Shame shame … market timing

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NotJustDreaming
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Shame shame … market timing

Post by NotJustDreaming »

I think I'm a bit disappointed in myself…

This is my first bull market where I can see the crazy growth in our portfolio. From day to day. Every time I login I am sighing sadly hoping for a correction.

I have not made our lump sum TFSA contributions yet and I normally do them on the first business day of the new year. I've got December and January RESP contribution still sitting as a cash transfer in our brokerage account. I'm not looking forward to new RRSP room in March. I'm a passive index investor (20% Cdn Bond, 20% Cdn Equity, 30% US Equity and 30% Int'l Equity).

Apparently I am committing the offence of market timing.

This is new for me. I can sleep through bear markets and had no problem dumping as much cash into investments as I could find. But I can't manage to find the cahoonas to commit my cash right now! Sad state. I don't know what to do. I know what I think I'm supposed to do. Buy now!?! But it just keeps going up. Too good to be true.

A little help please...
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Re: Shame shame … market timing

Post by deaddog »

Come up with a Plan you are comfortable with.

Follow it.
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Re: Shame shame … market timing

Post by Rooster »

deaddog wrote:Come up with a Plan you are comfortable with.

Follow it.
This. Blind periodic purchasing as per asset allocation (perhaps value averaging if you are more conservative) is probably best.

Knowing that, I do the same as the op. Didn't sell anything, but hardly bought new equities last year as I didn't like valuations causing me to be sitting on more cash/short term bonds than my AA calls for. Only purchases I made last year were in asset classes where valuations had declined/not gone up too much (reits, emerging markets, some dividend stocks).

I guess it's a non principled (rules based) extreme version of value averaging. Guess i'm a closet value investor (in gut reaction, not necessarily in theory).
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Re: Shame shame … market timing

Post by NotJustDreaming »

deaddog wrote:Come up with a Plan you are comfortable with.

Follow it.
Yeah. Thanks for that! :)
I've been investing for about twelve years now. And have only had 'a plan' for the last seven years or so. I've paid attention to the 'buy low, sell high' advice. And read about how many studies have shown that investing a lump sum now is better than dollar cost averaging. Those two seem contradictory to me at this point and now it's almost like I'm frozen.

I can squint my eyes with my finger on the mouse and commit to the $11,000 TFSA purchase but I'm afraid it's going to hurt! It seems stupid since it's peanuts compared to how much our portfolio has grown this year. But now I'll be buying high.

Personally I think it is easier to invest in a bear market.

Oh to have more years of experience.
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Re: Shame shame … market timing

Post by NotJustDreaming »

Rooster wrote:
deaddog wrote:Come up with a Plan you are comfortable with.

Follow it.
This. Blind periodic purchasing as per asset allocation (perhaps value averaging if you are more conservative) is probably best.

Knowing that, I do the same as the op. Didn't sell anything, but hardly bought new equities last year as I didn't like valuations causing me to be sitting on more cash/short term bonds than my AA calls for. Only purchases I made last year were in asset classes where valuations had declined/not gone up too much (reits, emerging markets, some dividend stocks).

I guess it's a non principled (rules based) extreme version of value averaging. Guess i'm a closet value investor (in gut reaction, not necessarily in theory).
So then, what is your plan? How come you're not sticking with it? I think I must be a closet value investor as well.

Intuitively I don't think I should change my plan on the fly. I think I've got too many words of wisdom in my head and don't know when to use which, when. "Be greedy when others are fearful and be fearful when others are greedy"…. I should really look this up to ensure it is an accurate quote but you know what I mean…
Last edited by NotJustDreaming on 23 Jan 2014 12:58, edited 1 time in total.
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Re: Shame shame … market timing

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NotJustDreaming wrote:
Rooster wrote:
deaddog wrote:Come up with a Plan you are comfortable with.

Follow it.
This. Blind periodic purchasing as per asset allocation (perhaps value averaging if you are more conservative) is probably best.

Knowing that, I do the same as the op. Didn't sell anything, but hardly bought new equities last year as I didn't like valuations causing me to be sitting on more cash/short term bonds than my AA calls for. Only purchases I made last year were in asset classes where valuations had declined/not gone up too much (reits, emerging markets, some dividend stocks).

I guess it's a non principled (rules based) extreme version of value averaging. Guess i'm a closet value investor (in gut reaction, not necessarily in theory).
So then, what is your plan? How come you're not sticking with it? I think I must be a closet value investor as well.

Intuitively I don't think I should change my plan on the fly. I think I've got too many words of wisdom in my head and don't know when to use which, when. "Be greedy when other's are fearful and be fearful when other's are greedy"…. I should really look this up to ensure it is an accurate quote but you know what I mean…
My plan is equal quarterly purchases as per AA. That plan has been "on hold" for the better part of a year as I was weary of valuations. How long will I keep it on hold, who knows. ;). Praying for a significant dip asap to restart.

Ah emotions. This is not advise to follow. I'm just sympathizing with you.
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Re: Shame shame … market timing

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It's good to know it's not just me!
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Re: Shame shame … market timing

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Rooster wrote:Knowing that, I do the same as the op. Didn't sell anything, but hardly bought new equities last year as I didn't like valuations causing me to be sitting on more cash/short term bonds than my AA calls for. Only purchases I made last year were in asset classes where valuations had declined/not gone up too much (reits, emerging markets, some dividend stocks).
I don't think this is necessarily a bad idea. Perhaps if one was sitting on too much cash for multiple years, then that is clearly a case of market timing, but I see no need to have to commit cash within days/weeks/months of when one has the cash to invest. Buy on dips, buy out-of-favour sectors, etc. is sensible, as long as one IS buying from time to time. It makes a difference as well if one is in the late stages of accumulation versus starting out.

Those starting out are best to commit the cash as soon as they have it, essentially DCA'ing, because it is a forced savings/investment program with funds that would otherwise more likely be distracted/allocated elsewhere and there may be 20-30 years of compounding/investing left. They also may not have much tied up in invesments yet either.

Those in late stage accumulation, e.g. 10 years or so to retirement, may already have a sizeable investment account that IS working for them as the OP said and there is not the same urgency to deploy new cash, new cash being a smaller portion of account net worth. In that case, more patient value investing brings more value to the table (with the years left to invest).
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Re: Shame shame … market timing

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NotJustDreaming wrote:It's good to know it's not just me!
I did invest my maximum for 2014 RESP, RRSP, TFSAs in January. 2013 left REITs and EM so far behind it was easy enough to decide to put all money towards these according to my planned allocation.
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Re: Shame shame … market timing

Post by Rooster »

Thanks AltaRed.

I think what bugs me most is that it's not rules based...simply because I can't find a rules based approach to market timing that is supported by research. ;). It's gut feelingish.

Had read an article some time that left an impression (here it is if anybody is interested, graph on page 4 was most interesting in my view: http://www.financialarchitectsllc.com/R ... 20PE10.pdf). Was on PE10 (which itself i only use as a broad indicator with limitations) and suggested there was little alpha (if not mostly loses) to be gained by sitting out (and holding out is a limited version of sitting out) at differed valuation points. From that, i though "meh, not worth it...well maybe above PE10 of 25 i should get increasingly cautious"...which is roughly what i'm doing. A general belief that tapering would bring prices down (to align yield with higher interest rates) also caused me to hold off.

Not necessarily bad, could end up being good. Just haphazard and really just guess work.
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Re: Shame shame … market timing

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NotJustDreaming wrote: I've paid attention to the 'buy low, sell high' advice. And read about how many studies have shown that investing a lump sum now is better than dollar cost averaging. Those two seem contradictory to me at this point and now it's almost like I'm frozen.
I don't think that they're contradictory. "Buy low, sell high" is, by itself, nothing more than an empty slogan. How do you know when a stock is low, or high? You have to have a model, either explicit (based on numbers, graphs, algebra, etc) or implicit (based on gut feel). In my experience, such models are wrong most of the time.

The real conflict is between investing a lump sum as soon as you have it, and cost averaging overt a period of time. To my mind, the choice of action depends on your attitude toward losses. If you can take them in your stride, then the lump sum option is best. After al, the longer you put your money to work, the more (on average) you will earn. But if losses, and especially bigger losses, cause you anguish, then you are better to spread your money over time. That way there won't be big individual losses I(although cumulatively there may be, it won't feel as bad), and you won't kick yourself at night.
I think I've got too many words of wisdom in my head and don't know when to use which, when. "Be greedy when other's are fearful and be fearful when other's are greedy"
Another empty slogan, in my opinion. Generally, investors simultaneously want to get as high a return as possible while minimizing the probability of loss. They feel this way all the time. That's why we have so many (inconclusive) discussions about the risk-return trade-off. The trade-off will differ for different investors. That's what makes a market -- if everyone felt the same way, there wouldn't be any trading.

The slogan may stand for a contrarian strategy, i.e. sell when stocks are going up (or have gone up a lot) and buy when stocks are going down, or have gone down. The strategy is a good one, if your time horizon is ten to twenty years and if you have the discipline to hold on to your strategy as stocks continue on their upward or downward path for months, or years, or even decades. Because we know that stocks also have momentum, i.e. the trend continues in the short term.

Between momentum in the short term and returning to the mean in the long term, there's that soggy middle where I am -- a horizon of five to ten years. Buy and hold for me. That's a slogan too. But at least it's actionable.

As others have said upthread, the best way is to understand your attitude toward losses (or risk) and, based on that, draw up a plan, at a time when emotions are low. Then stick to plan when emotions are high.

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Re: Shame shame … market timing

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NotJustDreaming wrote:
deaddog wrote:Come up with a Plan you are comfortable with.

Follow it.
Yeah. Thanks for that! :)
I've been investing for about twelve years now. And have only had 'a plan' for the last seven years or so. I've paid attention to the 'buy low, sell high' advice. And read about how many studies have shown that investing a lump sum now is better than dollar cost averaging. Those two seem contradictory to me at this point and now it's almost like I'm frozen.
Does your plan have an exit strategy? There is no law that says once you buy a stock you have to keep it.

We are 5 years into a bull market. Or are we? Did the 20% correction in 2011count as a bear market? Are we only a couple years into a bull market with a couple more to go?

If you are a value investor and you can’t find value then sit on your hands and wait. Or you can dip your toe in and be prepared to pull it back out if the market turns.
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Re: Shame shame … market timing

Post by Rooster »

George,

You're a great poster (like many others). Your insights are greatly appreciated.

On that note, with a roughly 20 year horizon, is there strong evidence that market timing works? What would be useful valuation points? Anything that could be pointed towards specifically or is it just mean reversion and the farther you are from mean the most you have to gain long term?
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Re: Shame shame … market timing

Post by NotJustDreaming »

Thanks George,

You've put this in perspective for me.

I know I'm good with losses. No problem. I'm not so good at making mistakes. Not to say I don't make them. But those are the things that make me wake up at night. The 'I should've known better' mistakes.

A market drop would cause the whole portfolio to go down. I won't even notice how much this recent purchase would be effected.

I'm going to do my purchases now.
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Re: Shame shame … market timing

Post by NotJustDreaming »

[/quote]
Does your plan have an exit strategy? There is no law that says once you buy a stock you have to keep it.

We are 5 years into a bull market. Or are we? Did the 20% correction in 2011count as a bear market? Are we only a couple years into a bull market with a couple more to go?

If you are a value investor and you can’t find value then sit on your hands and wait. Or you can dip your toe in and be prepared to pull it back out if the market turns.[/quote]

Great point. I'm an index investor.

And I didn't think of the last five years as a bull market. Only the last several months. :)
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Re: Shame shame … market timing

Post by NotJustDreaming »

AltaRed, I was stuck in my draft messages before those latest posts. Here is my draft message…. before I decided to just be a couch potato again….
I don't think this is necessarily a bad idea. Perhaps if one was sitting on too much cash for multiple years, then that is clearly a case of market timing, but I see no need to have to commit cash within days/weeks/months of when one has the cash to invest. Buy on dips, buy out-of-favour sectors, etc. is sensible, as long as one IS buying from time to time. It makes a difference as well if one is in the late stages of accumulation versus starting out.
I like this. It makes sense to me. I think I'm a bit away from sitting on too much cash. If I'm going to sit on it for a bit I'll have to find something better than just cash in my brokerage account though. This TFSA contribution is just under 1.5 % of the portfolio. If I sit on all our investment contributions, RESPs, TFSAs RRSPs and taxable accounts I will be at 10% cash by the end of the year.

I rebalance with new contributions. Most likely a large chunk would go into the Cdn Bond Index anyway.

I don't think I'm at risk for not making the investment contributions at all if I just hold onto future contributions. Though it makes sense to put the RRSP and RESP contributions in the brokerage accounts so that I still get the tax credit and CESG respectively.

This forum is so great! Especially when I'm confused...
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Re: Shame shame … market timing

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ghariton wrote:
NotJustDreaming wrote: I've paid attention to the 'buy low, sell high' advice. And read about how many studies have shown that investing a lump sum now is better than dollar cost averaging. Those two seem contradictory to me at this point and now it's almost like I'm frozen.
I don't think that they're contradictory. "Buy low, sell high" is, by itself, nothing more than an empty slogan. How do you know when a stock is low, or high? You have to have a model, either explicit (based on numbers, graphs, algebra, etc) or implicit (based on gut feel). In my experience, such models are wrong most of the time.

The real conflict is between investing a lump sum as soon as you have it, and cost averaging overt a period of time. To my mind, the choice of action depends on your attitude toward losses. If you can take them in your stride, then the lump sum option is best. After al, the longer you put your money to work, the more (on average) you will earn. But if losses, and especially bigger losses, cause you anguish, then you are better to spread your money over time. That way there won't be big individual losses I(although cumulatively there may be, it won't feel as bad), and you won't kick yourself at night.
ISTM it also depends on the relative size of the lump sum to the portfolio. For instance if your portfolio is $100k and you inherit a lump sum of $50k (let alone $100k or $1M) then you want to think carefully about investing it all at once. OTOH if the lump sum is $5k then you might as well invest it as soon as you get it because in the long run it's not going to make much difference no matter how markets bump and grind along the way.
"Buy low, sell high" is, by itself, nothing more than an empty slogan.
Agreed. If I had it to do over again my handle would be Byan Holde ;)
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Re: Shame shame … market timing

Post by j831robert »

Jeez, I'm a bit slower than usual this morning but Bylo, I sure like that handle Byan Holde. If you don't want it, can I have it ?
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Re: Shame shame … market timing

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Bylo Selhi wrote:
ISTM it also depends on the relative size of the lump sum to the portfolio. For instance if your portfolio is $100k and you inherit a lump sum of $50k (let alone $100k or $1M) then you want to think carefully about investing it all at once. OTOH if the lump sum is $5k then you might as well invest it as soon as you get it because in the long run it's not going to make much difference no matter how markets bump and grind along the way.
Are you not just playing mind games with yourself? If you are investing for the long run why not invest the whole amount? It’s what you do when you invest in real-estate. (If you consider your home an investment)
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Re: Shame shame … market timing

Post by NotJustDreaming »

In case it's not said often enough, all of you who take the time to reply to threads like mine, your insight and experience is awesome to have. It's not like I can go ask my neighbour or anything like that.... :rofl: Okay, my neighbours probably didn't deserve that.

Either way, it's great to have a resource like this forum. Thanks much!

After rereading the thread (to make sure I didn't miss anything) I was a bit perplexed about what has changed for me. Especially when the five year market run was pointed out. I shouldn't have said I usually contribute a lump sum to my TFSA each January because January 2013 was the first time I did that and I was poised to do it again this year. And I contribute a lump sum to our RRSPs each March because we don't have much room left after our RPP contributions. in June of this year, we transferred everything to TD Waterhouse so that I could move everything to ETFs instead of e-series.

Prior to that, for our TFSAs, RESPs and taxable accounts we just had the automatic preauthorized purchase plans that were completely painless as far as thinking about and double guessing is concerned.

I'm going to have to stew on this and if I get frozen like this again maybe I should go back to PPPs to put it back on auto pilot.

My motivation for moving to lump sum contributions at the beginning of the year was because I wanted to move to ETFs and avoid the commissions in a monthly plan. Though I think there might not be any in a Waterhouse brokerage account.

Either way, I haven't moved anything to ETFs yet! Pathetic procrastination.
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Re: Shame shame … market timing

Post by BRIAN5000 »

ISTM it also depends on the relative size of the lump sum to the portfolio. For instance if your portfolio is $100k and you inherit a lump sum of $50k
Only depends on how you invest the $50k. If you have a diversified portfolio across numerous asset class's you can invest it all at once. If you're considering investing $50k into ONE asset class only then it's a different story.

You can put money into TFSA, RRSP etc. and hold it in a HISA without committing it to the market at this moment.
I'm going to have to stew on this and if I get frozen like this again maybe I should go back to PPPs to put it back on auto pilot.
:thumbsup: This is what worked for me. I had/have a consistent amount of money from dividend and interest income rolling back into the market at all times. Combined that with a market timing approach - when it looked like something was on sale add to it. There's nothing saying you can't use multiple strategies.
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Re: Shame shame … market timing

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deaddog wrote:Are you not just playing mind games with yourself?
Probably. People tend to do that, at least as they think through an issue. It's just human nature. People generally should do what lets them sleep comfortably even if it's not necessarily the most rational option. That way they're more likely to stick with the program even as markets gyrate wildly. Note also that I didn't take sides. I said that if you come into a large lump sum then "you want to think carefully about investing it all at once."
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Re: Shame shame … market timing

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If I had it to do over again my handle would be Byan Holde
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Re: Shame shame … market timing

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For the OP, I would place the money into the respective registered plans. Consider buying short term FI.
Reevalute your AA to determine if your current equity exposure is too high! Based on that anaylisis, make your decision.
My interpretation is that you have reached your comfort zone with your equity exposure and need to pause, Dejavu.
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Re: Shame shame … market timing

Post by ghariton »

Rooster wrote:On that note, with a roughly 20 year horizon, is there strong evidence that market timing works? What would be useful valuation points? Anything that could be pointed towards specifically or is it just mean reversion and the farther you are from mean the most you have to gain long term?
John Campbell and Robert Schiller wrote a paper some years ago that started a huge literature. I've only read parts of it. My general impression, though is that you can do some market timing, sort of, if you are looking at least ten years out. Recent studies suggest at least fifteen. Schiller of course uses as indicator of expensive or cheap the ratio of price to ten year average of earnings. Others use Tobin's q, essentially a ratio of what it would cost to reproduce assets to what the market price is. Note however, that these allow market timing in the sense that using them will increase your chances of outperforming -- and that increase is small. They certainly do not guarantee that you will outperform.

As far as I am concerned, I view all such studies based on historic data with some scepticism. Stock valuation -- and human experience more generally -- is much too rich and complicated to be captured by a few indicators. I keep expecting the historic relationships to break down. But of course I may be waiting a long time.

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