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

[Zaxon]

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?

 

[qldfrog]

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...

 

[Zaxon]

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.

 

[sptrawler]

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.

 

[Zaxon]

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.

 

[sptrawler]

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.

 

[tech/a]

Using the All Ords as an example

 

[Zaxon]

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.

 

[systematic]

Same time period as tech/a.



Or a monthly chart

 

[tech/a]

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!

 

[BoNeZ]

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.

 

[sptrawler]

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/

 

[Zaxon]

That would be perfect if we could do it.

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

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.

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?

 

[tech/a]

$12 round trip

 

[Zaxon]

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.

 

[Zaxon]

$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.

 

[Zaxon]

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:

 

[sptrawler]

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:

View attachment 96647

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.

 

[systematic]

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

 

[Zaxon]

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?