Timing the market

[flinger]

I started a True Blue ( Warren Buffet Type ) - Buy and Hold Investor. Over time , I found for Asia Market , it is better to know when to Buy and When to Sell. Now , I am a Value Contrarian.

Kalos

hmmm.... describing yourself, I might agree that I am a value contrarian....;p

But , we might differ in the details. As they say, the devil is in the details.

[newborn1000]

I recalled many newbies coming into Wallstraits forum in yr 06/07 and some of us had our fun with two of them who tried to solict biz for Clemen Chiang Freely course. Also, d.o.g unfavourably dissected some guys' oil pods investment proposals and some hoohaas with "I am going to soo sue you all" action-packed words flying around in the forum back then.

Perhaps my sentiment measures for a near the top of market would be:

1. Tons of IPOs launched, launching in coming months.
2. Newspapers and mainstream news proclaiming students earning alot from investment. Students should be studying and not diverting attention to non academic matters in the first place!
3. Emperor Lee proclaiming "More Golden Years ahead"
4. Your relatives who knw nuts about investment buying Unit Trusts.
5. An acceleration of stock mkt indicies towards the end. (Observe this twice in DJIA and SPX in 1999 and 2007)
6. Alternative investments coming up, such as Wine Investment, Land Banking.

Haha good memories indeed! That was the time when many different investment "themes" were being discussed in Wallstraits; and these included land banking, wine investments, commodities, precious metals (gold, silver), UK Traded Endowments as well as of course Oilpods and other dubious scams. It was really a very interesting time back then, with many people scrambling to give their views but of course, I wished there was less of the unpleasantness at the time.

There was a certain chap who preached about market-cycle timing, I do recall, and his portfolio was also diversified into many different asset classes. Interestingly, the last I heard was that he left the forum to begin conducting seminars to teach people on how to invest in shares and how to accumulate a million $, since he had done so himself. I suspect he should be doing pretty well right now.......

As for the "signs", I think Arthur has brought up many good points. The IPOs are one good indicator of bullish sentiments, and yes the newspapers tend to drum up interest in the stock market by reporting all the weird news about unlikely people minting thousands from the market, easily! These are just some of the signs of exuberance. I think Robert Shilling wrote a very good book on "Irrational Exuberance" in which he gives a laundry list of what to watch out for to justify a bubble. Very useful stuff I must say, and it's a good checklist we all can use to judge if things are getting too frothy.

Whoever that complained to me during that period about the topic...made me close the threads lolz

Anyway, timing is really a waste of time, trying to catch every single turns/corrections of the market is impossible

For stocks all you can do is buy during recessions etc.........For trading it's better to follow the trend...........

I got another timing instrument though-my blog hit counter..................it used to get very low hits, nowdays it's clocking almost 100hits per week, so is it a time to sell? =P

[cookieguy]

Hi,

I have read about the buy and hold investment strategy. It is a widely quoted, tried and tested method to achieve capital growth over the long run.

However, if we can guess the market peaks or bottoms and take action on our portfolio positions when that occurs, we can significantly increase portfolio performance. No one can predict the exact timing when the market will turn. But making a close enough guess may be possible.

Timing the market can be based on sentiments indicators. When over exuberance is detected, we can lighten up on stocks prior to the expected correction. When market becomes over pessimistic accumulating on stock positions will give a higher chance of good gains when the market rallies subsequently.

Like to have a view of the market timing strategy. Do you believe in the performance edge by market timing? Anyone tried it before or do you think the tried and tested buy hold strategy is still the best?

Market timing using technical indicators or the overall industry cycle?

To some extent, yes I agree industry cycle trend helps. I have plotted the property cycle this far and put a benchmark estimate to the next peak through using historic trends, data consolidation, prior qualitative analysis and forecasting just to name a few.

Other cycle such as commodities - I find it to be an irregular pattern. Maybe can use indexes as examples? Not sure about that due to some level of market manipulation factor?

[peter lee]

glad to see many different views and comments.

i agreed with the macroeconomic approach.
one need to know which part of the cycle we are now in,
which is hard to guess.

usually, i use three mkt cycles .
bond mkt leads equity mkt and equity mkt leads commodity mkt.
the lead or lag time between them can be in few or many months.
i guess - we are in stage
where bond is declining, equity and commodity are still rising.
thus, the next mkt to peak is equity mkt.

check whether we are having flat or inverted yield curve
or whether the short term interest rate is near or above inflation rate.
if yes, equity is near peak at moment.

so far, we are not at that stage yet.
thus, equity mkt still has room to move up.

lastly, when we are near the described scene,
one need not have to sell one's holding equity on same day.
one can slowly sell equity over a span of months
- which i do not know how long.

good night.

[Hanse]

Hi all, I'm new to this forum. I've been observing this forum for quite some time and I find this to be a very useful site. I consider myself a fundamental analyst, but recently trying to pick up TA skills. Since I've been learning a lot from this forum, I'll try to contribute some articles.

Recently I learnt a bit on the Dow Theory phase analysis, a TA techniques which I believe can help greatly in timing the market. Yes, I know the virtue of NOT timing the market, but the time frame of this method is measured in years, unlike the usual days/ hours used in TA.

The Dow Theory is a TA techniques which I believe can help greatly. It goes like this:

The Bull market is divided into 3 phases.

Bull market phase 1.
The 1st phase is when the market just emerge from the bear market. Key characteristic:

1.Prices are low. Bad news are priced in, hence not much response to bad news.
2.The public are mostly shaken out of the market, not much participation.
3.Any rally are thought to be a bear market rally
4.Stocks are fundamentally undervalued, low PE
5.People in the know (professionals) are slowly picking up stocks

Bull market phase 2
The 2nd phase of the bull market. There are obvious uptrend. Key characteristics:

1.Earning increase announcements
2.Employment stabilize and start to pick up
3.IPOs starts to emerge
4.Fundamental valuation going up
5.Higher high and higher lows
6.Sector rotation seen
7.Longest phase of the 3 phase, may last a few years

Bull market phase 3
The 3rd phase of the bull market. Plenty of speculations. Key characteristics

1.Fundamental over-valuation
2.Rise in interest rate
3.Price volatility
4.IPOs aplenty
5.Increase in number of day traders
6.Media frenzy

Key strategy.
During phase 1, start allocating capital 20% at a time into stocks. Slowly ease into the market whenever uptrend is confirm. Abandon if downtrend resumes.
During phase 2, 100% vested. Insulate yourself from too much noise.
During phase 3, start moving capital out. 40% - 60% vested. Be fearful. Cut loss if market plunge 10-20% sharply.

I personally feel we are in phase 2 right now. I completely missed phase 1, so I do not have the margin of safety that some of the more experienced members here have. Currently I'm 100% vested (my investment fund). Looking to buy some value dividend stocks in 2011.

Any comments?

[newborn1000]

never ever buy dividend stocks during a bull market.............In fact dont buy anything at all =P

In a bear market, even the strongest dividend payer will get sold down to ridiculous prices<----thats the time to buy =)

For example, Singpost was selling at $0.68.........thats ard 10-12% yield =)

Furthermore, the bear market will help you weed out the more problematic ones........

Unless, you are trading then its another story =)

[arthur]

Try not to get over engrossed into the mkt timing thingy. I am observing some of you talking about the leading or lagging of bonds, equities and commodities mkts.

Guess what? The info you learned then isn't applicable to now or even the recent 2007 downturn.
Check and always recheck the info you learned. Some may not be useful anymore because the basic economic circumstances has evolved to another side.

Don't make a 123 checklist. The mkt likes to screw this kinda list up and ur money in return too.
Be flexible. Understand the business of the counters behind, strive to understand the industry behind them and most importantly, understand the marcoeconomic perspective.

Think of how to gather more knowledge regardless technical or fundamental first before moving on. I can say this a million times but some newbies will still itchy hand go in and win some thinking they are better than Warren Buffett only to get slap one time jialat jialat till that they never invest or trade ever again.

Worth it?

[Nick]

never ever buy dividend stocks during a bull market.............In fact dont buy anything at all =P

In a bear market, even the strongest dividend payer will get sold down to ridiculous prices<----thats the time to buy =)

For example, Singpost was selling at $0.68.........thats ard 10-12% yield =)

Furthermore, the bear market will help you weed out the more problematic ones........

Unless, you are trading then its another story =)

Very wise words. The hardest thing to do in the market is to do nothing.

[kazukirai]

I'm largely with Arthur on this one.

Try not to get over engrossed into the mkt timing thingy. I am observing some of you talking about the leading or lagging of bonds, equities and commodities mkts.

Go back and revisit all the assumptions. The great thing that has happened is that a bear market and recession has just happened in the recent past which means that the economic environment (in terms of resources available, demographics etc.) are largely similar and relevant. Thus go back and revisit if indeed, there is any truth to favouring investments such as Commodities over Equities or Bonds over Equities and the like.

I can say this a million times but some newbies will still itchy hand go in and win some thinking they are better than Warren Buffett only to get slap one time jialat jialat till that they never invest or trade ever again.

In my opinion, rather than having a system that shows you how to turn $1000 into $1,000,000 it's better to have a system that ensures that even if you lose your $1,000, you'll still come out positive in the end. Thinking like this worked for me so far despited having started investing at what most people would say are the worst times possible.

check whether we are having flat or inverted yield curve
or whether the short term interest rate is near or above inflation rate.
if yes, equity is near peak at moment.

I've read about this and you might want to read Ken Fisher on this. He's basically advocating a yield curve based on global markets since capital flows across borders are much more salient now.

I personally don't believe in timing the market but I guess my own valuations of Intrinsic Values of stocks sort of act as a market timer in that sense.

[Jacmar]

I personally feel we are in phase 2 right now. I completely missed phase 1, so I do not have the margin of safety that some of the more experienced members here have. Currently I'm 100% vested (my investment fund). Looking to buy some value dividend stocks in 2011.

There is no rule of law that says that if we are in phase 2 that it will go to phase 3. It can go from phase 2 to phase 1 ie cheap got cheaper.