A compelling argument to invest & forget

[techcrium]

Originally Posted by Lowexpectations

The problem with market timing is that you have to be right twice


Here is a better look
https://www.invesco.com/pdf/RR10-BRO-1.pdf

I don't agree with market timing but you don't have to be right twice to market time...

When market timing, you are basically bench marking against yourself if you DIDN'T market time.

Say the stock is like this:
2006: 1600
2007: 1700
2008: 1200
2009: 800
2010: 1400
2011: 2100
2012: 4000

So say A doesn't market time and bought the stock at 2006 at the cost of $1600, in 2012, he would have $4000 right?

Say B bought in at $1600, correctly predicted a crash in 2008, so sold at 2007 at $1700. However, he was wrong on the bottom so bought in late 2008 at $1200 to see his stock drop but held on until 2012.

B would have $5600, 41% more than A for 1 successful timing.




Think about it, if you can actually be right TWICE in market timing, you would be absolutely filthy rich.

Call options on the bull market, put options on the bear market.

[mysticaltyger]

Originally Posted by Retired at 44

I ran across an interesting analysis I thought I would share. I've heard this general advice before, but here is some actual data to support it:

Let's say you invested $1,000 in the S&P 500 in 1970. What would it be worth by the end of 2013?

• If you let it ride -- that is, invested & never touched it, it would be worth $77,804 by the end of 2013.
• If you missed for the single best day during that time period, your money would only have grown to $69,771.
• If you missed the 5 best days, your money would only have grown to $50,588.
• If you missed the 15 best days, it would only have grown to $29,378.
• If you missed the 25 best days, it would only have grown to $18,533.
• By comparison, if you had invested (and reinvested) in 1 month T-Bills, your money would only have grown to $9,192.

We all know, intellectually, that consistently timing the market is extremely difficult (if, indeed, it is even possible). We all also have personal guesses as to what the market will be doing over the coming month, year, 5 years, etc. The lesson seems to be not to act on those personal guesses - just stay invested in the market. Don't panic. Don't sell out of the market.

Here's the chart:

The chart at Morningstar.com shows 1K invested in the S&P 500 at the beginning of 1970 would be worth over 84K at the end of 2013. I wonder what the reason is for the discrepancy????

Personally, I think most people should be in balanced funds like Vanguard Wellington...you give up a little bit in return but get more consistency on a year to year basis. Wellington has actually beaten the S&P 500 over the last 20 years, but not the last 44.

VWELX Vanguard Wellington Inv Fund VWELX chart

[Lowexpectations]

Originally Posted by techcrium

I don't agree with market timing but you don't have to be right twice to market time...

When market timing, you are basically bench marking against yourself if you DIDN'T market time.

Say the stock is like this:
2006: 1600
2007: 1700
2008: 1200
2009: 800
2010: 1400
2011: 2100
2012: 4000

So say A doesn't market time and bought the stock at 2006 at the cost of $1600, in 2012, he would have $4000 right?

Say B bought in at $1600, correctly predicted a crash in 2008, so sold at 2007 at $1700. However, he was wrong on the bottom so bought in late 2008 at $1200 to see his stock drop but held on until 2012.

B would have $5600, 41% more than A for 1 successful timing.




Think about it, if you can actually be right TWICE in market timing, you would be absolutely filthy rich.

Call options on the bull market, put options on the bear market.

So what happens if you got in at 1600 out at 800 and back in at 2100? You do have to be right twice. You have to call it right getting out and back in

[mathjak107]

unless you are done investing forever investing like in business is a 3 step not 2 step process.

as a wholesaler i buy a box , i sell a box and i rebuy a box . the spread is my profit.

it isn't buy a box sell a box unless you are never buying another itemn to stay in business.

soooo we buy an investment -sell an investment and rebuy an investment. you need to get things right twice.

[jimhcom]

Originally Posted by LongArm

The fact that the worst days and best days tend to occur in close proximity just reinforces my point some more: IF you're missing out on the best days by engaging in market timing--like the old argument implies you will--it's also likely that you'll miss out on the worst days, ESPECIALLY if they occur close together.

I never suggested that anyone should try to avoid the worst days or that it can be easily done. I'm simply saying that, IF you're trying to time the market--even if you're using a Magic 8 Ball to do so--you're just as likely to miss the worst days as the best ones. And that, again, makes the whole "best days" argument bogus.

I agree that market timing, for most people, is difficult to do and will generally not pay off, for many reasons. But missing the few best days of the market is not one of those reasons. That is my only point here.

They have a name for the people who are good at market timing, they are called the smart money.
The vast majority of people who engage in market timing are not constantly in and out. They are usually people who recognize the longer range market cycles. This means they tend to go to cash equivalents in a large part of their portfolio in the latter stages of a cycle. This is only something that is able to be done when the market is still advancing due to the amount of money that must be available to buy them out. After a major correction they reinvest. There are many very telling signs of when a bull market is getting long in the tooth.

The most important rule of making money, is not to loose money. If you loose 25% of the value of your portfolio, you must then make 50% just to break even.

The most important indicator to look at in any market is debt. In stocks, if you keep your eye on margin debt, it will give you a good indication of when to begin looking for a convenient exit.

Large amounts of margin debt creates what is known as scared money. Scared money must sell when they are in danger of a margin call. When a market has too much leveraged margin, that means a lot of selling on top of the original market drop which necessitated the margin calls to begin with.

It begins an avalanche of selling that only ends when prices get low enough to attract buyers back to the market.