Time to get cautious?

[absolutezero]

Now, where's that crystal ball ...

Dunno. If you find it then do let us know which days to stay out of the market. Well in advance please.

In the same way that its impossible to know in advance which the best 10 days will be, it is also impossible to know in advance which the worst 10 days will be.
Therefore, stay fully invested and don't panic.

[mc2fool]

Now, where's that crystal ball ...

Dunno. If you find it then do let us know which days to stay out of the market. Well in advance please.

In the same way that its impossible to know in advance which the best 10 days will be...

Far from impossible but doesn't reliably happen very often. When the yield on the FTSE 100 is below 5% or the PE on the S&P is in single digits, pile in and I promise you some of the best days will happen during the following decade.

Short term timing the market is, I agree, all but impossible. Long term timing events on extreme market yields and PE are pretty reliable, but the trouble is you could be out of the market for half a lifetime or more waiting for such an event.

And the flip of that is that 'cos you don't want to miss out on returns while waiting, you stay more or less fully invested and don't have the spare funds to pile in further when such an event does occur....

Chris Dillow wrote in a recent IC article:

"“You can’t time the market” is one of the oldest cliches in investing.

Which is unfortunate, because it isn’t true."

https://www.investorschronicle.co.uk/news/2021/08/05/the-bias-against-market-timing/ (Free registration required)
https://www.google.com/search?q=investors+chronicle+bias+against+market+timing (Or follow the first result, no registration needed)

[JohnW]

When the yield on the FTSE 100 is below 5% or the PE on the S&P is in single digits, pile in and I promise you some of the best days will happen during the following decade.

'The results were shocking. The correlation between the starting CAPE and the forward 10 years' stock returns was -.9476......Also, this analysis indicates that the relationship between CAPE and forward stock returns has been better explained via a regression formula (i.e. Y = a + bX) than the commonly used 1/CAPE.'
https://www.bogleheads.org/forum/viewtopic.php?t=331341

[LooseCannon101]

In every market setback in the past, it has been a good idea to sit it out. The 2008 event was an exception in that a lot of shares fell from grace and had to be replaced. It certainly worked in 1974, arguably the worst in living memory.

They do offer opportunities to buy good shares at bargain prices.

TJH

I thoroughly agree with the above, as who knows when the next crash will happen? The market could easily rise another 20% and then only drop back to today's levels.

A policy of keeping fully invested and not allowing market babble to dictate one's actions, is my long-term aim.

[GoSeigen]

Chris Dillow wrote in a recent IC article:

"“You can’t time the market” is one of the oldest cliches in investing.

Which is unfortunate, because it isn’t true."

Quite. As I noted back in 2006 to general snorts of derision, even HYP investors are timing the market, and many believe they will get a better result because of it. Perhaps index investing is the purest form of "trying not to time the market" but even those investors admit that they are merely riding on the coattails** of other investors who are willing to time the market.

GS
(**or more likely being taken to the cleaners by them IMO)

[CryptoPlankton]

Perhaps index investing is the purest form of "trying not to time the market"

Surely, as with any investment, the timing is in the choice of entry and exit points? For instance, my purchase of VWRL last spring (2020) after the huge dip was very consciously made with timing in mind. I'd suggest "pound cost averaging" would be a better example.

but even those investors admit that they are merely riding on the coattails** of other investors who are willing to time the market.

They do? Perhaps some simply feel they are buying into the fact that over the long-term, regardless of all the shorter term trading (timing) that goes on, market indexes almost invariably rise.

(**or more likely being taken to the cleaners by them IMO)

Obviously, you are entitled to your opinion, but "being taken to the cleaners" suggests losing money to me.

[simoan]

This has been an interesting thread to date. I'm not a mod or anything but feel it is about to disappear into the weeds like many threads. Could I politely ask that we keep to the subject of the thread i.e. is it time (right now) to be cautious, and don't let it descend into a discussion of something else like, market timing, HYP or Index trackers?

All the best, Si

[Hariseldon58]

This has been an interesting thread to date. I'm not a mod or anything but feel it is about to disappear into the weeds like many threads. Could I politely ask that we keep to the subject of the thread i.e. is it time (right now) to be cautious, and don't let it descend into a discussion of something else like, market timing, HYP or Index trackers?

All the best, Si

I understand your sentiment, but the question of whether it is the time to be cautious now, is the question of market timing. Alternatives to not market time, is to do nothing but have a strategy to cope with market ups and downs, for some that is index investing, HYP and collection of income through thick and thin is another policy, finally some form of diversification of asset types, with rebalancing is a possible policy for ‘interesting’ times.

I think you will be disappointed if you wish to have people answer yes or no to the question, they don’t know. They may persuade you but since they don’t know either…

You may detect market extremes ( we are not there) and then make a judgement, but even at these extremes, markets can reach further extremes.

Howard Marks in his series of newsletters (free) ponders this question at depth, you can see these thoughts going back many years and see how it worked out, there are a couple of books too to summarise, that are worth reading. ( He talks about taking the investment temperature and adjusting the balance between caution and aggression) Along the same lines is the classic by Ben Graham, The Intelligent Investor ( I like the edition with the Jason Zweig commentary) he talks again about a balance between equities and bonds.

[simoan]

This has been an interesting thread to date. I'm not a mod or anything but feel it is about to disappear into the weeds like many threads. Could I politely ask that we keep to the subject of the thread i.e. is it time (right now) to be cautious, and don't let it descend into a discussion of something else like, market timing, HYP or Index trackers?

All the best, Si

I understand your sentiment, but the question of whether it is the time to be cautious now, is the question of market timing. Alternatives to not market time, is to do nothing but have a strategy to cope with market ups and downs, for some that is index investing, HYP and collection of income through thick and thin is another policy, finally some form of diversification of asset types, with rebalancing is a possible policy for ‘interesting’ times.

I think you will be disappointed if you wish to have people answer yes or no to the question, they don’t know. They may persuade you but since they don’t know either…

You may detect market extremes ( we are not there) and then make a judgement, but even at these extremes, markets can reach further extremes.

Howard Marks in his series of newsletters (free) ponders this question at depth, you can see these thoughts going back many years and see how it worked out, there are a couple of books too to summarise, that are worth reading. ( He talks about taking the investment temperature and adjusting the balance between caution and aggression) Along the same lines is the classic by Ben Graham, The Intelligent Investor ( I like the edition with the Jason Zweig commentary) he talks again about a balance between equities and bonds.

I'm sorry, I'll just stop reading then. I'm very aware of Howard Marks, have read all his books and have subscribed to his newsletter for several years. I could just feel given the signoff from one contributor that he was goading someone else and it was about to descend into a spat. Being cautious is nothing to do with market timing. Howard Marks talks about playing offense or defense, never buying or selling. I'm playing defense currently but still selectively buying stocks for the long term. I am not actively selling down or trying to time the market. All decisions are based on valuation of stocks for the long term. I really don't care what the "market" is doing. Anyway, that's enough from me - let battle commence!

All the best, Si

[CryptoPlankton]

I'm sorry, I'll just stop reading then. I'm very aware of Howard Marks, have read all his books and have subscribed to his newsletter for several years. I could just feel given the signoff from one contributor that he was goading someone else and it was about to descend into a spat. I'll just clear off instead.

All the best, Si

Please don't. I think you were referring to my post - honestly not goading, just aware that I was replying to a poster who rarely takes prisoners! I have made my comments on the content of the post I was replying to and have no interest in getting involved in a "spat". As you say, this is an interesting thread, and would definitely benefit from your further input.

Regards, CP

[MaraMan]

It saddens me that interesting and important discussions on here seem almost always eventually to get reduced to slightly high-handed antagonistic comments, but maybe I just notice those more.

Anyway regarding the question asked, and personally accepting that some market timing is sometimes possible, I have taken the unusual step for me of moving to about 15-20% in cash from being almost fully invested in my ISAs and SIPPs. Of course I don't know if this is the right thing to do, but it feels right at the moment to me and I will keep a close eye on things. One question is whether to keep that in cash or find some other safe place for it that is easily accessible, and I don't have an answer to that at the moment.

All the best

MM

[absolutezero]

Now, where's that crystal ball ...

Dunno. If you find it then do let us know which days to stay out of the market. Well in advance please.

In the same way that its impossible to know in advance which the best 10 days will be...

Far from impossible but doesn't reliably happen very often. When the yield on the FTSE 100 is below 5% or the PE on the S&P is in single digits, pile in and I promise you some of the best days will happen during the following decade.

Short term timing the market is, I agree, all but impossible. Long term timing events on extreme market yields and PE are pretty reliable, but the trouble is you could be out of the market for half a lifetime or more waiting for such an event.

And the flip of that is that 'cos you don't want to miss out on returns while waiting, you stay more or less fully invested and don't have the spare funds to pile in further when such an event does occur....

Chris Dillow wrote in a recent IC article:

"“You can’t time the market” is one of the oldest cliches in investing.

Which is unfortunate, because it isn’t true."

https://www.investorschronicle.co.uk/news/2021/08/05/the-bias-against-market-timing/ (Free registration required)
https://www.google.com/search?q=investors+chronicle+bias+against+market+timing (Or follow the first result, no registration needed)

I read the very same article, which I alluded to in my post.
He's not wrong but it's not a practical strategy.
Having back tested the 10 month moving average rule, there are a lot of times where you would be in and out in quick succession, as it were.
You might as well just hold.

[Humeau]

I've read a fair bit of Howard Marks, and he talks a lot of sense, just like Simoan.

I'd say move forward with caution, but the fan will get hit when interest rates rise, or more likely fear of interest rate rises. We aren't there yet but even here in France, ordinary people are talking about labour shortages and houses are getting sold quickly. For me it looks difficult to argue that inflation isn't increasing.

I don't think it makes too much difference to the business cases for most of the companies that I have stakes in, but one or two could get much cheaper quite quickly.

That said I've bought a couple of things over the last two months and at prices cheaper than far better investors than almost anyone out there paid.

Cash remains my biggest position.

[richfool]

For what it's worth, I reduced/top-sliced some of my growth holdings a couple of months back, (and ditto with JAGI because of the China situation), and have more recently put some funds into Ruffer (RICA). I already have a holding of PNL.

[simoan]

I'd say move forward with caution, but the fan will get hit when interest rates rise, or more likely fear of interest rate rises. We aren't there yet but even here in France, ordinary people are talking about labour shortages and houses are getting sold quickly. For me it looks difficult to argue that inflation isn't increasing.

I don't think it makes too much difference to the business cases for most of the companies that I have stakes in, but one or two could get much cheaper quite quickly.

That said I've bought a couple of things over the last two months and at prices cheaper than far better investors than almost anyone out there paid.

Cash remains my biggest position.

Snap! "Move forward with caution" completely sums up my current approach and cash is my largest position. There are many reasons for the latter due to my current circumstances that I don't want to go into, but that aside, I would still find it difficult to deploy it given current valuations of most of the stocks in my investable universe.

The past month has been really lousy given my exposure to small caps and growth stocks, but it's not going to suddenly want me to ever invest in the types of low quality companies that have done better in that short time to cause the underperformance (e.g. oil, banks) which have made such lousy investments for so long. Every dog has its day. Although it's uncomfortable during a sell-off, you have to keep your eyes on the prize. I am not selling good quality companies (that would be market timing!) and look forward to a good old rout in order to get some real bargains for the longer term.

All the best, Si

[GoSeigen]

Perhaps index investing is the purest form of "trying not to time the market"

Surely, as with any investment, the timing is in the choice of entry and exit points? For instance, my purchase of VWRL last spring (2020) after the huge dip was very consciously made with timing in mind. I'd suggest "pound cost averaging" would be a better example.

Granted, I was assuming the index investor doesn't choose when to buy or sell but just buys as and when funds are available, but yes, even index investors can "time the market".

but even those investors admit that they are merely riding on the coattails** of other investors who are willing to time the market.

They do? Perhaps some simply feel they are buying into the fact that over the long-term, regardless of all the shorter term trading (timing) that goes on, market indexes almost invariably rise.

Well I'm glad you said "almost". They accept that they are relying on other price sensitive traders to ensure the index pricing is "correct". Else their claim that index investing will beat active investing would very obviously be wrong [active investors would simply take the other side of a mispriced trade].

(**or more likely being taken to the cleaners by them IMO)

Obviously, you are entitled to your opinion, but "being taken to the cleaners" suggests losing money to me.

Yes, I think there are times that index investors will lose money due to the activity of value-conscious (active) investors. I won't go into the mechanics but it's not hard to work out.


GS

[mc2fool]

I read the very same article, which I alluded to in my post.
He's not wrong but it's not a practical strategy.
Having back tested the 10 month moving average rule, there are a lot of times where you would be in and out in quick succession, as it were.
You might as well just hold.

Yes, I noted your earlier comment about Chris Dillow's 10 month theory, although he's been going on about that for yonks so I wasn't sure if you'd seen that particular article that also talks about extreme yields, etc, which is more the point I was making. However, as we both agree, with even Dillow's article only identifying three such "recent"-ish buy-in points (1992, 2003 and 2009) it's not that practical, unless you happen to be in the right situation at the right time.

In regards to the 10 month MA thing, it's really not new, I back tested a similar 200 day moving average (almost the same as 10 months of working days of course) approach some 30 years ago (and it wasn't my idea, I read it somewhere) with much the same results as you found. Indeed, pretty much most of those sort of TA methods I back tested I found looked good in trending markets but caused lots of in-out activity around the transitions and in sideways markets.

Anyway, better let folks get back to discussing if now is a time to get cautious, before we get told off again.

[GoSeigen]

I note some posters' comments about the thread getting sidetracked. To be clear about my position on the topic. I believe market timing is desirable: it is the modus operandi of most styles of investing whether recognised explicitly or not. It should also IMO be the goal of all investors to use their skill and judgement to time their purchases judiciously.

As regards whether now is the time to get cautious, I already stated I don't think it is, but recognise timing is difficult, hence when unsure (or under certain technical conditions) I am happy to write or purchase options -- which of course build in a "time value" e.g. yesterday sold a FTSE straddle against my long index positions.

GS

[NegevSouth]

In keeping with the original question of 'time to get cautious', what would your opinions be on the following scenario, bearing in mind the poor outlook for bonds and taking into account a retired investor's adequate pension and emergency savings?:_


Using an example here of say £100k invested by way of an ISA using 60:40 multi-asset funds.........
To now switch £60k of it to an index fund and the other £40k put into a 12 month fixed term with Oaknorth or similar, where 1.23% is guaranteed?
That way the equity risk is about the same and the bonds element will be guaranteed.

[JohnnyCyclops]

In keeping with the original question of 'time to get cautious', what would your opinions be on the following scenario, bearing in mind the poor outlook for bonds and taking into account a retired investor's adequate pension and emergency savings?:_

Using an example here of say £100k invested by way of an ISA using 60:40 multi-asset funds.........
To now switch £60k of it to an index fund and the other £40k put into a 12 month fixed term with Oaknorth or similar, where 1.23% is guaranteed?
That way the equity risk is about the same and the bonds element will be guaranteed.

One might need slightly more information. What's the investing purpose or goal? You imply they have an "adequate pension and emergency savings" - in which case, if the ISA is all 'surplus to requirements' and represents say a growth play (more inheritance for the family), or 'rainy day' funds for the investor (even beyond their already emergency savings), then why not 100% equities? - even if equities halve in the short-term, there's no detriment to their adquate pension and their emergency funds. What does bonds/caution give them in this scenario? Age/health can also weigh in.