Market timing

This topic contains 3 replies, has 2 voices, and was last updated by  TS Paul 5 years, 3 months ago.

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    John Drake

    Everything you write on here makes so much sense, but it seems to contradict the general consensus that market timing doesn’t work and the views of Bogle and Buffett. If this works, why isn’t everyone doing it?


    TS Paul

    Thanks very much for the question. I have received basically the same query several times by email and had meant to go back and address this in my initial post.

    I do not try to time the stock market. I don’t think it can be done by a regular investor. The stock market is much too subject to manipulation by hedge funds, investment banks and the media. For every indicator which technical traders cite, there are a dozen exceptions to that rule. Whenever someone discovers a pattern which can be traded on, the funds and the investment banks add an algorithm to their trading computers so that long before you or I could possibly spot the trend, they have already made their trades, the value to be had is pulled out of the price of the security, and the opportunity is gone.

    I try to time the economic cycle, and make investment decisions based on where we are at any given time in that cycle. The US economic cycle is much too broad for anyone but the Federal Government to impact, and even the government can only try to nudge the economy in the desired direction.

    Everybody out there is trying to sell you something. The talking heads on CNBC and Bloomberg are selling ad time – they don’t care about what they are talking about, they just need it to be exciting enough to keep you watching through the next commercial break. Brokers and financial advisers generally make their money through commissions on the products you buy – the more you move your money around, the more they make.

    Warren Buffett is a big proponent of “buy and hold.” But he doesn’t buy stocks to hold the way that we do, he buys companies. Buffett wants nothing more than for you to buy and hold shares of Berkshire Hathaway (or the stocks of the companies which he recommends after Berkshire buys them) for the rest of your life so those shares are effectively taken out of circulation, making the remaining shares on the market more valuable.

    And this will be sacrilege for the Bogleheads among our readers, but John Bogle wasn’t in the business of giving out investment advice. He was in the low cost mutual fund business. In that business model, Vanguard doesn’t make money when you swap between mutual funds, that actually costs them money. The very best thing for Vanguard is for investors to buy and hold Vanguard mutual funds so that those “expenses” which you get charged on every dollar you have invested keep rolling in forever.

    Below are Bogle’s eight basic rules for investors:

    1. Select low-cost index funds [a Vanguard creation]
    2. Consider carefully the added costs of advice [Vanguard wants you to buy their index funds, not actively managed funds]
    3. Do not overrate past fund performance
    4. Use past performance to determine consistency and risk
    5. Beware of stars (as in, star mutual fund managers) [Vanguard wants you to hold onto their index funds, not chase after active funds managed by other companies]
    6. Beware of asset size
    7. Don’t own too many funds
    8. Buy your fund portfolio – and hold it [Vanguard only makes money when you are holding a stock]

    Don’t get me wrong, I own Berkshire Hathaway stock (because they have the access to do research which we do not before they buy a stock, and can move the stock’s price at will just by announcing they have bought it), and I almost exclusively use Vanguard funds and ETFs (due to their low expense ratios).

    And finally, why isn’t everybody doing what we do here? Most of them are, in addition to the minute by minute or day by day trades for which they are more famous. The big guys certainly actively trade on economic cycle indicators, and adjust the sectors of the market in which they invest based on the cycle. But nobody besides a few authors have a financial incentive to help you find your way around this corner of the investing world because there is nothing to sell you.

    That was a mouthful and I certainly shouldn’t have the final word on a subject as important as this. What are your thoughts?

    The TSP Allocation Guide



    Where do you find the S&P 500 200 day sma and 7 day sma charts?
    I have been looking on your website and the internet all morning and cant find that type of graphing anywhere so far.


    TS Paul

    I actually use Yahoo! Finance for most of my stock and index charts (including the ones which I put on this website).

    I don’t put much value in technical indicators. But if I wanted to look at Simple Moving Averages (SMA) I would go to the following page which is the S&P 500 chart. Above the chart there is a drop-down titled Technical Indicators where you can select Simple Moving Averages and chose any time periods you like.

    The TSP Allocation Guide

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