We Are All Market Timer !! ( The Most Important Video On Market Timing )

 Yes !! we are all market timer, to some extent. Listen to below video from Prof Aswath Damodaran on how he explains investors using asset allocation to time the market, without we realizing it sometimes.

We fully understand that nobody can exactly predict the stock’s price movement but that doesn’t stop many from trying to do so, continuously and relentlessly, on a daily basis a.k.a day trading for stocks. We also knew that “time in the market “ is important base on the long term “compounding effect” and we don’t try to guess when the stock’s price is at its lowest or its highest point, basically we buy base on fundamental.

So what makes you think that we are all market timer?

  

Market Timing - Dreaming The Impossible Dream? < By Prof. Aswath Damodaran>


    
                                                        <Video credit to Prof Aswath Damodaran>

Of course, we know that stock prices are unpredictable and are impossible to make money from the day trading by predicting the price movement, in the long run.

The video is trying to explain that by using “tactical asset allocation”, we sometimes try to “time the market” by allocating more fund towards certain asset class during a certain period. We may use macroeconomic indicators (e.g interest rate, money supply etc) or market indicators ( e.g PE, PEG, PB or Dividend Yield etc ) or even mean reversion methods to gauge or make estimation on market/industries valuation.

Such market timing should base on long term market trend and not just by weeks or months. As I explained before, it may take years for the market to revert to mean in most of the crisis. Young investors with much longer investment time horizon should allocate more fund to equity during the crisis as valuation are mostly low and same time to take advantage of “time in the market” since you will still have many years till retirement.

 

For me, both “market timing” and “time in the market” are equally important and of course, with a diversified portfolio across industries and regions/countries.

 

Enjoy the video, cheers!

 

STE

 

“Tactical asset allocation has features of both classic asset allocation and market timing. Money is moved around between asset classes within a portfolio to improve performance based on what the portfolio or fund manager thinks will happen in the market. This is a more active approach than the traditional buy-and-hold form of asset allocation, but it is a longer-term and more diversified portfolio strategy than market timing.















Comments

  1. Huh huh ... TA traders & investors market time based on technical indicators.

    FA investors & traders market time based on fundamental or macro outlooks. Warren Buffett won't buy Apple or Amazon at any time, even though he likes both stocks.

    Above is based on supposedly structured or "informed" market timing.

    Then there is market timing based on gut feel or hot tip or follow the Robinhood leader. This is supposedly unstructured or freestyle market timing.

    Even the 60:40 equities-to-bonds allocation is a form of structured market timing.

    E.g. When stock markets crash, and your equity-to-bond is now 30:70 --- you sell your strong bonds & buy the weak equities to bring it back to 60:40.

    You are actually selling high & buying low. Vice versa when stocks chiong & your ratio is now 80:20.

    ReplyDelete

Post a comment

Related Posts Plugin for WordPress, Blogger...

Labels

Show more

This Month's Top Blog Posts

Index ETF For Passive Investing ( Not Anymore ? )

Market Manipulation: More Than An Insider Trading….

Keep Calm & Keep Walking (Waiting ) ….. ( Photos Sharing )

Beauty ( Value ) Is In The Eye Of The Beholder – Part 2