Results 1 to 7 of 7

Thread: Why you can't time the market #873472987987

  1. #1
    Veteran Member
    Joined
    Sep 2005
    Posts
    426
    Thanks
    0
    Thanked 9 Times in 9 Posts

    Default Why you can't time the market #873472987987

    I'm sure there were plenty who waited for Yahoo to 'Bottom out' so that they can time the buy so perfectly. They would have looked at tons of 'Technical Indicators' and Shapes. They knew about Fed Cuts, Options expiring, Global recession

    Well, the one's who were waiting lost a 50% jump in the stock price and will probably spend the rest of the year playing the would have could have should have game

    No Technical Analysis can ever predict the world.

    In the Black-Scholes Options pricing world, The chance of a 50% returns on a single day will probably happen once in Seven Thousand Quadrallion Years and the hedge funds who play in a band of price ranges would have never modeled a 50% price jump on a Yahoo stock. All the millions they made when Yahoo was trading within +10% and -10% would have gotten wiped out.

    Hedge Funds rely very heavily on a 'Normally Distributed' World, while the real world is skewed and has fat tails. Hedge Funds return obscene returns in normal years, but they lose everything in one single abnormal year (that which their model predicts will only occur once every Trillion years but in reality happens every 5 to 6 years)

    If you were a fundamental investor, you'd have been so disappointed in Yahoo's quarterly results that you'd have shorted it like crazy only to see Yahoo rise 50%

    There would have been plenty of 'brilliant' and 'smart' Wall Street investors who would have playing the classic Long Google, Short Yahoo pair investing (After all it is a universal truth that Google rocks and Yahoo sucks) and leveraged it like crazy. Well their losses also got leveraged in the past week

    Finally, remember when the US markets was closed due to MLK day and the World Market was tanking all around the place. Many 'smart' investors decided to pull out from stocks or wait in the sidelines till things got clearer. Well S&P 500 has returned 5.9% in 10 days or 212% per year since the exact day when the future looked the worst for the stock market.

    If you invest in a mix of World 1000 and World Bonds automatically, none of these matters and more importantly you don't have to worry about useless Macro economic data and useless research which really doesn't help you in any meaningful way(except to probably make wrong decisions)

  2. #2
    Veteran Member XxAmber89xX's Avatar
    Joined
    Nov 2007
    Location
    Calgary, AB
    Posts
    485
    Thanks
    43
    Thanked 72 Times in 40 Posts

    Default Re: Why you can't time the market #873472987987

    Funny. Yahoo was on my stock watchlist and has been there for almost 2 months when it first dropped below $25. One of the criteria for making my stockwatch list is that the price must be below $25. Another, is that it must be a potential takeover candidate. In each year I have invested in the stock market, I have had atleast 1 member of my portfolio taken over (not a bad average when I have only a basket of 15-25 stocks). Now, back to Yahoo. As a rule, I study companies that appear on my stock watchlist for a minimum of 6 months to get a real 'feel' for the company. Which means it was not a candidate for my portfolio.

    However, as for market timing... there are alot of opportunities to do so if you have a system in place that works.

    1. I have a 10-day rule where I make most of my purchases (75%) in the December tax-loss selling season. Since I buy mostly beaten up stocks- why not buy them when nobody wants them?

    2. My tax loss selling is done in August or September, well before this activity reaches a fever pitch in December. I sell earlier than the populace, and my sales are spared the thrashing stocks would take from the supply/demand imbalance that hits stocks in December.

    3. When a stock achieves my set 'sell target price' I usually sell 50% of my holdings. the remainder I use 'market timing'. This practice has worked to secure bigger gains and limited my risk on almost every occassion. True. Market Timing is risky, though, when my gain is secured- I can tolerate a higher degree of risk in prospect of making higher gains.

    There are truths to either side of the argument of market timing. Of course, we cannot predict when a market will reach a bottom before rebounding. And of course some opportunities will be missed out on. But, realistic and successful market timers merely attempt to manage risk- know when to handle more risk and know when to be conservative.

    My suggestions: do not become so tied up in market timing that your buying and selling becomes a knee-jerk reaction. This will lead to some costly experiences. And remember, it is psychologically difficult to 'time' the market... most failures are a failure of discipline, not a failure of market timing.
    Oh Canada, we stand on cars and freeze...

  3. #3
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Why you can't time the market #873472987987

    two issues ...

    A. Google is in the tank as a result of the Yahoo buyout offer ... hopefully you didn't own both stocks or worse yet own Google ! This M & A activity using cheaply borrowed foreign funds is a two edged sword !

    B. based on P/E ratio, new debt load, and forward growth projections after the buyout settles, it is highly probable that Microsoft + Yahoo won't be any better off after the merger than before (other than saving on payroll by firing a few thousand redundant US employees)


    In fairness, I sometimes invest in precious metal mining stocks for the sole purpose of 'cashing in big time' if and when a buyout occurs. So far I have had two big winners (Glamis Gold and Franco-Nevada), lots of small winners, and a couple of losers. I agree with you totally that these sort of high risk investments have to be addressed as 'buying lottery tickets'. However I disagree in one aspect in regard to knee-jerk ... when your high risk stock has taken a 15%-20% haircut, pull the trigger, take the loss, and don't look back. Holding on in hopes of recovery risks far greater losses in exchange for a very low probability of ever making a full recovery (adjusted for inflation).


    In regard to market timing in general, it's certainly no secret that the growth rate of this entire sector is now slowing as a result of worsening economic conditions worldwide ... and the fact that all of these companies are offering products and services that are non-essential. In an environment of declining growth rate as well as declining profitability, strategic mergers make a lot of sense.

    Also, another tidbit that is receiving zero news coverage is that Microsoft MAY have chosen to pursue Yahoo for one extremely important reason ... their huge presence and valuable connections in China.

  4. #4
    God/dess
    Joined
    Jan 2004
    Location
    Your imagination
    Posts
    2,875
    Thanks
    19
    Thanked 174 Times in 119 Posts

    Default Re: Why you can't time the market #873472987987

    regardless of how one feels about MS, they actually use money they have and carry zero debt...

  5. #5
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Why you can't time the market #873472987987

    ^^^ true they have a paper net worth of $25 billion, versus the 5 billion or so it will cost to take over Yahoo. Of course paper assets have a way of rapidly changing in value too.

  6. #6
    Veteran Member
    Joined
    Sep 2005
    Posts
    426
    Thanks
    0
    Thanked 9 Times in 9 Posts

    Default Re: Why you can't time the market #873472987987

    Quote Originally Posted by XxAmber89xX View Post
    Funny. Yahoo was on my stock watchlist and has been there for almost 2 months when it first dropped below $25. One of the criteria for making my stockwatch list is that the price must be below $25. Another, is that it must be a potential takeover candidate. In each year I have invested in the stock market, I have had atleast 1 member of my portfolio taken over (not a bad average when I have only a basket of 15-25 stocks). Now, back to Yahoo. As a rule, I study companies that appear on my stock watchlist for a minimum of 6 months to get a real 'feel' for the company. Which means it was not a candidate for my portfolio.
    Basically you are following the Value Investing approach, the only known investment style to consistently beat the S&P 500 if done diligently

    A couple of points on that

    Since Stock Prices are arbitrary (as compared to Market Cap) having a $25 price cap is also arbitrary.
    Most value investors play in the small cap and the following screening process have been proved by research to have a better track record of beating S&P 500

    * Market Cap of less than $1B (This is equivalent to your $25, but a better filtering process)
    * Ratio of Market Cap / Book < 2 (Again, equivalent to < $25 but more solid filtering)
    * Obscure (Look for companies who have no analysts following the stock. Yahoo doesn't fit this criteria, because the Market will always have better information than the individual)

    Edit: <One More criteria>
    * The stock should be beaten down for two or more consecutive years
    Last edited by xanfiles1; 02-02-2008 at 01:22 PM. Reason: Addition

  7. #7
    Veteran Member XxAmber89xX's Avatar
    Joined
    Nov 2007
    Location
    Calgary, AB
    Posts
    485
    Thanks
    43
    Thanked 72 Times in 40 Posts

    Default Re: Why you can't time the market #873472987987

    yeah it is a form of value investing... but, in all actuality we are all trying to buy value, aren't we? you'll see at times i choose to be a growth and/or a momentum investor also.

    as for the $1B market cap being a better filter... i tried it and it prevents me from taking position in med/LARGE cap turnaround candidates... FLEXTRONICS, which I bought shortly ago for only 9.01 (currently around $11-$12) is my most recent example- the manufacturer of almost anything hi-tech... X-Box, Wii, Panasonic Plasmas, etc... is something I see as worth about $28 after all this mess is sort out... and another possible t/o candidate...

    btw- flextronics was purchased as a deal offered when they took over Solectron. when converted what i paid for solectron over to how many flex shares i received, it worked out to be a commission free 9.01...
    Last edited by XxAmber89xX; 02-02-2008 at 11:42 PM. Reason: clarify Flex purchase.
    Oh Canada, we stand on cars and freeze...

Similar Threads

  1. Do you market yourself?
    By PhxRising in forum Stripping (was Stripping General)
    Replies: 7
    Last Post: 01-26-2011, 12:26 AM
  2. In the market for a new camera?
    By High_Heel_Lover in forum The Lounge
    Replies: 4
    Last Post: 04-15-2008, 08:54 PM
  3. Replies: 0
    Last Post: 03-02-2007, 04:16 PM
  4. Need Help with TAMPA Market
    By ss&b in forum Stripping (was Stripping General)
    Replies: 9
    Last Post: 02-08-2006, 12:56 PM
  5. Is there a market out there for those who are not...
    By Dee in forum Stripping (was Stripping General)
    Replies: 11
    Last Post: 03-30-2004, 12:36 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •