Timing the market


#1

I would like to dedicate this thread to discussing the latest market developments.

Some months ago I sold VUSA at Corner Trader, because I knew that it’s better to keep VTI at IB. I didn’t want to close CT account, so I thought I will buy VEUR instead. But I didn’t make the trade.

Moreover, I didn’t fund my portfolio in recent months, because I’ve been reading some convincing news about how we’re in a bubble and how Buffett has a record cash position etc.

As a result, about a half of my portfolio is in cash. Then, this morning I had a look at the charts and was surprised to see, that since the beginning of the year, only US is still growing, the rest of the market is going the other way.

So what’s your take on this? I put myself in this mess, and I cannot convince myself to invest. The market caps of companies like Amazon, Netflix, Tesla or Facebook seem bonkers. I know that timing the market is impossible, and the average investor knows more than me, but I’d be really gutted if I invested just before the bubble popped…

Btw, I heard a few of my friends say: I’ve been staying away from the stock market, but I’ll wait until the next crash and then I’ll buy!


Starting investing with IB
#2

I just checked yesterday how the SMI is performing against VT (bad comparison but still…) and I am so disappointed that I did not sell the only swiss ETF I have. (On my defense, I don’t need that money yet)

On the other side, VTI is basically horizontal since the beginning of 2018…


#3

Doesn’t look like it from the chart I posted. It looks like after the shakedown at the beginning of the year, all the markets decided it’s time for a bear market, but US didn’t get the memo.


#4

I meant VT (all world)


and excluding dividends.


#5

Well, duh. VT = VTI + VEU + VWO. VTI has been going up, VEU+VWO down, so it’s only natural VT has been going sideways. But it exactly shows that the market is not stagnating as a whole. There is a clear divide.


#6

Yeah.
Isn’t it interesting that it’s basically balanced? It’s like the money just moves between those “two” groups only and doesn’t go elsewhere.


#7

First, even Warren Buffet tells this, do not try to follow what Buffet is doing. He maybe has a lot of cash but this does not mean that cash is the king. This just means that Buffet is awaiting an opportunity and this opportunity is not necessarily easy to find for small investors working on index.
Yes, we are in a strange situation, with US Stock still rising and the rest of the world (emerging, Japan, South-East Asia Europe)in decline. If you work with percentage of your wealth allocated according to sectors this is a sign to increase a bit your positions outside of the US.
There is a lot of reluctance to invest outside of the US due to the tariffs declaration of Trump. Personally I see the declarations of Donald Trump (like those of Elon Musk) as some kind of market (stock and currency) manipulation. I am convinced that the economic growth goes in parallel with the quality of education and the ease to access to a good education. On this aspect the US does not have the winning cards and I expect that in the next 10 years the progression of south-east Asia will be a good surprise.
Last but not least, the US indexes are climbing but the USD is falling which means the price of an S&P500 ETF traded in CHF is falling actually.
Year 2017 was too nice, it can’t be like that every year.


#8

i think now is the best time to look into one’s IPS- Investment Policy statement, check the rebalancing and do what’s written in there :slight_smile:

here a really nice example from @MrRIP

(sorry for the annoying message but i personaly am convinced i’d do no good when timing the market)

https://forum.mrmoneymustache.com/investor-alley/‘but-right-now-the-market-is-at-an-all-time-high-’/


#9

IMHO rebalancing is the best approximation of correct timing that we have. All other ways suck. The difference between us and Buffet is that (1) Buffet is a chilled genius, (2) he is buying companies and thus is waiting for a nice opportunity to buy them cheaply (it is possible to time the price of a company), whereas we’re investing in the index and it’s practically impossible to time the index/market/economy. There’re lots of analyses showing that buy-and-hold is more effective than buy-the-dip and other forms of market timing.

So, if you’d like to still time the market, become full-time quant investor based on some behavioural aspects of market momentum or become a full-time value investor and try to time the price of particular companies. Otherwise, stick to regular investing and rebalancing. If you already have a bunch of cash, but you’re still afraid of investing at one shot - just spread it over time with dollar cost averaging.

PS. I don’t even care about the price of VT every month. I just buy it and forget about it. There’s so much other stuff to do in my life than worrying about coming crash.


#10

BTW The only “timing” I consider OK is Dollar Cost Averaging, even if it’s written elsewhere that’s not optimal from the financial point of view. (I consider it a “mental” tool if you are scared of investing too fast or at the wrong moment.)


#11

And how do you rebalance VT? My goal is also to have an approximation of VT, just split between VTI + VXUS, and I don’t give a damn about being precise to the last percent.

I’m well aware of how hard it is to time the market and how you shouldn’t do it. I was just thinking, that the closer you get to the peak of a bubble, the more signals there are, and the easier it should be to spot it. And recently I’ve been reading about many such signals.

Also, I don’t want to feel like a sucker if I invest a large sum just before the peak. Recently I discussed with a friend and told him how he should avoid 2nd pillar in a long term horizon, and how he can get better results with ETFs. He said he began investing in the early 2000s and he already had to deal with two crises and he didn’t make any money on the stock market. I just wouldn’t like to be that guy.

That sounds a bit cocky. Don’t tell me, that if someone convinced you a crash is coming, you wouldn’t consider selling. In the end, escaping before a crash could easily double the worth of your portfolio, halve the time to reach FI.

If you believe you can time the market, you go all in when you think it’s time. When you don’t, you go all in now. DCA is neither here, nor there. It’s just a psychological trick. The thing is, I don’t do monthly transfers to IB. I wait maybe half a year until I have a big sum to send. And that’s maybe not so smart, because then I always have seconds thoughts.


#12

We agree on that. I believe we should accept it. If it makes you sleep better, then it’s ok. You earn 5% instead of 9%? Ok.
What you do though is DCA reversed maybe? Why not investing every time you had the possibility? You might call it rebalancing, but you can rebalance every month. You do that maybe to save time or because it makes you feel better. Then do it. Not a big deal IMHO.

We can say what research/statistics says, but at the end of the day, if it makes us feel better to be sub optimal, then it’s ok.


#13

I rebalance between VT and my bonds/cash allocation. VT rebalances itself automatically - the only thing I do is just keep buying.

Well, that’s simply not true. Dot-com bubble was spotted almost 10 years too early by many investors who went into cash, and 2008-bubble was spotted by almost nobody.

Was sitting on cash in 2000s any better? I’m not sure what is an alternative to investing in the market with accepting the risk that it takes. The crash might come tomorrow, or it might come in the next 5 or 10 years. You could feel a sucker in both scenarios - in first if you invested and in second if you didn’t.

Perhaps, the problem is I don’t believe that anyone, including Buffet, is able to convince me that crash is coming really soon - “crash is coming” is a tautology, it’s always coming.

Besides, investing and FI is not everything in life. I equally care about peace of my mind and worrying about the market doesn’t help me with that.


#14

Well, to be precise, Robert Shiller predicted the bubbles, the problem is with predicting the crashes. Nobody can do that.


#15

And even those who spotted the Real estate bubble became way too early. Michael Burry concluded that there was a bubble as early as 2005. That is a long time to wait before the bubble popped.


#16

A bubble means that the price is inflated and that it will eventually drop below that level (crash). It doesn’t matter if it happens tomorrow or in 10 years. If you know that one day in the next 10 years you will be able to buy cheaper, then you shouldn’t buy. Your money will be better off on 0.1% savings account. So don’t tell me that spotting bubbles is not useful. The problem of Burry was that he was doing a short. I’m not trying to make money out of a crash, I’m just asking myself if this is already a bubble, or not yet.

But thanks for your comments, guys. This gives me a bit more courage to go and buy again :).


#17

thanks nugget :slight_smile:
(must admit my IPS is a little bit outdated, need a major review)


#18

my take on this is this one:


#19

Even in this case, the market regained value of 2005 within a year after crash bottom and the value of 2008 within two years. I think it’s just not worth the hassle. I think it’s easier and safer to continue investing in regular intervals and just invest more if you have a chance in the bottom. If you’re really want to buy the dip - just put some money aside and buy it when it comes, but keep also the main part of your investments on auto-pilot. Don’t put all your eggs in the market timing basket.

PS1. Besides, probability is on the side of those who don’t try to time the crash. Most of the time the buyers are right, non-buyers are right extremely seldom.

PS2. “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves. I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.” – Peter Lynch

PS3. Excellent post @MrRIP.


#20

Very cool post @MrRIP! I read it all. Interesting comments about the CAPE. Also like the bit about how the market has this high ratio already factored in the price, i.e. they’re aware of it, yet they stay invested.

But as you wrote, a low interest rate environment pushes people onto stock market. So if they finally raise interest rates and begin quantitative tightening, we may see the crisis. But yeah, that’s just the tip of the iceberg. The whole thing is so complicated that I’m definitely not qualified to bet on anything and hope for a good outcome.

Just keep walking the dog, I guess…