Trump has been taking credit for the upside, is he going to accept blame for this correction?
Fair enough, but if you Change your purchasing habits in any way based on market valuations then you are timing the market too
This was written in 2003. near the nadir of the dot com bubble bursting.
Mamas, Don’t Let Your Babies Grow Up To Be Timers
Worth the read.
...when Mr. Market has been selling hard and long enough to seriously cheapen an asset, he’s buying, and when Mr. Market has a prolonged manic break, he’ll take the opposite side.
If
that’s market timing, then I too must plead guilty. Sure, I believe in the efficient market hypothesis, but that doesn’t translate into ignoring the risks and returns of asset classes
and failing to act accordingly. In the last days of the bubble, the expected equity risk premium was close to zero, and if you believe that TIPS represent a risk-free asset (some do, I don’t), the risk premium was decidedly negative. Today, the expected risk premium (ERP) is probably in the range of about 4%—the difference between the expected stock return and that of 10-year treasuries. Does the prudent investor own more stocks at an ERP of 4% than at an ERP of zero? You bet. How much more? That depends upon the mission; if it's a hedge fund, probably quite a lot.
If it’s a conservatively managed tax-sensitive account, relatively little. In other words, if you were a 65/35 person in 1999, you might be a 70/30 person now. (Except that now you’re four years older, so maybe you’ll slip right back to 65/35.)
The rub is that
"timing" is an inflammatory six-letter word—a veritable bomb in the staid world of portfolio management, and one that Mr. Bernstein threw with wonderful effect. Its spectrum stretches all the way from large and rapid changes in allocation based on things like macroeconomic parameters, relative strength, volume, sentiment, and overall gut feeling—certifiable behavior, in my opinion—to slow and relatively slight changes in allocations based on valuation and expected return. This latter strategy, involving very small and infrequent policy changes opposite large market moves, more often than not improves overall portfolio performance.
The latter concept is a bit difficult to grasp. Think of it this way:
even the most devout efficient marketeers rebalance; trimming a portfolio back to policy is nothing more, and nothing less, than a bet on mean reversion. Taking the process one step further and adjusting the policy allocation itself opposite valuation changes is merely a way of amplifying a rebalancing move—"overbalancing," if you will. .....
...
Simply put, although the individual investor will likely come to grief manipulating the selection of individual securities,
the judicious adjustment of policy allocations according to expected returns—increasing an allocation slightly when its expected return is very high, decreasing an allocation slightly when it is very low—will on average slightly enhance long-term results. This is simply an amplification of normal rebalancing.
Varying allocations—"timing," if you will—is similar to the consumption of alcohol. It can either enhance or degrade portfolio health; it all depends upon the circumstances and the quantity. When partaken in small, infrequent amounts from a concave vessel, its benefits are small but perceptible. When chugged indiscriminately, it is deadly.
