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Bozo’s Question of the Day
By JLP | July 2, 2008
Today’s Question of the Day comes to us from AFM reader, Bozo:
Given all the pros and cons as of late regarding the stock market, and the classic analysis of John Bogle (formerly of Vanguard) on index investing and “not trying to time the market”, it might be fun to ask:
“Have you tried to catch ups and downs in the stock market? Have you succeeded? If so, any suggestions?”
This might spark a bit of back-patting, for those that have done well. For me, well, I’m down for the year (about 2.5% overall), but only because my CDs are hammering away at 5.75%.
Exclude those who are overweight energy; yes, we know you are up. Your day will come. It all reverts to the mean. Trust me, I held energy stocks when you could not give away Exxon or the drillers as a “gift with purchase”.
Yours,
Bozo
PS: Hope you had a nice vacation.
The only “timing” I do is done when I rebalance my portfolio to get it back in line with its allocation. No, it’s not exciting, but I’m not a market timer.
What about you? Are you like me or do you try to time the market?
NOTE: Comments left with hyperlinks to some “trading system” or something silly like that will be deleted so please don’t waste your time.
Topics: Investing |
July 2nd, 2008 at 11:29 am
Hey JLP, I’d love to see you put together one of your analyses where you looked at the performance of an investor that invested the same total sum of money each month for 12 years for some long-term time frame (+10 years at least)…
But then look at it as if they had just invested in Januaries, or Februaries, etc. I’m curious how dollar-cost-averaging returns are affected by frequency.
July 2nd, 2008 at 12:47 pm
Until the last couple of years or so, you could always count on buying stocks after Labor Day and selling them before Memorial Day to beat “the market” (remember the adage, “sell in May and go away.”). The months just before and just after the New Year were always the best. I’m curious, along with Jesse, does that make sense any more? It might have, this year (that’s for sure!!!!!!).
July 2nd, 2008 at 3:14 pm
All of my market timing “success” has been purely accidental. I rebalance when my allocations exceed 120% of target weight. Sometimes I have been lucky, other times not. Market timing does not work so why waste the effort.
July 3rd, 2008 at 11:22 am
Aside from my Roth IRA which I have contributed to in full around February every year for the last 3 years, I’m fairly new to investing. I’ve been saving cash in excess of my emergency fund for the last year and I decided to take the plunge and buy into Vanguard’s S&P 500 index fund in a taxable account.
This was right after the worst days at the end of June and I’d like to hope I timed my purchase fairly well despite the little significance that it will likely make in the long run. I had kind of been waiting for such an opportunity and happy I took it.
July 6th, 2008 at 11:07 am
Yes, I time the market. I’m up 28% year-to-date in the account that I trade somewhat frequently. In another account more frequently traded, I’m up 20% in the last 3 weeks. But I’m retired and it’s been my primary occupation for the last 15 years. I have worked on it every single day. Success has not come easy. But when you finally figure it out, it becomes a lot easier. I do not envy people trying to make enough for retirement in their 401Ks. For many buy-and-holders, their whole future is premised on the hope that the market will be kind to them. That’s not exactly what I call taking control of your future. Without getting into the short term trading that I do a lot of, a simple moving average approach to the market could greatly enhance results, essentially putting you back in control.
Dick
July 6th, 2008 at 12:22 pm
Altho it wasnt planned that way, I did get lucky enough to get in to the market right after the March crash. I made the decision that I would not do any investing until I was completely debt free and had a fully funded emergency fund. During the time I was building my base platform the market died and continued to die thru my journey to be debt free and save up the amount to begin investing. I had saved up the minimum to open a ROTH IRA, about the same time March hit its lowest point. I now dollar cost average in to the market once a month during a specific week. I DO try to hit the day during that week that has the lowest day when I buy in (buy on sale) It have been able to pull it off about half the time. But I always set a cut-off day (within 2 or 3 days of my planned buy date).
July 6th, 2008 at 10:02 pm
I’m primarily an allocation investor, with percentage allocation for large, mid, foreign and bonds, with a small percentage for bond and alternative.
I do “timing” in the sense that I allow myself a 7% fudge factor on allocations: the best example was the huge run-up in the S&P and Dow P/E during the 1999-2000 tech boom, when small/mid value stocks were left for dead. I cheated on my allocation there, shifting from S&P index and Fidelity Contra (a fund I love) to Fidelity Low-Price. That, my foreign allocations, and selling most of my bio-tech holdings in 2001 saved my bacon in 2001-3.
More recently, in the alternative area, two years ago, I got scared about sub-prime and alt-A and put a small percentage (2%) in GLD and gold mutual. Similarly, in early May, after the relief rally after the Bear Stearns bail-out, I put a 1% allocation in SKF, selling half a week ago and letting the rest ride. I was sure banks/financials were going down, along with the rest of the market, but I didn’t back that up with a reverse index beyond financials.
I’ve found it’s easier to be right on your idea, but a lot harder to be exact on the timing, so I don’t recommend plays like SKF, unless a) you’re very sure (and humble), b) protect yourself with a stop loss, and c) stake only a small percentage of your portfolio. Now the problem is figuring out when to sell, since I think the bad news will persist for a year to two, but we are also due a short-term relief rally (not as strong as March’s).
If markets are suffering from group-think and are severely mispricing assests (like small value in 1999/2000) you can stake more and be willing to wait. It took more than two years for the market to see it my way, so I feel lucky I was either stubborn or lazy not to shift back.
Finally, dividing assets helps: long term in my 403b and wife’s main 401K, smaller trading accounts in roll-over IRA or funded IRAs.
The above works for me–I don’t really recommend it for you unless it is a good fit with the way you think. For our first 12 years, until assets built up, I used a allocation strategy.
July 8th, 2008 at 12:14 am
I “time” the market. I use the 6-month and 12-month simple moving average as my fast (signal) and slow lines. Basically it generates a long or short signal every few years.
I’ve been on the sidelines the last few months.
July 8th, 2008 at 4:51 pm
Josh,
You’re on the right track using moving averages. Here’s another approach using them:
1) When SPX (or another index of your choice)is trading above both the 55 & 233 day moving average, be 100% long.
2) If SPX goes below the 55, be only 50% long. If SPX goes below both the 55 & 233, be 100% in money market or be short.
3) Reverse this process when the market moves back up.
Use one of the ETFs that reflect the market of your choice. The symbol SSO, for example, trades in sync with the SPX, times 2. SDS will let you short (times 2) the SPX, which will make you money while the SPX is below both moving averages as indicated above. Rather than use a crossover of the 2 moving averages like you do, try just taking the index price itself crossing each moving average for your signal to take action. This eliminates a lot of the lag waiting for the two moving averages to cross over.
The only detriment to using moving averages is the potential for whiplash. When price crosses below, for example, and then immediately crosses back above, you will lose some money if you act on each crossover. But if you don’t act, you usually live to regret it by being on the wrong side of the market. The little bit of whiplash you suffer from using the approach above will be minuscule compared to the reward you should reap.
Dick