Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
Barry Ritholtz. reminds folks at all knowledge levels about market timing skills or lack of.......
Ritholtz has a way of boiling it down to some basics the average person can grasp. Not brilliant perhaps - but effective communicating some basic investment principles with a certain audience.
I’m not as opposed to timing as he seems to be. If all attempts at timing are futile, than little need to keep abreast of markets, investment trends, valuations and peaks and troughs. Hell, throw everything at the S&P and go fishing. Turn off Bloomberg & CNBC. Cancel subscription to Barron’s and the WSJ.
Timing need not be “all in” or “all out”. It can be lightening up in frothy markets. Rebalancing once or twice a year. Favoring one particular style, sector or geographic area over another. While Warren Buffett would decry “timing”, he’s been known to build huge cash positions when equity valuations are high. And, he’ll move $$ around favoring pockets of opportunity (ie railroads). So he doesn’t always walk the talk.
Pure timers are completely in or out based on signals.
On the other hand, tactical asset allocation (TAA) involves changing allocations suitably according to market assessments, and rebalancing simply adjusting to strategic/fixed asset allocation.
Pure timers are completely in or out based on signals.
On the other hand, tactical asset allocation (TAA) involves changing allocations suitably according to market assessments, and rebalancing simply adjusting to strategic/fixed asset allocation.
Makes sense. I added a 5-10% “Speculative” sleeve several months ago. It’s currently just under 8% of my holdings. Others might call that a tactical position. It’s a place where my overall assessment of where various markets are can be counted into the otherwise static allocation format. I realize this is not for everyone and all circumstances.
Thanks for posting! My favorite quote: The more they (average investors) do, the worse off their returns are. This is one of the reasons I've been slowly moving more into Allocation funds. Best of luck, Rick
And the average investor will generally give reasons why their moves are needed - not like those other average investor's. Let's be honest, we all think we can make tactical adjustments, tweaks or major moves. We are for the most part mistaken over the long haul. I think this is what Rithhotz is talking about. Isn't it?
IMO, mistakes with TAA are not disastrous. In retirement, I try to maintain 40-60% effective-equity with TAA. And I have made mistakes in these markets - should have had 60% when had 40%, and vice-versa. But still, I did OK vs pure market-timers (100% or 0% equity). I guess I could just leave it in the middle at 50% but that wouldn't be as much fun.
@yogibearbull, I think you have a very narrow view of what market timing is, 100% in or out. That is not what this interview with Barry Ritholtz is about at all. It's about the person who reacts to current news, thinking they can time-tweak their holdings to gain an extra buck. These are some of the comments Barry makes:
- making these little course corrections in you portfolio because you think you know whats going to happen next is a fools errand.
- for the vast majority of amateur investors and a significant majority of professionals, market timing is all but impossible.
- the typical mom and pop investor... for the most part, the more they do the more worst-off their returns are.
Let’s start with the assumption that the individual investor designs a portfolio (allocation model) that meets his needs and which he or she deems appropriate for his or her situation. He or she decides X amount will be allocated to fixed income; X amount to equities; X amount to commodities or alternatives or hedge funds or whatever he or she decides.
Is it the view of @MikeM that the very investor who designed the portfolio to begin with is somehow engaging in risky or foolish behavior to alter, modify or embellish his original plan based on new information or perhaps a different “playing field” than on the day he drew that plan up?
Let’s say he had 50% nominally allocated to equities before a 30% market sell-off. Would the investor not be wise to increase his equity exposure - upping the allocation to 55 or 60% afterward? Or, in the case of extraordinarily narrow high yield credit spreads developing, would it not be prudent to shift some HY holdings into investment grade bonds or cash? Should deep value or EM stocks look cheap after years of underperformance, would you fault someone who had earlier avoided them for adding some to their portfolio?
There are allocation funds, as some have observed, who do this for you. That’s a good alternative. But these tend to have very large asset bases and need to deal with ever changing inflows and outflows . Changing allocations for them is a bit like changing course for an oil tanker. The individual investor is far more nimble. Not to say one approach is better than the other - just that they are different.
Most jobs do not require more than 2-3 yrs to be very good at it, provided one has aptitude for that job.
That’s the reason I deleted the line about some of us having 50+ years investment experience. I agree it’s a non-issue. Thanks for the note.
I hope those arguing against term limits for elected offices take note of your comment. Unfortunately, we citizens confuse ability to win elections with ability or even desire to govern.
Is it the view of @MikeM that the very investor who designed the portfolio to begin with is somehow engaging in risky or foolish behavior to alter, modify or embellish his original plan based on new information or perhaps a different “playing field” than on the day he drew that plan up?
@hank, that's not my view. It's Barry Ritholtz's view and the result of almost every study conducted about individual investors making adjustments in their portfolios based on current sentiment. It's well established there is a pretty big delta between investors returns and a funds actual return. But hell, I still like to tinker. If there were a "tinkerers anonymous" group I probably should join ... along with 90% of the people here at MFO I would say. So we might as well have fun with our investments, albeit most likely at a cost for total returns over time.
TIPS are controversial. They have higher durations than Treasuries of comparable maturities, so they are hit worse from rising rates. Almost 25% of TIPS are held by the Fed, a price-insensitive buyer. And TIPS funds behave quite differently from individually held TIPS to maturity (well, other bonds do too, but TIPS more so than other bonds). There is also confusion on how the TIPS funds report 30-day SEC yield (some report only real 30-day yield, others add CPI to it).
True, I don't know of any allocation fund based on stocks and only TIPS, but there may be good reasons for that.
Many TDFs do include TIPS. Vanguard TDFs switched from IT-TIPS (too volatile) to ST-TIPS (to capture most of the inflation effects) years ago.
Question: is rebalancing the same as tinkering? I feel it is not, but along with diversification, part of fundamental portfolio management. Best of luck, Rick
Question: is rebalancing the same as tinkering? I feel it is not, but along with diversification, part of fundamental portfolio management. Best of luck, Rick
I don't consider rebalancing to be tinkering. Rebalancing is a strategy implemented to control overall portfolio risk. An investor may have a target allocation of 60% equities / 40% bonds. After equities appreciated, the investor would sell equities and purchase bonds to return to the target allocation (assuming rebalancing threshold is reached). Outside of major market events, portfolios usually shouldn't be rebalanced too often - maybe annually or biennially.
Comments
The Ritholtz Wealth Management gang produces some useful content.
A Wealth of Common Sense
The Big Picture
Of Dollars and Data
The Irrelevant Investor
I’m not as opposed to timing as he seems to be. If all attempts at timing are futile, than little need to keep abreast of markets, investment trends, valuations and peaks and troughs. Hell, throw everything at the S&P and go fishing. Turn off Bloomberg & CNBC. Cancel subscription to Barron’s and the WSJ.
Timing need not be “all in” or “all out”. It can be lightening up in frothy markets. Rebalancing once or twice a year. Favoring one particular style, sector or geographic area over another. While Warren Buffett would decry “timing”, he’s been known to build huge cash positions when equity valuations are high. And, he’ll move $$ around favoring pockets of opportunity (ie railroads). So he doesn’t always walk the talk.
My 2 cents worth.
On the other hand, tactical asset allocation (TAA) involves changing allocations suitably according to market assessments, and rebalancing simply adjusting to strategic/fixed asset allocation.
Thank you @yogibearbull
Makes sense. I added a 5-10% “Speculative” sleeve several months ago. It’s currently just under 8% of my holdings. Others might call that a tactical position. It’s a place where my overall assessment of where various markets are can be counted into the otherwise static allocation format. I realize this is not for everyone and all circumstances.
Best of luck,
Rick
- making these little course corrections in you portfolio because you think you know whats going to happen next is a fools errand.
- for the vast majority of amateur investors and a significant majority of professionals, market timing is all but impossible.
- the typical mom and pop investor... for the most part, the more they do the more worst-off their returns are.
Those were his words paraphrased a bit.
Is it the view of @MikeM that the very investor who designed the portfolio to begin with is somehow engaging in risky or foolish behavior to alter, modify or embellish his original plan based on new information or perhaps a different “playing field” than on the day he drew that plan up?
Let’s say he had 50% nominally allocated to equities before a 30% market sell-off. Would the investor not be wise to increase his equity exposure - upping the allocation to 55 or 60% afterward? Or, in the case of extraordinarily narrow high yield credit spreads developing, would it not be prudent to shift some HY holdings into investment grade bonds or cash? Should deep value or EM stocks look cheap after years of underperformance, would you fault someone who had earlier avoided them for adding some to their portfolio?
There are allocation funds, as some have observed, who do this for you. That’s a good alternative. But these tend to have very large asset bases and need to deal with ever changing inflows and outflows . Changing allocations for them is a bit like changing course for an oil tanker. The individual investor is far more nimble. Not to say one approach is better than the other - just that they are different.
Byron Wien's Ten surprises for 2022 -
https://www.yahoo.com/now/byron-wien-joe-zidle-announce-170000559.html
Tinkering has gotten such a bad name, I’m inclined to avoid those threads in the future that ask “What recent moves have you made or considered?”
Maybe stay “in the closet” …
True, I don't know of any allocation fund based on stocks and only TIPS, but there may be good reasons for that.
Many TDFs do include TIPS. Vanguard TDFs switched from IT-TIPS (too volatile) to ST-TIPS (to capture most of the inflation effects) years ago.
I feel it is not, but along with diversification, part of fundamental portfolio management.
Best of luck,
Rick
I don't consider rebalancing to be tinkering.
Rebalancing is a strategy implemented to control overall portfolio risk.
An investor may have a target allocation of 60% equities / 40% bonds.
After equities appreciated, the investor would sell equities and purchase bonds
to return to the target allocation (assuming rebalancing threshold is reached).
Outside of major market events, portfolios usually shouldn't be rebalanced too often -
maybe annually or biennially.