Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Does Market Timing Work?

schwab.com

Post reply on HN
Print view View original

71–80 of 292 posts

Re: Does Market Timing Work?

#71

Post by throw0101c »

nly wrote: post #58

A catchy blog post on this subject; Even God Couldn’t Beat Dollar-Cost Averaging https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

Also from Nick Maggiulli, the author:

> For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about.

> But, what about stock picking? How long would it take to determine if someone is a good stock picker?

> An hour? A week? A year?

> Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years.

> And the payoff you do eventually get has to be compared to the payoff of buying an index fund like the S&P 500. So, even if you make money on absolute terms, you can still lose money on relative terms.

* https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...

Re: Does Market Timing Work?

#72

Post by throw0101c »

veqq wrote: post #33
Centigonal wrote: post #17

IMO, this is a much more comprehensive article on the same topic: https://www.aqr.com/-/media/AQR/Documents/Insights/White-Pap... For unsophisticated investors, timing the market tends to keep money on the sidelines during growth periods, eroding long-term returns. This is part of why it's considered an investing sin - "time in the market beats timing the market." Sophisticated systematic investors can probably get g…

To go into further detail about systemic investing: There have been experiments like the turtle traders ^ 1 who applied "trend following", used today by many CTAs on exotic markets. For this, an investor taught some people his strategy/rules, gave them his money and they've shined for 40 years. The fundamental strategy still works today (updated). Fundamentally, it's a method to ride momentum in different ways (e.g.…

> Traditional value investors, building on the Intelligent Investor, have always done well over samples above a few years.

From the last published interview with Benjamin Graham, author of II ("A Conversation with Benjamin Graham", Financial Analysts Journal, September-October 1976)

> > In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?

> In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.

* http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Ben...

Re: Does Market Timing Work?

#73

Post by [deleted] »

zer0tonin wrote: post #54
lend000 wrote: post #40

Earlier quoted context omitted.

The fact that you're being downvoted for factual contributions kind of explains why it's possible to beat the markets. Most people refuse to believe it. No public strategies are going to beat the market by a huge amount, and having the discipline to execute them manually isn't easy, but it has been clearly shown to be possible.

The dogma that it's impossible to beat the market is frankly weird at this point. If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.

[deleted]

Re: Does Market Timing Work?

#74

Post by throw0101c »

zer0tonin wrote: post #54
lend000 wrote: post #40

Earlier quoted context omitted.

The fact that you're being downvoted for factual contributions kind of explains why it's possible to beat the markets. Most people refuse to believe it. No public strategies are going to beat the market by a huge amount, and having the discipline to execute them manually isn't easy, but it has been clearly shown to be possible.

The dogma that it's impossible to beat the market is frankly weird at this point. If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.

> If the markets were truly efficient […]

And who is arguing that they are perfectly efficient? Markets work on information, which is not (initially) evenly distributed and because of the physics can only spread at the speed of light once it is known.

The latter was used to detect insider trading:

* https://www.npr.org/sections/alltechconsidered/2013/09/24/22...

For the former, people are renting satellite time to get to information that no one else has to determine trades:

* https://newsroom.haas.berkeley.edu/how-hedge-funds-use-satel...

> Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.

Two of the proponents efficient markets explain why (and shared a Nobel for the work):

* https://en.wikipedia.org/wiki/Fama–French_three-factor_model

The two are not mutually exclusive, and there is published literature on it.

Good interview with Fama (audio, video, transcript):

* https://rationalreminder.ca/podcast/200

Re: Does Market Timing Work?

#75

Post by throw0101c »

zoomablemind wrote: post #69

"...Each received $2,000 at the beginning of every year for the 20 years ending in 2022 and left the money in the stock market..." All of the experiment "participants" must have Lucky in their middle names. They managed to keep their jobs over those 20 years and kept their cool at the economy downturns. They only Buy (the index shares), except for the one that keeps "cash" aka money market shares. I guess they plan o…

> Does one need to "time" the Sells?

In retirement you need Money more than you need Stocks, so the Sell side of the trade could be someone who is not trying to be clever with trades, but simply needs to pay for their groceries.

Re: Does Market Timing Work?

#76

Post by kajaktum »

zer0tonin wrote: post #54
lend000 wrote: post #40

Earlier quoted context omitted.

The fact that you're being downvoted for factual contributions kind of explains why it's possible to beat the markets. Most people refuse to believe it. No public strategies are going to beat the market by a huge amount, and having the discipline to execute them manually isn't easy, but it has been clearly shown to be possible.

The dogma that it's impossible to beat the market is frankly weird at this point. If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.

I think the reason why "you can't beat the market" is the simple fact that you are part of the market. If you are very, very good, such that any trade you make will always win, then the market just don't want to play any more. The feedback response from the market is extremely precise; do you make money or not? If you don't, you will change your strategy until you start making money or you just stop playing. The moment you start benefiting from some exploit, the market will immediately response to their loss by changing their strategy.

This is of course assuming that we are at a level playing field. I don't believe for one second that insider trading is not prevalent.

Re: Does Market Timing Work?

#77

Post by auxym »

zer0tonin wrote: post #54
lend000 wrote: post #40

Earlier quoted context omitted.

The fact that you're being downvoted for factual contributions kind of explains why it's possible to beat the markets. Most people refuse to believe it. No public strategies are going to beat the market by a huge amount, and having the discipline to execute them manually isn't easy, but it has been clearly shown to be possible.

The dogma that it's impossible to beat the market is frankly weird at this point. If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.

> If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.

This assumes that the expected return of a single, randomly-picked stock is symmetrically-distributed. It is not, single stock returns are highly skewed and "lottery like". Index returns come from the fact that a small number of stocks do exceptionally well, while most of them do poorly.

This becomes even worse if we talk about timing: stock returns come from relatively short periods of doing really well, if you miss that because you are out of the market for some reason, you lose out on the vast majority of the index return.

Sorry, I don't have specific sources to cite. This comes from stuff I've picked up listening to the Rational Reminder podcast (https://rationalreminder.ca/podcast-directory), which have very well researched episodes as well as guest interviews with leading academic finance researchers. I'll try to dig up the relevant episodes, which do cite sources.

Edit: here is some sources:

1. https://www.dimensional.com/us-en/insights/singled-out-histo...

2. https://assets.jpmprivatebank.com/content/dam/jpm-wm-aem/glo...

Quote from this last one: "[...] around 40% of the time a concentrated position in a single stock experienced negative absolute returns, in which case it would have underperformed a simple position in cash. And around 2/3 of the time, a concentrated position in a single stock would have underperformed a diversified position in the Russell 3000 Index. While the most successful companies generated massive wealth over the long run, only around 10% of all stocks since 1980 met the definition of “megawinners”."

Re: Does Market Timing Work?

#78

Post by TacticalCoder »

zoomablemind wrote: post #69

"...Each received $2,000 at the beginning of every year for the 20 years ending in 2022 and left the money in the stock market..." All of the experiment "participants" must have Lucky in their middle names. They managed to keep their jobs over those 20 years and kept their cool at the economy downturns. They only Buy (the index shares), except for the one that keeps "cash" aka money market shares. I guess they plan o…

> Yet the whole transaction needs the Sell part to realize the gains. Surprisingly, the Schwab experiment did not model this for the "participants".

The FIRE community did model this at great length though. And the example in TFA is just an example: saving $2K a year is basically drinking one or two beers less each day (so I wouldn't look too much into that amount). Most people in the west could save that. At the very least the people at which TFA is aimed could save $2K a year.

Try $20K a year: most working people here could save that.

Here's a nice "rich, broke or dead" FIRE calculator:

https://engaging-data.com/will-money-last-retire-early/

Re: Does Market Timing Work?

#79

Post by TacticalCoder »

zer0tonin wrote: post #54
lend000 wrote: post #40

Earlier quoted context omitted.

The fact that you're being downvoted for factual contributions kind of explains why it's possible to beat the markets. Most people refuse to believe it. No public strategies are going to beat the market by a huge amount, and having the discipline to execute them manually isn't easy, but it has been clearly shown to be possible.

The dogma that it's impossible to beat the market is frankly weird at this point. If the markets were truly efficient, randomly picking stocks would beat SPX ~50% of the time. Since markets are not super efficient, basic exposure to performance factors (small cap, value, momentum...) puts you at a fairly high likelyhood of beating SPX.

> The dogma that it's impossible to beat the market is frankly weird at this point.

I agree.

Meta was literally priced below $90 not even a year ago (I entered at about $100 FWIW, which was my nice and round number). Now at $315. Anybody who believes the market is efficient is on some serious drugs.

The market correctly valued Meta a $380 or so before the crash (because "TINA" I'm supposed to believe), then correctly valued it a few months later at $100, then now is again correctly valuing it at $315?

Please. Just please.

I'll go much further: none of these valuation are correct. The market is highly inefficient.

Re: Does Market Timing Work?

#80

Post by achrono »

vik0 wrote: post #68

Ever since I read The Black Swan by Nassim Nicholas Taleb and Thinking, Fast and Slow by Daniel Kahneman, I can't take anything related to the stock market seriously (among other things as well, but this post is related to the stock market, so that's why I'm focusing on it.) There's very little skill involved, which isn't to say there is no skill involved whatsoever - but at the end of the day it really is just luck…

FWIW ever since Kahneman, Ariely and similar company have had some of their theories get discredited (Ariely's taint is worse because it's to do with fabricating research!) I have gone back to simply resorting to common sense and quotidian skepticism.
Post reply on HN