DO YOU HAVE WHAT IT TAKES TO BE A SUCCESSFUL MARKET TIMER?
18 October 2009 by Cullen Roche
2 Comments
Great piece of weekend reading here courtesy of reader DavidR:
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Comments
Some would call what I do market timing and their is a little truth to it. But, as I explain in my site, it is all about understanding the levels of risk as it increases and decreases. Over the last year I have made three major fund switches or shifts in my asset allocation. 100% in or out. Currently, Sunday morning, I have written to my followers that all long-term bond funds are at great risk and I am going to exit stock funds and go to cash. The mutual fund pundits are all still recommending the stocks for the long term. Not one of them is directly saying to exit stocks because the risk of a market decline is so great. But, they are saying to reduce your exposure. That’s code for another correction is coming. It is probably going to be about 15% to the downside. I called the recent runnup on July 15th and went to 100% stocks. I was right. Now I think we are heading back down. Anybody agree?
Fundswitcher,
I think that there is risk both to the upside and downside and that it is fairly balanced over the next weeks during earnings season. The market seems fairly valued based on current low interest rates and mid-term earning prospects. I see the likelyhood of an upside move as higher than a downside move, but I see the probable % increase as being smaller than the potential % decline. (Remaining upside maybe 10%, downside potential as much as 15% or even 19% – I doubt that the S&P 500 would break support at 880 anytime before year-end).
I favor adjusting to market condition by increasing and decreasing allocation based shifts in market risk rather than pulling out and going back in 100%. I pulled out between July and October 2007 and found it exceedingly difficult to get back in this spring. Doing it all over again I would go to a minimum of 30% equities when the market seems risky (1999, 2000, 2007) and a maximum of 70% (or maybe 75 by adding 5% in junk stocks with a potential for being 10 bangers or in somecases bankrupcies in a situation like we had in March) when the market is low.
Market timing through rebalancing to variable allocations based on market conditions. I am not confident enough in my ability to deal with my emotions to be 100% in or 100% out.