Market Timing

[tjh290633]

As Sir Humphrey would have put it, very courageous.

TJH

[TheMotorcycleBoy]

As Sir Humphrey would have put it, very courageous.

TJH

I guess you're replying to:

Pessimists buy bonds

Optimists buy equities

What about junk bonds? We bought IPF1 and PMO1 a few months back.....surely that implies optimism?

But surely there's no such thing as pessimism/optimism/courage in any of this malarkey (investing)........is it not just a measured risk vs. return play, in the same way as a LTBH Carillion holding must have been for many?

[OhNoNotimAgain]

As most "rules-based funds" track an index (and most of those track markets), your claim is really that the past performance of indices, indeed markets, is a guide to their future returns.

What is your evidence for that?

The Barclays and Credit Suisse annual capital markets reviews.

Those are simply historic studies. They don't make any claims about their predictive value for future returns.

No, but their evidence is that the bulk of returns comes from dividends, growth in dividends and reinvested dividends. As long as the laws of compound interest apply simple maths would predict continuing modest growth in the future.

[Bubblesofearth]

No, but their evidence is that the bulk of returns comes from dividends, growth in dividends and reinvested dividends.

No, for the market overall it's about 50/50 between dividends and capital gain.

Many companies, especially small companies, retain earnings whilst growing rather than paying a dividend. And some of these give spectacular returns, Soco being a good example that many were invested in during the TMF years.

BoE

[mc2fool]

The Barclays and Credit Suisse annual capital markets reviews.

Those are simply historic studies. They don't make any claims about their predictive value for future returns.

No, but their evidence is that the bulk of returns comes from dividends, growth in dividends and reinvested dividends. As long as the laws of compound interest apply simple maths would predict continuing modest growth in the future.

Oh that old chestnut. Yawn. Didn't exactly work out in the 30s, or 60s or really since 1999 and, as you now admit, provides no evidence for your claim that "past performance is only a guide to future returns for rules-based funds".

It's a pretty surprising claim coming from you anyway really, given the dismal past performance of a certain smart beta fund ... although maybe in that particular case your claim is correct.

[OhNoNotimAgain]

If one looks at Funds on the HL web site, you can compare the performance of your chosen fund with other funds, equities or an index.

HL are very helpful and give you a choice of 2252 indexes !

I was doing a bit of research on a UK fund with an interesting take on fundamental indexing, related to income, but when I compared it to the All Share the performance did not incline me to do any further research.

Passive and rules based investing can work well but there are alternatives that also work very well.

I can't comment on specific funds but some general comments might be relevant.

QE created about $12.3 trilion dollars between 2009 and 2015 according to CNBC. That had the effect of devaluing cash and revaluing hard assets. It also pushed liquidity into some dark and dusty corners of capital markets wth small and mid cap stocks being notable. That is best illustrated by the 253% increase in the FTSE 250 over 10 years compared to the 150% increase of the FTSE 100.

QE clearly boosted riskier, and often illiquid, shares. Value shares underperformed over the decade. The decade was also unusual in not experiencing any significant bear market, which might be expected to hurt illiquid shares more than liquid big caps. This thread was tiggered by a concern over the valuation of the market as a whole and the wisdom of retaining cash to protect against a falling market. The fact that the market has not fallen means anyone holding cash has underperformed. But the investor would do better if there was a crash and then invested at the bottom, whenever that is.

In the same way an investor in a value biased fund may do better than the average/index if there is a correction. But, like the investor overweight in cash, suffers underperformance in a rising market. But unlike the investor trying to time the market he does not have to call the bottom.

That said it is interesting that over the last few year the UK All Companies sector, the net return after costs of all the funds largely exposed to the UK market has underperfomed the index by 5.5% over the last 3 years, i.e since QE finished. In contrast the sector outperformed the index by 14% over the last decade when QE prevailed for the majority of the time.

The point being that most UK active funds are overweight small and mid cap stocks which are deemed less well researched, less liquid and more amenable to be selected by active managers to beat boring old big caps that dominate dumb trackers. But that relationship has failed in the last 3 years as QE has faded.

It is easy to denigrate the man holding cash crying "beware the forthcoming bear market" simply because it hasn't happened. But we all know it will. We just don't know when or when the time to buy back will be. Likewise, the value investor is easy to critisize in a bull market, but things change.

[GoSeigen]

The Barclays and Credit Suisse annual capital markets reviews.

LOL. I don't know about he CS reviews but the Barclays ones from ten years ago were utterly wrong about the coming decade. They were simply trotting out what they'd said the previous ten years. I suspect they will be clueless again at various times.


GS

[OhNoNotimAgain]

The Barclays and Credit Suisse annual capital markets reviews.

LOL. I don't know about he CS reviews but the Barclays ones from ten years ago were utterly wrong about the coming decade. They were simply trotting out what they'd said the previous ten years. I suspect they will be clueless again at various times.


GS

I wasn't aware that the Barclays Equity Gilt study ever made forecasts. And I haven't seen one.

[BusyBumbleBee]

As I understand it (from the old Motley Fool) - the only way to time the market is to go to the Time Travellers Conference. I'm planning to go last week.

[torata]

Most commentators say that it's a mugs game trying to time markets. At the same time a number of fund managers seem to be upping the proportion of cash or near cash in the funds they run.

Currently I am about 25% cash in my ISA and SIPP. I draw cash from each but the natural yield almost covers what I draw. I keep mulling over whether i should
(a) reinvest most of the cash in global funds now
(b) drip feed the cash into those same funds over say a 1-2 year period
(c) doing what I am doing now i.e. hanging on for a correction prior to investing
(d) cutting my cash to say 15% and putting 10% into the market now

I am sure that others are in a similar quandry. There is no right answer. But I am tending towards (d). Whatever I do it will probably be wrong, but there are few other options with cash and gilts yielding peanuts.

Anybody else decided what strategy to follow?

Noslien

Just out of interest, did you do anything over this last week?
(I topped up a global tracker on Thursday)

To repond to your question (not to answer it), my SIPP has about 10% cash, but other portfolios have a 'no cash' policy, ie invest when it's cost effective. So I continually dither about what to do with the Sipp cash and have done over the last 5+ years, but the others are no brainers and so I don't worry about market timing. I wonder how much that dithering has cost me in terms of dividend and capital appreciation.

I'm gradually coming to the point where I'm going to commit to 100% investment in the Sipp (I'll do a rebalance at the time), and mentally associate 'cash' with the cash outside all portfolios. If the market correction does come then that 'external' cash can go into the portfolios. I'm still working, so I can gradually build up the cash elements again.

HTH

torata