Investing

is now a good time to get into the market?

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  • Mar 19th, 2017 10:15 am
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Deal Addict
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Dec 14, 2010
3975 posts
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ballugagan wrote:
Mar 16th, 2017 7:19 pm
I'm sitting on cash right now in anticipation of a correction or slowdown in the US and Canadian markets.

Am I wrong to be waiting or should I jump in even with these record highs?

Aren't we overdue for a correction?
SomeOtherDude wrote:
Mar 16th, 2017 10:00 pm
don't wait. got to learn fast and as soon as possible. No-one can really predict corrections or whatever.
MaxPower19 wrote:
Mar 16th, 2017 10:28 pm
Research shows market timing doesn't work. Statistically best bet is to get in as soon as you can....

If you are an investor, the best time to invest is now. If are evaluating individual business, what matters is valuation, and there are always bargains to be found. If you invest in the whole market, then dollar cost average is your best approach, since you can't control the companies when you buy the whole basket anyway (and you'll be paying market price for that whole basket). Market timing works but it's irrelevant when investing, because market timing goals are to allow one to lock profits soon and minimize losses. That's not the investor mentality. Investing is about partnering with business for a long term - if the market crashes, you add more. That's the hardest part for many, when every media channel is telling you to sell everything, "because it will get worse".

If you are trader, it's a whole different story, and market timing does work. I can give several examples with data to back it up. There are research papers, books and out-of-sample data since 1950 that proves that certain economic indicators are reliable to predict recessions - which drives crashes. Few examples include unemployment rate or Treasury Constant maturity spread of short and long term rates. Same thing for analyzing earnings and cash flow from all the companies of the market as a whole and see how they are trending - if earnings across the board are revised lower, stock prices are likely to drop in general. Same thing for technical analysis, where known patterns and indicators can allow one to be in fixed income during volatile times. Speaking of volatility, technical analysis alone is enough to generate over 33% annualized returns since XIV's inception, considering how volatility index is constructed and how trend analysis can identify when it switches from contango to backwardation and vice-versa. When trading (not investing), market timing works and is fundamental when doing directional (non market-neutral) trades. To anyone wondering the famous "luck vs skill" debate, these are well defined methodologies that works as a mathematical / algorithmic strategy, with decades of data to support it - essentially eliminating the luck factor.

Since 1999 SPY's annualized return is 5.42% (and -54.6% max drawdown). A market timing system using the rules above, which is either long SPY (when bullish on the market) or IEF (mid-term bonds, when bearish on the market) produced ~ 13% annualized returns, and less than -20% max drawdown. Mathematical / algorithmic system.

Few publications if anyone is interested:

- Brock, W., Lakonishok, J., LeBaron, B., 1992, “Simple Technical Trading Rules and the Stochastic Properties of Stock Returns,” Journal of Finance 47, pp. 1731-1764.
Carhart, M. M., 1997, “On Persistence in Mutual Fund Performance,” Journal of Finance 52, pp. 57–82.

- Fama, E. F., French, K. R., 1992, “The Cross-Section of Expected Stock Returns,” Journal of Finance 47(2), 427–465

- Glabadanidis, P., 2012, “Market Timing with Moving Averages”, 25th Australasian Finance and Banking Conference.

- Glabadanidis, P., 2012, “The Market Timing Power of Moving Averages: Evidence from US REITs and REIT Indexes”, University of Adelaide Business School.

- Lo, A., Mamaysky, H., Wang, J., 2000, “Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation,” Journal of Finance 55, 1705–1765.

- Pesaran, M.H., Timmermann, A.G., 1995, “Predictability of Stock Returns: Robustness and Economic Significance”, Journal of Finance, Vol. 50 No. 4


Rod
[OP]
Newbie
Feb 24, 2017
32 posts
16 upvotes
rodbarc wrote:
Mar 18th, 2017 9:13 pm
If you are an investor, the best time to invest is now. If are evaluating individual business, what matters is valuation, and there are always bargains to be found. If you invest in the whole market, then dollar cost average is your best approach, since you can't control the companies when you buy the whole basket anyway (and you'll be paying market price for that whole basket). Market timing works but it's irrelevant when investing, because market timing goals are to allow one to lock profits soon and minimize losses. That's not the investor mentality. Investing is about partnering with business for a long term - if the market crashes, you add more. That's the hardest part for many, when every media channel is telling you to sell everything, "because it will get worse".

If you are trader, it's a whole different story, and market timing does work. I can give several examples with data to back it up. There are research papers, books and out-of-sample data since 1950 that proves that certain economic indicators are reliable to predict recessions - which drives crashes. Few examples include unemployment rate or Treasury Constant maturity spread of short and long term rates. Same thing for analyzing earnings and cash flow from all the companies of the market as a whole and see how they are trending - if earnings across the board are revised lower, stock prices are likely to drop in general. Same thing for technical analysis, where known patterns and indicators can allow one to be in fixed income during volatile times. Speaking of volatility, technical analysis alone is enough to generate over 33% annualized returns since XIV's inception, considering how volatility index is constructed and how trend analysis can identify when it switches from contango to backwardation and vice-versa. When trading (not investing), market timing works and is fundamental when doing directional (non market-neutral) trades. To anyone wondering the famous "luck vs skill" debate, these are well defined methodologies that works as a mathematical / algorithmic strategy, with decades of data to support it - essentially eliminating the luck factor.

Since 1999 SPY's annualized return is 5.42% (and -54.6% max drawdown). A market timing system using the rules above, which is either long SPY (when bullish on the market) or IEF (mid-term bonds, when bearish on the market) produced ~ 13% annualized returns, and less than -20% max drawdown. Mathematical / algorithmic system.

Few publications if anyone is interested:

- Brock, W., Lakonishok, J., LeBaron, B., 1992, “Simple Technical Trading Rules and the Stochastic Properties of Stock Returns,” Journal of Finance 47, pp. 1731-1764.
Carhart, M. M., 1997, “On Persistence in Mutual Fund Performance,” Journal of Finance 52, pp. 57–82.

- Fama, E. F., French, K. R., 1992, “The Cross-Section of Expected Stock Returns,” Journal of Finance 47(2), 427–465

- Glabadanidis, P., 2012, “Market Timing with Moving Averages”, 25th Australasian Finance and Banking Conference.

- Glabadanidis, P., 2012, “The Market Timing Power of Moving Averages: Evidence from US REITs and REIT Indexes”, University of Adelaide Business School.

- Lo, A., Mamaysky, H., Wang, J., 2000, “Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation,” Journal of Finance 55, 1705–1765.

- Pesaran, M.H., Timmermann, A.G., 1995, “Predictability of Stock Returns: Robustness and Economic Significance”, Journal of Finance, Vol. 50 No. 4


Rod
Thanks for the detailed response. Isn't it difficult to dollar cost average with EFT's because of the transaction fees they charge?
Deal Addict
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Dec 14, 2010
3975 posts
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ballugagan wrote:
Mar 18th, 2017 11:51 pm
Thanks for the detailed response. Isn't it difficult to dollar cost average with EFT's because of the transaction fees they charge?
Some brokerages (like ETF) don't change for ETFs while others (like Interactive Brokers) charges 1 cent per share (minimum $1). When dollar cost averaging, my general rule is that commission cost for me would be 1% max.

Rod
Deal Addict
Oct 7, 2007
2643 posts
466 upvotes
ballugagan wrote:
Mar 16th, 2017 7:19 pm
I'm sitting on cash right now in anticipation of a correction or slowdown in the US and Canadian markets.

Am I wrong to be waiting or should I jump in even with these record highs?

Aren't we overdue for a correction?
Have you heard of a show called "Keiser Report" on Russia Today? There is a very good and relevant segment on a show that aired last night on this subject. You might find it very interesting. You can replay previous shows at your convenience.

www.rt.com
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