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

61–70 of 292 posts

Re: Does Market Timing Work?

#61

Post by anonu »

Totally agree on not timing the market and staying invested. Nonetheless this analysis raises more questions than answers for me.

First, as you often see in these studies, they use the S&P500 which has returned a 9 or 10% annualized rate for decades now. How realistic is it to see someone's entire wealth invested in just this benchmark? Diversification will almost always mean returns lower than than the S&P. Ultimately this erodes at the findings of the study.

Second, there's no mention of yield which is basically the guaranteed portion of the return. This portion alone accounts for a quarter of your annual return making it another compelling reason to be invested early.

Re: Does Market Timing Work?

#62

Post by roland35 »

mr_mitm wrote: post #53
shrimpx wrote: post #8

Although when the s&p dropped 20% in a few days in March 2020 — that was clearly a buy signal. And when tech stocks dropped by 70-90% in Nov 2022. Those stocks are now up 2x/3x from bottom. Sure, long term it probably doesn’t work out to time the market but sometimes it’s pretty obvious what’s happening.

I bought when it dropped 5% because I thought it was "a clear buy signal". Then it dropped even more and I couldn't spare any cash to buy more. How could you have known at the time that 20% was the bottom?

Exactly the problem! When talking about market timing you can't just be correct in the direction but also be close to exact on the time!

Re: Does Market Timing Work?

#63

Post by tomatocracy »

porknubbins wrote: post #39
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…

This has been my experience too, I missed out more by being sidlined during good times than I saved. Personally as an engineering mindset person I am good at identifying likely failure modes of companies (i.e. reality) but rarely anticipate how much things will go up during good times which is more of a social phenomenon (hype).

Understanding potential failure modes for companies is a much more important part of credit investing (this is what I do for a living these days, though I've done equity investing as well).

Unfortunately a very large part of the credit universe is very difficult to access if you're a non-professional investor though.

Re: Does Market Timing Work?

#64

Post by shric »

greatpostman wrote: post #14
shric wrote: post #11

Earlier quoted context omitted.

Those who understand the economy know it's a poor predictor of market returns.

They don’t understand the economy then, they just know how to analyze it in hindsight

Stock market prices are based on expected future returns. Any anticipated future economic movement is more or less priced in. You can have a perfect understanding of the economy and not be able to predict future market movements as large short term movements in stocks are in response to unpredicted events.

Re: Does Market Timing Work?

#65

Post by anonu »

maddynator wrote: post #30

While I agree with the general principle of the post, I am skeptical of the fact that schwab published it. If it was done third party research, I would trust it more. (Internet has made me skeptical) However, the only incentive I can think of schwab is to encourage people to invest ASAP they have cash so schwab can get that money in their system so they can charge fees/still services. But that’s just normal business

Schwab would rather you have cash in your account than be invested in securities. This is how their cash sweep works.

The article is educational and generally stands up to the research on the topic. It is designed to build trust with clients so they invest in Schwab.

Re: Does Market Timing Work?

#67

Post by anonu »

neilv wrote: post #13

They didn't discuss Peter Perfect's sister, Petra Perfect, who -- rather than just wait for the one bottom day for the year -- instead buys and sells repeatedly, throughout the year, at more local lows and highs. Is that also considered market timing?

I'll tell you the result: Petra would blow all the results out of the water with massive returns. But Peters results are theoretically somewhat more believable because he only needs to be lucky on one trade a year.

Re: Does Market Timing Work?

#68

Post by vik0 »

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

The following excerpts are from Thinking, Fast and Slow:

"The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions—and thereby threaten people’s livelihood and self-esteem—are simply not absorbed. The mind does not digest them. This is particularly true of statistical studies of performance, which provide base-rate information that people generally ignore when it clashes with their personal impressions from experience."

"Finally, the illusions of validity and skill are supported by a powerful professional culture. We know that people can maintain an unshakable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot."

Re: Does Market Timing Work?

#69

Post by zoomablemind »

"...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 on doing this beyond the 20y, why stop feeding cash into the account, why retire when it can contnue growing?

Lucky ones will also retire in upturn.

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

Does one need to "time" the Sells?

Re: Does Market Timing Work?

#70

Post by Aunche »

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.

It doesn't count as beating the market unless if you're doing so due to skill. It's not particularly unusual to beat the market and come out of a casino positive. On the other hand, bragging about how good you are at slots, is what will get you "weird dogmatism."
Post reply on HN