Market Timing

[Noslien]

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

[Itsallaguess]

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?

It sounds like you've got a bit itchy to do something. Nothing wrong with that - we all need to feel like we're in active control of our investments one way or another.

Thinking aloud, could (d) actually kill two birds with one stone over the longer term perhaps?

What I mean by that is that it might cover the itch you've currently got, whilst maintaining a still quite respectful chunk of cash at the 15% level, but just as importantly, I'm wondering about what might then happen with regards to your cash draw and natural yield, and how that might help any future itches you might get....

If (d) was carried out, and you put 10% of your cash to investment-use, what would be the likely impact on that natural yield, and what would you propose to do with any potential rise from it's current position?

If you think you're likely to get 'itchy-to-do-something' again in the future, then you might be able to use the natural-yield of this additional 10% investment as a feed-through for future top-ups, to assuage that future-itchiness, which is what I meant by (d) having the potential to kill two birds with one stone....

I'm still working, but have been at around 15% cash or cash-equivalents for some time now, but with any additional capital from dividends or savings over and above that level happily being fed into the market.

That situation seems to suit me personally, by maintaining some form of defensiveness whilst still allowing myself to remain '100% invested' with what I've got in the market now, with absolutely no thoughts regarding selling anything else down, and also no qualms about feeding extra capital over and above that 15% level into top-ups or new investments. I consider myself very lucky to have found a sweet-spot that enables me to tick all my boxes, and I think a large chunk of this investment malarky is finding just where our own sweet-spot is...

Just some thoughts...

Cheers,

Itsallaguess

[tjh290633]

I still maintain that it is best to stay fully invested, apart from a strategic reserve. Reinvesting surplus dividends as they accumulate means that you buy more income as the market falls.

Not only can you not predict market falls, you don't know when the upturn is coming.

TJH

[vrdiver]

Not only can you not predict market falls, you don't know when the upturn is coming.

Actually, I find it really easy to predict both: it will fall (specifically whichever element I buy) very shortly after I buy and the upturn occurs after I sell. The issue is that the prediction is only accurate if I actually buy or sell, not if I just think about it.

There must be a thiotimoline stock that would allow me to benefit from this skill, but so far I haven't found it...

VRD

[Noslien]

Thanks for the comments. I am not desperate to trade. In fact I don't buy/sell very often these days. I just resent my cash earning nothing for month after month. My goal is to be 95% invested (fully invested for me) and then just review the mix annually, but like Vrdiver I seem to invariably get the timing wrong. Nevertheless I will invest a further 10% over the next few weeks. Investing in the new IT Smithson, which seems to meet my criteria, could take some of it, depending whether applications are scaled back or not. The rest will probably go into topping up Lindsell Train Global and FRCL. We shall see.

Regards
Noslien

[Parky]

My solution is to put a chunk of my money into thinks like Personal Assets (PNL) and Capital Gearing (CGT) who will do the timing/asset allocation for me, and with luck get a better result than I could.

[Dod101]

Thanks for the comments. I am not desperate to trade. In fact I don't buy/sell very often these days. I just resent my cash earning nothing for month after month. My goal is to be 95% invested (fully invested for me) and then just review the mix annually, but like Vrdiver I seem to invariably get the timing wrong. Nevertheless I will invest a further 10% over the next few weeks. Investing in the new IT Smithson, which seems to meet my criteria, could take some of it, depending whether applications are scaled back or not. The rest will probably go into topping up Lindsell Train Global and FRCL. We shall see.

You have mentioned three funds which are as good as you are going to get I think and so I would have no hesitation in investing all except what TJH called a strategic reserve in them. As you are discovering you cannot time the market and so if you are drawing dividends to live off you need the money to work for you.

Dod

[OhNoNotimAgain]

My solution is to put a chunk of my money into thinks like Personal Assets (PNL) and Capital Gearing (CGT) who will do the timing/asset allocation for me, and with luck get a better result than I could.

Why, the evidence shows that a dumb tracker has done better than both those trying to time the market over the last 3 years? As Terry says it is better to stay fully invested.

Investors, and the FCA, have yet to accept that past performance is a guide to future returns for rules-based funds.

[Alaric]

Investors, and the FCA, have yet to accept that past performance is a guide to future returns for rules-based funds.

That's an interesting thought because most funds are rules-based to a greater or lesser extent. Often the title is a give away, for example a "Fixed Interest" fund will have a rule requiring it to invest in bonds whilst "Japan Smaller Companies" will invest in a subset of the Japanese equity market. Even supposedly actively managed funds may follow a benchmark, so their past performance is likely to have followed the benchmark and may do so in the future.

So a fund with a set of rules that makes it a low return, low volatility performer is likely to continue in that manner, whilst similarly one which offers high returns coupled with high volatility continues in that vein. So I think the mantra about past performance being no guide to the future needs to be revisited. The FCA have even done this as witnessed by the strange projections that Investment Trusts are now required to provide.

[WorldCupWilly]

Alaric wrote: So a fund with a set of rules that makes it a low return, low volatility performer is likely to continue in that manner, whilst similarly one which offers high returns coupled with high volatility continues in that vein. So I think the mantra about past performance being no guide to the future needs to be revisited. The FCA have even done this as witnessed by the strange projections that Investment Trusts are now required to provide.

Couldn't agree more. Of course past performance is an imperfect criteria to judge future prospects but it is at least a matter of fact rather than opinion.

IMHO the main difference between pure rules based (say Smart BETA ETF) and active conviction is the human factor. Some see that as a weakness in actively managed funds but I think its more of a nuanced weakness of big "corporate" fund managers. Those that are led by a resolute Buffet, Train or Smith are less likely to lose their nerve and index hug so can and do consistently outperform their benchmark. Continuity and succession is often cited as a risk of their funds, which I would acknowledge. But I'd still rather back them than someone whose priority is simply delivering the benchmark.

WCW

[Backache]

My solution is to put a chunk of my money into thinks like Personal Assets (PNL) and Capital Gearing (CGT) who will do the timing/asset allocation for me, and with luck get a better result than I could.

Why, the evidence shows that a dumb tracker has done better than both those trying to time the market over the last 3 years? As Terry says it is better to stay fully invested.

Investors, and the FCA, have yet to accept that past performance is a guide to future returns for rules-based funds.

I wouldn't disagree that remaining fully invested is a good thing , but criticising a fund for doing worse than the market over a three year period when the market has gone up pretty solidly for those three years is hardly a fair comparison.
What they are trying to do is preserve wealth during market dips as well as profiting from market advances. As there have not been any significant dips for far longer than three years you wouldn't really expect them to outperform.

[OhNoNotimAgain]

I wouldn't disagree that remaining fully invested is a good thing , but criticising a fund for doing worse than the market over a three year period when the market has gone up pretty solidly for those three years is hardly a fair comparison.
What they are trying to do is preserve wealth during market dips as well as profiting from market advances. As there have not been any significant dips for far longer than three years you wouldn't really expect them to outperform.

Why not? A dumb tracker that just sits there and does nothing is the default option. If a fund manager says he or she can do better than that by stock or asset selction or by timing the market must be able to justify the time and effort involved irrespective of whatever the market is doing.

Think about it. A team of very expensive fund managers serviced by all the brokers and company meetings has incurred additional costs that not only exceed any additional return created but have actually destroyed value.

This baloney about protecting assets in a downturn overlooks the fact that most of the long-term return from investing comes from income and not changes in capital values. In a downturn the price of everything goes down but if fund has grown and reinvested its income during the good times it will start from a better, i.e. higher, position and will recover more quickly.

[Backache]

Why not? A dumb tracker that just sits there and does nothing is the default option. If a fund manager says he or she can do better than that by stock or asset selction or by timing the market must be able to justify the time and effort involved irrespective of whatever the market is doing.

Think about it. A team of very expensive fund managers serviced by all the brokers and company meetings has incurred additional costs that not only exceed any additional return created but have actually destroyed value.

This baloney about protecting assets in a downturn overlooks the fact that most of the long-term return from investing comes from income and not changes in capital values. In a downturn the price of everything goes down but if fund has grown and reinvested its income during the good times it will start from a better, i.e. higher, position and will recover more quickly.

If a fund is not trying to outperform a bull market but to protect during a down turn by mixing it's asset balance criticising it for not outperforming a bull market is absurd.
Repeating nonsense about the majority of returns being from income does not make it true.
It is the multiplication of income with capital return that gives the long term return. I have no idea why you keep regurgitating this falsehood.

[LooseCannon101]

I am currently fully invested - 98% in a highly diversified world equity fund, and only 2% in cash.

There is no way one can tell when the market will rise or fall on a monthly or even yearly basis, but with rising company earnings and a reasonable correlation beween earnings and share prices, it is rational to expect prices to rise over the long term e.g. 10 years+. This assumes that there is no world-wide recession and that most companies remain in business.

[OhNoNotimAgain]

If a fund is not trying to outperform a bull market but to protect during a down turn by mixing it's asset balance criticising it for not outperforming a bull market is absurd.

Why would a manager not try and outperform a bull market?

The market spends more time going up than down.

[vrdiver]

Why would a manager not try and outperform a bull market?

Have you read the PNL objectives statement?

Personal Assets Trust’s objective is simply stated. It is to protect and increase (in that order) the value of
shareholders’ funds per share (otherwise known as net asset value per share, or “NAV”) over the long term.
To us this means not just examining performance over five or ten years but going right back to 1990, when
the Company became self-managed and so began its existence in its present form. Since 30 April 1990 the
NAV has risen at an annual compound rate of 7.1% compared to 5.0% for the FTSE All-Share Index and
2.9% for the RPI

https://www.patplc.co.uk/sites/default/ ... 202018.pdf

VRD

[OhNoNotimAgain]

Why would a manager not try and outperform a bull market?

Have you read the PNL objectives statement?

Personal Assets Trust’s objective is simply stated. It is to protect and increase (in that order) the value of
shareholders’ funds per share (otherwise known as net asset value per share, or “NAV”) over the long term.
To us this means not just examining performance over five or ten years but going right back to 1990, when
the Company became self-managed and so began its existence in its present form. Since 30 April 1990 the
NAV has risen at an annual compound rate of 7.1% compared to 5.0% for the FTSE All-Share Index and
2.9% for the RPI

https://www.patplc.co.uk/sites/default/ ... 202018.pdf

VRD

Thanks , that is interesting. It seems that the bulk of the outperfermance came in the first decade after launch when it at least started at 88% in equities. The underperformance against the FTSE All-Share seems to start from 2008 when it had zero exposure to equities and was full of cash and bonds.
Its timing of the market was therefore disastrous and shareholders would have benefitted far more if it had stayed fully invested as Terry suggests.

[Parky]

My solution is to put a chunk of my money into thinks like Personal Assets (PNL) and Capital Gearing (CGT) who will do the timing/asset allocation for me, and with luck get a better result than I could.

Why, the evidence shows that a dumb tracker has done better than both those trying to time the market over the last 3 years? As Terry says it is better to stay fully invested.

I don't really care too much about the performance over the last 3 years. I DO care about the performance between the day I bought and the day I sell (which is an unknown date sometime in the future). Nobody can guarantee relative performance over that period, so I will stick to my choice for now.

[OhNoNotimAgain]

My solution is to put a chunk of my money into thinks like Personal Assets (PNL) and Capital Gearing (CGT) who will do the timing/asset allocation for me, and with luck get a better result than I could.

Why, the evidence shows that a dumb tracker has done better than both those trying to time the market over the last 3 years? As Terry says it is better to stay fully invested.

I don't really care too much about the performance over the last 3 years. I DO care about the performance between the day I bought and the day I sell (which is an unknown date sometime in the future). Nobody can guarantee relative performance over that period, so I will stick to my choice for now.

The only thing that hasn't changed between 1990 and now is the name. It is a totally different fund from when it launched.

[midgesgalore]

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

Hi Noslien,
my investment time frame is forever so I intend to stay invested and hold on to some cash (as dry powder) in the event an opportunity arises for a lump sum investment.
During the financial crisis, ten years ago, the value of my equities portfolio of funds sank around 60%. I was working then so I went out cycling a lot and never really looked at my investments for about a year, hopeful the fund managers remained fully invested. I kept saving into more funds in my ISAs. Happily everything more or less recovered by 2010 or was well on the road to recovery.

Although my plan this time is to remain invested other investors might not do otherwise, e.g., if they are trying to build capital for an event in a not too distant future. It so happens I read an AICpress article on the investment outcomes due to two close bear markets; the tech stock crash and the financial crisis. I cannot say it is full of data but the hand waving argument in the 2nd two paragraphs is somewhat believable.
The rest of the article sets out to prove a lump sum investment is better than regular drip feed investment.
(A four minute read)

https://www.theaic.co.uk/aic/news/press-releases/investing-through-bear-markets-with-investment-companies

midgesgalore