Don’t time the market: a personal account

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I knew the rule.  I knew it by heart, I knew it backwards, I knew it upside down, I knew it well enough to write a book about it.  I knew it all.

And yet, I thought I knew better.

I reckoned I could time the market.

Back in 2018, I was shifting my funds around according to my asset allocation strategy.  I got to the bit where I needed to move some bonds over to shares – and I balked.

I couldn’t do it.

I was like a jumpy dog too scared to cross a high bridge.  The market had been booming for a decade, it was higher than ever before, everything was overpriced, Trump’s deregulation had pushed the US even higher – and I was sure a crash must be coming soon.

I thought it over and found a way to justify hiding in bonds to myself.

Ya see, you need to have a strategy that you can live with.  If you’re too worried and losing sleep, you need to lower your risk profile.  Blah blah blah.

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And anyway, people mostly lose money by panicking and selling when the market crashes, I told myself.  Or they buy when it is already overheated, I told myself.  This is different.  This isn’t timing the market.

But really, I was timing the market.

I didn’t go too nuts.  I didn’t sell all my existing shares, which amounted to about half my investments.  I didn’t buy gold squares, spam, ammunition, and hide in a bunker.  But that extra 20% that was meant to go over to shares as per my strategy, I left in bonds.  And waited for the BIG DAY.

Finally the big day came, in early 2020.  While everyone else was panicking, I was delighted that Nikolai the effing genius had pulled off what all the research says is impossible – I’d timed the market.  All that remained to do was move those bonds over to shares, wait many years, and profit.

I knew the market might take anywhere from a few months to a few years to recover based on previous cases.  This crash seemed mostly due to the coronavirus, which must end soon, so I assumed it would be a fairly short crash.  In any case, stocks had already fallen sharply and were well cheap.  I decided to buy them up in stages over about six months to spread the risk.

I’ve pretty much done that now.  The result?  Stock prices recovered much more quickly than I anticipated.  The first transfers I got a great bargain, but after that not so much.

Then I happened to look at a long-term S&P 500 chart and saw that by May 2020, the market was already back to about where it was when I first had this brainfart in 2018.

In other words, that trouble and effort was for nothing.  It made almost no difference to the eventual outcome.

Had I stuck with my asset allocation strategy and ignored everything else, I would have been fine.

This demonstrates that even if you approximately estimate the timing of a crash, you won’t necessarily profit.  You might also need to predict how far the market will fall and how quickly it will recover.  That’s a lot of guesstimation where many things could go wrong.

Initially, I was so happy with myself after the market crashed just 1.5 years after I suspected it would, I thought, maybe I’ll time the market a bit from now on.  When I get that feeling there’s too much exuberance, prices are out of whack, I’ll sell off a bit and wait.

But now, having examined the outcome in the clear light of day, I can see I was kidding myself.

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If I happen to have some cash lying around when the market crashes in the future, okay, I might throw a bit in.  Straight away, not waiting around thinking I know what will happen next.  Aside from that, I’ll stick to my own advice and NOT try to predict market movements.

Even if it doesn’t end up costing you anything monetarily, it’s a waste of thought and effort that could be more productively used elsewhere – say, by pimping your budget or increasing your income.

Timing the market is like gambling – a tiny number of true professionals can make money from blackjack and poker, but the rest of us should not risk more than we are prepared to lose for the sake of a fun night out.

Do you have an income that is less than spectacular?  Do you want to get ahead anyway, without stupid gimmicks, scams and stupid risks?  Read my book:

The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Low to Medium Income

Also available on many other platforms.

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8 comments

  1. my-financial-wealth.com · October 27

    I also earned during the pandemic. Purchased shares (Indian stock market) and sold 20% higher.

    Like

  2. jewamongyou · October 28

    Yeah. Been there, done that. My major challenge is a lack of patience – and the fact that every time I buy a bunch of shares, that particular stock will immediately drop in price. Somehow, it knows. Yes, I can cause a stock to drop just by buying it. I have that kind of power.

    Liked by 1 person

  3. luisman · October 28

    I have around 70-80% invested in high dividend and high growth stocks. That has paid me on average 7-8% p.a. over the last 10 years. The rest is mainly in bond funds and cash. Like some others I threw in the cash part into the stock market early this year and made between 20-30%, took it out and remain sitting on this cash, until the next ‘black swan’ event happens. Depending on what happens in a few days in the US, I might put the cash into paper gold again, or may return to do some short term speculation if the markets go sideways with +/- 10% volatility.

    I think you will be vulnerable against negative black swan events (like 2008/09) and will sometimes have to wait many years to recover, if you go with the “very boring” strategy. I’m still doing the “very boring” strategy for up to 80% of my assets. But I use my cash to take advantage of the positive black swan events, and missing an upturn doesn’t hurt you.

    Liked by 1 person

    • Nikolai Vladivostok · October 28

      I have enough cash and bonds to bide me over for five years if there’s a big crash.
      As for your strategy, it’s fine FOR YOU. You’re one of the small % capable of pulling off a bit of speculation.
      If I tried it, that effort would end in tears.
      My book’s for normal people who are safer diversifying and waiting it out, especially young men who are 20+ years away from retirement.

      Liked by 1 person

  4. Pingback: Don’t time things. – Dark Brightness
  5. AnonForThis · October 30

    You need to know that the standard 60/40 stocks/bonds portfolio will perform badly if we get periods of high inflation.

    We haven’t had high inflation since the early 80s. You will probably find the backtests/results done to promote the standard portfolio are all after this period.

    You might remember the Aussie Bonds ads from when you were a kid.

    “Up to 13 3/4 percent!” Thats from high inflation. If nominal interest rates rise, the value of any long term bonds you hold goes down. And if theres inflation, the amount you get paid back on maturity is worth less.

    Its been a long time since we had inflation, and some people think we are setting up for it
    https://adventuresincapitalism.com/2020/04/05/project-zimbabwe/
    Google for Modern Monetary Theory (MMT)

    Like

    • Nikolai Vladivostok · October 30

      I did not advocate a 60/40 stocks/bonds portfolio.

      I don’t know what will happen with inflation. On one hand we ought to be getting it with all the brrr happening.
      On the other hand, Japan’s been going brrr for twenty years and their main problem is deflation. So far.
      All we can do is diversify.

      Like

  6. Pingback: The end of the froth. – Dark Brightness

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