cooked and eaten.

But all these arguments are fear based intellectualisations. Have a look at Benjamin Graham and what happened to him in the 1929-35 period. What killed investors, particularly value investors was not the 90% decline peak to trough. If you had bought and held during this period you would have been ok. What destroyed value investors was taking on leverage after the first decline and the bear market rally. It then declined a further 70% from there.

Graham took 5 years to get back to even after 1929. The vast majority of his wealth was generated by his fund buying 50% of GEICO for 750k. He didn't know that it would be worth 1B in 20 years. And that is reality. No amount of philosophising or armchair investing will get you wisdom.

I had some of your intellectual arguments when I was younger. I regret it now as reality has shown me they were wrong. Luckily, they did not stop me from
being invested. Your way of thinking will get you to extreme asset allocations which can be very underperforming. This can make a life changing effect over 20 years and you may have regrets.

Look at the other side of your arguments instead of being so dismissive. You need to look for what truthfully works rather than what feels right. You need to seek divergent opinions and welcome them to find out how you could be wrong. Which would you rather be - right in your own mind or to make better returns ? Personally, I think your way of thinking may well be very anti-wealth generating but you don't seem to realise why.

The tragedy of this is that you won't have your eyes open to this or probably realise it until 10-20 years time when your returns will hit you in the face like a frypan.

[LIFO]

I have a pretty good history of selling stock when stock prices get overbought, then watching the correction, and then watching the stock return to and then exceed where I purchased sold it without getting back in.  I sold a bunch of leveraged ETFs in Jan of this year.  Have not bought back in and pretty certain I'm repeating the same "mistake."  In my limited experience, the market seems to require 2 key ingredients for sustained growth: lose monetary policy and collective anxiety.  Seems like we have both those in spades right now.

Peter Lynch's "Cocktail Party" market timing indicator is pretty fantastic.  Although he admits he never traded on it.

"In the first stage of an upward market – one that has been down awhile and that nobody expects to rise again – people aren’t talking about stocks. In fact, if they lumber up to ask me what I do for a living, and I answer, ‘I manage an equity mutual fund,’ they nod politely and wander away.

If they don’t wander away, then they quickly change the subject to the Celtics game, the upcoming elections, or the weather. Soon they are talking to a nearby dentist about plaque. When ten people would rather talk to a dentist about plaque than to the manager of an equity mutual fund about stocks, it’s likely the market is about to turn up.

In stage two, after I’ve confessed what I do for a living, the new acquaintances linger a bit longer – perhaps long enough to tell me how risky the stock market is – before they move over to talk to the dentist. The cocktail party talk is still more about plaque than about stocks. The market is up 15 percent from stage one, but few are paying attention.

In stage three, with the market up 30 percent from stage one, a crowd of interested parties ignores the dentist and circles around me all evening. A succession of enthusiastic individuals takes me aside to ask what stocks they should buy. Even the dentist is asking me what stocks he should buy. Everybody at the party has put money into one issue or another, and they’re all discussing what’s happened.

In stage four, once again they’re crowded around me – but this time it’s to tell me what stocks I should buy. Even the dentist has three or four tips, and in the next few days I look up his recommendations in the newspaper and they’ve all gone up. When the neighbors tell me what to buy, and then I wish I had taken their advice, it’s a sure sign that the market has reached a top and is due for a tumble."

 

 

[Donnie]

thevaluedoc wrote:

Dont_know_mind wrote:

Valuedoc, please re-examine your thinking. Do you know anyone who became significantly wealthy by doing what you suggest or thinking as you do ? Your arguments are intellectual straw men. Yes, there is risk. No there is no certainty. If you are too risk averse, you will miss out on returns. If you are too risk seeking, you can blow up. 

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Appreciate the concern. My goal is capital preservation. Right now, I am reling on my profession not investing prowess (or lack thereof) to generate wealth.

Dont_know_mind wrote:

Your argument against induction is specious as it applies to all forms of induction. It is was first elaborated by Hume and then popularised by Bertrand Russell as Bertrand Russell’s Christmas turkey. Basically, you can never know if today is a day where you will be fed like the other 364 days or whether it will be Christmas Day and you will instead have your throat cut and end up being cooked and eaten. 

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Not smart enough or well versed to understand how this related to a my original post on this thread. Actually, in the past, I held the common view that buy and hold/etc is not market timing but have changed in the last few years to realizing the importance of timing to any investment strategy. Please, let’s not argue this point further, I dont see how belaboring this topic benefits anyone’s time and don’t feel any need to further need to explain my opinion. It was a divergent viewpoint/opinion that is really not relevant to the overall investing goals of anyone on this site. I should have known better than to voice it on this site. Lets just agree to disagree.

Dont_know_mind wrote:

But all these arguments are fear based intellectualisations. Have a look at Benjamin Graham and what happened to him in the 1929-35 period. What killed investors, particularly value investors was not the 90% decline peak to trough. If you had bought and held during this period you would have been ok. What destroyed value investors was taking on leverage after the first decline and the bear market rally. It then declined a further 70% from there. Graham took 5 years to get back to even after 1929. The vast majority of his wealth was generated by his fund buying 50% of GEICO for 750k. He didn’t know that it would be worth 1B in 20 years. And that is reality. No amount of philosophising or armchair investing will get you wisdom. 

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Disagree about your explanation of Graham/value investors during the Depression. Haven’t read Graham recently but my recollection is that he was a fairly conventional investor during 1920s-30s and developed value principles i.e. margin of safety etc after getting wiped out. While value investors may get caught up in a bull trap (“the first decline and the bear market rally”), if someone is really a value investor, I think their process would protect them (again just an opinion). Also, I am unclear how many true value investors utilize leverage, I don’t recollect leverage as part of Graham’s defensive investor. But I guess I will keep an eye out.

And yes, I fully admit I am an amateur investor and have openly posted to that effect. I am definitely not a professional. I don’t see how I am armchair investing. I am making decisions and to paraphrase Klarman, holding cash is an investment decision.

Dont_know_mind wrote:

I had some of your intellectual arguments when I was younger. I regret it now as reality has shown me they were wrong. Luckily, they did not stop me from being invested. Your way of thinking will get you to extreme asset allocations which can be very underperforming. This can make a life changing effect over 20 years and you may have regrets. Look at the other side of your arguments instead of being so dismissive. You need to look for what truthfully works rather than what feels right. You need to seek divergent opinions and welcome them to find out how you could be wrong. Which would you rather be – right in your own mind or to make better returns ? Personally, I think your way of thinking may well be very anti-wealth generating but you don’t seem to realise why. The tragedy of this is that you won’t have your eyes open to this or probably realise it until 10-20 years time when your returns will hit you in the face like a frypan. 

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If this refers to my general comments about equities/bonds (long duration)/etc, I don’t know what to say but I do not see any advantage to being heavily invested in either right now. I do seek out many different viewpoints and am not beholden to one investment strategy despite the handle (How many on this site can say that?). Cash/my other allocations are not comfortable but do make sense to me. I hope that changes. I don’t know what else to tell you, but I don’t see the argument to have a 80/20 or whatever indexed stock/bond allocation given the environment right now. Especially when much of my accounts have limited investment choices (i.e. standard index and total bond funds etc). I will try to continue to learn and if my opinions/arguments/etc are intellectual strawmen, then hopefully I will gain the wisdom or see the data to one day to realize my errors. The one thing I will say, is given the reaction to my posts, at least I am not on the crowded side of the boat (trade).

Note to self: Stick to reading Toe Cheeze/Crixus, CM and DrVInvestor’s posts (no offense to the posters listed).

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For what it’s worth, I am open to your opinion that buy and hold is suboptimal, misguided, or even a poor strategy.  The main issue is that it is very hard to find a better strategy unless it is your full time job.  My main disagreement with you is concerning whether buy and hold is a market timing strategy.  By definition, it is not.

CM and DrInvestor have good points.  I no longer engage with Crixus after he outed himself as a 9/11 truther.