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I don't try to guess tops and bottoms, I just wait for them to happen. I also don't invest in individual stocks, only funds.
My strategy: keep money in money market funds until the stock market drops precipitously (like late '08), then wait a few months for it to further settle (early '09), then transfer money market funds into stock funds. This is what I did in early '09 after several years of saving. Since then, I've been saving money in money market funds and will wait for another big drop before investing again. My only active stock investments are my 401k and IRA (although I'm holding off on my IRA for a while - I think we may have a correction before the end of the year).
My only regret is that I didn't have this long term perspective when I first started investing in my 20s. I used to buy when the market was rising no matter where it was in that rise (even near the top) because I didn't have a concept of long term economic cycles. Now, I'm in my 40s and have seen how much I could have made had I been a little more disciplines and a little less eager.
As written in other replies, calling tops and bottoms is impossible to do systematically. I also would not rely on one moving average to define the direction of the trend. But with a set of moving averages, you could end up with assumptions that are more often right than wrong. Yes, sometimes you will be too late or too early. But if those situations are outnumbered by the ones in which your assumptions turned into reality, overall in the long-term you could do well.
Any other ideas than the "buzz" and "moving averages" that could possibly help to distinguish between a correction and the beginning of a down trend?
I don't try to guess tops and bottoms, I just wait for them to happen. I also don't invest in individual stocks, only funds.
My strategy: keep money in money market funds until the stock market drops precipitously (like late '08), then wait a few months for it to further settle (early '09), then transfer money market funds into stock funds. This is what I did in early '09 after several years of saving. Since then, I've been saving money in money market funds and will wait for another big drop before investing again. My only active stock investments are my 401k and IRA (although I'm holding off on my IRA for a while - I think we may have a correction before the end of the year).
My only regret is that I didn't have this long term perspective when I first started investing in my 20s. I used to buy when the market was rising no matter where it was in that rise (even near the top) because I didn't have a concept of long term economic cycles. Now, I'm in my 40s and have seen how much I could have made had I been a little more disciplines and a little less eager.
only problem is typically the juciest gains happen in the first 2 weeks ,with the 2nd best gains the first 30 days of hitting a bottom. miss that and it can effect your recovery time by alot.
catching the drop just right can be a futile attempt as well so you end up loosing on the way down and cutting your gains on the way up by waiting for some kind of sign your at those points your looking for to act on.
nothing ,i repeat nothing beats a well designed portfolio coupled with a well designed plan.
folks have been looking for that magic scheme forever that preserves their gains and keep them from losses and while many worked for a bit the reality is they only worked until they didnt...the real succesful investors have plans that work regardless of which market cycle we are in and dont try to time themselves getting in and getting out.
they may buy more or rebalance on the drops but they dont think they are going to outsmart things by escaping the down draft and getting back in when the smoke clears.
investors are so poor at this morningstar actually rates funds 2 ways. one of which is tracking small investor cash flow. clearly it shows when investors think they are calling it right by bailing they are doing the wrong thing and when they are buying they are again timing it wrong.
I don't try to guess tops and bottoms, I just wait for them to happen. I also don't invest in individual stocks, only funds.
My strategy: keep money in money market funds until the stock market drops precipitously (like late '08), then wait a few months for it to further settle (early '09), then transfer money market funds into stock funds. This is what I did in early '09 after several years of saving.
My only regret is that I didn't have this long term perspective when I first started investing in my 20s. I used to buy when the market was rising no matter where it was in that rise (even near the top) because I didn't have a concept of long term economic cycles. Now, I'm in my 40s and have seen how much I could have made had I been a little more disciplines and a little less eager.
When I read this, it is if i wrote it myself. It is that applicable.
only problem is typically the juciest gains happen in the first 2 weeks ,with the 2nd best gains the first 30 days of hitting a bottom. miss that and it can effect your recovery time by alot.
I agree that those first 2 weeks after a bottom can give lots of gains. However, with a longer term perspective, I think even without these 2 weeks, your gains can be substantial and relevant.
In the beginning of March 2009, the S&P 500 had a bottom below the 700.
In May 2009, it was around the 900. Yes, if you could have called the bottom in March and bought then, you could have made great returns. But nobody can call the bottom with certainty.
Buying in May at 900 still provides you now at around 1300 with a 44% increase. This are returns that are obtained with relatively little risk and effort.
I see the merits of a balanced portfolio and re-balancing this annually. It would be interesting to see a quantitative historic comparison for the returns of that approach and a long-term market timing approach for e.g. the S&P 500. Has anyone seen or made such a comparison?
ibbotson research has done many studies on trying to time things. the results are always the same. your waisting your time trying. a good portfolio allows for things to go wrong not rule them out and try to dance around them.
investors constantly shoot themselves in the foot trying to outsmart things or bet on only one economic outcome,prosperity. good portfolio design is never having to say im sorry.
its not only about the portfolio but its how the portfolio fits in your plans.
as an example in my own structure i split my money into the permanent portfilio and my newsletter portfolio.
that is incorporated into a 3 bucket plan which sets things up so i have at least 15 years of withdrawls in retirement before i even have to worry about selling equities if they are down. odds are 15 years from now even in a downturn markets will be higher then today. heck 15 years ago we were in the 5,000 range on the dow i think.
the point is i can watch these drops even in retirement unscathed. i maybe nervous or feel poorer but the plan lets me live our lives isolated from the daily swings.
doing absouletly nothing but rebalancing something like the permanent portfolio concept has returned a cagr annual return of over 9% for almost 40 years. even following my fidelity insight newsletter since 1987 has me up over 1200%.. ibbotson and many other firms and universities have been researching market timing results as long as they have been around and all with the same conclusion,it does not work.
think about right now, do you bail and run with markets down alot in 3 days? do you chance things in the mid-east will resolve? no one knows what to do but i can guarantee you folks will do the wrong thing...
Last edited by mathjak107; 02-24-2011 at 04:03 AM..
I don't try to guess tops and bottoms, I just wait for them to happen. I also don't invest in individual stocks, only funds.
My strategy: keep money in money market funds until the stock market drops precipitously (like late '08), then wait a few months for it to further settle (early '09), then transfer money market funds into stock funds. This is what I did in early '09 after several years of saving. Since then, I've been saving money in money market funds and will wait for another big drop before investing again. My only active stock investments are my 401k and IRA (although I'm holding off on my IRA for a while - I think we may have a correction before the end of the year).
My only regret is that I didn't have this long term perspective when I first started investing in my 20s. I used to buy when the market was rising no matter where it was in that rise (even near the top) because I didn't have a concept of long term economic cycles. Now, I'm in my 40s and have seen how much I could have made had I been a little more disciplines and a little less eager.
The best "overall" indicators I have seen and used that are very accurate at determining risk in the market are the Bullish Percent signals. The Bullish Percent measures the number of stocks on a buy vs. sell signal in their respective index.
Check out the NYSE BP and SPX BP. Both are very high right now at 80% and 88%. Best case scenario is to purchase equities when these BPs fall below 30% and then reverse back up along with some other indicators. If you had followed these indicators they would have prevented losses during every correction I have witnessed since 2000.
This is just one piece of many to help manage risk in the markets.
Could be 30 years.look at what bonds did. They are just bottoming and reversing now
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