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Started By
Message
re: Best Guess When it's time to Pull out the Market?
Posted on 7/2/14 at 6:03 am to Enadious
Posted on 7/2/14 at 6:03 am to Enadious
I never go all cash....stay 95-100% invested always...I do move into less volatile positions in my trading type accounts at times like now though.
Shiller P/E at very high levels
perils of timing the market
"Even this chart hides how skewed returns are over time. I've shown before that there have been about 21,000 trading sessions between 1928 and today. During that time, the Dow went from 240 to 13,000, or an average annual growth rate of 5% (this doesn't include dividends). If you missed just 20 of the best days during that period, annual returns fall to 2.6%. In other words, half of the compounded gains took place during 0.09% of days. That's a more detailed version of Gundlach's wisdom.
Now, every time that stat is used, someone says, "Sure, but what if you missed the worst 20 days?" Indeed, if you missed the 20 worst trading days since 1928, average annual returns jump to over 7% (before dividends).
But what's interesting about those 20 worst days? Most happened at nearly the same time as the best 20 days -- 1933, 1982, 2002, and 2008. It's implausible to think anyone could have avoided the worst days and hit the best days without simply being lucky. It can literally mean in Monday, out Tuesday, back in Wednesday."
Shiller P/E at very high levels
perils of timing the market
"Even this chart hides how skewed returns are over time. I've shown before that there have been about 21,000 trading sessions between 1928 and today. During that time, the Dow went from 240 to 13,000, or an average annual growth rate of 5% (this doesn't include dividends). If you missed just 20 of the best days during that period, annual returns fall to 2.6%. In other words, half of the compounded gains took place during 0.09% of days. That's a more detailed version of Gundlach's wisdom.
Now, every time that stat is used, someone says, "Sure, but what if you missed the worst 20 days?" Indeed, if you missed the 20 worst trading days since 1928, average annual returns jump to over 7% (before dividends).
But what's interesting about those 20 worst days? Most happened at nearly the same time as the best 20 days -- 1933, 1982, 2002, and 2008. It's implausible to think anyone could have avoided the worst days and hit the best days without simply being lucky. It can literally mean in Monday, out Tuesday, back in Wednesday."
This post was edited on 7/2/14 at 6:09 am
1
Posted on 7/2/14 at 6:20 am to StrangeBrew
quote:
So you are on the sidelines now? Totally?
No, I'm mostly in right now.
Posted on 7/2/14 at 6:22 am to Enadious
I'm cash now and waiting. If I were younger maybe I wouldn't be though probably I would. In 2000 and 2008 I went to cash from fully invested.
Posted on 7/2/14 at 6:23 am to Zilla
quote:
Have you look at the historical P/E levels ?
According to Forbes:
quote:
Data through 5-31-2014 shows the market to be 33.240% overvalued. This says risk is high in holding stocks right now yet it is important to note that the market could extend even further driven by QE, foreign capital inflows or the return of the retail investor. I am simply pointing out prospects for future gains are much lower at current P/E multiples than they are at more normal levels.
Posted on 7/2/14 at 6:35 am to Ole War Skule
quote:
"Even this chart hides how skewed returns are over time. I've shown before that there have been about 21,000 trading sessions between 1928 and today. During that time, the Dow went from 240 to 13,000, or an average annual growth rate of 5% (this doesn't include dividends). If you missed just 20 of the best days during that period, annual returns fall to 2.6%. In other words, half of the compounded gains took place during 0.09% of days. That's a more detailed version of Gundlach's wisdom.
While this is a nice stat, I think it's a little deceiving. I started a thread here not long ago showing that if you used a very simple benchmark like the 50 week MA to time the market over the last 50 or so years, you would have handily outgained the hold through thick and thin strategy. Not by a small amount either, it was more than double. Avoiding huge crashes can be very very rewarding.
Posted on 7/2/14 at 6:38 am to Tigris
damn you 
between the shiller p/e, your reminder of the market cap/gdp and margin debt levels at all time high I'm ready to sell everything!
we need a 'everyone panic' emoticon
between the shiller p/e, your reminder of the market cap/gdp and margin debt levels at all time high I'm ready to sell everything!
we need a 'everyone panic' emoticon
Posted on 7/2/14 at 6:43 am to rintintin
quote:
While this is a nice stat, I think it's a little deceiving. I started a thread here not long ago showing that if you used a very simple benchmark like the 50 week MA to time the market over the last 50 or so years, you would have handily outgained the hold through thick and thin strategy. Not by a small amount either, it was more than double. Avoiding huge crashes can be very very rewarding.
I agree with both you and the quote I included. I think it's very difficult, though not impossible, to time the market. It's obviously historically overvalued now by many measures and I would think one would outperform over time by moving to cash or lower risk positions. I'm just making the point that there is significant risk in doing so and missing out on big gains. The fact that the market is significantly overvalued doesn't mean it won't become even more overvalued, just certain that it will eventually correct itself.
How about a link to the thread you mention, I'd like to see it to put me in further panic mode.
Posted on 7/2/14 at 6:53 am to Ole War Skule
quote:
The fact that the market is significantly overvalued doesn't mean it won't become even more overvalued, just certain that it will eventually correct itself.
Realistically, who cares if it goes up 15% and within two years drops 40%. If you can smell a correction in the wind isn't it more profitable to go to cash and wait it out?
Posted on 7/2/14 at 7:06 am to Ole War Skule
LINK
This is the thread.
I'll preface it by saying my experiment wasn't very thorough or precise, but it was followed up by I believe Slackster, who provided a much more thorough one. Both came to the same conclusion that simply selling when the S&P went below a certain moving average indicator (I used 50 wk simple, he used 200 day exponential), then buying when it recovered over the moving average would produce much bigger gains than holding throughout.
But as discussed in the thread, it is a long term strategy, 25+ years or so, when you know a big correction or crash is inevitable. Without said crashes, the strategy wouldn't work.
This is the thread.
I'll preface it by saying my experiment wasn't very thorough or precise, but it was followed up by I believe Slackster, who provided a much more thorough one. Both came to the same conclusion that simply selling when the S&P went below a certain moving average indicator (I used 50 wk simple, he used 200 day exponential), then buying when it recovered over the moving average would produce much bigger gains than holding throughout.
But as discussed in the thread, it is a long term strategy, 25+ years or so, when you know a big correction or crash is inevitable. Without said crashes, the strategy wouldn't work.
Posted on 7/2/14 at 7:12 am to Enadious
quote:
Realistically, who cares if it goes up 15% and within two years drops 40%. If you can smell a correction in the wind isn't it more profitable to go to cash and wait it out?
I don't disagree with you, I'm making the case for buy and hold for discussion purposes, not advocating it for everyone. I personally stay invested because I fear missing a party more than going to a bad one. If your numbers are correct, then yes, we should all get out. But what if the actual numbers are up another 20%, correct 15% and hold there until profits and GDP catch up?
I don't see a 40% correction, I'm think 20% next year with the market stagnating for another 3-5.
All this being said, I am selling off some riskier positions and buying more conservative ones.
Posted on 7/2/14 at 7:21 am to Enadious
When the market is consistently making new highs that aren't supported by the smart money index later in the day. This has started to happen. This chart is eerily accurate on a macro level.
Inflation.
Interest rates.
P/E using an adjusted figure.
Sales growth of S&P.
All the above are historical indicators of a correction.
Below are some things you could consider.
You can check the relative cost difference between calls and puts for the same strike on broader indexes.
You could insure your portfolio by selectively purchasing VIX calls, or index puts. Do you insure your home? Why wouldn't you insure your portfolio?
Sell covered calls or buy protective puts, a very conservative strategy that I'm unclear why more people don't use. Selling covered calls and buying protective puts in an IRA is allowable for a reason. You insure your home right? Why wouldn't you insure your portfolio?
No one ever loses money taking realized gains.
Edit - Some exposure to precious metals.
Outside of this, I don't know what the magic answer is, but I look to these indicators, and take these conservative measures.
Inflation.
Interest rates.
P/E using an adjusted figure.
Sales growth of S&P.
All the above are historical indicators of a correction.
Below are some things you could consider.
You can check the relative cost difference between calls and puts for the same strike on broader indexes.
You could insure your portfolio by selectively purchasing VIX calls, or index puts. Do you insure your home? Why wouldn't you insure your portfolio?
Sell covered calls or buy protective puts, a very conservative strategy that I'm unclear why more people don't use. Selling covered calls and buying protective puts in an IRA is allowable for a reason. You insure your home right? Why wouldn't you insure your portfolio?
No one ever loses money taking realized gains.
Edit - Some exposure to precious metals.
Outside of this, I don't know what the magic answer is, but I look to these indicators, and take these conservative measures.
This post was edited on 7/2/14 at 7:26 am
Posted on 7/2/14 at 7:30 am to TheHiddenFlask
quote:
ETA: Not this strategy, shitty advice.
How about investigate covered calls, would that improve the advice?
Posted on 7/2/14 at 7:31 am to TheHiddenFlask
quote:
This is why people lose all of their money.
How do people lose all of their money selling a covered call? If the stock goes down and you want to sell the stock then just buy the call back. The calls will be at a price lower than what you sold it. If the price goes up and the call is exercised then you pocket the premium and can just by the stock back.
Posted on 7/2/14 at 7:33 am to CajunTiger92
Equities is still the only place to make money right now. Bc of that you will not see a correction soon
Posted on 7/2/14 at 7:34 am to Iowa Golfer
quote:
When the market is consistently making new highs that aren't supported by the smart money index later in the day. This has started to happen. This chart is eerily accurate on a macro level.
I'm not familiar with this metric and can't find a good summary and current chart. Do you have a link?
Posted on 7/2/14 at 7:42 am to Ole War Skule
LINK /
Brief overview. If you have a charting program you can compare the intraday highs to the smart money flow index.
Brief overview. If you have a charting program you can compare the intraday highs to the smart money flow index.
Posted on 7/2/14 at 7:47 am to CajunTiger92
quote:
This is why people lose all of their money.
How do people lose all of their money selling a covered call?
They don't. The statement is factually inaccurate, and if given by a financial adviser, borders on malpractice. The strategy guarantees a profit when done in the right circumstances.
Posted on 7/2/14 at 8:11 am to Enadious
just buy buy buy overtime and let it sit. Sure, there will be a market correction, but if you don't sell your stuff then, within a few years, all of that stuff you could have sold will be worth more than they were before the "correction". Time corrects even the corrections.
Posted on 7/2/14 at 8:47 am to Enadious
Barring some geopolitical surprise, look for signs of illiquidity.
Posted on 7/2/14 at 8:54 am to Ole War Skule
Damn, those 2 graphs are telling. Good thing I am just playing around in the penny stock thread right now. I am ready to buy some puts though now
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