April 24, 2013
– Comments (6)
... a method of transferring wealth from people who think they can time the market to people who know they cannot. In this one way, at least, it brings down the proud and lifts up the humble.
The market is a hung rooster crowing on top of a huge pile of smelly dung.
Crow all you want, but in the end the market still has a tiny rooster benis.
I wouldn't ever really suggest you can "time the market" in any absolute fashion. That's just silly in my opinion and I think there is a mountain of evidence to prove market timing to be nearly impossible over the long run. I agree with you on this.
However, I also think it's silly for people to not believe they can prepare themselves to take advantage of market downturns that will eventually happen. I've been suggesting the market was overbought recently and have been building up my cash position, selling off my winners and positions that have run their course. This doesn't mean I want to time the market in any sense of the word. I just want to be ready to deploy capital whenever we get a correction, be it big or small. It will happen eventually, it always does.
I honestly think having dry powder available is one of the most important things to successful investing. At least for me personally it has been a primary reason why I've been successful.
Best of luck.
Agree with #2 100%. You can time the market. Maybe.
Nobody should buy and hold with the kind of scams that are being allowed to continue in this day and age.
If you can time the market, who is the market timer who has documented a consistent successful record in doing so? The current value of the market represents the average consensus belief of all investors (and their research departments and computer programs) as to what the market's value is (based on their perception of where it is going from here). What do you grasp, Option, that the rest of the investing world collectively is failing to perceive?
If you can time the market, who is the market timer who has documented a consistent successful record in doing so?
I said above I do NOT think you can time the market.
What do you grasp, Option, that the rest of the investing world collectively is failing to perceive?
Well collectively the majority of mutual funds underperform the market on a yearly basis. This fact has been proven many times. So no I don't think I'm better than everyone, but yes I do think that I can do better with my money than the majority of mutual funds. Not because I'm necessarily smarter but because Idon't have the same obligations etc. as big funds do.
The point I'm saying is that there is a lot of "dumb money" out there. Mutual funds as described above and casual investors that are uninformed etc. etc.
You can beat these people/groups, pretty easily in my opinion. These are the same groups that were buying in the summer of 2007 and selling in january 2009. Bad move.
So again, I don't think you can time the market, nor should you try. That is not a winningstrategy in my opinion.
However, market corrections happen, that is a fact of life. Why not position yourself to take advantage of them?
Am I suggesting selling out of WFC now to buy back in later at a better price aka market timing? No.
What I'm suggesting is selling your winners, selling the stocks that have run their course, those that have run out of catalysts and are now just drifting along with the general market. Sell those stocks and wait for a correction because it will come. They always do. Period.
Buying on dips is the best thing you can do to increase your returns. Again, I'm not suggesting selling at the top and buying back at a lower price. I'm suggesting using your free capital to pick up additional shares of your favorite stocks at favorable prices.
To each their own I guess, if your style works for you I am happy.
Having dry powder and buying on dips has been the best thing for me personally.
"I've been suggesting the market was overbought recently and have been building up my cash position, selling off my winners and positions that have run their course. This doesn't mean I want to time the market in any sense of the word. I just want to be ready to deploy capital whenever we get a correction, be it big or small. It will happen eventually, it always does."
You say that isn't market timing but I don't see how it isn't. If you say that the market is overbought and so you sell off stocks and increase cash, how is that NOT market timing?
As for selling winners and "positions that have run their course", I have found that for most people one of the biggest errors is selling winners too soon and holding onto losers too long. But we aren't talking about market timing in this case, just trying to come up with a strategy for knowing when to buy or sell a stock. Market timing comes into play when you increase or decrease your cash (dry powder) because you believe you know what the market is going to do next (whatever time period you use).
Knowing when a position "has run its course" is one of the hardest things to do. If it was easier, we'd all beat the market.
As for mutual fund managers, we have a big advantage over them. When stocks go up, they get lots of cash and have to buy, buy, buy. When stocks go down, they get lots of people cashing out and they are forced to sell, sell, sell. Thus they are forced to buy when they probably don't want to and sell when they probably don't want to. The game is stacked against them.