The Benefits of Market Timing

I am mostly a dividend investor who invests in ETFs that pay high dividends. However, lately I have been setting aside a portion of money to try time the market. I see the main benefit of market timing to be capital protection. If the markets go down, you want to deleverage and derisk your portfolio as fast as possible.

Basically I can detect a lot of euphoria in the market right now, and it looks like there is a bubble (in my opinion). All this reminds me of a quote from the great George Soros:

“When I see a bubble forming, I rush in to buy, adding fuel to the fire.” ~ George Soros

When a bubble forms, it is best to stay invested because this is when demand is strong, and if you are invested and highly leveraged, you will make a lot of money. The key is to monitor the markets carefully so you sell just before the market crashes. In my opinion, this is why direct property is the worst investment.

If the 2009 property crash happens again, it may takes months to sell a property, which is too late when the market is dropping. Liquidity is very important. The benefit of using shares and ETFs is that they can be sold instantly with your smartphone. You can get out quickly and cleanly.

For me market timing is about downside protection. When there is a bull market, it is best to be able to capture all the gains, so being leveraged is best. However, markets go up and down, and given all the money printing and stimulus, I feel we are highly likely to hit a massive market crash soon. I have been looking at the PE ratio of the S&P 500 throughout history and how it goes in cycles. We are reaching a stage now when the PE ratio for the S&P 500 is at historic highs.

However, you don’t know when a bubble will pop, if ever, so it’s best to be long and leveraged to capture all the profit while everyone is exuberant, but when the market goes down significantly, you need to get out before others who are leveraged start to get their margin calls, and then the losses will be transferred to the buy and holders and permabulls. It may be the case that, rather than a crash, there is massive money printing, which will lead to inflation, which may prop up the bubble but hurt the average man through higher cost of living. Because of this, it is a good idea to be invested in stocks, including gold mining and commodity stocks.

In my opinion, there is nothing wrong with market timing. Even if you make less money because you are not fully invested when the market rallies, I see market timing as an insurance policy against a massive crash that could wipe out everything. Imagine working your whole life to amass a massive portfolio of stocks and property and then when you’re old and about to retire suddenly the stock and property markets crash and you lose 70% of your wealth. Simply monitoring the markets and selling when things start to go down can prevent all that. The markets may rally right after you sell, but the opportunity cost of that, I think, is nothing compared to what you could have lost.

Exit, Voice, and Loyalty: The Elements of a Good Relationship

The quality of your relationships with others (e.g. business, family, or intimate relationships) depends on:

(1) your ability to exit the relationship (dependence is slavery),
(2) your ability to voice your preferences in the relationship (assertiveness), and
(3) your ability to be loyal should the relationship be mutually beneficial.

Comparing Yourself to Others at Work

The last week at work has been much busier than normal. It is getting tough. There is a new member of our team, and she is such a sweet girl. She’s probably 25 now. She can be quite a distraction because she and I chat quite a bit, but I enjoy it. She and I are equal in pay now, but she is seven years younger. This made me wonder about myself. I did quite well in high school and university, but in my seven or so years of work I’ve only been promoted once, which is less than average. This girl started working at the same time I did, and she studied while working whereas I didn’t work (substantially) while I studied. The way I see it, university is an investment and for some it pays off and for others it doesn’t. 

When I joined my new team area four years ago, I worked with completely different people. The people I work with now are different to the people I started working with four years ago. Basically what is happening is that I am staying where I am while people all around me are changing, which I suppose is good because it allows me to work with new people, and I love all these new people. They are better people to get along with compared to the people I used to work with, but at the same time I feel like other people are moving ahead and I am falling behind.

I shouldn’t fall into the trap of comparing myself to others. Even if I go get a promotion soon, my pay will be low compared to some people who have climbed the corporate ladder much faster than I have, and even they would be inferior compared to the billionaires of the world, so it’s important to not compare yourself to others but focus on yourself and improving yourself and being happy with what you have. I also believe that it is not so much what you earn that matters but the difference between what you earn and what you spend. Someone earning $1 million per year but has $2 million in mortgage payments, bills, alimony, and other necessary expenses will be unhappy compared to someone who earns $100k but happily lives off $10k per year.

Rather than compare myself to others, I should just keep working. I remember a quote from Ted Turner: “Early to bed, early to rise, work your butt off, and advertise.” I think the advertise part is important because I need to get into the habit of advertising myself to others, lift my profile, and apply for jobs with more responsibility.

Happy New Year 2017!

The holidays have been nice. It’s alway nice to take time off work and recharge. People often ask me if I’m travelling anywhere. This time around I am not going anywhere. I haven’t been doing much other than lounging around, relaxing, and visiting family.

During new year’s eve, at about six in the evening, I went to my dad’s house for a new year’s party. It was nice being there. I had a good chat to some of the people, but after a few hours, there was too much beer going around and people became too loud. My dad was drunk and stumbling everywhere. This has happened before during previous parties. Whenever my dad gets drunk in front of many people, it’s difficult to describe how I feel. I feel deeply ashamed and embarrassed. I just cannot believe that, when I was young, I looked up to this man. He was my father. I respected him, and it turns out he is a drunkard and a clown. He is not the sort of man I can be proud of. It just makes me so sad. Many people at this party were drinking and shouting, but I wasn’t in the mood to join in, so I left at ten, which is fairly early.

I’m trying to be true to myself more. In my twenties, I was very concerned about not offending others. I wanted to fit in. I was the nice guy. Now that I am in my thirties, I have made it a priority to try to be true to myself, to feel how I feel, to do what I want, even if it goes against the norm, even if other people in the room all think I’m a weirdo. As everyone was drunk and stupid, I simply sat there, and I even excused myself so I could sit in the lounge room by myself. When my dad walked by, I told him I was leaving.

I deliberately parked my car outside on the curb to ensure that no other car could block me. A very important lesson I have learned in life is that you must always have an easy exit plan, a way to get out of any situation if you need to. As I have always said, even more important than a plan is an exit plan.