Market timing. It gets such a bad rap… If your experience with investing has been anything remotely similar to mine, I’m sure that you’ll recall the moment when you first stumbled upon the concept of Buy and Hold Forever Investing. Whether through the channels of Dividend Growth Investing (DGI), Index Investing, or even Real Estate Investing (REI), the popular mantra out there (for the longest time) has been that market timing is a fool’s game, and that the only way to really succeed with investing is to simply Buy and Hold Forever, Dollar Cost Averaging (DCA) every step of the way…
Now before you jump to conclusions and call me a “hater”, just know that my background is no different than most anyone else’s, and I did indeed start out my own investing career executing the Buy and Hold Forever strategy. As a matter of fact, I currently still own 8 rental properties, which were all purchased with the intent to Buy and Hold Forever.
You know the drill, stop worrying about the underlying asset valuation, and just simply collect cash flow (passive income) like clockwork each and every month…
Yeah, Buy and Hold Forever definitely works… And there is certainly a time and place for it… But to assume that it’s the only way to invest?
That’s doing yourself (and your investing career) a huge disservice.
Like with everything else, there’s a time and place for Buy and Hold Forever. The entry points matter… a lot! And to suggest otherwise could be the difference between you retiring at age 35 and age 55…
So, why does market timing get such a bad rap? Well, for starters there’s just this extremely negative stigma out there towards anyone who is presumed to be trying to “outsmart” or “outfox” the markets… I guess for many investors, once you have sworn your allegiance to DGI, REI, index investing, etc., it becomes altogether dissonant to hear about someone else out there who is attempting to do something entirely different from what you are currently doing… I guess it should come as no surprise, then, that some people feel defensive when they learn about opposing strategies or philosophies that run counter to the ones that they are oh so familiar with, so the natural reaction is to find fault (criticize, attack, ridicule, belittle, etc.) with that which is considered “foreign”.
Case in point, last year I announced on this blog that I was liquidating out of my 401k and Roth IRA retirement accounts, completely selling out of general equities, and moving my money towards precious metals stocks.
As a consequence of my actions, I routinely received comments such as the following from readers:
I was just commenting on the general theme of his blog lately which was irrational fear of remaining in stock. He completely cashed everything out 100%. If that’s not an attempt at market timing I don’t know what is.
To say what I was doing was unpopular would be an understatement…
Nonetheless, it was undoubtedly the right thing to do. As I learned last year, investing is about making gains, not about being popular or liked!
With the benefit of hindsight, sure, you could make the argument that I was attempting to “time the market”… In reality, I do believe that all along, my thoughts with the gold and silver mining trade were centered around trying to leave behind a grossly overvalued asset class (S&P 500 stocks) so that I could re-deploy funds into another asset class that was operating in the Depths of Despair.
By the end of 2015, I thought that it was an absolute no-brainer to be doing what I was doing… But of course, when nobody else is really on board with your “best idea”, you feel like a lone wolf out there who might be perhaps the biggest idiot in the world…
Well, let’s now compare how those “crappy” gold and silver miners have been performing year-to-date (YTD) relative to the major indices.
Market Vectors Gold Miners ETF (GDX)
Market Vectors Junior Gold Miners ETF (GDXJ)
SPDR S&P 500 ETF Trust (SPY)
PowerShares QQQ Trust, Series 1 ETF (QQQ)
- SPDR Dow Jones Industrial Average ETF (DIA)
- GDX up 98.11%
- GDXJ up 135.2%
- SPY up 6.58%
- QQQ up 4.40%
- DIA up 5.65%
Looking back now, if you want to debate whether or not I was indeed trying to “time the market”, or just simply chasing after Deep Value, feel free to…
I really don’t think it matters much at all how you look at it…
- Market timing?
- Deep Value?
- Being a contrarian?
- Fan of opportunity?
The proof is in the pudding…
In 2016, gold and silver mining stocks have smoked just about every other investment out there by leaps and bounds… It’s not even close… We are talking about life-changing gains here folks!
And as readers know damn well by now, bottom line, I’m just an early financial independence investor. My allegiance is to financial freedom, first and foremost, so I really don’t care about all the stupid micro details that everybody else likes to nitpick about all day and night long…
And you definitely shouldn’t either!
It doesn’t matter!!!
It’s all a huge waste of time…
Check your ego at the door. Who cares if somebody thinks they are a better investor than you? I openly admit that I’m a mediocre investor all the time! I’m such a terrible investor, that if the markets didn’t continually give me wonderful buying opportunities, I know that I’d fail miserably.
In fact, I’m so bad at investing, that I should just as much admit that if you didn’t skew the risk vs. reward curve heavily towards the reward side (and I mean heavily), I would have no chance of winning at all!
So, I’ve learned to not even bother playing the game if I can’t operate with a clear-cut advantage.
Making enormous strides towards early FI… That’s the only thing you should really care about… If someone wants to accuse you of trying to “time the market”, let that be their problem.
All I know is that the markets are frequently stupid and slow to react… I’ve seen it happen time after time, again and again. There are huge distortions, and many times it takes what feels like an eternity for price discovery to eventually work itself out…
But let me be perfectly frank with readers here, the reason I was able to reach early FI at the age of 31 was because I made a series of “market timing” moves… In retrospect, these were the ABSOLUTE best investment decisions that I ever made in my life.
- Index Investing (VTSAX) in 2009.
- Real Estate Investing (Bay Area property) in 2012.
- Gold and Silver Investing (mining stocks) in 2015.
So, anyone who thinks these “market timing” windows of opportunities don’t come around very often, you’re quite mistaken.
You just have to be paying attention so that when the investment “opportunity of a lifetime” presents itself, you’ll be in the position to capitalize BIG TIME!
Without a doubt, more opportunities will open up in the future for anyone who is patient and willing to think outside the box.
I keep re-iterating this important point, but here it is again… This is how I invest:
- I ain’t a dividend growth investor.
- I ain’t a real estate investor.
- I ain’t an index fund investor.
- I ain’t a gold bug.
Just give me the best deals and I will adapt my gameplan accordingly (which is always fluid and dynamic)… Further, I don’t discriminate against passive income (cash flow, dividends), and I sure won’t hate on capital appreciation.
I love both!
Give me whichever options are currently being discounted the most by the markets, and I will gladly buy hand over fist!
Quite frankly, I think that anyone who is attempting to get to early FI at a young age would do themselves a huge favor if they learned to look at investing in this type of agnostic light… If you are truly an agnostic investor you will be able to hear the following remarks and not feel insulted, offended, defensive, or emotional in any way, shape, or form…
- Screw dividend growth investing!
- Screw real estate investing!
- Screw index investing!
- Gold and silver are nothing more than pet rocks!
If reading the above bullet points elicits any kind of emotional response from you, you’re probably a lot more “invested” in your assets than you think you are…
Waiting for That Fat Pitch
Once we know to decouple our emotions from our investments, the order of business of “waiting for the fat pitch” becomes all that much easier. For example, in 2015, I was initially operating in a state of limbo after I executed two separate cash out refis and quickly discovered that re-deploying that capital back into stocks was a losing strategy…
After all, the S&P 500 was trading at record highs (remarkably, it still is today!), and for anyone who doubts that there is any type of correlation between the broader markets and dividend growth stocks, well, look at the following chart and you be the judge…
- S&P 500 (SPY)
- Vanguard Dividend Appreciation ETF (VIG)
- Vanguard High Dividend Yield ETF (VYM)
Well, we all know to “buy low and sell high”… When it comes to investing, seriously guys, it doesn’t take more than an elementary school education to figure out if an asset class is expensive or cheap…
Look at the chart above…
Clearly, US stocks ain’t cheap today. Period.
Ditto for US real estate (in the most desirable locations).
So, I have no problem with moving on to bigger and better ideas.
After all, I’m a macro investor who focuses on The Big Picture.
Historically, every asset class goes through market cycles… Ups and downs… Every asset spends a good amount of time in both the sun and in the toilet… When you’re buying, you want to be loading up big time when an asset class has been discarded by most everyone. If you’re selling, you want to do so, under the radar, when everyone else and their grandma is interested in buying.
That’s really all that there is to investing!
I’m not interested in investing in micro stories… Experience has taught me that Big Money is made when you are out buying up entire asset classes that are hated and in liquidation.
It bears repeating, so here are my best investment decisions again.
- Index Investing (VTSAX) in 2009.
- Real Estate Investing (Bay Area property) in 2012.
- Gold and Silver Investing (mining stocks) in 2015.
Each asset class that I purchased above was done so during periods of intense despair. As a consequence, to date, I have witnessed 100%+ gains in each asset class. With index investing and real estate, I have realized those gains and booked profits.
As it pertains to mining stocks, my triple digit gains are unrealized at this time. Here’s a quick snapshot of what my current Canadian mining portfolio gains look like.
Current as of August 28, 2016.
Life-changing gains have been made already by anyone who got into the gold and silver mining space last year… And this new bull market may only just be getting started!
Anyway, I think the hardcore readers of this blog can really appreciate the angle that I’m coming from… With everything I’ve done, it’s all been well documented on this blog, particularly as everything was unfolding in real-time… I’m not one of those lame ass Captain Hindsight individuals who only shows up to talk “after the fact”, once the dust has already settled.
Hey, I’m not perfect, and I’ve definitely made a ton of mistakes investing over the years… I’m writing all this to share with readers many of the things that I have learned along the way. Again, you all know that my allegiance is to early FI, so I really have no problem with ripping on any asset class or investment…
I just try and tell it like it is…
And right now, I really need to say this — Certain asset classes are just way too frothy right now… REI, DGI, index investing… There’s just no alpha to extract from these investments, which is why I’m sitting on the sidelines, patiently waiting for better buying opportunities.
Again, I’m extremely picky and selective with my investments… Give me a “deal of a lifetime”, or I ain’t interested in playing…
I got no problem with taking my chips off the table and going home…
Most investors fail because they’re too damn impatient and feel the ridiculous need to be “fully invested in the markets at all times”…
That’s a recipe for dismal returns…
Patience, patience, patience!!!
It will pay off, my friends…
Right now, anyone out there who thinks that they can just blindly invest their hard-earned dollars into buying up overpriced assets and still achieve early FI at a young age… you’ve got another thing coming.
I really don’t know what to say to you other than “good luck” because you’re going to need it… Or a ton of capital to help you get to the top of the mountain, doing things the hard way…
If it was so easy, everyone would be in early FI right now, right?!?
Let me see if I can articulate the “waiting for a fat pitch” investment strategy this way (risk vs. reward):
- Risking 50% of your principal to chase after undervalued assets that could realistically and conceivably return 500% gains in the future is a winning proposition!
- Risking 30% of your principal to chase after overpriced assets that could realistically and conceivably return no more than 5-10% gains in the future is a losing proposition!
Right now, there’s no bigger trap in the markets than the “yield trap”… Thanks to all the intervention by Central Banks and governments across the globe (ZIRP and NIRP to infinity and beyond!), everyone is super hungry for passive income. As a consequence, you have really crappy assets that are getting bid up out of the stratosphere…
How often does buying anything at record high prices work out spectacularly well for the retail investor?
Further, anyone who wants to overpay for blue chip income stocks (regardless of price because of how “wonderful” these companies and businesses are perceived to be): Procter and Gamble (PG), Coca-Cola (KO), Pepsi (PEP), General Mills (GIS), 3M (MMM), etc., be my guest… knock yourself out.
After all, that’s the popular thing to do right now! How could it fail (*sarcasm*)?
As for myself, I’ve learned that being a lone wolf ain’t exactly too bad… The assets that I have been buying up over the last year, man, I’ve been competing with myself for shares, for the most part… Would I like more passive income? Well, since I’m no longer working a W-2 job, the answer to that question should be most obvious… ABSOLUTELY I DO! But I’m not willing to buy income producing assets at today’s prices… Hell no, I want to buy these assets up hand over fist on my terms (which you know means heavily discounted)!
Investing is all about financial freedom… It ain’t about being liked or popular… Screw that shit!
Most importantly, remember, you gotta be patient to succeed. Although it will take some time, eventually, when you finally get that fat pitch you’ve been waiting for coming down the pike, you’ll know what to do with it!
And here’s the thing with waiting for that fat pitch… The pitch you end up getting might be something that you never saw coming… But that doesn’t mean you shouldn’t swing!
In 2014, I was big on travel hacking and stumbled upon an awesome opportunity to add many American Airline (AA) miles… I signed up for 3x Citi Executive cards in a span of a few months… It was that fat pitch that presented itself to me… one that I never, ever could have anticipated for in advance… Well, just recently, I cashed in a few miles so that I could fly to HK on business class!
In 2015, gold and silver mining stocks presented a buying opportunity of a lifetime… But I’ll be the first to admit that prior to 2015, I had never, ever considered investing in precious metals at all… As far as I was concerned, that asset class didn’t even exist b/c I knew absolutely nothing about it!
So, remember to keep your eyes and ears open to opportunity… Always!
Market timing? These days, I’m taking that criticism as a compliment. Sure, if market timing lets me get to early FI at a young age, I’m all for it!