Timing the market

[Jacques]

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?

[Zelphon]

For me, I believe in timing the market to buy on market dips and then hold for long term..

As to when to let go, once the counters i am holding rises to almost to their peak price in 2007, I will probably let go...

[BlackCat]

I'm now 100% cash and waiting for the next bear market or recession. Singapore seems to be get one every 5-6 years. I don't know when the next one will occur.

Timing the market can be based on sentiments indicators.

I look for simple things:

• Newspaper say 'recession'
  
• 2 (pref. 3) quarters of negative growth, usually with contracting revenues in the companies I follow
  
• Hear of people losing the jobs. Must be real fear...(btw, I am not immune, I may lose my job too).
  

Then I'll buy.

I came to this conclusion after realizing that I am not very good at trading, but... I am also not comfortable buying and holding stocks that have risen 50-100% from their trough, knowing they can always go back there. No matter how good a company's fundamentals, the market direction matters more.

Some things I'm wondering:

• Am I comfortable enough with my FA to pick stocks that won't go to zero? Amidst all the doom and gloom, can I pull the trigger and pour all my life savings into the market? I believe so, I have done this (partially) before with lesser amounts of money.
  
• What if the recovery is unexpectedly swift and I am not fully invested? Happened to me last time. I think I need some simple indicator (eg: stock price above 200MA) where I would rush to buy, in case of a unexpectedly quick recovery like Mar 09 or after the Asian Financial Crisis.
  
• When do I sell? Last time I sold too quick. I would have made a further 20-30% if I had held on and done absolutely nothing. Next time, I don't know yet if or when I'd sell....bull markets always go on longer than I expect.
  
• I don't believe S'pore will have a decade long bull market (eg: US mkt 87 to 2001) or bear (Japan), as it is very dependent on the ups and downs of the world economy (no local consumer base).
  

I don't think of it as 'market timing', more of a 'wait-buy-and-hold' strategy.

[Musicwhiz]

Wow Blackcat, you're currently in 100% cash already? Does this mean you think valuations are already too excessive and thereby unsustainable? Would just like to hear your views on this aspect.

Thanks for sharing your investment philosophy. It's been very useful!

[PassiveReturns]

I think when I stop timing the market, I can sleep better at night, and have more time to do other stuff.

[arthur]

Historical valuation of Singapore counters seemingly to be at a fair value now, around 14+ as opposed to 15+ in recent decade.

Surprisingly, US valuation is actually slightly higher than Singapore, ie. Singapore is still cheaper(?) relative to US.

Blackcat said something that struck me in the heart, that is, if I did not do anything to my counters, (ie. not trade them) my profit margin would be at least another 100% more. Darn...

Still, I maintain this is not the climax of the bull market or anywhere near it yet. We will have wilder swings as the coming months pass since the liquidity driven rally is over since beginning of the year. This is the period where ppl gets nervous as we overshot our "good feeling" about the economies as a whole.

To look at alternative POV, having a low USD is actually highly beneficial to the large caps US MNCs with operations around the world. A Big Mac bought in Europe would be worth more to the bottom line of MCD recorded earnings in the annual reports.

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 leading to some hoohaas with "I am sooo going to sue you all" action-packed words flying around in the forum back then.

Brings me good memories. =)

Anyway, I believe one can time the market, but not exactly at the very top, nor at the very bottom but rather use a marcoeconomic persecptive to see how the economy is faring in the next 6 months or so and slowly rotate the assets into different classes to either minimise losses or maximise gains.

Of cos, dollar avg and proper studies of companies biz structure have to be taken into account.

Black Cat did suggest something good as in newspapers say recession but I would think that should be time to start looking for good counters to slowly drippingly accumulate rather than to sell.

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.

[Musicwhiz]

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.

[PassiveReturns]

Another sign of exuberance is when we see lots of people patronized the investment section of a bookstore. I remember clearly during the depth of the recent bear market, I was the one and only one fellow who still scoured through investment books from the bookshelves

[BlackCat]

Wow Blackcat, you're currently in 100% cash already? Does this mean you think valuations are already too excessive and thereby unsustainable?

My being 100% cash now is more of a mistake. For valuations...I think the market is driven by liquidity and sentiment first, valuations just reflect this...in other words, I don't know. Personally (for investment purposes) I'm only comfortable buying stocks cheaply (eg: mid caps with PE of 5-10, with compressed earnings due to a recession, with potential growth of 20%). But I may have to wait along time for this. eg: 5 year bull market from 03 to 07.

[mrEngineer]

I think when I stop timing the market, I can sleep better at night, and have more time to do other stuff.

I think it's all a matter of portfolio management & choice. If u assign 50% for long term dividend or capital appreciation or both and the other 50% for market timing in mid term (note i am not talking about trading or margin), would u worry that much?