49 ms·

Does Market Timing Work?

164 points by alihm 3y ago

irjustin 3y ago
Yes but only for a select few. For the rest of us... Nope
- medellin 3y ago
  And the select few are those making the policies because no one else knows whats going to happen
quickthrower2 3y ago
Which is why better late than never I am overpaying into pension and chucking that on a far/wide international index. My calcs say I won’t retire rich but I will still most likely have the money and beat inflation. And not spend it lol! The real issue for the average Jo seeking alpha is you often need to pay the house (your government!) for the privilege. In Australia you trigger capital gains tax when you sell. And if you buy and sell alot they may audit you and consider it income from professional trading!
- reedf1 3y ago
  You are probably not finding alpha as a retail investor - probably just some form of beta.
  - quickthrower2 3y ago
    Yes - what I am saying is I prefer my E(X) of beta over maybe-alpha minus additional taxes. (Assuming you meant indexes = beta... ?)
- golemiprague 3y ago
  The problem in Australia is that they still tax you if you rent your house to someone and then use the money to rent for yourself. So if you need to move or change house size you must sell and buy. However if you buy an investment house you can get tax deduction on the interest of the mortgage. They basically tax people with one house but give deductions to people with multiple houses.
  - quickthrower2 3y ago
    Yes. I think that is silly as they should encourage freedom to move. You should just get taxed on the “profit” you make if you find somewhere cheaper to rent than what you get. The workaround is buy to rent out a property you never live in then just rent and move around as normal. But then you lose out on the primary residence capital gains exemption. A work around to that is to never sell and use the death trust to pass that on to your kids. All this stuff takes a lot of planning and thinking about. Another weird thing: transfer your house to your spouse and pay stamp duty! Stamp duty itself is regressive and should be replaced by a smaller annual property tax or just another form of tax (but given that property ownership tends to create wealth inequality probably good to tax ownership rather than add more income tax)
wizofaus 3y ago
Surely if you know exactly when the market will reach a low point you can buy put options to capitalise on that? Or at least ensure that you use times where you're expecting the market to fall to spend money on non-appreciating essentials (cars, house renovations etc.)?
zee2345 3y ago
[flagged]
greatpostman 3y ago
For people with the intellect to understand the economy it does. Just very few of those people
- worik 3y ago
  > people with the intellect to understand the economy Those people (we people) know not to try.
  - greatpostman 3y ago
    No there are people that can time the market.
    - vikingerik 3y ago
      There are people that have timed the market, but we can't distinguish if that came from actual predictive ability or just getting lucky. And if it did come from predictive ability, then everyone would just copy their predictions and arbitrage it out.
      - staplers 3y ago
        People successfully time the market all the time (some more than others). Only fools broadcast their intentions. If they are broadcasting it, the broadcast is part of the strategy.
    - Animats 3y ago
      > No there are people that can time the market. The guy who could died last year.[1] [1] https://dailyprofitcycle.com/market-commentary/the-legacy-of-james-dines-and-the-dines-letter/ https://dailyprofitcycle.com/market-commentary/the-legacy-of...
    - refurb 3y ago
      Such as?
- medellin 3y ago
shrimpx 3y ago
Although when the s&p dropped 20% in a few days in March 2020 — that was clearly a buy signal. And when tech stocks dropped by 70-90% in Nov 2022. Those stocks are now up 2x/3x from bottom. Sure, long term it probably doesn’t work out to time the market but sometimes it’s pretty obvious what’s happening.
- vikingerik 3y ago
  The March 2020 drop was from the pandemic lockdowns. In that moment, nobody knew that was a buy signal. Nobody knew then when economic activity would recover, if the pandemic would pass in two weeks or several months or many years.
  - herval 3y ago
    "nobody knew" doesn't mean nobody acted. The rational actors that act only on information "everybody knows" are usually late to the game
    - thakoppno 3y ago
      You’re correct and the parent comment is too. Timing the market to some requires complete prescience. To others it may not.
  - corey_moncure 3y ago
    For every sell, there is a buy
- lend000 3y ago
  The difficult part was knowing where to sell so you could have money on the sidelines before the market dropped. Was it right when lockdowns started? In that case, you already lost a fair amount from the top. I do believe that markets can be beat, but by definition, you need to be "smarter" than the average capital, where more than half of the capital in the market on a given day is controlled by somewhat sophisticated investors. I don't think it's worthwhile for a retail trader to try their hand unless they are putting considerable effort into developing their alpha and either have automation skills or exceptional discipline.
deleted 3y ago
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neilv 3y ago
They didn't discuss Peter Perfect's sister, Petra Perfect, who -- rather than just wait for the one bottom day for the year -- instead buys and sells repeatedly, throughout the year, at more local lows and highs. Is that also considered market timing?
- rwmj 3y ago
  At a guess they'd lose all their money in transaction costs.
  - thakoppno 3y ago
    Transaction cost is little O of most significant trading strategies, imho.
    - nyssos 3y ago
      Depends heavily on the timescale. 0.1% slippage is irrelevant if you hold for years but a serious problem if you trade every hour.
- abm53 3y ago
  How do you know that you’re currently at a local low/high?
  - neilv 3y ago
    In the article, Peter Perfect has perfect market timing, but only buys once. Petra Perfect also has perfect market timing, but can buy and sell repeatedly.
    - abm53 3y ago
      Sorry, then yes to answer your actual question, I don’t think that would commonly be called “market timing” (although of course the phrase could be an apt description of that strategy). All the uses of that expression that I see refer to an investor whose principal aim is to buy-and-hold to capture beta, but simply wants to try and pick the right moment.
Centigonal 3y ago
IMO, this is a much more comprehensive article on the same topic: https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/Market-Timing-Sin-a-Little.pdf https://www.aqr.com/-/media/AQR/Documents/Insights/White-Pap... For unsophisticated investors, timing the market tends to keep money on the sidelines during growth periods, eroding long-term returns. This is part of why it's considered an investing sin - "time in the market beats timing the market." Sophisticated systematic investors can probably get good results with certain momentum-based market timing strategies, but most of us aren't sophisticated systematic investors.
- veqq 3y ago
  To go into further detail about systemic investing: There have been experiments like the turtle traders ^ 1 who applied "trend following", used today by many CTAs on exotic markets. For this, an investor taught some people his strategy/rules, gave them his money and they've shined for 40 years. The fundamental strategy still works today (updated). Fundamentally, it's a method to ride momentum in different ways (e.g. crossectional.) Hedge fund managers like Rzepczynski, Cem Karsan, Alan Beer... Richard Brennan is the most insightful of them who shares his methods freely. N.b. trend following doesn't work well in stock markets, but flourishes in Mexican rate swaps, orange juice futures, London sugar... combined in ensembles. Traditional value investors, building on the Intelligent Investor, have always done well over samples above a few years. (N.b. Warren Buffet hasn't been a value investor for a long time, because he has too much to manage. He was strongly inspired by Fisher's Common Stocks and Uncommon Profits, which gave us the concept of "growth stocks".) (N.b. 2, value investing ETFs are mostly terrible, fundamentally not investing in value stocks due to their structures.) Carisle's Acquierer's Multiple is the most recent development in systemic value investing (he also runs an ETF or two along these lines). "Magic formula investing" even holds up too! In the mining space, you also get discretionary (not purely systematic) investors like Rick Rule openly discussing their methodologies, successful for decades and decades. Here’s an interesting paper ^ 2 (exec summary pages 5-6). Note that 70% of underperformance is due to investors withdrawing funds during times of market crisis. Fund fees also drive the majority of underperformance. N.b. most wealth managers can't legally follow such strategies because of the prudent person rule. They are legally forced to underperform typical indices - and the majority of research has focused on them, distorting the data pool. [1] https://www.investopedia.com/articles/trading/08/turtle-trading.asp https://www.investopedia.com/articles/trading/08/turtle-trad... [2] https://wealthwatchadvisors.com/wp-content/uploads/2020/03/QAIB_PremiumEdition2020_WWA.pdf https://wealthwatchadvisors.com/wp-content/uploads/2020/03/Q...
PeterStuer 3y ago
The idea with any Ponzi scheme is to get in as early as possible and get out before the inevitable collapse. Though if it is your meta-governement propping up the Ponzi come hell or high water, not sure where you would get out to that would not be sucked into the collapse unless you are part of the 0.000001% that would potentially have an option to watch the world burn from a distance.
- fsckboy 3y ago
  The idea with a Ponzi is to create one and make money from the get-go. There is no good idea with a Ponzi if you didn't create it.
  - PeterStuer 3y ago
    Getting in early on a succesfull Ponzi can be very profitable. If only the creator made out the Ponzi would fail to get traction.
maddynator 3y ago
While I agree with the general principle of the post, I am skeptical of the fact that schwab published it. If it was done third party research, I would trust it more. (Internet has made me skeptical) However, the only incentive I can think of schwab is to encourage people to invest ASAP they have cash so schwab can get that money in their system so they can charge fees/still services. But that’s just normal business
- anonu 3y ago
  Schwab would rather you have cash in your account than be invested in securities. This is how their cash sweep works. The article is educational and generally stands up to the research on the topic. It is designed to build trust with clients so they invest in Schwab.
  - TacticalCoder 3y ago
    > Schwab would rather you have cash in your account than be invested in securities Compared to IBKR which gives "benchmark - 0.5%" on your NAV in USD, what does Schwab give for your USD sitting idle?
    - anonu 3y ago
      Cash sweep in Schwab is like 0.5%, it's nothing. But this is how they make their money, turning around and lending at 8%. But you can just as easily buy a short duration Treasury ETF yielding 5%+ or a CD.
      - zie 3y ago
        Or even Schwab MMF's, which are reasonable. It's mostly just the default that's terrible on return.
    - tylergetsay 3y ago
      Schwab gives a similar return, they don't offer any high yield savings
rocqua 3y ago
I wonder if there is a fixed buy date that outperforms dollar cost averaging. Something like "around new years lots of people get money they invest, so prices tend to pop, so buy in november' There just needs to be some kind of yearly pattern for such a strategy to exist. I even recall reading about it on money-stuff. But I can't remember the months.
- veqq 3y ago
  There are a lot of these. Nowadays, gamma flows are discussed a lot in public spaces. Ignoring most of the topic, combining options expiry dates with typical fund rebalancing dates is simple. (Buy in the last week of the month, basically.) Historically, April, July, November are the best, while January, June and September are the worst. "Sell in may" and go away used to be a common phrase too. But if you are purely DCAing, such points don't make much sense. Following the interest rate cycle or business cycle is straight forward, or cycles in your own industry. Oil, shipping and microprocessor companies for example forecast years out when their profitable and unprofitable periods will be, so you can move your capital in and out for much higher performance.
- ttyprintk 3y ago
  I’d rather see a study where September and November are chosen for gold bullion, and other months for equities. I’ve heard this coincides with the wedding season in India —- maybe someone can confirm.
- PaulDavisThe1st 3y ago
  If there was such a pattern, and then a strategy to exploit it, the pattern would change.
dzink 3y ago
To time the market, you need visibility into it down fine intervals and tools not available to anyone without a 3 digit investment. Common tools obfuscate data. A typical movement of the market that is obvious on a detailed chart, is explained haphazardly by likely automated financial press. The jobs data was strong on Friday, leading to likelihood of higher interest rates for longer, yet the market jumped up that day? Was that a Dead cat bounce? Short-sellers exiting their positions before a long weekend? A move to drum up retail investor interest in a last ditch effort before the S&P crosses the 4200 point of no return? The beginning of the next bull market? The retail investor software is designed to take advantage of retail investors left and right. Placing trades is error prone. The spreads can be ridiculous (0.5% at 9:30am). the market zigzags consistently so no stop loss is left un-triggered before a bounce. These conditions are currently leading to a world of take-profit trading. Timing works if you pay attention to it all the time, but most don’t have the time for that. Your retailer software won’t warn you when you are losing profits gained in the past year. That’s why long term investors become complacent after a long stretch of growth and stop paying attention. With bots trading increasingly more and interest rates remaining higher, the market will not look the same as it did since 2010 AT ALL and the data from before then is only a usable in detail to those who can pay. Once retail investors have seen the lines go down. the bounce back won’t be as linear as 2020 or this spring. Treasuries require a lot less sweat.
yieldcrv 3y ago
Generic advice gets generic results
lencastre 3y ago
A decade or so ago I heard an investments prof liking it to “(…) picking pennies in front of the steam roller” which is fitting I guess. Unless you become a market maker, then by all means you are sitting on the steam roller.
nly 3y ago
A catchy blog post on this subject; Even God Couldn’t Beat Dollar-Cost Averaging https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
- throw0101c 3y ago
  Also from Nick Maggiulli, the author: > For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about. > But, what about stock picking? How long would it take to determine if someone is a good stock picker? > An hour? A week? A year? > Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years. > And the payoff you do eventually get has to be compared to the payoff of buying an index fund like the S&P 500. So, even if you make money on absolute terms, you can still lose money on relative terms. * https://ofdollarsanddata.com/why-you-shouldnt-pick-individual-stocks/ https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...
anonu 3y ago
Totally agree on not timing the market and staying invested. Nonetheless this analysis raises more questions than answers for me. First, as you often see in these studies, they use the S&P500 which has returned a 9 or 10% annualized rate for decades now. How realistic is it to see someone's entire wealth invested in just this benchmark? Diversification will almost always mean returns lower than than the S&P. Ultimately this erodes at the findings of the study. Second, there's no mention of yield which is basically the guaranteed portion of the return. This portion alone accounts for a quarter of your annual return making it another compelling reason to be invested early.
vik0 3y ago
Ever since I read The Black Swan by Nassim Nicholas Taleb and Thinking, Fast and Slow by Daniel Kahneman, I can't take anything related to the stock market seriously (among other things as well, but this post is related to the stock market, so that's why I'm focusing on it.) There's very little skill involved, which isn't to say there is no skill involved whatsoever - but at the end of the day it really is just luck The following excerpts are from Thinking, Fast and Slow: "The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions—and thereby threaten people’s livelihood and self-esteem—are simply not absorbed. The mind does not digest them. This is particularly true of statistical studies of performance, which provide base-rate information that people generally ignore when it clashes with their personal impressions from experience." "Finally, the illusions of validity and skill are supported by a powerful professional culture. We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot."
- achrono 3y ago
  FWIW ever since Kahneman, Ariely and similar company have had some of their theories get discredited (Ariely's taint is worse because it's to do with fabricating research!) I have gone back to simply resorting to common sense and quotidian skepticism.
  - codethief 3y ago
    > ever since Kahneman […] have had some of their theories get discredited Could you elaborate?
    - voiceblue 3y ago
      https://replicationindex.com/2020/12/30/a-meta-scientific-perspective-on-thinking-fast-and-slow/ https://replicationindex.com/2020/12/30/a-meta-scientific-pe...
zoomablemind 3y ago
"...Each received $2,000 at the beginning of every year for the 20 years ending in 2022 and left the money in the stock market..." All of the experiment "participants" must have Lucky in their middle names. They managed to keep their jobs over those 20 years and kept their cool at the economy downturns. They only Buy (the index shares), except for the one that keeps "cash" aka money market shares. I guess they plan on doing this beyond the 20y, why stop feeding cash into the account, why retire when it can contnue growing? Lucky ones will also retire in upturn. Yet the whole transaction needs the Sell part to realize the gains. Surprisingly, the Schwab experiment did not model this for the "participants". Does one need to "time" the Sells?
- throw0101c 3y ago
  > Does one need to "time" the Sells? In retirement you need Money more than you need Stocks, so the Sell side of the trade could be someone who is not trying to be clever with trades, but simply needs to pay for their groceries.
- TacticalCoder 3y ago
  > Yet the whole transaction needs the Sell part to realize the gains. Surprisingly, the Schwab experiment did not model this for the "participants". The FIRE community did model this at great length though. And the example in TFA is just an example: saving $2K a year is basically drinking one or two beers less each day (so I wouldn't look too much into that amount). Most people in the west could save that. At the very least the people at which TFA is aimed could save $2K a year. Try $20K a year: most working people here could save that. Here's a nice "rich, broke or dead" FIRE calculator: https://engaging-data.com/will-money-last-retire-early/ https://engaging-data.com/will-money-last-retire-early/
matt3210 3y ago
Long game or insider trading is the only reliable strategy.
- abcd_f 3y ago
  RenCap begs to differ.
  - noslenwerdna 3y ago
    Yes, of course, building the largest physics and math department in the world to come up with your trading strategy. Yes, there's always that option.
deleted 3y ago
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creakingstairs 3y ago
One of my family members is absolutely convinced that they can time the market and it kinda drives me up the wall every time it comes up. They will use all these “techniques” to draw arbitrary lines on the chart to establish a trend in the market while watching the news like a hawk everyday. Meanwhile I just get on with my day with index funds and get better returns.
- Der_Einzige 3y ago
  Actual “timing the market” does exist but it’s illegal. We call it insider trading.
- ignoramous 3y ago
  > Buffett's ultimately successful contention was that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years. The bet pit two basic investing philosophies against each other: passive and active investing. https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe...
  - bumby 3y ago
    Isn’t a large part of the underperformance of the hedge funds due to their fee structure? Investors lose 20%+ of the profits just in fees. While I don’t think stock picking is a great idea for the layman, that fee structure isn’t generalizable to the average Joe picking stocks. I believe there’s some evidence that low-volatility trading has been shown to beat the market over long periods of time. Although, “picking stocks for volatility” may be different than “timing stock picks”
    - lotsofpulp 3y ago
      No, fund expenses are typically not included when comparing returns.
      - 3y ago
btbuildem 3y ago
I feel like this could be explained much more succinctly as the direct corollary of the founding tenet of capitalist society: endless growth. "The numbers always go up" That's it.
hash872 3y ago
Worth noting that about 30% of active fund managers have beat the S&P 500 going back to 1993 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4096205 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4096205 They may not do so for their investors- this is before fees. But it does seem significant that they are beating the index on their own, and over a consistent period of time. 30% is not nothing. Seems like a blow to strong-form EMH to me. As an FYI, I never want to hear a real-life fund or investor compared to a benchmark again. Benchmarks are theoretical investments with a 0.0% expense ratio- once you add in some of the real costs of running a passive fund, you start to get more real numbers
- CuriouslyC 3y ago
  Assuming a random distribution of yearly returns centered on 0 before fees, with enough fund managers you'd see plenty that would beat the market for 30 years. That past performance would also be in no way indicative of future performance given the stated process.
- unusualmonkey 3y ago
  A blind monkey throwing darts will beat the S&P 500 some of the time. The problem isn't that it's impossible to beat the S&P 500 (it's actually trivial), the problem is it's hard to predict which portfolio will outperform the S&P 500.
  - Aachen 3y ago
    The point they're making is that fewer than 30% of monkeys would still be positive after so many years if it were random chance Idk if that's true but you're not saying what percentage one would expect to see instead I also think monkeys are the wrong example here because aren't they at even odds with the index? 50% of them, assuming they take no bananas for their service and assuming they don't get to make more trades than the index does, should have beaten the index, if my currently-half-awake brain is working correctly
    - unusualmonkey 3y ago
rr808 3y ago
The problem with buy and hold and pretty much every current strategy is that its distorted by the huge 40 year bull market we've seen in the USA. Every American asset has gone up big time - of course "time in the market" is a good thing. If you look at Japanese or European stock markets they tell a very different story. Similarly the next 40 years in the USA could be a miserable time for investors. I can't believe how much people take for granted that stock markets "usually go up 7% a year" or whatever. No one really knows but it wont be as good as the last few decades.
- samjmck 3y ago
  Isn't that only a problem if you are only invested in the US? There exists ETFs that are invested in multiple developed countries, such as index funds that track the MSCI World.
  - rr808 3y ago
    Yes. After continued under performance of non-US markets, not many people have a significant exposure to those places.
    - malfist 3y ago
      Are you sure about that? The standard boglehead portfolio has ~1/3 of stock holdings in non-us funds.
- WXLCKNO 3y ago
  This is what I think too. Now obviously we're possibly on the verge of another massive change in tech with AI but there's still nothing that guarantees that the market has to go up.
  - brigadier132 3y ago
    The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard. When you buy an index fund you are essentially betting on all these people collectively working hard to improve their lives and if incentives are correctly aligned this should also mean the value of these businesses growing.
bob1029 3y ago
Timing absolutely doesn't work in my experience. This effectively makes many forms of derivative instrument worthless to me. There are only a few targeted situations where I believe something might happen within a certain window, but I absolutely wouldn't bet more than 1-2% of my portfolio on anything with time decay attached to it. What works better for me is joining in on earnings calls and reviewing presentation materials. Getting a sense for product roadmap, markets, competition, etc. This is the space where you can actually develop meaningful hypotheses regarding what might happen. Those who are performing time series astrology likely do not have the patience to go about things this way. If you don't have time to spend about a day per quarter reviewing your portfolio, then you probably shouldn't be playing in traffic with individual stock picks, much less options contracts. If you think this is an unreasonable amount of time to spend playing investor, then perhaps you should just buy a little bit of something like $QQQ every day and focus on those other parts of life that are clearly more important to you. Or, just contribute max to your 401k and close that distracting Robinhood account. Most people would do better over the long haul if they followed that bit of advice. Monkey brain is much more dangerous than losing a few % APY to fund management fees and sub-par allocations.
- Arainach 3y ago
  >Monkey brain is much more dangerous than losing a few % APY ....and you don't even need a few percent to throw it in a target date fund that regularly rebalances for you
  - satvikpendem 3y ago
    Target date funds usually do worse than throwing everything into VTI and holding for 30 years.
    - voidfunc 3y ago
      Isn't that expected because of the automatic re-balancing to minimize risk? I don't think anyone goes with target date funds thinking they are going to maximize returns because it's a tool to buy and forget.
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fortran77 3y ago
Yes, if you’re lucky enough to guess correctly. (So it’s a No for me!)
876978095789789 3y ago
> Ashley Action took a simple, consistent approach: Each year, once she received her cash, she invested her $2,000 in the market on the first trading day of the year She benefited from the January Effect: https://www.investopedia.com/terms/j/januaryeffect.asp https://www.investopedia.com/terms/j/januaryeffect.asp
gtani 3y ago
There's nuanced market timing, somebody reads WSJ and Barrons, watches Trade brigade and Tastylive analysts on YT and decides on overall cash/stock/bond %ages, that should have kept you out of bonds and out of the Bogleheads situation in the past year. Also last January you would have been looking at bitcoin, TSLA, NVDA and thinking these are going to have some kind of recovery, V shaped or long and grinding, but some kind... Then there's the opposite question, how many active/day traders are consistently profitable, i think the answer is less than 5% of everyboedy that tries, the ideal is that somebody realizes they're not going to make it while replay/sim / paper trading, or people get stopped out quickly on substantial positions.
tippytippytango 3y ago
The intuition is that low information investment returns are compensation for putting capital at risk. The capital must be at risk to collect the risk premium. You’re an insurance provider as much as an investor. When you are timing the market you are trying to collect in excess of the risk premium while having your capital at risk for less time. This can only work with an information asymmetry or luck.
reiderrider 3y ago
Generally good advice but some major investment decisions may not fit the fact pattern. The results can vary substantially, for example: - Buying real estate before or after the 2008 real estate crash - YOLO'ing on a specific stock/company/crypto before or after a bull run I presume their advice becomes more solid the more you trade and the more diversified the investment is.
jgalt212 3y ago
One cynical side of me things you can, and on cynical side of me thinks you cannot. Anecdata: During my banking days, any time I received an outsized bonus it did seem to occur at a local market maxima. I had noticed this, and I was like I should have worked in entertainment as their earnings and thus investment opportunities were largely uncorrelated to the price of the stock market. Of course, this did change a bit when the stock market fueled streamers started spending money like drunken sailors on "content".
alpark3 3y ago
Most derivatives traders I know in the industry do some version of buy-and-hold for their personal portfolios, but one of the best I know does something completely different. He sticks to a philosophy of scanning multiple "small" cap companies(<50-100mm mktcap) until he finds one he generally likes, then figures out absolutely everything he can about them. Every piece of information available, down to calling whoever he can in management. Then once he decides he likes it, he commits 20-30% of his portfolio into them, often becoming a small, but notable investor in the company itself. He's made massive amounts of money from this. He admits that it's basically a second job in terms of time and effort spent, but believes that it's replicable because no institutional investor is actually looking at these stocks, leading to hypothetical mispricings.
known 3y ago
[dead]

164 points by alihm 3y ago

irjustin 3y ago

Yes but only for a select few. For the rest of us... Nope

medellin 3y ago
And the select few are those making the policies because no one else knows whats going to happen

quickthrower2 3y ago

Which is why better late than never I am overpaying into pension and chucking that on a far/wide international index. My calcs say I won’t retire rich but I will still most likely have the money and beat inflation. And not spend it lol! The real issue for the average Jo seeking alpha is you often need to pay the house (your government!) for the privilege. In Australia you trigger capital gains tax when you sell. And if you buy and sell alot they may audit you and consider it income from professional trading!

reedf1 3y ago
You are probably not finding alpha as a retail investor - probably just some form of beta.
- quickthrower2 3y ago
  Yes - what I am saying is I prefer my E(X) of beta over maybe-alpha minus additional taxes. (Assuming you meant indexes = beta... ?)
golemiprague 3y ago
The problem in Australia is that they still tax you if you rent your house to someone and then use the money to rent for yourself. So if you need to move or change house size you must sell and buy. However if you buy an investment house you can get tax deduction on the interest of the mortgage. They basically tax people with one house but give deductions to people with multiple houses.
- quickthrower2 3y ago
  Yes. I think that is silly as they should encourage freedom to move. You should just get taxed on the “profit” you make if you find somewhere cheaper to rent than what you get. The workaround is buy to rent out a property you never live in then just rent and move around as normal. But then you lose out on the primary residence capital gains exemption. A work around to that is to never sell and use the death trust to pass that on to your kids. All this stuff takes a lot of planning and thinking about. Another weird thing: transfer your house to your spouse and pay stamp duty! Stamp duty itself is regressive and should be replaced by a smaller annual property tax or just another form of tax (but given that property ownership tends to create wealth inequality probably good to tax ownership rather than add more income tax)

wizofaus 3y ago

Surely if you know exactly when the market will reach a low point you can buy put options to capitalise on that? Or at least ensure that you use times where you're expecting the market to fall to spend money on non-appreciating essentials (cars, house renovations etc.)?

zee2345 3y ago

[flagged]

greatpostman 3y ago

For people with the intellect to understand the economy it does. Just very few of those people

worik 3y ago
> people with the intellect to understand the economy Those people (we people) know not to try.
- greatpostman 3y ago
  No there are people that can time the market.
  - vikingerik 3y ago
    There are people that have timed the market, but we can't distinguish if that came from actual predictive ability or just getting lucky. And if it did come from predictive ability, then everyone would just copy their predictions and arbitrage it out.
    - staplers 3y ago
      People successfully time the market all the time (some more than others). Only fools broadcast their intentions. If they are broadcasting it, the broadcast is part of the strategy.
  - Animats 3y ago
    > No there are people that can time the market. The guy who could died last year.[1] [1] https://dailyprofitcycle.com/market-commentary/the-legacy-of-james-dines-and-the-dines-letter/ https://dailyprofitcycle.com/market-commentary/the-legacy-of...
  - refurb 3y ago
    Such as?
medellin 3y ago

shrimpx 3y ago

Although when the s&p dropped 20% in a few days in March 2020 — that was clearly a buy signal. And when tech stocks dropped by 70-90% in Nov 2022. Those stocks are now up 2x/3x from bottom. Sure, long term it probably doesn’t work out to time the market but sometimes it’s pretty obvious what’s happening.

vikingerik 3y ago
The March 2020 drop was from the pandemic lockdowns. In that moment, nobody knew that was a buy signal. Nobody knew then when economic activity would recover, if the pandemic would pass in two weeks or several months or many years.
- herval 3y ago
  "nobody knew" doesn't mean nobody acted. The rational actors that act only on information "everybody knows" are usually late to the game
  - thakoppno 3y ago
    You’re correct and the parent comment is too. Timing the market to some requires complete prescience. To others it may not.
- corey_moncure 3y ago
  For every sell, there is a buy
lend000 3y ago
The difficult part was knowing where to sell so you could have money on the sidelines before the market dropped. Was it right when lockdowns started? In that case, you already lost a fair amount from the top. I do believe that markets can be beat, but by definition, you need to be "smarter" than the average capital, where more than half of the capital in the market on a given day is controlled by somewhat sophisticated investors. I don't think it's worthwhile for a retail trader to try their hand unless they are putting considerable effort into developing their alpha and either have automation skills or exceptional discipline.

deleted 3y ago

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neilv 3y ago

They didn't discuss Peter Perfect's sister, Petra Perfect, who -- rather than just wait for the one bottom day for the year -- instead buys and sells repeatedly, throughout the year, at more local lows and highs. Is that also considered market timing?

rwmj 3y ago
At a guess they'd lose all their money in transaction costs.
- thakoppno 3y ago
  Transaction cost is little O of most significant trading strategies, imho.
  - nyssos 3y ago
    Depends heavily on the timescale. 0.1% slippage is irrelevant if you hold for years but a serious problem if you trade every hour.
abm53 3y ago
How do you know that you’re currently at a local low/high?
- neilv 3y ago
  In the article, Peter Perfect has perfect market timing, but only buys once. Petra Perfect also has perfect market timing, but can buy and sell repeatedly.
  - abm53 3y ago
    Sorry, then yes to answer your actual question, I don’t think that would commonly be called “market timing” (although of course the phrase could be an apt description of that strategy). All the uses of that expression that I see refer to an investor whose principal aim is to buy-and-hold to capture beta, but simply wants to try and pick the right moment.

Centigonal 3y ago

IMO, this is a much more comprehensive article on the same topic: https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/Market-Timing-Sin-a-Little.pdf https://www.aqr.com/-/media/AQR/Documents/Insights/White-Pap... For unsophisticated investors, timing the market tends to keep money on the sidelines during growth periods, eroding long-term returns. This is part of why it's considered an investing sin - "time in the market beats timing the market." Sophisticated systematic investors can probably get good results with certain momentum-based market timing strategies, but most of us aren't sophisticated systematic investors.

veqq 3y ago
To go into further detail about systemic investing: There have been experiments like the turtle traders ^ 1 who applied "trend following", used today by many CTAs on exotic markets. For this, an investor taught some people his strategy/rules, gave them his money and they've shined for 40 years. The fundamental strategy still works today (updated). Fundamentally, it's a method to ride momentum in different ways (e.g. crossectional.) Hedge fund managers like Rzepczynski, Cem Karsan, Alan Beer... Richard Brennan is the most insightful of them who shares his methods freely. N.b. trend following doesn't work well in stock markets, but flourishes in Mexican rate swaps, orange juice futures, London sugar... combined in ensembles. Traditional value investors, building on the Intelligent Investor, have always done well over samples above a few years. (N.b. Warren Buffet hasn't been a value investor for a long time, because he has too much to manage. He was strongly inspired by Fisher's Common Stocks and Uncommon Profits, which gave us the concept of "growth stocks".) (N.b. 2, value investing ETFs are mostly terrible, fundamentally not investing in value stocks due to their structures.) Carisle's Acquierer's Multiple is the most recent development in systemic value investing (he also runs an ETF or two along these lines). "Magic formula investing" even holds up too! In the mining space, you also get discretionary (not purely systematic) investors like Rick Rule openly discussing their methodologies, successful for decades and decades. Here’s an interesting paper ^ 2 (exec summary pages 5-6). Note that 70% of underperformance is due to investors withdrawing funds during times of market crisis. Fund fees also drive the majority of underperformance. N.b. most wealth managers can't legally follow such strategies because of the prudent person rule. They are legally forced to underperform typical indices - and the majority of research has focused on them, distorting the data pool. [1] https://www.investopedia.com/articles/trading/08/turtle-trading.asp https://www.investopedia.com/articles/trading/08/turtle-trad... [2] https://wealthwatchadvisors.com/wp-content/uploads/2020/03/QAIB_PremiumEdition2020_WWA.pdf https://wealthwatchadvisors.com/wp-content/uploads/2020/03/Q...

PeterStuer 3y ago

The idea with any Ponzi scheme is to get in as early as possible and get out before the inevitable collapse. Though if it is your meta-governement propping up the Ponzi come hell or high water, not sure where you would get out to that would not be sucked into the collapse unless you are part of the 0.000001% that would potentially have an option to watch the world burn from a distance.

fsckboy 3y ago
The idea with a Ponzi is to create one and make money from the get-go. There is no good idea with a Ponzi if you didn't create it.
- PeterStuer 3y ago
  Getting in early on a succesfull Ponzi can be very profitable. If only the creator made out the Ponzi would fail to get traction.

maddynator 3y ago

While I agree with the general principle of the post, I am skeptical of the fact that schwab published it. If it was done third party research, I would trust it more. (Internet has made me skeptical) However, the only incentive I can think of schwab is to encourage people to invest ASAP they have cash so schwab can get that money in their system so they can charge fees/still services. But that’s just normal business

anonu 3y ago
Schwab would rather you have cash in your account than be invested in securities. This is how their cash sweep works. The article is educational and generally stands up to the research on the topic. It is designed to build trust with clients so they invest in Schwab.
- TacticalCoder 3y ago
  > Schwab would rather you have cash in your account than be invested in securities Compared to IBKR which gives "benchmark - 0.5%" on your NAV in USD, what does Schwab give for your USD sitting idle?
  - anonu 3y ago
    Cash sweep in Schwab is like 0.5%, it's nothing. But this is how they make their money, turning around and lending at 8%. But you can just as easily buy a short duration Treasury ETF yielding 5%+ or a CD.
    - zie 3y ago
      Or even Schwab MMF's, which are reasonable. It's mostly just the default that's terrible on return.
  - tylergetsay 3y ago
    Schwab gives a similar return, they don't offer any high yield savings

rocqua 3y ago

I wonder if there is a fixed buy date that outperforms dollar cost averaging. Something like "around new years lots of people get money they invest, so prices tend to pop, so buy in november' There just needs to be some kind of yearly pattern for such a strategy to exist. I even recall reading about it on money-stuff. But I can't remember the months.

veqq 3y ago
There are a lot of these. Nowadays, gamma flows are discussed a lot in public spaces. Ignoring most of the topic, combining options expiry dates with typical fund rebalancing dates is simple. (Buy in the last week of the month, basically.) Historically, April, July, November are the best, while January, June and September are the worst. "Sell in may" and go away used to be a common phrase too. But if you are purely DCAing, such points don't make much sense. Following the interest rate cycle or business cycle is straight forward, or cycles in your own industry. Oil, shipping and microprocessor companies for example forecast years out when their profitable and unprofitable periods will be, so you can move your capital in and out for much higher performance.
ttyprintk 3y ago
I’d rather see a study where September and November are chosen for gold bullion, and other months for equities. I’ve heard this coincides with the wedding season in India —- maybe someone can confirm.
PaulDavisThe1st 3y ago
If there was such a pattern, and then a strategy to exploit it, the pattern would change.

dzink 3y ago

To time the market, you need visibility into it down fine intervals and tools not available to anyone without a 3 digit investment. Common tools obfuscate data. A typical movement of the market that is obvious on a detailed chart, is explained haphazardly by likely automated financial press. The jobs data was strong on Friday, leading to likelihood of higher interest rates for longer, yet the market jumped up that day? Was that a Dead cat bounce? Short-sellers exiting their positions before a long weekend? A move to drum up retail investor interest in a last ditch effort before the S&P crosses the 4200 point of no return? The beginning of the next bull market? The retail investor software is designed to take advantage of retail investors left and right. Placing trades is error prone. The spreads can be ridiculous (0.5% at 9:30am). the market zigzags consistently so no stop loss is left un-triggered before a bounce. These conditions are currently leading to a world of take-profit trading. Timing works if you pay attention to it all the time, but most don’t have the time for that. Your retailer software won’t warn you when you are losing profits gained in the past year. That’s why long term investors become complacent after a long stretch of growth and stop paying attention. With bots trading increasingly more and interest rates remaining higher, the market will not look the same as it did since 2010 AT ALL and the data from before then is only a usable in detail to those who can pay. Once retail investors have seen the lines go down. the bounce back won’t be as linear as 2020 or this spring. Treasuries require a lot less sweat.

yieldcrv 3y ago

Generic advice gets generic results

lencastre 3y ago

A decade or so ago I heard an investments prof liking it to “(…) picking pennies in front of the steam roller” which is fitting I guess. Unless you become a market maker, then by all means you are sitting on the steam roller.

nly 3y ago

A catchy blog post on this subject; Even God Couldn’t Beat Dollar-Cost Averaging https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

throw0101c 3y ago
Also from Nick Maggiulli, the author: > For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about. > But, what about stock picking? How long would it take to determine if someone is a good stock picker? > An hour? A week? A year? > Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years. > And the payoff you do eventually get has to be compared to the payoff of buying an index fund like the S&P 500. So, even if you make money on absolute terms, you can still lose money on relative terms. * https://ofdollarsanddata.com/why-you-shouldnt-pick-individual-stocks/ https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...

anonu 3y ago

Totally agree on not timing the market and staying invested. Nonetheless this analysis raises more questions than answers for me. First, as you often see in these studies, they use the S&P500 which has returned a 9 or 10% annualized rate for decades now. How realistic is it to see someone's entire wealth invested in just this benchmark? Diversification will almost always mean returns lower than than the S&P. Ultimately this erodes at the findings of the study. Second, there's no mention of yield which is basically the guaranteed portion of the return. This portion alone accounts for a quarter of your annual return making it another compelling reason to be invested early.

vik0 3y ago

Ever since I read The Black Swan by Nassim Nicholas Taleb and Thinking, Fast and Slow by Daniel Kahneman, I can't take anything related to the stock market seriously (among other things as well, but this post is related to the stock market, so that's why I'm focusing on it.) There's very little skill involved, which isn't to say there is no skill involved whatsoever - but at the end of the day it really is just luck The following excerpts are from Thinking, Fast and Slow: "The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions—and thereby threaten people’s livelihood and self-esteem—are simply not absorbed. The mind does not digest them. This is particularly true of statistical studies of performance, which provide base-rate information that people generally ignore when it clashes with their personal impressions from experience." "Finally, the illusions of validity and skill are supported by a powerful professional culture. We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot."

achrono 3y ago
FWIW ever since Kahneman, Ariely and similar company have had some of their theories get discredited (Ariely's taint is worse because it's to do with fabricating research!) I have gone back to simply resorting to common sense and quotidian skepticism.
- codethief 3y ago
  > ever since Kahneman […] have had some of their theories get discredited Could you elaborate?
  - voiceblue 3y ago
    https://replicationindex.com/2020/12/30/a-meta-scientific-perspective-on-thinking-fast-and-slow/ https://replicationindex.com/2020/12/30/a-meta-scientific-pe...

zoomablemind 3y ago

"...Each received $2,000 at the beginning of every year for the 20 years ending in 2022 and left the money in the stock market..." All of the experiment "participants" must have Lucky in their middle names. They managed to keep their jobs over those 20 years and kept their cool at the economy downturns. They only Buy (the index shares), except for the one that keeps "cash" aka money market shares. I guess they plan on doing this beyond the 20y, why stop feeding cash into the account, why retire when it can contnue growing? Lucky ones will also retire in upturn. Yet the whole transaction needs the Sell part to realize the gains. Surprisingly, the Schwab experiment did not model this for the "participants". Does one need to "time" the Sells?

throw0101c 3y ago
> Does one need to "time" the Sells? In retirement you need Money more than you need Stocks, so the Sell side of the trade could be someone who is not trying to be clever with trades, but simply needs to pay for their groceries.
TacticalCoder 3y ago
> Yet the whole transaction needs the Sell part to realize the gains. Surprisingly, the Schwab experiment did not model this for the "participants". The FIRE community did model this at great length though. And the example in TFA is just an example: saving $2K a year is basically drinking one or two beers less each day (so I wouldn't look too much into that amount). Most people in the west could save that. At the very least the people at which TFA is aimed could save $2K a year. Try $20K a year: most working people here could save that. Here's a nice "rich, broke or dead" FIRE calculator: https://engaging-data.com/will-money-last-retire-early/ https://engaging-data.com/will-money-last-retire-early/

matt3210 3y ago

Long game or insider trading is the only reliable strategy.

abcd_f 3y ago
RenCap begs to differ.
- noslenwerdna 3y ago
  Yes, of course, building the largest physics and math department in the world to come up with your trading strategy. Yes, there's always that option.

deleted 3y ago

[deleted]

creakingstairs 3y ago

One of my family members is absolutely convinced that they can time the market and it kinda drives me up the wall every time it comes up. They will use all these “techniques” to draw arbitrary lines on the chart to establish a trend in the market while watching the news like a hawk everyday. Meanwhile I just get on with my day with index funds and get better returns.

Der_Einzige 3y ago
Actual “timing the market” does exist but it’s illegal. We call it insider trading.
ignoramous 3y ago
> Buffett's ultimately successful contention was that, including fees, costs and expenses, an S&P 500 index fund would outperform a hand-picked portfolio of hedge funds over 10 years. The bet pit two basic investing philosophies against each other: passive and active investing. https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe...
- bumby 3y ago
  Isn’t a large part of the underperformance of the hedge funds due to their fee structure? Investors lose 20%+ of the profits just in fees. While I don’t think stock picking is a great idea for the layman, that fee structure isn’t generalizable to the average Joe picking stocks. I believe there’s some evidence that low-volatility trading has been shown to beat the market over long periods of time. Although, “picking stocks for volatility” may be different than “timing stock picks”
  - lotsofpulp 3y ago
    No, fund expenses are typically not included when comparing returns.
    - 3y ago

btbuildem 3y ago

I feel like this could be explained much more succinctly as the direct corollary of the founding tenet of capitalist society: endless growth. "The numbers always go up" That's it.

hash872 3y ago

Worth noting that about 30% of active fund managers have beat the S&P 500 going back to 1993 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4096205 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4096205 They may not do so for their investors- this is before fees. But it does seem significant that they are beating the index on their own, and over a consistent period of time. 30% is not nothing. Seems like a blow to strong-form EMH to me. As an FYI, I never want to hear a real-life fund or investor compared to a benchmark again. Benchmarks are theoretical investments with a 0.0% expense ratio- once you add in some of the real costs of running a passive fund, you start to get more real numbers

CuriouslyC 3y ago
Assuming a random distribution of yearly returns centered on 0 before fees, with enough fund managers you'd see plenty that would beat the market for 30 years. That past performance would also be in no way indicative of future performance given the stated process.
unusualmonkey 3y ago
A blind monkey throwing darts will beat the S&P 500 some of the time. The problem isn't that it's impossible to beat the S&P 500 (it's actually trivial), the problem is it's hard to predict which portfolio will outperform the S&P 500.
- Aachen 3y ago
  The point they're making is that fewer than 30% of monkeys would still be positive after so many years if it were random chance Idk if that's true but you're not saying what percentage one would expect to see instead I also think monkeys are the wrong example here because aren't they at even odds with the index? 50% of them, assuming they take no bananas for their service and assuming they don't get to make more trades than the index does, should have beaten the index, if my currently-half-awake brain is working correctly
  - unusualmonkey 3y ago

rr808 3y ago

The problem with buy and hold and pretty much every current strategy is that its distorted by the huge 40 year bull market we've seen in the USA. Every American asset has gone up big time - of course "time in the market" is a good thing. If you look at Japanese or European stock markets they tell a very different story. Similarly the next 40 years in the USA could be a miserable time for investors. I can't believe how much people take for granted that stock markets "usually go up 7% a year" or whatever. No one really knows but it wont be as good as the last few decades.

samjmck 3y ago
Isn't that only a problem if you are only invested in the US? There exists ETFs that are invested in multiple developed countries, such as index funds that track the MSCI World.
- rr808 3y ago
  Yes. After continued under performance of non-US markets, not many people have a significant exposure to those places.
  - malfist 3y ago
    Are you sure about that? The standard boglehead portfolio has ~1/3 of stock holdings in non-us funds.
WXLCKNO 3y ago
This is what I think too. Now obviously we're possibly on the verge of another massive change in tech with AI but there's still nothing that guarantees that the market has to go up.
- brigadier132 3y ago
  The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard. When you buy an index fund you are essentially betting on all these people collectively working hard to improve their lives and if incentives are correctly aligned this should also mean the value of these businesses growing.

bob1029 3y ago

Timing absolutely doesn't work in my experience. This effectively makes many forms of derivative instrument worthless to me. There are only a few targeted situations where I believe something might happen within a certain window, but I absolutely wouldn't bet more than 1-2% of my portfolio on anything with time decay attached to it. What works better for me is joining in on earnings calls and reviewing presentation materials. Getting a sense for product roadmap, markets, competition, etc. This is the space where you can actually develop meaningful hypotheses regarding what might happen. Those who are performing time series astrology likely do not have the patience to go about things this way. If you don't have time to spend about a day per quarter reviewing your portfolio, then you probably shouldn't be playing in traffic with individual stock picks, much less options contracts. If you think this is an unreasonable amount of time to spend playing investor, then perhaps you should just buy a little bit of something like $QQQ every day and focus on those other parts of life that are clearly more important to you. Or, just contribute max to your 401k and close that distracting Robinhood account. Most people would do better over the long haul if they followed that bit of advice. Monkey brain is much more dangerous than losing a few % APY to fund management fees and sub-par allocations.

Arainach 3y ago
>Monkey brain is much more dangerous than losing a few % APY ....and you don't even need a few percent to throw it in a target date fund that regularly rebalances for you
- satvikpendem 3y ago
  Target date funds usually do worse than throwing everything into VTI and holding for 30 years.
  - voidfunc 3y ago
    Isn't that expected because of the automatic re-balancing to minimize risk? I don't think anyone goes with target date funds thinking they are going to maximize returns because it's a tool to buy and forget.

deleted 3y ago

[deleted]

fortran77 3y ago

Yes, if you’re lucky enough to guess correctly. (So it’s a No for me!)

876978095789789 3y ago

> Ashley Action took a simple, consistent approach: Each year, once she received her cash, she invested her $2,000 in the market on the first trading day of the year She benefited from the January Effect: https://www.investopedia.com/terms/j/januaryeffect.asp https://www.investopedia.com/terms/j/januaryeffect.asp

gtani 3y ago

There's nuanced market timing, somebody reads WSJ and Barrons, watches Trade brigade and Tastylive analysts on YT and decides on overall cash/stock/bond %ages, that should have kept you out of bonds and out of the Bogleheads situation in the past year. Also last January you would have been looking at bitcoin, TSLA, NVDA and thinking these are going to have some kind of recovery, V shaped or long and grinding, but some kind... Then there's the opposite question, how many active/day traders are consistently profitable, i think the answer is less than 5% of everyboedy that tries, the ideal is that somebody realizes they're not going to make it while replay/sim / paper trading, or people get stopped out quickly on substantial positions.

tippytippytango 3y ago

The intuition is that low information investment returns are compensation for putting capital at risk. The capital must be at risk to collect the risk premium. You’re an insurance provider as much as an investor. When you are timing the market you are trying to collect in excess of the risk premium while having your capital at risk for less time. This can only work with an information asymmetry or luck.

reiderrider 3y ago

Generally good advice but some major investment decisions may not fit the fact pattern. The results can vary substantially, for example: - Buying real estate before or after the 2008 real estate crash - YOLO'ing on a specific stock/company/crypto before or after a bull run I presume their advice becomes more solid the more you trade and the more diversified the investment is.

jgalt212 3y ago

One cynical side of me things you can, and on cynical side of me thinks you cannot. Anecdata: During my banking days, any time I received an outsized bonus it did seem to occur at a local market maxima. I had noticed this, and I was like I should have worked in entertainment as their earnings and thus investment opportunities were largely uncorrelated to the price of the stock market. Of course, this did change a bit when the stock market fueled streamers started spending money like drunken sailors on "content".

alpark3 3y ago

Most derivatives traders I know in the industry do some version of buy-and-hold for their personal portfolios, but one of the best I know does something completely different. He sticks to a philosophy of scanning multiple "small" cap companies(<50-100mm mktcap) until he finds one he generally likes, then figures out absolutely everything he can about them. Every piece of information available, down to calling whoever he can in management. Then once he decides he likes it, he commits 20-30% of his portfolio into them, often becoming a small, but notable investor in the company itself. He's made massive amounts of money from this. He admits that it's basically a second job in terms of time and effort spent, but believes that it's replicable because no institutional investor is actually looking at these stocks, leading to hypothetical mispricings.

known 3y ago

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