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 Posted: Sun Apr 01, 2007 2:17 pm Post subject: Market timing |
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Stock Strategies
Market Timing Strategy of Buying Stock
by InvestorGuide Staff (Write for us!)
If you ask around long enough, you are bound to hear just about every
conceivable system possible used for playing the stock market. Some
people just point to the history books and contend that the market has
averaged growth of around 11 percent a year when you go back 4 decades
- therefore, it makes sense to buy the stock and hold it. Eventually,
"buy and hold" stock strategists contend, you cannot help but make
money on your investment. Others try to pick "value stocks" which
happen to be performing poorly today but which should be able to turn
things around in the near future and thus greatly raise stock prices.
Market timing is still another stock buying strategy which looks at a
number of complex factors when purchasing equities.
Market Timing Fundamentals
Many people do not have the ability to be patient for years at a time
without touching their money. For people not looking to sit on their
stocks as advised in the standard "buy and hold" strategy, market
timing is a good option to consider! This is because market timing
strategies for buying stocks do not advocate buying stock and just
sitting on it for year after year. Indeed, market timing investors do
not wait out the lows and sell only when prices are sufficiently high
to make a decent return on investment - they avoid the lows altogether
and only aim to sell when prices are at their peak.
At the heart of the market timing strategy for buying stocks is a
deeply-held belief that stock prices are predictable. Going even
further, those who believe in market timing also assert that trends in
the broader markets can be applied to more specific ones, and specific
stocks, in order to accurately predict price fluctuations. A large
amount of analysis and research is used to predict market fluctuations
and the prices of specific stocks. Two primary forms of analysis,
fundamental and technical, are favorites of market timing strategists
and are used together in many cases to help predict the prices of
specific stocks.
Fundamental analysis essentially concentrates on all information and
processes fundamental to the operation of a specific business. This
includes any financial statements pertaining to earnings and other
accounting variables. Other variables factored into when conducting
fundamental analysis include: competitors and percentage of available
market; management; debt structure; asset allocation; sales; growth
potential; and earnings. While fundamental analysis may not be the
only form used, many investors make use of at least some fundamental
analysis before making stock purchases.
Technical analysis does not look at the management team, market, or
any other subjective matter. Instead, this method of analysis tends to
prefer looking at historical prices for stocks of specific companies -
and uses that data in conjunction with other variables of buying in
order to make a decision. The end result is to be able to predict
future patterns of prices on specific stocks. However, no proof has
been provided illustrating any link between historical prices and how
they perform in the future. While the market timing strategy does not
make exclusive use of one method, a mixture of both or one or the
other investment strategy is used to predict future stock prices.
Pros of Market Timing Stock Strategy
There are certainly a large number of investors who swear by the
market timing strategy for buying stocks. Such people tend to be big
fans of technical analysis which seeks to draw correlations between
current market conditions and those which affected historical stock
prices. It is not uncommon for a great deal of spreadsheets, charts,
and graphs being generated when trying to employ market timing as
strategy for purchasing stocks. All of these are generated in order to
identify any potential trends in the market that may indicate a
significant shift in share prices. However, aside from looking very
busy and investing a lot of effort, there are a few pros to this
investment approach for stocks.
Cons of Market Timing Stock Strategy
The most fundamental problem with the market timing stock strategy is
that it remains pure fantasy, at least according to most investment
experts. After all, if anyone truly could predict the rise and fall of
stock prices with any degree of certainty, then we would all be
billionaires because such a strategy could be documented and
replicated. But even Warren Buffet does not ascribe to this approach
and neither do most investment professionals. There are almost an
unlimited number of market and world variables that may ultimately
affect stock prices.
Another big negative with the market timing strategy is the fact that
it generally involves a large number of transactions, especially when
compared to the buy and hold method. Buying and selling all those
stocks requires commissions which can start to take a larger and
larger chunk of profits - especially when the market doesn't react in
the way you predicted. In order to really be effective, a market
strategy tends to require a larger capital investment. This allows the
investor to purchase a larger number of stocks and thus not need to
make as large of a return on the sale price in order to still make a
profit.
The differences between bid and asking price can also eat into the
profits of a struggling market timing investor - also known as the bid/
ask spread. An investor may bid a price for a certain stock and be
told that it is available, but by the time the actual transaction is
made - the asking price actually charged by the exchanges may be
higher. Again, the difference may seem insignificant but it can make a
large difference between a good and a bad day in the life of a market
timer.
Although market timing is an approach that millions of investors
pursue every day on exchanges around the world, the truth is that it
tends to carry more risk than reward. With the erosion of profits due
to transaction fees and the bid/ask spread, market timing tends to
require larger investments of capital in order to be worthwhile. While
no investment strategy for buying stocks has proven to be risk-free
and a sure thing, there are other options that tend to be safer
investment alternatives. |
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David
Guest
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| Posted: Sun Apr 01, 2007 7:42 pm Post subject: Re: Market timing |
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On Apr 1, 10:17 am, "jose.bai...@gmail.com" <jose.bai...@gmail.com>
wrote:
| Quote: |
Stock Strategies
Market Timing Strategy of Buying Stock
by InvestorGuide Staff (Write for us!)
If you ask around long enough, you are bound to hear just about every
conceivable system possible used for playing the stock market. Some
people just point to the history books and contend that the market has
averaged growth of around 11 percent a year when you go back 4 decades
- therefore, it makes sense to buy the stock and hold it. Eventually,
"buy and hold" stock strategists contend, you cannot help but make
money on your investment. Others try to pick "value stocks" which
happen to be performing poorly today but which should be able to turn
things around in the near future and thus greatly raise stock prices.
Market timing is still another stock buying strategy which looks at a
number of complex factors when purchasing equities.
Market Timing Fundamentals
Many people do not have the ability to be patient for years at a time
without touching their money. For people not looking to sit on their
stocks as advised in the standard "buy and hold" strategy, market
timing is a good option to consider! This is because market timing
strategies for buying stocks do not advocate buying stock and just
sitting on it for year after year. Indeed, market timing investors do
not wait out the lows and sell only when prices are sufficiently high
to make a decent return on investment - they avoid the lows altogether
and only aim to sell when prices are at their peak.
At the heart of the market timing strategy for buying stocks is a
deeply-held belief that stock prices are predictable. Going even
further, those who believe in market timing also assert that trends in
the broader markets can be applied to more specific ones, and specific
stocks, in order to accurately predict price fluctuations. A large
amount of analysis and research is used to predict market fluctuations
and the prices of specific stocks. Two primary forms of analysis,
fundamental and technical, are favorites of market timing strategists
and are used together in many cases to help predict the prices of
specific stocks.
Fundamental analysis essentially concentrates on all information and
processes fundamental to the operation of a specific business. This
includes any financial statements pertaining to earnings and other
accounting variables. Other variables factored into when conducting
fundamental analysis include: competitors and percentage of available
market; management; debt structure; asset allocation; sales; growth
potential; and earnings. While fundamental analysis may not be the
only form used, many investors make use of at least some fundamental
analysis before making stock purchases.
Technical analysis does not look at the management team, market, or
any other subjective matter. Instead, this method of analysis tends to
prefer looking at historical prices for stocks of specific companies -
and uses that data in conjunction with other variables of buying in
order to make a decision. The end result is to be able to predict
future patterns of prices on specific stocks. However, no proof has
been provided illustrating any link between historical prices and how
they perform in the future. While the market timing strategy does not
make exclusive use of one method, a mixture of both or one or the
other investment strategy is used to predict future stock prices.
Pros of Market Timing Stock Strategy
There are certainly a large number of investors who swear by the
market timing strategy for buying stocks. Such people tend to be big
fans of technical analysis which seeks to draw correlations between
current market conditions and those which affected historical stock
prices. It is not uncommon for a great deal of spreadsheets, charts,
and graphs being generated when trying to employ market timing as
strategy for purchasing stocks. All of these are generated in order to
identify any potential trends in the market that may indicate a
significant shift in share prices. However, aside from looking very
busy and investing a lot of effort, there are a few pros to this
investment approach for stocks.
Cons of Market Timing Stock Strategy
The most fundamental problem with the market timing stock strategy is
that it remains pure fantasy, at least according to most investment
experts. After all, if anyone truly could predict the rise and fall of
stock prices with any degree of certainty, then we would all be
billionaires because such a strategy could be documented and
replicated. But even Warren Buffet does not ascribe to this approach
and neither do most investment professionals. There are almost an
unlimited number of market and world variables that may ultimately
affect stock prices.
Another big negative with the market timing strategy is the fact that
it generally involves a large number of transactions, especially when
compared to the buy and hold method. Buying and selling all those
stocks requires commissions which can start to take a larger and
larger chunk of profits - especially when the market doesn't react in
the way you predicted. In order to really be effective, a market
strategy tends to require a larger capital investment. This allows the
investor to purchase a larger number of stocks and thus not need to
make as large of a return on the sale price in order to still make a
profit.
The differences between bid and asking price can also eat into the
profits of a struggling market timing investor - also known as the bid/
ask spread. An investor may bid a price for a certain stock and be
told that it is available, but by the time the actual transaction is
made - the asking price actually charged by the exchanges may be
higher. Again, the difference may seem insignificant but it can make a
large difference between a good and a bad day in the life of a market
timer.
Although market timing is an approach that millions of investors
pursue every day on exchanges around the world, the truth is that it
tends to carry more risk than reward. With the erosion of profits due
to transaction fees and the bid/ask spread, market timing tends to
require larger investments of capital in order to be worthwhile. While
no investment strategy for buying stocks has proven to be risk-free
and a sure thing, there are other options that tend to be safer
investment alternatives.
|
So the writer, whoever he is, does not like market timing. He may be
right but consider one alternative, Buy & Hold for the last 7 1/4
years since 1 Jan 2000.
For a Bogle-style Total Market Index fund in the UK with reinvested
dividends, Gartmore UK Index R Accumulator Fund which invests in the
shares of the FTSE All-Share Index.
1 Jan 2000 NAV = 303.24
31 Mar 2007 NAV = 362.4
Total gain = +19.51%
Annualised Gain = 2.49% p.a.
Not very good for 100% investment in an equity Index Fund.
How about the Asset Allocators' favourite, 60% equities and 40% bonds?
The Fidelity Moneybuilder Balanced fund gives roughly this.
1 Jan 2000 NAV = 35.53
31 Mar 2007 NAV = 41.21
These are Income shares with Current yield 3.89%
Total NAV gain = 15.99%
Annualised NAV gain = 2.07%
Annualised total gain = 5.96%
This is slightly better but only just beats a bank account and
inflation. |
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jose.bailen@gmail.com
Guest
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| Posted: Sun Apr 01, 2007 7:58 pm Post subject: Re: Market timing |
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On Apr 1, 4:42 pm, "David" <d...@wilkinson6337.freeserve.co.uk> wrote:
| Quote: |
So the writer, whoever he is, does not like market timing. He may be
right but consider one alternative, Buy & Hold for the last 7 1/4
years since 1 Jan 2000.
For a Bogle-style Total Market Index fund in the UK with reinvested
dividends, Gartmore UK Index R Accumulator Fund which invests in the
shares of the FTSE All-Share Index.
1 Jan 2000 NAV = 303.24
31 Mar 2007 NAV = 362.4
Total gain = +19.51%
Annualised Gain = 2.49% p.a.
Not very good for 100% investment in an equity Index Fund.
How about the Asset Allocators' favourite, 60% equities and 40% bonds?
The Fidelity Moneybuilder Balanced fund gives roughly this.
1 Jan 2000 NAV = 35.53
31 Mar 2007 NAV = 41.21
These are Income shares with Current yield 3.89%
Total NAV gain = 15.99%
Annualised NAV gain = 2.07%
Annualised total gain = 5.96%
This is slightly better but only just beats a bank account and
inflation
|
I don't like/don't follow the "buy and hold" strategy either. It is
better than market timing, but the best strategy by far is to buy when
the stocks are cheap and hold them till they are no longer cheap
(i.e., value investing). This is NOT market timing, because you don't
buy and sell stocks following some dumb rules (i.e, sell if the price
of the stock drops by 10 percent or more, for instance). You follow
instead a disciplined approach: buy when, given the information you
have at some moment, the stock looks cheap when looking at its
fundamentals: earnings, rate of return of invested capital, cash/
liquidity, debt, etc..., and you sell if the price goes up so much
that the stock does not look in line with these fundamentals anymore.
By the way, the example you put of a simple "buy and hold" strategy
considers that the investor bought the stocks at the beginning of
2000, i.e., at the peak of the previous bubble and when stocks -and
the market as a whole- were not in line with any reasonable valuation.
If the average P/E of the market is 30 or 40 -as it was at that time-
it is pretty clear that you are doing a dumb thing if you buy stocks
at that moment, because you are overpaying for the discounted stream
of profits that the market portfolio is going to generate in the
future. |
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David
Guest
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| Posted: Sun Apr 01, 2007 8:18 pm Post subject: Re: Market timing |
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On Apr 1, 3:58 pm, "jose.bai...@gmail.com" <jose.bai...@gmail.com>
wrote:
| Quote: |
On Apr 1, 4:42 pm, "David" <d...@wilkinson6337.freeserve.co.uk> wrote:
So the writer, whoever he is, does not like market timing. He may be
right but consider one alternative, Buy & Hold for the last 7 1/4
years since 1 Jan 2000.
For a Bogle-style Total Market Index fund in the UK with reinvested
dividends, Gartmore UK Index R Accumulator Fund which invests in the
shares of the FTSE All-Share Index.
1 Jan 2000 NAV = 303.24
31 Mar 2007 NAV = 362.4
Total gain = +19.51%
Annualised Gain = 2.49% p.a.
Not very good for 100% investment in an equity Index Fund.
How about the Asset Allocators' favourite, 60% equities and 40% bonds?
The Fidelity Moneybuilder Balanced fund gives roughly this.
1 Jan 2000 NAV = 35.53
31 Mar 2007 NAV = 41.21
These are Income shares with Current yield 3.89%
Total NAV gain = 15.99%
Annualised NAV gain = 2.07%
Annualised total gain = 5.96%
This is slightly better but only just beats a bank account and
inflation
I don't like/don't follow the "buy and hold" strategy either. It is
better than market timing, but the best strategy by far is to buy when
the stocks are cheap and hold them till they are no longer cheap
(i.e., value investing). This is NOT market timing, because you don't
buy and sell stocks following some dumb rules (i.e, sell if the price
of the stock drops by 10 percent or more, for instance). You follow
instead a disciplined approach: buy when, given the information you
have at some moment, the stock looks cheap when looking at its
fundamentals: earnings, rate of return of invested capital, cash/
liquidity, debt, etc..., and you sell if the price goes up so much
that the stock does not look in line with these fundamentals anymore.
By the way, the example you put of a simple "buy and hold" strategy
considers that the investor bought the stocks at the beginning of
2000, i.e., at the peak of the previous bubble and when stocks -and
the market as a whole- were not in line with any reasonable valuation.
If the average P/E of the market is 30 or 40 -as it was at that time-
it is pretty clear that you are doing a dumb thing if you buy stocks
at that moment, because you are overpaying for the discounted stream
of profits that the market portfolio is going to generate in the
future.- Hide quoted text -
- Show quoted text -
|
If you have the money then B&Hrs say you should invest it there and
then, even if it is 1 Jan 2000. Otherwise you are trying to use the
market timing that you profess not to like or use. I think if you look
at the 1982-2000 bull market then you could have thought the market
was too high for much of that period and refused to invest, missing
out on substantial gains. What you have to prove, without using
hindsight, is how investors were supposed to know that 1 Jan 2000 was
the peak and all the other previous highs weren't. When did the P/E
change from being just "high" to "too high" indicating the peak had
been reached? |
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Andrew Koenig
Guest
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| Posted: Sun Apr 01, 2007 8:29 pm Post subject: Re: Market timing |
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<jose.bailen@gmail.com> wrote in message
news:1175439489.724930.110240@q75g2000hsh.googlegroups.com...
| Quote: |
On Apr 1, 4:42 pm, "David" <d...@wilkinson6337.freeserve.co.uk> wrote:
I don't like/don't follow the "buy and hold" strategy either. It is
better than market timing, but the best strategy by far is to buy when
the stocks are cheap and hold them till they are no longer cheap
(i.e., value investing).
|
As a simple example, let's compare total performance (i.e. including
dividends) of the Vanguard Small-Cap Value Index (VISVX) with the Vanguard
Small Cap Index (NAESX):
Year VISVX NAESX
1999 3.35% 23.13%
2000 21.88% -2.67%
2001 13.7% 3.1%
2002 -14.2% -20.02%
2003 37.19% 45.63%
2004 23.55% 19.9%
You will see that when the bubble started, small-cap stocks as a whole took
off but the value stocks didn't. I gotta say, I'd feel a lot less
uncomfortable with the small-cap value index than with the small-cap index
as a whole. |
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David
Guest
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| Posted: Sun Apr 01, 2007 8:54 pm Post subject: Re: Market timing |
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On Apr 1, 4:29 pm, "Andrew Koenig" <a...@acm.org> wrote:
| Quote: |
jose.bai...@gmail.com> wrote in message
news:1175439489.724930.110240@q75g2000hsh.googlegroups.com...
On Apr 1, 4:42 pm, "David" <d...@wilkinson6337.freeserve.co.uk> wrote:
I don't like/don't follow the "buy and hold" strategy either. It is
better than market timing, but the best strategy by far is to buy when
the stocks are cheap and hold them till they are no longer cheap
(i.e., value investing).
As a simple example, let's compare total performance (i.e. including
dividends) of the Vanguard Small-Cap Value Index (VISVX) with the Vanguard
Small Cap Index (NAESX):
Year VISVX NAESX
1999 3.35% 23.13%
2000 21.88% -2.67%
2001 13.7% 3.1%
2002 -14.2% -20.02%
2003 37.19% 45.63%
2004 23.55% 19.9%
You will see that when the bubble started, small-cap stocks as a whole took
off but the value stocks didn't. I gotta say, I'd feel a lot less
uncomfortable with the small-cap value index than with the small-cap index
as a whole.
|
What happened in 2005 and 2006? |
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jose.bailen@gmail.com
Guest
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| Posted: Sun Apr 01, 2007 11:21 pm Post subject: Re: Market timing |
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On Apr 1, 5:18 pm, "David" <d...@wilkinson6337.freeserve.co.uk> wrote:
| Quote: |
If you have the money then B&Hrs say you should invest it there and
then, even if it is 1 Jan 2000. Otherwise you are trying to use the
market timing that you profess not to like or use. I think if you look
at the 1982-2000 bull market then you could have thought the market
was too high for much of that period and refused to invest, missing
out on substantial gains. What you have to prove, without using
hindsight, is how investors were supposed to know that 1 Jan 2000 was
the peak and all the other previous highs weren't. When did the P/E
change from being just "high" to "too high" indicating the peak had
been reached?
|
If you invest in an index like the S&500, you don't need to invest in
every year. A value investor would probably not invest if the P/E of
the index goes above 20-25, because under no reasonable circumstance
earnings growth -historically at about 6 percent a year on average-
are going to justify the high price paid for these stocks. I agree
that you may miss some good opportunities -the big run from 1998 to
2000, for instance- but you would avoid the 2000-2003 losses and in
the long term you will beat the market handsomely. One just need to do
the homework and see what is reasonable and not, given historical
patterns.
Average P/E during the last 30 years:
http://www.martincapital.com/chart-pgs/CH_per.HTM |
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jose.bailen@gmail.com
Guest
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| Posted: Sun Apr 01, 2007 11:25 pm Post subject: Re: Market timing |
|
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On Apr 1, 5:29 pm, "Andrew Koenig" <a...@acm.org> wrote:
| Quote: |
As a simple example, let's compare total performance (i.e. including
dividends) of the Vanguard Small-Cap Value Index (VISVX) with the Vanguard
Small Cap Index (NAESX):
Year VISVX NAESX
1999 3.35% 23.13%
2000 21.88% -2.67%
2001 13.7% 3.1%
2002 -14.2% -20.02%
2003 37.19% 45.63%
2004 23.55% 19.9%
You will see that when the bubble started, small-cap stocks as a whole took
off but the value stocks didn't. I gotta say, I'd feel a lot less
uncomfortable with the small-cap value index than with the small-cap index
as a whole.
|
The bubble was caused by mostly growth stocks -some large caps but
others were small caps- , so this result is not surprising at all.
Over long periods, small cap value portfolios beat small caps by a
large margin. In fact, small cap growth stocks have the worst long-
term performance of all invesment styles. |
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Herb
Guest
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| Posted: Mon Apr 02, 2007 12:02 am Post subject: Re: Market timing |
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"David" <david@wilkinson6337.freeserve.co.uk> wrote in message
news:1175438534.767022.40820@p77g2000hsh.googlegroups.com...
| Quote: |
1 Jan 2000 NAV = 303.24
31 Mar 2007 NAV = 362.4
Total gain = +19.51%
Annualised Gain = 2.49% p.a.
Not very good for 100% investment in an equity Index Fund.
How about the Asset Allocators' favourite, 60% equities and 40% bonds?
The Fidelity Moneybuilder Balanced fund gives roughly this.
1 Jan 2000 NAV = 35.53
31 Mar 2007 NAV = 41.21
These are Income shares with Current yield 3.89%
Total NAV gain = 15.99%
Annualised NAV gain = 2.07%
Annualised total gain = 5.96%
This is slightly better but only just beats a bank account and
inflation.
|
David:
Again I have to wonder if you are considering dividends: the main reason
people buy such funds.
-herb
PS: I don't have a bank account that that has paid anywhere near 6%. |
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Herb
Guest
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| Posted: Mon Apr 02, 2007 12:05 am Post subject: Re: Market timing |
|
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"David" <david@wilkinson6337.freeserve.co.uk> wrote in message
news:1175440695.191500.27880@n59g2000hsh.googlegroups.com...
| Quote: |
If you have the money then B&Hrs say you should invest it there and
then, even if it is 1 Jan 2000. Otherwise you are trying to use the
market timing that you profess not to like or use. I think if you look
at the 1982-2000 bull market then you could have thought the market
was too high for much of that period and refused to invest, missing
out on substantial gains. What you have to prove, without using
hindsight, is how investors were supposed to know that 1 Jan 2000 was
the peak and all the other previous highs weren't. When did the P/E
change from being just "high" to "too high" indicating the peak had
been reached?
|
David:
Once again you seem to be talking about some mythological investor who came
into being on the day that the market peaked. The last thing that a buy and
hold investor needs to worry about is when to deploy large amounts of cash.
It is already deployed and has been for years.
-herb
> |
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David
Guest
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| Posted: Mon Apr 02, 2007 12:30 am Post subject: Re: Market timing |
|
|
On Apr 1, 8:05 pm, "Herb" <X...@YYY.COM> wrote:
| Quote: |
"David" <d...@wilkinson6337.freeserve.co.uk> wrote in message
news:1175440695.191500.27880@n59g2000hsh.googlegroups.com...
If you have the money then B&Hrs say you should invest it there and
then, even if it is 1 Jan 2000. Otherwise you are trying to use the
market timing that you profess not to like or use. I think if you look
at the 1982-2000 bull market then you could have thought the market
was too high for much of that period and refused to invest, missing
out on substantial gains. What you have to prove, without using
hindsight, is how investors were supposed to know that 1 Jan 2000 was
the peak and all the other previous highs weren't. When did the P/E
change from being just "high" to "too high" indicating the peak had
been reached?
David:
Once again you seem to be talking about some mythological investor who came
into being on the day that the market peaked. The last thing that a buy and
hold investor needs to worry about is when to deploy large amounts of cash.
It is already deployed and has been for years.
-herb
- Hide quoted text -
- Show quoted text -
|
Herb
Look at it this way. Each day is the first day of the rest of your
life. Whatever has gone before any day can be taken as a starting
point. We were all invested before 1 Jan 2000 and probably made money
in the great bull market and on 1 Jan 2000 we had £x, or $y in your
case. So by now we should have about x*(1.11)7.25 = £2.13x or $2.13y
if we had maintained the average 11% return of the last 70 years or
so. But your B&H'er with 100% in the prescribed (by Nobel
Prizewinners) total market index fund has only got about half that,
not much more than the original x or y, and has not even kept up with
inflation.
It just shows that B&H (and Nobel Prizewinners) are not all they are
cracked up to be. In bull markets, a sine qua non. In static or bear
markets, just persona non grata.
David |
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Herb
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| Posted: Mon Apr 02, 2007 5:52 am Post subject: Re: Market timing |
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"David" <david@wilkinson6337.freeserve.co.uk> wrote in message
news:1175455801.430502.202610@d57g2000hsg.googlegroups.com...
On Apr 1, 8:05 pm, "Herb" <X...@YYY.COM> wrote:
| Quote: |
"David" <d...@wilkinson6337.freeserve.co.uk> wrote in message
news:1175440695.191500.27880@n59g2000hsh.googlegroups.com...
If you have the money then B&Hrs say you should invest it there and
then, even if it is 1 Jan 2000. Otherwise you are trying to use the
market timing that you profess not to like or use. I think if you look
at the 1982-2000 bull market then you could have thought the market
was too high for much of that period and refused to invest, missing
out on substantial gains. What you have to prove, without using
hindsight, is how investors were supposed to know that 1 Jan 2000 was
the peak and all the other previous highs weren't. When did the P/E
change from being just "high" to "too high" indicating the peak had
been reached?
David:
Once again you seem to be talking about some mythological investor who
came
into being on the day that the market peaked. The last thing that a buy
and
hold investor needs to worry about is when to deploy large amounts of
cash.
It is already deployed and has been for years.
-herb
- Hide quoted text -
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Herb
Look at it this way. Each day is the first day of the rest of your
life. Whatever has gone before any day can be taken as a starting
point. We were all invested before 1 Jan 2000 and probably made money
in the great bull market and on 1 Jan 2000 we had £x, or $y in your
case. So by now we should have about x*(1.11)7.25 = £2.13x or $2.13y
if we had maintained the average 11% return of the last 70 years or
so. But your B&H'er with 100% in the prescribed (by Nobel
Prizewinners) total market index fund has only got about half that,
not much more than the original x or y, and has not even kept up with
inflation.
It just shows that B&H (and Nobel Prizewinners) are not all they are
cracked up to be. In bull markets, a sine qua non. In static or bear
markets, just persona non grata.
David
David:
I realize that you are looking at it that way but I'm trying to get you to
stop. ;-)
Although the markets may have produced 11% over time they certainly didn't
do that all of the time. That's an average. What was my alternative: have
a vision that the short term return was about to go below the average long
term return? You must cry alot over spilled (spilt?) milk. Do you beat
yourself up every time the market receeds from a top or when you fail to get
back in at the exact bottom? Perhaps you just lack the mentality to buy and
hold.
If you look at market tops as the day after you should have gotten out, you
probably shouldn't be in.
-herb |
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Andrew Koenig
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| Posted: Mon Apr 02, 2007 6:08 am Post subject: Re: Market timing |
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"David" <david@wilkinson6337.freeserve.co.uk> wrote in message
news:1175442843.182471.25880@o5g2000hsb.googlegroups.com...
| Quote: |
On Apr 1, 4:29 pm, "Andrew Koenig" <a...@acm.org> wrote:
You will see that when the bubble started, small-cap stocks as a whole
took
off but the value stocks didn't. I gotta say, I'd feel a lot less
uncomfortable with the small-cap value index than with the small-cap
index
as a whole.
What happened in 2005 and 2006?
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Awww, I didn't know you cared :-)
Year VISVX NAESX
2005 6.07% 7.36%
2006 19.24% 15.64%
Ya pays yer money and ya takes yer choice.
Personally, I have some of each of them. |
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TK
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| Posted: Tue Apr 03, 2007 12:18 am Post subject: Re: Market timing |
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On Apr 1, 7:58 am, "jose.bai...@gmail.com" <jose.bai...@gmail.com>
wrote:
| Quote: |
I don't like/don't follow the "buy and hold" strategy either. It is
better than market timing, but the best strategy by far is to buy when
the stocks are cheap and hold them till they are no longer cheap
(i.e., value investing). This is NOT market timing,
LOL! You should read the article that you posted. |
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jose.bailen@gmail.com
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| Posted: Tue Apr 03, 2007 2:33 am Post subject: Re: Market timing |
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On Apr 2, 9:18 pm, "TK" <sung...@gmail.com> wrote:
| Quote: |
On Apr 1, 7:58 am, "jose.bai...@gmail.com" <jose.bai...@gmail.com
wrote:
I don't like/don't follow the "buy and hold" strategy either. It is
better than market timing, but the best strategy by far is to buy when
the stocks are cheap and hold them till they are no longer cheap
(i.e., value investing). This is NOT market timing,
LOL! You should read the article that you posted.
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There is no contradiction. It says that some market timers may use
some sort of fundamental analysis before making their decisions, it
doesn't say that they companies only if, after this analysis, they
obtain that the stock price is undervalued. That's value investing.
There is no market timing -you are not trying to guess if prices are
going to go up or down next week or next month or even next year-,
what you do is to buy a stock just because it is undervalued, and the
only way to sell it is if you are convinced that the stock is no
longer a bargain.
Market timers buy/sell stocks because their models or whatever
analysis they do say that the price is going to go up or down. Value
investors buy/sell stocks if the stock is undervalued or overvalued,
regardless of how prices are going to do in the near future. The
difference is pretty clear. |
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