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EVENING READING

7 October 2009 by TPC 4 Comments

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4 Comments »

Van said:

fyi

http://www.marketwatch.com/story/stock-market-surge-prompts-warning-to-investors-2009-10-06

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# 7 October 2009 at 6:08 PM

TPC (author) said:

Odd that a firm that says you should never time the market is now trying to time the market….

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# 7 October 2009 at 6:27 PM

Rob said:

TPC,

I don’t see rebalancing a portfolio after a significant run up as timing the market. That seems to be conservative, prudent investing for which Vangard is famous. My take on Vaguard is that they suggest not letting any one area of your portfolio get too far away from your target for too long.

I have read studies that show that over time the optimal length of time to wait before rebalancing is about 3 years. (Let the winners run, but they can’t run forever). If for example you rebalanced in March 2000, 2003, 2006 and 2009 you would have come pretty close to a good marketing timing (selling high in 2000, buying low in 2003, selling high a bit too early in 2006 and buying low in 2009 without really timing the market per se).

That was my strategy (starting in 1991) until I decided, for the first time, to really time the market in 2007 when I liquidated almost all my equity holdings, then waited mostly patiently until March 2009 when I bought half my normal allocation to equities and then foolishly sold in mid-May only to buy again at the end of July after missing the Merideth Whitney and Intel bounce. (I am still in timing the market mode since I am still underweight equities).

I didn’t liquidate in 2000. Then I just lowered my allocation to equities and sold half of all my tech stock which doubled, two-thirds of that which had tripled, etc. That left plenty of funds to increase equity exposure in early 2003.

I would be pretty close to where I am today (although still slightly poorer) if I had simply underallocated to equities in mid-2007 and overallocated in March 2009 instead of jumping in and out. I definitely sleep better at night when I am not trying to time the market.