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View Full Version : Buy and Hold vs Market Timing


MonarchDon
07-18-2005, 11:36 AM
I am currently out of all of my positions in the stock market and am sitting in money market. I have been waiting for this market (spy, qqqq) to break out and it looks like it is getting ready to break to the upside. With that being said I am looking for opinions on buy and hold vs. timing the market. I am a follower of a website www.investors-club.com (http://www.investors-club.com) and the charts are saying it's time to buy but when the charts say it's time to sell then you must follow the rules and sell. Questions, Comments.

Sniper
07-18-2005, 12:08 PM
If you are looking for help in timing the market, you should:

1. Subscribe to Investors Business Daily
2. Purchase Hirsch's Stock Traders Almanac (annually)

MonarchDon
07-18-2005, 01:02 PM
I hear the claims about outperforming buy&hold with using market timing. But when I hear about an average return of let's say 7% over 10 years I think that is pretty good and why should I mess around with going in and out of the market ?

Dan Mezick
07-18-2005, 01:44 PM
I think you have to do your own work with regard to all trading decisions. The main reason is that you must have the strength of your own convictions and beliefs to act on them in a way that will produce profits.

Once you take a position, you become a member of a crowd, which is driven by primitive emotions.

This tests your beliefs as you are potentially swept along by the crowd's waves of strong emotion.

Peter666
07-18-2005, 03:53 PM
If you are satisfied with 7% average interest over 10 years, there is absolutely no reason to market time, and plenty of disadvantages, such as trading fees. Rather stick it in a good value invested mutual fund. I think this works safely up to about a 12% yield.

If you want to make more than 12% interest, than studying and playing with individual stocks is the way to go. Here is a recommendation: time it to put your money into Berkshire Hathaway when Warren Buffet dies, so you get the stock at a low price. And then forget about it until you want to spend it.

midas
07-18-2005, 05:37 PM
My suggestions are as follows:

1. Buy (through dollar cost averaging) and hold broad indexes like SPY and MDY.

2. Market-time select niche industry groups where going deep in research may give you significant advantage - ie shipping stocks.

Good Luck

Sniper
07-19-2005, 12:00 AM
[ QUOTE ]
I hear the claims about outperforming buy&hold with using market timing. But when I hear about an average return of let's say 7% over 10 years I think that is pretty good and why should I mess around with going in and out of the market ?

[/ QUOTE ]

Stock traders Almanac will show you very simple timing models that clearly outperform.

GeorgeF
07-19-2005, 11:46 AM
1) Market timing means your are trying to outsmart people who are trying to outsmart you. Why do you think you are smarter than me, Warren Buffett, 2+2 posters, ect for instance.

2) Buy and Hold has an advantage that the little guy who has a steady income can sustain more pain and outlast a pro who has 10:1 leverage and clients that will bolt at any downturn.

3) Not a great example but compare slots vs poker. If you can outsmart other people choose poker, else you will lose alot less with slots. If you can outsmart people chose maret timing otherwise go with buy and hold.

4) Save time and money: bobbrinker.com fundx.com

Sniper
07-19-2005, 12:38 PM
[ QUOTE ]
1) Market timing means your are trying to outsmart people who are trying to outsmart you. Why do you think you are smarter than me, Warren Buffett, 2+2 posters, ect for instance.

[/ QUOTE ]

Market timing is not about outsmarting anyone... the stock market is NOT a zero sum game, where for every winner there has to be a loser.

Market timing is about putting the odds in your favor!

lastsamurai
07-19-2005, 04:03 PM
[ QUOTE ]
If you are looking for help in timing the market, you should:

1. Subscribe to Investors Business Daily
2. Purchase Hirsch's Stock Traders Almanac (annually)


[/ QUOTE ]
When you subscribe to IBD make sure you sign up online www.investors.com (http://www.investors.com) I think this is the only tool you need. Read the "Big Picture" section and follow the NEW AMERICA section. The Big picture is very informative stuff.

greg nice
07-19-2005, 04:36 PM
[ QUOTE ]

the stock market is NOT a zero sum game, where for every winner there has to be a loser.


[/ QUOTE ]

please elaborate for the daytraders out there..

Sniper
07-19-2005, 05:51 PM
Poker is basically a zero sum game.. for you to win $$$ at the table, someone else at the table must lose $$$.

In the stock market, the market cap of a stock changes (ie the size of the pie changes), for example...

You own 1,000 shares of stock XYZ that has 10 million shares outstanding, and is trading at $10, and therefore a market cap of $100 million. The stock goes up $1, you have made $1,000, collectively all the owners of the stock have made $10 million, and the stock now has a market cap of $110 million.

Yes some people may have held the stock short and thus lost $$, but it is not equal to the number that held it long, therefore its not a zero sum game.

ewile
07-19-2005, 11:47 PM
I like IBD too. There is an element of market timeing there...as well as the use of stops which I like. I might call it "active investing."

skierdude1000
07-22-2005, 03:12 PM
last time i checked the stock market is a zero sum game

Sniper
07-22-2005, 03:52 PM
A Zero Sum Game is a situation where one participants gain results from another persons loss. The net change in total wealth among participants is zero.

Options and Futures contracts are a zero sum game, as is gambling.

The stock market however, is not a zero sum game, because wealth can be created in the stock market (thru increased market cap).

skierdude1000
07-22-2005, 09:00 PM
money doens't come out of nowhere, you can't just *make* money appear in your bank without someone else losing it.

AceHigh
07-22-2005, 09:47 PM
[ QUOTE ]
money doens't come out of nowhere, you can't just *make* money appear in your bank without someone else losing it.

[/ QUOTE ]

You really don't understand the market. Take the following example:
I buy a stock at 20 and sell it to you at 30, the next day it goes to 35. No one lost money, I made 10/share, you made 5/share, everyone is happy. It doesn't always happen that way, but businesses are designed to make money, so in general stocks usually go up more than down.

greg nice
07-22-2005, 11:37 PM
[ QUOTE ]

I buy a stock at 20 and sell it to you at 30, the next day it goes to 35. No one lost money, I made 10/share, you made 5/share, everyone is happy.

[/ QUOTE ]

why did the stock go up? because there were more buyers than sellers. not everyone who sold at 30 had bought it at 20 like you. but those buyers at 30 had to get the shares from somewhere.. maybe shorts, maybe people who bought at 40 and cutting their loss, etc.

either way, somethings not right. the explaination of market cap doesnt clear it up. maybe its something to do with the company producing more revenue and paying it back as dividends.

Sniper
07-23-2005, 01:03 PM
[ QUOTE ]
money doens't come out of nowhere, you can't just *make* money appear in your bank without someone else losing it.

[/ QUOTE ]

In poker, this is true... Sum of all players winnings = Sum of all players losses + Poker Site Rake. No money created, just money shifting around.

In the stock market, when a stock's perceived value increases, money is indeed created out of nowhere.

Think of this very simplified example...
A new stock has an IPO, 3 people buy 1 share of the stock @ $10, a 4th person comes in and buys each of their shares (1 @ 11, 1 @ 12, 1 @ 13), the stock is now worth 13.

Person A - Bought at 10, Sold at 11 = +1 (cash)
Person B = Bought at 10, Sold at 12 = +2 (cash)
Person C = Bought at 10, Sold at 13 = +3 (cash)

Person D = Bought 1 @ 11, 1 @ 12, 1 @ 13, holding @ 13 = +3 (on paper)

Everyone made $$$.

adios
07-23-2005, 01:47 PM
[ QUOTE ]
why did the stock go up? because there were more buyers than sellers. not everyone who sold at 30 had bought it at 20 like you. but those buyers at 30 had to get the shares from somewhere.. maybe shorts, maybe people who bought at 40 and cutting their loss, etc.

[/ QUOTE ]

This is actually simple. As a thought experiment, if you start a company from nothing and it grows to have sales that generate earnings of say $1,000,000 year it has certainly increased in value. A companies valuation is a function of it's future earnings more or less. Asset values also play a role but quite often a lesser one. The function of the stock market is to establish a value for publicly traded companies. That value is based on future earnings discounted for the equivalent risk free rate and the risk premium that investors demand for undertaking the risk of owning stock in the company. The equity risk premium in the past has been such that it is substantially higher than risk free bond yields. This is known as the ex post risk premium. The future risk premium that compensates stock investors for buying stocks is a subject of much debate in financial circles. This future risk premium is called the ex ante risk premium. Now if a company grows their earnings at a certain rate the market more or less determines what the value of these earnings are. If a company actually generates more earnings than the market anticipates, the value of the stock increases all other things being equal. Therefore the long investor makes money "out of thin air" in two different ways. One is by being paid a risk premium over bonds that will be reflected in the earnings of the companies that comprise the market more or less. The stock holders are the "owners" more or less and ultimately earn the profits. The second way is that an individual companies can produce more earnings than the market anticipates. Now there are many things companies do with earnings (such as paring down debt, paying dividends, making acquisitions, R&D, expanding product lines, etc.) and so valuing those earnings is what the whole stock market is about really. Stock valuations are inherently volatile due to the "debate" if you will over what earnings are worth.

greg nice
07-23-2005, 09:48 PM
[ QUOTE ]
and so valuing those earnings is what the whole stock market is about really. Stock valuations are inherently volatile due to the "debate" if you will over what earnings are worth.

[/ QUOTE ]

^^ this is what i was trying to get at in the tail end of my previous post. thanks