Someone in BIGS World FB asked this :
"It's often said that time in the market > timing market. Are there concrete studies done on this & what were the returns assumption on the non-invested capital?"
But, received no response yet!
Read? Is Time in the Market and Timing the Market mutually Exclusive??? (2)
Hmm .. okay!
No concrete studies ! Just data points of two to check on curiosity of favorite quote at personal level.
Time in the market or Timing the market?
Uncle8888's two recently traded rounds for DBS and SGX
DBS
1. Time in Market i.e. Buy and Hold for Panadols/Golden Eggs
Hold for 17 years since SARS in 2003. TSR over 17 years is 355%
2 Timing the Market
After Round 3, TSR is 344%. Buy and hold win at the current moment!
SGX
1. Time in Market i.e. Buy and Hold for Panadols/Golden Eggs
If still holding SGX, TSR over 5 years is 45%
2 Timing the Market
The initial position in SGX sold at $7.46 was split into 2 Rounds for buying back as follows
TSR for Round 5 and 6 is not much different at 41% and 46% between Time in the market and Timing the market
Personal observation over this quote : Time in the Market or Timing the Market
It is never about the Method and which one is superior!
It will always be the person behind executing the 3Ms - Method, Mind and Money Management that matters most!
Posts
Hi Uncle8888,
ReplyDeleteHmm many many studies on this leh. Maybe all too busy riding the boom in tech stocks to bother replying? Hoho!
Morningstar has been doing this for 6 years, and reporting annually. Their study is more accurate (realistic?) than Dalbar's. By 2019 what they found is the average stocks market timer loses out to long-term buy-and-hold by 0.56% annually. Not too bad lah. Kekeke.
This article more critical. It says market timers lose 2% annually. That's a big difference.
Dalbar is the granddaddy of this type of studies, for over 25 years. Their latest 2020 study shows 80% of average investors will do better by simply buy-and-hold. However Dalbar works mainly with the finance industry & has been criticised for conflict of interest. In particular, exaggerating average investor losses by applying time-weighted returns when dollar-weighted returns will be more accurate.
I've mentioned a few times that unless you're a day trader or swing trader, market timing systems main purpose is not to outperform markets, but instead to minimise drawdowns. By minimising drawdowns, the average investor is psychologically better able to stick to the plan for 20-40 years, instead of panic selling during crashes & staying out for a long time. E.g. a -25% drawdown compared to -56% during GFC. Or -15% drawdown versus -35% in March 2020.
Personally, comparing my equity portion with my wife's ... my market timing is mixed. My timing of tech etf loses to her passive in tech etf, while my timing in Asia etf has better results than her passive holding of Asia etf. Kinda confirms that for assets in strong bull, buy-and-hold will obviously win. That never stops people from trying to time the counter-trend moves in a 1-way bull (or 1-way bear) though! Humans are short-term by nature.
Think we have a mixed of both - time in the market for recurring income and growth if any and some excitement over timing the market when we get them right. Shiok!
DeleteThink I've mentioned the below method 3 years ago...
ReplyDeleteIf you trust past history & a very simple timing method: sell S&P500 if month-end is below 10-months moving average. Buy or hold S&P500 if month-end is >= 10-months moving average.
Compare to buy and hold. Simple timing method worst full year is -6% and max drawdown is -16%. Versus worst full year of -36% and max drawdown of -50%.
But look at end result as of 31 July 2020: $1.2M versus $1.1M ... only about 8%-9% difference over 27 years.