Is it possible to time the market?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
crashdummy847
Posts: 4
Joined: Sat Oct 23, 2021 9:41 am

Is it possible to time the market?

Post by crashdummy847 »

Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
Impossible, no. Unlikely to do it right, yes. Long-term, all stocks are determined by earnings; what make you money here for long-term is entirely different than the short-term. Long-term stock holders are definitely not timing the markets.

I had made shorter term trades (6 months to 18 months), but generally it is localized risk for localized return (meaning that I am not timing it for lows and highs but possibly making profits on selective risks).

Forget timing it. Speculation is about probabilities because it is impossible to guarantee anything. I have made/lost money on both highs and lows; timing it is pointless because it does little to make superior returns (the lack of investment will actually cost you).
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
arcticpineapplecorp.
Posts: 15014
Joined: Tue Mar 06, 2012 8:22 pm

Re: Is it possible to time the market?

Post by arcticpineapplecorp. »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
welcome to the group.

Now ask yourself the following questions:

if it was easy to time the market, wouldn't everybody do it?

if it's not easy to do it, i.e., some (but not all) can do it, what makes you sure you are one of those who can do it?

usually people try to time the market either to get out BEFORE the market falls or get in BEFORE the market rises. In either case, if you don't get both right (livesoft says you don't have to be "perfect" with your timing, but how good will you be really?) you could be missing out on gains because often the best days in the market follow the worst days in the market. (see chart below). Unless you can tell the future, which days will be the best and worst, how will you know when to get in or out?

Image

If you buy and hold as Swedroe suggests, you'll do much better over time because stock market gains come in short unpredictable bursts. If you're not in the market when those happen, you will be giving up returns. Read Swedroe's article Better To Face the Correction

Trying to avoid the losses though market timing, Peter Lynch once said:
“Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
Also see here:

Image

Jack Bogle once said he didn't know anyone who consistently was able to time the market and didn't know anyone who knew anyone who had done that.

Warren Buffett said "Inactivity strikes us as intelligent behavior" and "We make more money when we sleep."

About 20% of active fund managers beat the market in any given year, but the problem is they don't consistently, so they wind up with average returns before costs and below average returns after costs the longer they try to beat the market:

Image

source: https://oncoursefp.com//images/Vectors% ... 0final.pdf

You can also look at SPIVA and see how active managers do against the index: https://www.spglobal.com/spdji/en/resea ... hts/spiva/

here's what the experts had to say:

Image

Aren't you glad you didn't listen to them scare you out of the market?

Here's a bunch of reasons to sell:

Image

Aren't you glad you just bought and held instead? (because the experts were so wrong with their buy and sell signals).

How can someone know more than the market?

That's what the experts would have you believe.

Look at the two charts above again and always remind youself that Nobody Knows Nuthin.

finally, if you think market timing is easy, then try this game: Prudential's Outsmart the Market

or this Stock Market Timing Game

How did you do with those games? If you didn't beat the market with known, past data, what makes you think you'll do any better with unknown, future data?

Does that about cover it, or do you require more evidence?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
arcticpineapplecorp.
Posts: 15014
Joined: Tue Mar 06, 2012 8:22 pm

Re: Is it possible to time the market?

Post by arcticpineapplecorp. »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
here's how economists did predicting interest rate movements over a short 6 month period (I know bonds aren't stocks, but you're asking about short term movements and since interest rates should be more stable than volatile stock prices, clearly short term interest rate prediction should be easy to do, right?):

Image

100% of economists (67 out of 67) were all dead wrong in their predictions.

These are really smart, well paid people.

If they can't do it, what makes you think you can?

In order to make a prediction you have to know something about the future. The future is unknown and unknowable, so even if your prediction comes out true, that was just due to luck, not skill. You'd have to get your predictions right more than a coin toss to know you are skillful at it.

Want to gamble?

here's an article by Swedroe who used to keep track of "Sure things", predictions of pundits. How'd they do?

https://www.advisorperspectives.com/art ... ure-things

Not great.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

arcticpineapplecorp. wrote: Sat Oct 23, 2021 11:40 am
crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
here's how economists did predicting interest rate movements over a short 6 month period (I know bonds aren't stocks, but you're asking about short term movements and since interest rates should be more stable than volatile stock prices, clearly short term interest rate prediction should be easy to do, right?):

Image

100% of economists (67 out of 67) were all dead wrong in their predictions.

These are really smart, well paid people.


If they can't do it, what makes you think you can?

In order to make a prediction you have to know something about the future. The future is unknown and unknowable, so even if your prediction comes out true, that was just due to luck, not skill. You'd have to get your predictions right more than a coin toss to know you are skillful at it.

Want to gamble?

here's an article by Swedroe who used to keep track of "Sure things", predictions of pundits. How'd they do?

https://www.advisorperspectives.com/art ... ure-things

Not great.
I stayed put; I did well. I am kind of smart and decently paid during something else.

I guess I got lucky, right? There are other things I did to gain alpha with my fixed income; it is one area that small money can squeeze more juice. But regardless, not one of them involved timing the market.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
nisiprius
Advisory Board
Posts: 52105
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is it possible to time the market?

Post by nisiprius »

Taylor Larimore's Market Timing Quotes.

There are one hundred and twenty of them. Before you look at them, I suggest making a list of people whom you consider credible, and see if any of them are quoted in his collection.

Here are a few.

"Among the 160 or so newsletters the Hulbert Financial Digest monitors, the market timing recommendations of only 10 have beaten the stock market over the last decade on a risk-adjusted basis." (Mark Hulbert, January 18, 2001)

"In a study of 66,400 Merrill Lynch investors, Professors Odean and Barber discovered that buy-and-hold investors actually beat the more active investors by a fairly sizeable margin, 18.5% to 11.4% over a six-year period." (Paul Farrell, Lazy Person's Guide to Investing)

"Do nothing. I think all of this market timing is statistically unfounded. I don't trust it. You may avoid a downturn, but you may also miss the rise. Choose the risk tolerance you're OK with and hold tight." (Professor Eugene Fama)

"For the 10 years that ended 12-31-2000, only one newsletter out of the 112 that Timers Digest follows managed to beat the S&P 500 Benchmark." (Jim Schmidt, editor)

"Over a 12.5 year period, 224 of 237 market timing newsletters went out of business." (indexfundsadvisors.com)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
coachd50
Posts: 1777
Joined: Sun Oct 22, 2017 10:12 am

Re: Is it possible to time the market?

Post by coachd50 »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
Remember, if you are "predicting" that a stock will rise in price...others will too right? So why would they sell at a lower price than it will be?
User avatar
Beensabu
Posts: 5618
Joined: Sun Aug 14, 2016 3:22 pm

Re: Is it possible to time the market?

Post by Beensabu »

It is possible.

It is not possible for me.

It is not possible for most.

Is it possible for you? Why? How?

Share if you know.

We're all ears :)
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Thesaints
Posts: 5087
Joined: Tue Jun 20, 2017 12:25 am

Re: Is it possible to time the market?

Post by Thesaints »

Certainly possible, but outside of anyone's control.
MoonOrb
Posts: 1505
Joined: Thu Jan 24, 2013 5:58 pm

Re: Is it possible to time the market?

Post by MoonOrb »

Of course it's possible. It's just extraordinarily unlikely.

It's possible to flip a coin and get heads 6 times in a row, too, or it's possible to play roulette, put everything on 17 have it come up. But it's not likely.
coachd50
Posts: 1777
Joined: Sun Oct 22, 2017 10:12 am

Re: Is it possible to time the market?

Post by coachd50 »

Beensabu wrote: Sat Oct 23, 2021 12:46 pm It is possible.

It is not possible for me.

It is not possible for most.

Is it possible for you? Why? How?

Share if you know.

We're all ears :)
And to build on this, I think one needs to define successful marking timing. Is it possible to speculate on one factor (say covid) and benefit? Yes. Is it possible to jump in and out of the market making multiple speculations over a lifetime of investing and do better than just buying and holding? Much less likely for everyone.
delamer
Posts: 17348
Joined: Tue Feb 08, 2011 5:13 pm

Re: Is it possible to time the market?

Post by delamer »

The implication with market timing is that you believe by doing so that you can achieve returns higher than those offered by buying-and-holding an index fund.

Is that important to you? Are you willing to make the tradeoff of more risk and more volatility in order to maybe get a larger return? What are the implications for your financial security if your risk isn’t rewarded and you end up with less money?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
meowcat
Posts: 769
Joined: Wed May 09, 2012 5:46 am

Re: Is it possible to time the market?

Post by meowcat »

It is only possible by shear luck, and good luck always runs out.
What the bold print givith, the fine print taketh away. | -meowcat
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Is it possible to time the market?

Post by pkcrafter »

articpineapple, great post!

Thesaints
Certainly possible, but outside of anyone's control.
True, but a lot of people don't know that. Luck will let you be right sometimes, but people will attribute it to skill. When they miss, it's always bad luck. :confused


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Activesloth
Posts: 133
Joined: Wed Oct 20, 2021 7:03 pm

Re: Is it possible to time the market?

Post by Activesloth »

I have a different view of market timing. I think all investors do market timing, they just have different timetables. The 25 year old with 100% stock allocation, the retiree with 30% in bonds, and the day trader buying and selling the same stock are all timing the market, as far as I’m concerned. Can you successfully time the market on a short term basis? I think with a lot of luck and planning you can. People seem to frown on market timing, especially if you’re not a professional. I don’t know if they see you as trying to get in front of the line or if they think you’re being disruptive. I’ve been investing in Vanguard for 25 years, and I’ve only tried it once. You could go bust or you could make a fortune.
User avatar
windaar
Posts: 1662
Joined: Thu Mar 08, 2012 6:31 am

Re: Is it possible to time the market?

Post by windaar »

If just one person absolutely knew how to time the market he would have all of the money in the world.
Nobody knows nothing.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Is it possible to time the market?

Post by willthrill81 »

arcticpineapplecorp. wrote: Sat Oct 23, 2021 11:27 am usually people try to time the market either to get out BEFORE the market falls or get in BEFORE the market rises. In either case, if you don't get both right (livesoft says you don't have to be "perfect" with your timing, but how good will you be really?) you could be missing out on gains because often the best days in the market follow the worst days in the market. (see chart below). Unless you can tell the future, which days will be the best and worst, how will you know when to get in or out?
Historically, the 'best' days and 'worst' days in stocks have been closely clustered together. This is part of the phenomenon referred to as volatility clustering. From 1961-2014 (I haven't seen the numbers updated since then), volatility was lower and returns were higher when the S&P 500 was above its 200 day moving average as compared to when it was below the same. Stocks still had 2.1% returns during the downward swing, but the std. dev. was 22%.
arcticpineapplecorp. wrote: Sat Oct 23, 2021 11:40 am here's an article by Swedroe who used to keep track of "Sure things", predictions of pundits.
Larry has actually been favorable toward target volatility investing.
The Sensible Steward
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

coachd50 wrote: Sat Oct 23, 2021 12:39 pm
crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
Remember, if you are "predicting" that a stock will rise in price...others will too right? So why would they sell at a lower price than it will be?
For every buyer there is a seller. The net result is not a flip of a coin, but a flip of a biased coin. When the market dips, the volatility goes up; this is the root reason why there are panic sells; on the other hand, some are waiting for that high volatility to hopefully make a quick buck.

The truth is the returns are skewed, not a bell curve. During bad events, the skew can be high as well as the volatility. It can be entirely possible that a stock is very likely to gain; it can be very likely it will take a loss. Stocks likely to go bankrupt often do, so the likely way to make money is to short the stock. However, that can go wrong and those buyers, against the odds, make massive gains instead (and the short sellers lose massively). Likewise for well-off companies; except it is in the reverse usually.

Most people do not beat the market because they fail to stay invested or overload on a small number of investments (or both). The principle of Kelly's criterion is a major factor is to why only a few risky investments will cause a demise of the portfolio. Not taking risk costs returns in the long run by risk versus reward.

The only justifiable reason to "time" a stock is solely taking specific risks in hopes of a profit (i.e. speculation); that often has nothing to do with market highs or lows, for it is the selective risks that one is taking (that might not always exist at every given moment, hence why not hold a stock at given times and buying on others). Since market timers are really not doing any real assessment of risks and the potential rewards of it, they will always be blindly taking risks that they do not intend and missing those they can afford.

A speculator's take of why market timing does not work right.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Lionel Hutz
Posts: 379
Joined: Sat Jan 30, 2021 12:18 pm

Re: Is it possible to time the market?

Post by Lionel Hutz »

Put another way: how many professional fund managers beat the market average over a 1, 5, 10, 20 year period?
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

Lionel Hutz wrote: Sat Oct 23, 2021 1:58 pm Put another way: how many professional fund managers beat the market average over a 1, 5, 10, 20 year period?
How many of these are market timing (most of the time, they are indeed invested)? Many of these are charging a lot of fees instead (often to cancel out alpha if they happen to have it). There are some serious reasons why there is underperformance without even talking about market timing.

I imagine the market timers are faring worse.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
arcticpineapplecorp.
Posts: 15014
Joined: Tue Mar 06, 2012 8:22 pm

Re: Is it possible to time the market?

Post by arcticpineapplecorp. »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
if you found a way, would you share it with us?

if someone else found a way, would they share it with others?

if someone shared this knowledge, what do you think might be the effect of everybody knowing it?

timing the market only works if you can do it consistently.

Say you sell on Friday and the market goes down on Monday.

Do you have enough to retire, and will that cash not be eroded by inflation over the rest of your life?

If not, then you have to get back in the market and/or keep adding new money. In which case, now you have to time the market, i.e., buy at a low point, right? When will the next low point be and are you willing to wait?

There are people who sometimes make a prediction. Meredith Whitney supposedly called the housing crash. Congratulations. Problem is she next called for a default on municipal bonds. That was 11 years ago. We're still waiting Meredith.

Nobody, and I mean nobody predicted the market would lose 32% in one month (Feb 21-Mar 20) last year. And nobody, and I mean nobody predicted it would recover fully by the second week of July. People were talking Great Depression because the unemployment rate was 25% at one point last year. Nobody knows what's going to happen. That doesn't stop people from guessing and acting like they know that which is unknowable. The trick is to understand this.

If you want to market time, you want to wait to buy when the market goes down. How much of a decline are you waiting for? Knowledge shows there are average intrayear declines of 14%. If you waited for the market to fall 14% you'd have only had two such opportunities over the past 10 years. What would you have done the other 8 years? And what if you got in last year when the market fell 14%...only to see your investment fall another 20%?

Image
Last edited by arcticpineapplecorp. on Sat Oct 23, 2021 3:22 pm, edited 1 time in total.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
rockstar
Posts: 6308
Joined: Mon Feb 03, 2020 5:51 pm

Re: Is it possible to time the market?

Post by rockstar »

Banks have trading departments that make money, so it's possible to make money trading otherwise banks wouldn't do it.
User avatar
arcticpineapplecorp.
Posts: 15014
Joined: Tue Mar 06, 2012 8:22 pm

Re: Is it possible to time the market?

Post by arcticpineapplecorp. »

rockstar wrote: Sat Oct 23, 2021 3:13 pm Banks have trading departments that make money, so it's possible to make money trading otherwise banks wouldn't do it.
are you sure they're not trading their customer's money and collecting a fee (known as a commission) everytime they trade their customer's money? And the commissions are how they make money, not trading?

are you familiar with the Fred Schwed book, "Where are the customer's yachts?"

By the way, they also lose money trading...like $6 billion worth. Ever heard of the London Whale (JP Morgan 2012)?

source: https://en.wikipedia.org/wiki/2012_JPMo ... ading_loss

if traders are so brilliant, how come there's such a long list of huge trading losses right here:

https://en.wikipedia.org/wiki/List_of_trading_losses

Long Term Capital Managements up there. Those guys were Nobel Prize Winners!

Other favorites that made the list were Bill Ackman, Carl Icahn, George Soros, Stanley Drukenmiller. A real murderer's row as Barry Ritholtz puts it.
Last edited by arcticpineapplecorp. on Sat Oct 23, 2021 3:33 pm, edited 2 times in total.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
edgeagg
Posts: 442
Joined: Tue Jan 23, 2018 12:27 pm
Location: WA-US

Re: Is it possible to time the market?

Post by edgeagg »

rockstar wrote: Sat Oct 23, 2021 3:13 pm Banks have trading departments that make money, so it's possible to make money trading otherwise banks wouldn't do it.
Well there is an easy explanation for that:

1) James Choi's paper Table XV which surveys individual investors indicates that 47.8% of high wealth investors and 55% of low wealth investors believe that active management outperforms passive management in spite of significant evidence otherwise.
2) This is a very significant population of suckers to be mined. Consequently "sucker miners" (also called trading departments) exist to mine this rich seam of ignorance.
User avatar
Beensabu
Posts: 5618
Joined: Sun Aug 14, 2016 3:22 pm

Re: Is it possible to time the market?

Post by Beensabu »

Activesloth wrote: Sat Oct 23, 2021 1:23 pm I have a different view of market timing. I think all investors do market timing, they just have different timetables. The 25 year old with 100% stock allocation, the retiree with 30% in bonds, and the day trader buying and selling the same stock are all timing the market, as far as I’m concerned.
I think you're right. Long-term timing is definitely acceptable -- it's just "planning".
People seem to frown on market timing... You could go bust or you could make a fortune.
You nailed why it's frowned upon, without seeming to realize it. What should everyone do? Say "it's within the realm of possibility, so go for it!" ? And then all those folks who go bust (or end up with just whatever they saved in nominal $ amounts) come back and point the finger with "You said it could be done! You said to go for it!" They could even claim they "lost" money by being encouraged/supported to time to cash instead of staying invested.

Avoiding failure is the name of the game. Failure is (1) losing your money, and (2) not ending up with enough money to support your needs post-employment. #1 is what total market index investing and buy-and-hold is trying to avoid. #2 is harder, if you don't fit the savings amount and/or time to withdrawal requirements needed for pure index investing to work on its own. But nobody should expect support for short-term market timing on a forum dedicated to avoiding failure.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

edgeagg wrote: Sat Oct 23, 2021 3:32 pm
rockstar wrote: Sat Oct 23, 2021 3:13 pm Banks have trading departments that make money, so it's possible to make money trading otherwise banks wouldn't do it.
Well there is an easy explanation for that:

1) James Choi's paper Table XV which surveys individual investors indicates that 47.8% of high wealth investors and 55% of low wealth investors believe that active management outperforms passive management in spite of significant evidence otherwise.
2) This is a very significant population of suckers to be mined. Consequently "sucker miners" (also called trading departments) exist to mine this rich seam of ignorance.
Or maybe they just hedge their positions with all the lending that they do?
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
QBoy
Posts: 217
Joined: Sun May 05, 2013 7:09 am

Re: Is it possible to time the market?

Post by QBoy »

The best way to time the market is to first invent the flux capacitor.
edgeagg
Posts: 442
Joined: Tue Jan 23, 2018 12:27 pm
Location: WA-US

Re: Is it possible to time the market?

Post by edgeagg »

secondopinion wrote: Sat Oct 23, 2021 3:35 pm
edgeagg wrote: Sat Oct 23, 2021 3:32 pm
rockstar wrote: Sat Oct 23, 2021 3:13 pm Banks have trading departments that make money, so it's possible to make money trading otherwise banks wouldn't do it.
Well there is an easy explanation for that:

1) James Choi's paper Table XV which surveys individual investors indicates that 47.8% of high wealth investors and 55% of low wealth investors believe that active management outperforms passive management in spite of significant evidence otherwise.
2) This is a very significant population of suckers to be mined. Consequently "sucker miners" (also called trading departments) exist to mine this rich seam of ignorance.
Or maybe they just hedge their positions with all the lending that they do?
My point was more general. Active management is a fools game for retail investors. However there appear to be a lot of fools available to prey on. Consequently predators exist for such prey.

EDIT: It wasn't until I read Choi's paper that I realized that the population of naive investors was quite that large. Eye opening - at least for me.
User avatar
BolderBoy
Posts: 6738
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Is it possible to time the market?

Post by BolderBoy »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 amNewbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
There are 50 variables involved in accurately and consistently timing the market. If you are an absolute genius, you'll think of 25 of them. The other 25 are what will bring you down.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
JPM
Posts: 579
Joined: Sun Aug 19, 2018 2:29 pm

Re: Is it possible to time the market?

Post by JPM »

If 10,000 guys toss a coin 10 ten times, probability is that about 10 of them will toss heads ten times in a row. That could conceivably mean that they have some special heads tossing skill or more likely just the natural operation of chance. There are a few professional investors who consistently beat their benchmarks year after year. Many of those seem to lose their touch later in their careers. Were they especially skilled or were they just the 1/1000 who come up heads every time? I dunno. But just because a guy has tossed heads ten times in a row, or 25 times, the odds of him tossing heads again on the 11th or 26th chance are still even.

Some players seem to be successful timing the market for a time. Most not even that. Guys who leave the table before their method becomes obsolete have their legends live on. Jim Simon is a current successful player.
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

Beensabu wrote: Sat Oct 23, 2021 3:34 pm
Activesloth wrote: Sat Oct 23, 2021 1:23 pm People seem to frown on market timing... You could go bust or you could make a fortune.
You nailed why it's frowned upon, without seeming to realize it. What should everyone do? Say "it's within the realm of possibility, so go for it!" ? And then all those folks who go bust (or end up with just whatever they saved in nominal $ amounts) come back and point the finger with "You said it could be done! You said to go for it!" They could even claim they "lost" money by being encouraged/supported to time to cash instead of staying invested.

Avoiding failure is the name of the game. Failure is (1) losing your money, and (2) not ending up with enough money to support your needs post-employment. #1 is what total market index investing and buy-and-hold is trying to avoid. #2 is harder, if you don't fit the savings amount and/or time to withdrawal requirements needed for pure index investing to work on its own. But nobody should expect support for short-term market timing on a forum dedicated to avoiding failure.
The root of all loss is volatility, leverage, lack of sufficient diversification, leverage, inability to take certain risks, and leverage. It is triple leveraged here. :wink: "Sure things" are never worth the possibility of going broke; nothing is for sure.

Not investing guarantees that nothing happens (except loss to inflation); most of us cannot afford to do so. So, buying diversely and waiting it out is 95 out of 100 the right thing to do.

If want to speculate (and can actually afford to do so), then do so with the overall portfolio health in mind. It is serious business to invest; it is even more serious if you choose to speculate.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

edgeagg wrote: Sat Oct 23, 2021 3:40 pm
secondopinion wrote: Sat Oct 23, 2021 3:35 pm
edgeagg wrote: Sat Oct 23, 2021 3:32 pm
rockstar wrote: Sat Oct 23, 2021 3:13 pm Banks have trading departments that make money, so it's possible to make money trading otherwise banks wouldn't do it.
Well there is an easy explanation for that:

1) James Choi's paper Table XV which surveys individual investors indicates that 47.8% of high wealth investors and 55% of low wealth investors believe that active management outperforms passive management in spite of significant evidence otherwise.
2) This is a very significant population of suckers to be mined. Consequently "sucker miners" (also called trading departments) exist to mine this rich seam of ignorance.
Or maybe they just hedge their positions with all the lending that they do?
My point was more general. Active management is a fools game for retail investors. However there appear to be a lot of fools available to prey on. Consequently predators exist for such prey.

EDIT: It wasn't until I read Choi's paper that I realized that the population of naive investors was quite that large. Eye opening - at least for me.
Right; save the 1% and use it for something else.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Patzer
Posts: 701
Joined: Wed Jun 10, 2015 10:56 am

Re: Is it possible to time the market?

Post by Patzer »

arcticpineapplecorp. wrote: Sat Oct 23, 2021 11:27 am Also see here:

Image
Overall, a great post and I mostly agree with you, but I always found this type of chart extremely biased, and unrealistic. Who would miss only the best days, but not also miss some of the worst days?

I would love to see a chart that also shows what your returns would be if you missed the 10 worst days.

Or more fairly...
Returns for fully invested VS if you missed the 10 worst AND 10 best days.
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

JPM wrote: Sat Oct 23, 2021 3:53 pm If 10,000 guys toss a coin 10 ten times, probability is that about 10 of them will toss heads ten times in a row. That could conceivably mean that they have some special heads tossing skill or more likely just the natural operation of chance. There are a few professional investors who consistently beat their benchmarks year after year. Many of those seem to lose their touch later in their careers. Were they especially skilled or were they just the 1/1000 who come up heads every time? I dunno. But just because a guy has tossed heads ten times in a row, or 25 times, the odds of him tossing heads again on the 11th or 26th chance are still even.

Some players seem to be successful timing the market for a time. Most not even that. Guys who leave the table before their method becomes obsolete have their legends live on. Jim Simon is a current successful player.
Not all coins are 50/50 in the market; of course, these coins do not pay 50/50 either. Trick of skew and the professional get away with marketing it a certain way.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Is it possible to time the market?

Post by 000 »

Sure but most things you know are probably known by other market participants and priced in.
User avatar
nisiprius
Advisory Board
Posts: 52105
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is it possible to time the market?

Post by nisiprius »

We aren't going to get anywhere without a definition of "timing the market." And the original poster confuses things by asking "Are there no ways to predict a stock rising in price over the course of days, months or even within a year?" So if crashdummy847 is following this, I ask them to tell us exactly what they mean by "timing the market."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Fallible
Posts: 8795
Joined: Fri Nov 27, 2009 3:44 pm

Re: Is it possible to time the market?

Post by Fallible »

Activesloth wrote: Sat Oct 23, 2021 1:23 pm I have a different view of market timing. I think all investors do market timing, they just have different timetables. The 25 year old with 100% stock allocation, the retiree with 30% in bonds, and the day trader buying and selling the same stock are all timing the market, as far as I’m concerned. ...
How are you defining market timing? If you go by this standard definition in Investopedia, how does it apply to the 100% stock allocation and retiree in 30% bonds?
Market timing is the act of moving investment money in or out of a financial market—or switching funds between asset classes—based on predictive methods. If investors can predict when the market will go up and down, they can make trades to turn that market move into a profit.
https://www.investopedia.com/terms/m/markettiming.asp
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Fallible
Posts: 8795
Joined: Fri Nov 27, 2009 3:44 pm

Re: Is it possible to time the market?

Post by Fallible »

QBoy wrote: Sat Oct 23, 2021 3:39 pm The best way to time the market is to first invent the flux capacitor.
I looked it up and thought, "Why not?" :D
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
User avatar
Doom&Gloom
Posts: 5398
Joined: Thu May 08, 2014 3:36 pm

Re: Is it possible to time the market?

Post by Doom&Gloom »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
I don't doubt that somebody can do it, but I can't do it.

Nobody I know can do it, but I don't know everybody.
User avatar
Beensabu
Posts: 5618
Joined: Sun Aug 14, 2016 3:22 pm

Re: Is it possible to time the market?

Post by Beensabu »

Fallible wrote: Sat Oct 23, 2021 4:38 pm
Activesloth wrote: Sat Oct 23, 2021 1:23 pm I have a different view of market timing. I think all investors do market timing, they just have different timetables. The 25 year old with 100% stock allocation, the retiree with 30% in bonds, and the day trader buying and selling the same stock are all timing the market, as far as I’m concerned. ...
How are you defining market timing? If you go by this standard definition in Investopedia, how does it apply to the 100% stock allocation and retiree in 30% bonds?
Market timing is the act of moving investment money in or out of a financial market—or switching funds between asset classes—based on predictive methods. If investors can predict when the market will go up and down, they can make trades to turn that market move into a profit.
https://www.investopedia.com/terms/m/markettiming.asp
You can make that standard definition fit.

A young 100% stock accumulator is predicting that the market will go up long-term over their investment horizon.

A 30% bonds retiree is predicting that the market will go down at some point during their remaining investment horizon.

Each is investing in order to make a profit / not lose money.

A glidepath is an example of long-term market timing as well. The prediction is: as the investment horizon becomes shorter, the likelihood of the market going down and losing money becomes higher.

Those who keep money for upcoming short term needs are "market timers" as well. If they weren't, that money would be in equities.

Anyone who has anything other than a static AA for life is a "market timer", technically. Edit: Even those people with static AA are market timing if they're rebalancing. ¯_(ツ)_/¯
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Northern Flicker
Posts: 15289
Joined: Fri Apr 10, 2015 12:29 am

Re: Is it possible to time the market?

Post by Northern Flicker »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
If you knew on Monday that stocks would go up 3% on Tuesday, what would you do? You would buy stocks on Monday.

If there is available information that stocks should go up by about 3% on Tuesday, market participants will buy the stock on Monday, bidding up the price to the point that the available information no longer has any predictive value for Tuesday.

The principle is called the Efficient Market Hypothesis, which in its original and most commonly used form states that all public information about a given stock or about stocks in general is already priced in.

It may not be fully correct, but it also is very difficult to try to refute. From a practical perspective, it makes it very difficult to time the market successfully, and makes it very likely that on average you will win or lose about equally. This in turn means that while one particular timing decision may work out well, it does not increase your expected return, i.e. return averaged over all outcomes. It does however add additional risk-- the risk of guessing wrong.

Unlike speculations, investments reward risk in the average outcome, not just with the favorable outcomes. Marketing timing risk is not rewarded on average. Market timing is a speculation.

One motivation for market timing is trying to get the return of equities without taking the risk of equities, say by pulling out of the market before a big downturn. There is no evidence this can be done. If it were possible, the expected return of equities would be lower. If you didn't actually have to take equity risk, there would not be an equity risk premium for holding stocks and the reward would be commensurate with the risk you have to take.
Last edited by Northern Flicker on Sat Oct 23, 2021 10:15 pm, edited 1 time in total.
rockstar
Posts: 6308
Joined: Mon Feb 03, 2020 5:51 pm

Re: Is it possible to time the market?

Post by rockstar »

arcticpineapplecorp. wrote: Sat Oct 23, 2021 3:23 pm
rockstar wrote: Sat Oct 23, 2021 3:13 pm Banks have trading departments that make money, so it's possible to make money trading otherwise banks wouldn't do it.
are you sure they're not trading their customer's money and collecting a fee (known as a commission) everytime they trade their customer's money? And the commissions are how they make money, not trading?

are you familiar with the Fred Schwed book, "Where are the customer's yachts?"

By the way, they also lose money trading...like $6 billion worth. Ever heard of the London Whale (JP Morgan 2012)?

source: https://en.wikipedia.org/wiki/2012_JPMo ... ading_loss

if traders are so brilliant, how come there's such a long list of huge trading losses right here:

https://en.wikipedia.org/wiki/List_of_trading_losses

Long Term Capital Managements up there. Those guys were Nobel Prize Winners!

Other favorites that made the list were Bill Ackman, Carl Icahn, George Soros, Stanley Drukenmiller. A real murderer's row as Barry Ritholtz puts it.
Why would banks even have trading departments if they didn't make more money than they lost?
Fallible
Posts: 8795
Joined: Fri Nov 27, 2009 3:44 pm

Re: Is it possible to time the market?

Post by Fallible »

Beensabu wrote: Sat Oct 23, 2021 5:23 pm
Fallible wrote: Sat Oct 23, 2021 4:38 pm
Activesloth wrote: Sat Oct 23, 2021 1:23 pm I have a different view of market timing. I think all investors do market timing, they just have different timetables. The 25 year old with 100% stock allocation, the retiree with 30% in bonds, and the day trader buying and selling the same stock are all timing the market, as far as I’m concerned. ...
How are you defining market timing? If you go by this standard definition in Investopedia, how does it apply to the 100% stock allocation and retiree in 30% bonds?
Market timing is the act of moving investment money in or out of a financial market—or switching funds between asset classes—based on predictive methods. If investors can predict when the market will go up and down, they can make trades to turn that market move into a profit.
https://www.investopedia.com/terms/m/markettiming.asp
You can make that standard definition fit.

A young 100% stock accumulator is predicting that the market will go up long-term over their investment horizon.

A 30% bonds retiree is predicting that the market will go down at some point during their remaining investment horizon.

Each is investing in order to make a profit / not lose money.

A glidepath is an example of long-term market timing as well. The prediction is: as the investment horizon becomes shorter, the likelihood of the market going down and losing money becomes higher.

Those who keep money for upcoming short term needs are "market timers" as well. If they weren't, that money would be in equities.

Anyone who has anything other than a static AA for life is a "market timer", technically. Edit: Even those people with static AA are market timing if they're rebalancing. ¯_(ツ)_/¯
Thing is, we don't know what the poster's examples (other than the day trader) actually did with their investments, whether it was based on the short-term predicting that is true market timing or whether they were moving in an out to lower risk or reflect lifetime changes, correct original asset allocation errors, etc.

The Investopedia link posted above further lists five key takeaways of market timing:
KEY TAKEAWAYS
Market timing is the act of moving investment money in or out of a financial market—or switching funds between asset classes—based on predictive methods.

If investors can predict when the market will go up and down, they can make trades to turn that market move into a profit.

Market timing is the opposite of a buy-and-hold strategy, where investors buy securities and hold them for a long period, regardless of market volatility.

While feasible for traders, portfolio managers, and other financial professionals, market timing can be difficult for the average individual investor.

For the average investor who does not have the time or desire to watch the market daily—or in some cases hourly—there are good reasons to avoid market timing and focus on investing for the long run.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
carminered2019
Posts: 1934
Joined: Fri Jun 21, 2019 7:06 pm

Re: Is it possible to time the market?

Post by carminered2019 »

is going from 60/40 to 95/5 when markets drop 40% a market timing ?
User avatar
whodidntante
Posts: 13090
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: Is it possible to time the market?

Post by whodidntante »

Our mentor Jack Bogle successfully timed the market. But you'll probably have more money if you admit that you are not as good at it as he was.
User avatar
Taylor Larimore
Posts: 32839
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: Is it possible to time the market?

Post by Taylor Larimore »

Bogleheads:

Vanguard once offered a market-timing fund. It was included in their Life Strategy Funds and also offered as a single fund. I owned it until I knew better.

Their market-timing fund was a dismal failure and Vanguard eventually closed it.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."
"Simplicity is the master key to financial success." -- Jack Bogle
Trader Joe
Posts: 2697
Joined: Fri Apr 25, 2014 6:38 pm

Re: Is it possible to time the market?

Post by Trader Joe »

crashdummy847 wrote: Sat Oct 23, 2021 10:55 am Newbie here! I've heard the quote along the lines of"It's not about timing the market, it's about time in the market". Why do people so often discourage timing the market? Are there no ways to predict a stock rising in price over the course of days, months or even within a year?
"Is it possible to time the market?"

No, not consistently.
Jags4186
Posts: 8198
Joined: Wed Jun 18, 2014 7:12 pm

Re: Is it possible to time the market?

Post by Jags4186 »

If you are interested in market timing I’d recommend you listen to some of Paul Merriman. He has 50% of his portfolio in a market timing strategy. He doesn’t recommend it, but does talk about it. He is upfront with the fact that it is not about making more money, it’s about reducing volatility. On a recent podcast he talked about how a market timing approach has similar results to a 60/40 portfolio — simply because he tends to be out of the market completely 40% of the time.

It’s really really hard for a new investor to stick to a simple 1, 2 or 3 fund plan for 40+ years. Even someone who hangs around here for 1000s of posts and “knows better” strays. But it almost assuredly will bear fruit for you if you save consistently for many decades.
SR7
Posts: 106
Joined: Fri May 15, 2020 4:06 am
Location: Down Under

Re: Is it possible to time the market?

Post by SR7 »

Is it possible to: time the market, win an olympic gold medal, walk on the moon?

Yes ! To all three, they have all been done before, so they can all be done again.

Will I be able to do any three? No, very unlikely. In fact probability of success, rounded to two decimal points, for myself would = 0.00%
I studied Physics not Finance, so best to ignore anything I say about money.
secondopinion
Posts: 6008
Joined: Wed Dec 02, 2020 12:18 pm

Re: Is it possible to time the market?

Post by secondopinion »

nisiprius wrote: Sat Oct 23, 2021 4:37 pm We aren't going to get anywhere without a definition of "timing the market." And the original poster confuses things by asking "Are there no ways to predict a stock rising in price over the course of days, months or even within a year?" So if crashdummy847 is following this, I ask them to tell us exactly what they mean by "timing the market."
Here is my definition (bad notation but I hope people get the idea):
Market timing is to enter a position in a binary fashion based on the result of some stochastic process s(t|X) where t is the present time and X is the information of pricing and trading observed up to t; that is, hold stock if s(t|X) > 0, no position if s(t|X) = 0, and short stock if s(t|X) < 0. It is long-only if s(t|X) < 0 implies no position.
By this, moving averages, localized volatility measures, and such buy/sell signals are part of market timing.

On the other hand,
Evaluation timing is to enter a position in a binary fashion based on the result of some stochastic process s(t|X) where t is the present time and X is the information of the company observed up to t; that is, hold stock if s(t|X) > 0, no position if s(t|X) = 0, and short stock if s(t|X) < 0.
By this, sales results, revenue growth, and such buy/sell signals are part of evaluation timing.

Maybe this is garbage, but it may be helpful anyway.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Post Reply