A few months ago, I decided to pull out some of my investments and put them in cash. My feeling was that with between the high national debt, low interest rates, and quantitative easing that the government has done all it can to boost the economy. To some degree it worked, as the Dow was got to around 13,500 when I started to get nervous and pull some money out.
I only sold off about 10% of my portfolio, most of it invested in Vanguard's Total Index fund (VTI). However, when it came time to put in Roth IRA and SEP-IRA money to work in April, I decided not to. That added more money sitting on the sidelines. Now that the Dow has pulled back to around 12,000, I'm wondering if it is starting to be the right time to get back in.
I'm starting to see a few buying opportunities around. Google (GOOG) has been trading above $600 for almost all of the last 6 months. It is currently at $575. However, as recently as last October it was as low as $500.
If this sounds like trying to time the market, you catch on fast. You can listen to many investment gurus who will tell you that you can't time the market. However, these seem to be the same investment gurus who claim that you'll 8-10% a year in stocks, which hasn't exactly panned out over the last 10-12 years. Is it possible that globalization has changed the game? I'm saying yes. I think it is hard to apply data from growth in the 1970's to today's market.
This doesn't mean that I'm going to sell off my entire portfolio when equities appear expensive and try to buy in at a lower rate. It means that I'm going to use a small part of my portfolio to try to lock in gains when I feel I have them and buy into the market when it looks like it is near a low.
The problem with this strategy for me comes into play when trying to figure out what is a buying opportunity. For example, watching the Dow come back down to 12,000 is looking like a good sign to get in now, but what if all the concerns that I mentioned above come into play and we see a drop to 7000 or 8000 like we did with the bank collapse in 2008. I would be pouring in my cash reserves at 11000, 10000, 9000, etc. dollar cost averaging the whole way down. By the time I was done, I'd probably have an average price of 10,500 with this portion of my portfolio. It could take awhile for a recovery to bring a Dow 8000 back to 10500. As bad as that seems, it would be better than putting all my money in at Dow 13500 and waiting for that.
In the end, any way you look at it, it's a guessing game. I'm a big believer in regressing to the norm, and I feel that guessing that markets at lows will go up and the those at highs will go down seems right. Perhaps this will help me make a little money if the market trades sideways as it has for quite a long time.
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