# Time "in" the market: is there a loophole?



## Zaxon (7 August 2019)

It's often said that it's "time in the market", not "timing the market" that leads to share market success.  Putting aside whether you believe in market timing or not, I see there are two ways of looking at this:

Time in the market could mean:
1) Buy and hold stocks long term (years) or buy an index fund and hold - so no market timing
OR
2) As long as you are invested in shares and haven't swapped out your money into property, bonds, etc, you're free to sell shares and immediately buy others as much as you want.  You're still spending time "in" the market as a whole, and will benefit from the long, upward trend that stock investing gives you.  Potentially, you can avoid shares in unfavourable sectors, and concentrate more on those that are doing well, all while fully invested in the market.

What are your thoughts, not so much on what this original statement means (which is probably option 1), but do you think option 2 is equally valid and keeps to the spirit of time "in" the market?


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## qldfrog (7 August 2019)

2) is not in the spirit intended
Switching to gold miners or bear eft is not the idea behind the saying.
By in my opinion, this saying is bull****..time in the market for asx starting 2007 or in Japan for the last 20y?
Timing is key, any average Joe is a star in a booming uptrend.
My 2c worth only
Option 2) is the way to go, do you feel bad is you are not in "the market?"
Does anyone care?
Results are what counts...


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## Zaxon (7 August 2019)

qldfrog said:


> By in my opinion, this saying is bull****..time in the market for asx starting 2007 or in Japan for the last 20y?
> Timing is key, any average Joe is a star in a booming uptrend.
> Option 2) is the way to go, do you feel bad is you are not in "the market?"
> Does anyone care? Results are what counts...



I tend to agree.  And for the last 12 months, the All Ords has only return 3.24%.  Surely a bit of strategic timing could have outperformed that.


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## sptrawler (7 August 2019)

I think statement 1 has merit, if a person isn't interested in investing.
With option 2, I think it needs to be broken into 3 parts:
3.1 Those who are earning a salary and adding to their investment on a regular basis.
3.2 Those who are making a living investing and are actively trading, to obtain maximum growth.
3.3 Those who are investing to generate an income, which they and their dependent on for their lifestyle.

I think the 3 have a completely different onus.
3.1 Isn't completely dependent on the results, a failure in their 20-40's can easily be overcome, as long as they haven't geared and lost        their shirt.
3.2 These IMO will be the people who are very much into investing, they follow the markets trends, charts, volume etc and it is a                  passion. If they are good they make a fortune, but the share's dividend isn't of great importance.
3.3 These people require a guaranteed income, so probably have a core of dividend stocks that generate the underlying income and also        have a speculative stash, that can either grow the core or take advantage of speculative opportunities. 
If you have to pull $70k-$80k out every 12 months to live and enjoy your life, that either has to come from generated income, or realised capital gain.
Just my opinion.


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## Zaxon (7 August 2019)

sptrawler said:


> I think statement 1 has merit, if a person isn't interested in investing.
> With option 2, I think it needs to be broken into 3 parts:
> 3.1 Those who are earning a salary and adding to their investment on a regular basis.
> 3.2 Those who are making a living investing and are actively trading, to obtain maximum growth.
> 3.3 Those who are investing to generate an income, which they and their dependent on for their lifestyle.



I think that's a great way of looking at it.


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## sptrawler (7 August 2019)

Appologies for for the poor sentence 3.3, should read.
3.3 Those who are investing to generate an income, which they and their dependents rely on for their lifestyle.
I was rushing to get the grandkids off to school.


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## tech/a (7 August 2019)

Using the All Ords as an example


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## Zaxon (7 August 2019)

tech/a said:


> Using the All Ords as an example



Interesting.  That's a lot of time the market spends effectively doing nothing.

Which speaks to:
3) get out when the market starts to fall, put your cash in gold or bonds, then get back in when the market recovers

You'll never get the exact top or bottom of the market, but hopefully well placed stops should get you out soon enough.


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## systematic (7 August 2019)

Same time period as tech/a.




Or a monthly chart


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## tech/a (7 August 2019)

Zaxon said:


> 3) get out when the market starts to fall, put your cash in gold or bonds, then get back in when the market recovers




That would be perfect if we could do it.

But perhaps if your like me and pretty average you might try this.
Example
$200000 portfolio
at risk of a 20% decline in a 1000 pt drop in the Ords.

Thats 40K

So Im not very good at picking tops and bottoms so IF
I can get the middle 60% of a long fall --20% from the top bad entry and 20% off the
bottom bad exit on a short SPI position 600 pts Id need 3 contracts to get my hedge.

IB would need 40K as margin approx for you to do this.

Just an alternate Idea.

Systematic

Much nicer!


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## BoNeZ (7 August 2019)

The risk of timing the market is individual days can have a huge impact on the overall results. In the last twenty years the ASX 200 has had about a dozen days where the gain or loss was greater than 4%

By trying to time the market the risk is you are in it on the down days and out on the up days which is much worse than being in all the time.


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## sptrawler (7 August 2019)

Here is a chart comparing total returns U.S market Vs the Australian market, both are accumulation indexes so all dividends re invested.







the chart came from this article.
https://cuffelinks.com.au/wins-australian-versus-us-investors-local-shares/


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## Zaxon (7 August 2019)

tech/a said:


> That would be perfect if we could do it.



Agreed.  It's an idealized situation, and you'd never get near that in reality.


tech/a said:


> But perhaps if your like me and pretty average you might try this.
> Example
> $200000 portfolio
> at risk of a 20% decline in a 1000 pt drop in the Ords.
> ...



Interesting.  So a true market hedge.  For those of us not experienced with futures, what would be the equivalent cost in brokerage if you sold everything at the 20% decline, and then rebought everything after the 20% recovery?

My current brokerage is 0.075%.
Starting capital: 200k
Sell at -20%: 160k
Sell brokerage cost: $120
Buy back in cost: $120

So $240 in costs.  How does that compare to the costs of shorting futures?


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## tech/a (7 August 2019)

$12 round trip


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## Zaxon (7 August 2019)

BoNeZ said:


> By trying to time the market the risk is you are in it on the down days and out on the up days which is much worse than being in all the time.



That's certainly a valid way of thinking.  And it's probably right for 95% of people who passively invest, and have no interest in becoming a trader.


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## Zaxon (7 August 2019)

tech/a said:


> $12 round trip



OK.  So much cheaper, although either method is pretty cheap. 

What if the market suddenly went against you?  You shorted the SPI, the market suddenly turns around and goes up, you hold the futures for 'x' days to see if it's an actual change in market direction or not.  Presumably, you need to buy back the futures now putting you at a loss.

With the "all share" method, if the market corrects upwards, there's no further cost to you because you're in cash.  There is the "opportunity cost", of course, since you've missed out on a few days of growth.


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## Zaxon (7 August 2019)

sptrawler said:


> Here is a chart comparing total returns U.S market Vs the Australian market, both are accumulation indexes so all dividends re invested.



I've seen that chart before, and it impressively shows that you could have invested in either market, and the outcome would be the same.  

One "wrinkle" I see, is that they use two different inflation figures, specific to each country.  In practice, if you're an Australian and have the choice of investing in the US or AU market, you're not competing with US inflation, only local.  

Fortunately there's a second graph that factors that in:


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## sptrawler (7 August 2019)

Zaxon said:


> I've seen that chart before, and it impressively shows that you could have invested in either market, and the outcome would be the same.
> 
> One "wrinkle" I see, is that they use two different inflation figures, specific to each country.  In practice, if you're an Australian and have the choice of investing in the US or AU market, you're not competing with US inflation, only local.
> 
> ...



I didn't think of that, good point.
The other thing is the franking credits as well, they would be attached to the Australian market, but couldn't be applied to shares on the U.S market I assume.


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## systematic (7 August 2019)

I should mention for anyone that missed it; the charts I posted above were simply 10 years of buy & hold Aussie shares...but not forgetting to include dividends


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## Zaxon (7 August 2019)

systematic said:


> I should mention for anyone that missed it; the charts I posted above were simply 10 years of buy & hold Aussie shares...but not forgetting to include dividends



Do you think your chart paints a somewhat different picture when compared with techs?


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## tech/a (8 August 2019)

Zaxon said:


> OK.  So much cheaper, although either method is pretty cheap.
> 
> What if the market suddenly went against you?  You shorted the SPI, the market suddenly turns around and goes up, you hold the futures for 'x' days to see if it's an actual change in market direction or not.  Presumably, you need to buy back the futures now putting you at a loss.
> 
> With the "all share" method, if the market corrects upwards, there's no further cost to you because you're in cash.  There is the "opportunity cost", of course, since you've missed out on a few days of growth.




Yes a mouse click and your out 
Losing $75 a tick on the wrong side 
But your $200k portfolio would have 
recovered some of the loss If not all.


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## systematic (8 August 2019)

Zaxon said:


> Do you think your chart paints a somewhat different picture when compared with techs?




I'm not sure...it's all food for thought.  However, including total return is (for some reason) often forgotten.  When included, the 'ride' is (obviously) a less volatile ride (in a market yielding somewhere around 4%). The charts I posted I think do paint a _somewhat _different picture...for _some_ people.  Some would look at that and say it was a pretty smooth ride to a 10% per annum return.  Of course the investor had to have been lucky to have started 10 years ago and miss the downturn (but that was the time period looked at).  It was probably more a, 'don't forget the total return'...including your post of the all ords in your third post in the thread.  Not a big deal, just something to point out.  I've noted the same in our fun thread that @Bill M runs on the all ords.

Now, aside from all that... @tech/a makes a great point - that especially shorter-term traders should remember.  You always spend lots of time 'under water'.  Making new equity highs every day, week, month etc would be nice - but it's not going to happen.  
Trying to reduce the _depths of the dips _is obviously what market timing is all about, enabling the trader to put their capital elsewhere, until they return.


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## Zaxon (8 August 2019)

systematic said:


> However, including total return is (for some reason) often forgotten.  When included, the 'ride' is (obviously) a less volatile ride (in a market yielding somewhere around 4%).



I totally agree.  Total return is rarely mentioned, and dividends (particularly in Australia) make up a significant part of the return.


systematic said:


> You always spend lots of time 'under water'.  Making new equity highs every day, week, month etc would be nice - but it's not going to happen.
> Trying to reduce the _depths of the dips _is obviously what market timing is all about, enabling the trader to put their capital elsewhere, until they return.



Yup.  And where do you park your capital while waiting to reenter the market?


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## tech/a (8 August 2019)

Zaxon said:


> And where do you park your capital while waiting to reenter the market?




See short SPI example above.

Park it there!


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## Zaxon (8 August 2019)

tech/a said:


> See short SPI example above.
> 
> Park it there!



OK.  And in a bull market, if you were controlling your portfolio heat and waiting on positions to break even before opening new ones, you would buy (rather than short) the SPI with your unallocated cash?


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## tech/a (8 August 2019)

Your condition for Buying back is waiting until the portfolio is back to higher than when you exited. 
(Based upon theoretically holding the portfolio--although you didn't).?

If so yes you *could.*

You are again in the space of string theory. Picking a turn--long term---if you were that good 
you'd simply re enter your whole portfolio.

You need tested conditions for these trades.


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## Zaxon (8 August 2019)

tech/a said:


> Your condition for Buying back is waiting until the portfolio is back to higher than when you exited.
> (Based upon theoretically holding the portfolio--although you didn't).?



Personally, I'd use MA crosses to determine the direction of the market.  Certainly not an exact science, but I feel it has the potential to time the market.

By contrast, I feel that if you sold out, continued to hold that portfolio hypothetically, then rebought when the price level was regained, then you may have well just held the portfolio the entire time - the outcome would be the same.


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## tech/a (8 August 2019)

Zax

When you try this you'll gain some experience.
We can hypothesize all day!


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## aus_trader (10 August 2019)

One possible loophole that long term shareholders enjoy is lower capital gains tax if shares are held for more than a year. Rarely applies to me because I tend to move in and out of stocks more frequently so it's rare a stock that I hold continues to gain higher ground and be held more than a year.

Since the thread was about 'loophole's' I thought that's something that long term holders may enjoy.


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## Zaxon (10 August 2019)

aus_trader said:


> Rarely applies to me because I tend to move in and out of stocks more frequently so it's rare a stock that I hold continues to gain higher ground and be held more than a year.



Same.  I've moved to shorter time frames of late, so it's a while since I've had a 12 month stock.


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