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Timing the Market with a Small Amount of My Portfolio

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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.

Posted on June 4, 2012.

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One Response to “Timing the Market with a Small Amount of My Portfolio”

  1. contrarian says:

    Good article, Lazy. You just might want to up that cash position a bit more!

    The hardest thing for us to do is not to learn new things, rather it’s to unlearn old things.

    We have all been seduced by 30+ year debt fueled ponzi scheme. We have been brainwashed into believing this debt tower will never fall. But we (the western world) will have to pay for our sins of the past. It’s called atonement.

    When debt dies it must go somewhere, and unfortunately the way the western world is dealing with their debt problems is the equivalent extending the length of the fuse on the end of a ticking time bomb one inch longer in order to prevent the bomb from exploding. Nothing has been fixed, all our problems have simply been masked and temporarily covered over. Our financial problems may not be on the front page news today, but that doesn’t mean they’ve magically gone away. Hello, guys, have you ever swept your husband/wife problems under the carpet? How did that work out for you?

    We are now at a point in history when all our collective knowledge and experience gathered over our lifetimes about investing and saving will no longer serve as a reliable guide to the future.

    The game has totally changed so the old rules we’ve been spoon fed years no longer applies. Buying and holding equities for the long-term has served our parents and grandparents well, but that does not mean it will work for us in the next 30yrs. The asset allocation models promoted by the Wall Street and sold by financial services industry will only profit the sellers of those services in the future. Your home as an “investment” is just one of many old tried and true investment strategies that have worked for the last 30 years will not work in the next 30. Etc, etc.

    There is three reasons why you will rarely hear anyone tell you you should go to cash. 1). Investment advisers don’t get paid when go to cash. 2). Investment advisers use backward looking models to forecast the future, and their is very little historical precedent showing a benefit holding in holding cash. 3). Thanks to uncle Ben and our ZIRP policies you don’t earn anything by holding cash.

    Jim Rodgers said just recently, “Now is not a time to try and get rich, this is a time to just try and survive.” In other words, better to be concerned with the return OF your money than the return ON your money.

    For whatever it’s worth, my investment thesis comes down to this simple idea: Cash is valuable when nobody else has it.

    See, cash is not very valuable when everyone has it, and in the last 30 years thanks to easy money and easy credit everyone has had it, but when the house of cards comes tumbling down and people and institutions are forced to liquidate and sell in order to raise cash, cash will become extremely valuable — and this is when you can make money with your money. But it take patience. You must be willing to sit on your hands and do nothing with your cash and wait, which is very hard because you are doing the exact opposite of the herd. But, when the day of reckoning comes …. this is when your “investment” in cash will pay off.

    So Lazy, jumping in and out of the stock market is “market timing”, but going to cash and patently waiting to deploy it, this is a sound long-term investment strategy.

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