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Market Timing

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
Pendrainllwyn
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Re: Market Timing

#169987

Postby Pendrainllwyn » September 29th, 2018, 3:20 am

OhNoNotimAgain wrote:Why would a manager not try and outperform a bull market?

I don't. For me the stock market is a collection of investment opportunities with very different risk profiles. Just because I choose to invest in the stock market doesn't mean to say I need to expose myself to all the risks in the market. I can choose my own objectives and risk profile. So if for example I want to ignore riskier elements such as loss making oil and gas exploration, technology or biotechnology companies on the hope that they will make good in years to come then that's OK with me even if they happen to be what's hot at a given or potentially extended period of time. I am quite happy to get a 12% return even if the market is returning 15% if 12% exceeds my objectives and I have a risk profile I am comfortable with. I also happily invest in mutual funds and investment trusts that are willing to accept market underperformance if that means they avoid hot, and in their view, over-priced market sectors.

Partly for this reason I track my absolute performance but I do not compare my portfolio performance to any benchmark. One of the mutual funds I invest in has an absolute goal of inflation plus 10%. Their goal is not to beat a market index so I am not alone.

If your goal is to beat the index regardless of what the index might comprise then I appreciate this approach will not be for you but it's fine for me.

Pendrainllwyn

OhNoNotimAgain
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Re: Market Timing

#170006

Postby OhNoNotimAgain » September 29th, 2018, 8:40 am

midgesgalore wrote:and hold on to some cash (as dry powder) in the event an opportunity arises for a lump sum investment.

The rest of the article sets out to prove a lump sum investment is better than regular drip feed investment.


midgesgalore


Bit of a contradiction there

OhNoNotimAgain
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Re: Market Timing

#170007

Postby OhNoNotimAgain » September 29th, 2018, 8:45 am

Pendrainllwyn wrote:For me the stock market is a collection of investment opportunities with very different risk profiles.

Pendrainllwyn


No, it is just beta, market risk and alpha, stock risk.

You can't avoid market risk but you can avoid stock risk. And, if you hold for over a reasonable time, historic data shows that equity, i.e. market, returns are always positive and beat all other asset classes.

hiriskpaul
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Re: Market Timing

#170016

Postby hiriskpaul » September 29th, 2018, 9:16 am

OhNoNotimAgain wrote:
Pendrainllwyn wrote:For me the stock market is a collection of investment opportunities with very different risk profiles.

Pendrainllwyn


No, it is just beta, market risk and alpha, stock risk.

You can't avoid market risk but you can avoid stock risk. And, if you hold for over a reasonable time, historic data shows that equity, i.e. market, returns are always positive and beat all other asset classes.

What is a "reasonable time". There have in the past been 20+ year periods when gilts have beaten shares. Not every can, with certainty, invest for a long period. If someone wants their money back, but is uncertain when they want it, then investing with low volatility/capital protection makes perfect sense.

Alaric
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Re: Market Timing

#170045

Postby Alaric » September 29th, 2018, 11:25 am

OhNoNotimAgain wrote:You can't avoid market risk but you can avoid stock risk.


An individual can always keep assets in property, cash or bonds, Buying any shares is making an assumption, usually justified, that they will outperform cash or near cash.

Bubblesofearth
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Re: Market Timing

#170066

Postby Bubblesofearth » September 29th, 2018, 1:32 pm

OhNoNotimAgain wrote:And, if you hold for over a reasonable time, historic data shows that equity, i.e. market, returns are always positive and beat all other asset classes.


sub in 'always have been' for 'are always'

Over long (reasonable?) periods of time equity returns are predicated on economic growth. We have been through a couple of centuries of phenomenal economic growth. Governments have encouraged growth, companies want to sell more products and individuals want more and better products. Hence the drivers of economic growth and corresponding equity growth.

Do you see this continuing indefinitely into the future? Any possible reasons why it might not?

BoE

TUK020
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Re: Market Timing

#170207

Postby TUK020 » September 30th, 2018, 8:58 am

Bubblesofearth wrote:Over long (reasonable?) periods of time equity returns are predicated on economic growth. We have been through a couple of centuries of phenomenal economic growth. Governments have encouraged growth, companies want to sell more products and individuals want more and better products. Hence the drivers of economic growth and corresponding equity growth.

Do you see this continuing indefinitely into the future? Any possible reasons why it might not?

BoE


Viewed at a macro/global level, the key drivers of economic growth are all about Human Capital and Productivity.
Global population growth continues apace.
The internet assures building the store of knowledge, and its widespread dissemination. Innovations diffuse faster than ever.
Liberal economic models (even in places like China) are proving that they create wealth and keep people from rioting on the streets. (OK, the UK looks like it may go into reverse here, but that seems like a local exception).
I read that 90% of all scientists and engineers who have ever lived, are alive and working today.

All of this looks set to continue. Sure this will run into bumps in the road, but from a global economics point of view, and long term horizon, I am an optimist+.
I might want to emigrate though.....

colin
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Re: Market Timing

#170234

Postby colin » September 30th, 2018, 12:14 pm

A simple way to practice a market timing strategy is to re balance to a fixed amount in an equity index tracker using funds from a variable amount kept in a lower volatility and hopefully non correlated asset, but even if the low volatility asset is correlated to a degree the strategy would still work though not so well.

tjh290633
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Re: Market Timing

#170249

Postby tjh290633 » September 30th, 2018, 1:12 pm

colin wrote:A simple way to practice a market timing strategy is to re balance to a fixed amount in an equity index tracker using funds from a variable amount kept in a lower volatility and hopefully non correlated asset, but even if the low volatility asset is correlated to a degree the strategy would still work though not so well.

So you are suggesting having two accounts, one with a tracker fund and the other in near cash, or bonds, and rebalancing from time to time?

I can see a situation where this is a good way to lose money big time.

TJH

colin
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Re: Market Timing

#170253

Postby colin » September 30th, 2018, 1:30 pm

I can see a situation where this is a good way to lose money big time.


Uh? which situation can you see?

tjh290633
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Re: Market Timing

#170309

Postby tjh290633 » September 30th, 2018, 5:57 pm

colin wrote:
I can see a situation where this is a good way to lose money big time.


Uh? which situation can you see?

In a prolonged falling equity market, when you are moving assets from a static or rising bond market into the tracker. You forego gains in line and make further losses in the other.

The market can stay irrational longer than you can hold out.

TJH

colin
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Re: Market Timing

#170344

Postby colin » September 30th, 2018, 9:08 pm

Quite a peculiar point of view from someone who prefers to remain more or less fully invested at all times.

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.

tjh290633
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Re: Market Timing

#170369

Postby tjh290633 » September 30th, 2018, 11:29 pm

:)
colin wrote:Quite a peculiar point of view from someone who prefers to remain more or less fully invested at all times.

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 at all. I avoid bonds like the plague. As long as my dividends keep rolling in and increasing, fluctuating capital values are of little consequence. As I said in your unattributed quote, a falling market means that reinvested dividends provide yet more income.

TJH

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Re: Market Timing

#170415

Postby Bubblesofearth » October 1st, 2018, 9:28 am

colin wrote:
Uh? which situation can you see?


To answer that question, any situation where the assets under question do not have comparable long-term returns. You would, over time, transfer more and more of your money into the asset with the poorer return. If that trend continued then you would remain in the poorer asset indefinitely.

Over the last century+ the returns on equities have been some 5% higher then cash and 4% higher then bonds. Any long-term re-balancing between these assets would have left you with very little stake in equities and with the bulk of your wealth in the poorer performing asset.

Of course, over short time periods re balancing can improve returns whilst assets move about a mean with similar returns. But this boost comes with risk. No surprise really given that almost all attempts to improve returns carry risk!

BoE

OhNoNotimAgain
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Re: Market Timing

#170419

Postby OhNoNotimAgain » October 1st, 2018, 9:46 am

tjh290633 wrote:Not at all. I avoid bonds like the plague. As long as my dividends keep rolling in and increasing, fluctuating capital values are of little consequence. As I said in your unattributed quote, a falling market means that reinvested dividends provide yet more income.

TJH


Pessimists buy bonds

Optimists buy equities

colin
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Re: Market Timing

#170443

Postby colin » October 1st, 2018, 11:32 am

The subject of the thread is ways to engage in market timing , as i have written above, a simple way to do that is to hold a fixed amount in an equity index tracker (or two or three whatever) and a floating amount in a less volatile asset. To suggest that can be more volatile than putting all the portfolio in the index tracker , which is the position taken by tjh290633 is just irarational thinking.

I can see a situation where this is a good way to lose money big time.
tjh290633 you have still not told us how this can happen, in a falling market one would have more funds available to invest than merely using dividends which is all you have, don't forget that when dividends are cut markets frequently fall.
Pessimists buy bonds
Optimists buy equities

for many people to be 100% invested in equities at all times is to be irrationally optimistic.

To answer that question, any situation where the assets under question do not have comparable long-term returns. You would, over time, transfer more and more of your money into the asset with the poorer return. If that trend continued then you would remain in the poorer asset indefinitely.

Well this comment does have some rationality behind it at least,Bubblesofearth, unlike the others! But 1) No it does not not 'answer the question' which i posed to tjh290633 2) Yes you have a point that just following the strategy suggested would produce an ever increasing amount in the lower volatility asset . So over time the portfolio would become lower risk and lower expected return, which for many of us is fine. The overall value of the portfolio would still rise but at a decreasing rate which is an opportunity cost of low risk investing which many of us have to bear, which is why I follow it because that is where my spending money comes from,so for me the amount in the low volatility asset is not allowed to rise indefinitely because I have to spend something, it's up to the user to adapt it to suit their requirements, if you can live with the extra risk the strategy can be adapted to suit the user such as by increasing the amount held in equities by the rate of inflation every year.
It is a market timing strategy because over time it ensures that more new money is added to equities when they are falling in price and when they rise money is transferred to the lower volatility reserve , to be spent and re invested.
Holding all your money in an index tracker is not a market timing strategy but a buy and hold strategy.
For me it's a way of escaping the difficult decision quandry described by Noslien in the first post.
It certainly saved my bacon when i began investing in 2007 on the eve of the financial crisis.

OhNoNotimAgain
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Re: Market Timing

#170462

Postby OhNoNotimAgain » October 1st, 2018, 12:14 pm

Accepting volatility is the requirement needed to get the better long-term returns from equities.

Trying to time the market just keeps journalists busy, stockbrokers paid and fund managers justifying their existence.

colin
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Re: Market Timing

#170526

Postby colin » October 1st, 2018, 3:22 pm

Trying to time the market just keeps journalists busy, stockbrokers paid and fund managers justifying their existence

Not if you use the method I have described.
Accepting volatility is the requirement needed to get the better long-term returns from equities.

Yes but most people have to keep that volatility within acceptable levels, we don't all have a full lifetime of investing ahead of us any longer.

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Re: Market Timing

#170654

Postby DiamondEcho » October 1st, 2018, 10:49 pm

OhNoNotimAgain wrote:Pessimists buy bonds. Optimists buy equities


...And those of us who are nearing retirement and have been through 'the economic cycle' a few times seek to find a balance in order to get some form of the alleged relaxed/hand-off retirement ? :)

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Re: Market Timing

#170656

Postby Hariseldon58 » October 1st, 2018, 10:54 pm

@colin

Your method has merit but so has that of TJH

I think your telling comment is that most people have to keep volatility within reasonable limits.

I rather suspect that TJH isn’t that bothered and in the long run his fully invested policy is likely to beat your market timing policy but you will have less volatility, doesn’t make either method right or wrong.

Rational Expectations: Asset allocation for investing adults by William Bernstein covers this topic well.

He talks about Tolerance for risk, capacity for risk and need for risk. All three govern the level of volatility that might be tolerable , someone with significant assets might have totally equity portfolio that generates say 3 times the income they require for everyday living could tolerate a 50 % drawdown in the capital value and the level of income from the portfolio and still be well off.

Someone else with less wealth and surplus dividend income above their daily needs, from equities has less capacity for risk and would be sensible not to have a totally equity portfolio, even if they have a huge tolerance for risk.

There is no one investment policy that is the right one for everyone. Passive investing is a sensible strategy for most people but active investing works just fine for others.

I’ve followed a largely passive route the last few years and it’s worked well but I’m now seeing good value in a number of Investment Trusts and I’m happy to switch subdtantial amounts to them.

It’s what makes investing interesting is the multiple routes to success and reading about different approaches.
The is no one right answer and what works great today may not work so well tomorrow. It’s worth keeping an open mind and being able to change your approach if required.


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