I got into a discussion with another person in an online forum about the housing market and he accused me of trying to “time the market.” It’s hard to figure out the truth of that accusation because it’s first necessary to agree upon terminology. Investopedia describes market timing as:
Market timing is the act of moving in and out of the market or switching between asset classes based on using predictive methods such as technical indicators or economic data.
To me that sounds more like day trading or asset management. I'm not using predictive methods, I just act a certain way when markets are high and a different way when markets are low.
The discussion was about the housing market and my contention that we’re in the midst of another inflating housing bubble. In point of fact we have been in a real estate bubble for most of the 2000s, for all but a brief time after the housing market imploded and we reached a bottom in 2012. Home prices are rising again and the bubble trend line is rising. Both 2015 and 2016 were banner years for real estate price hikes. Home prices are rising faster than wages and consumers are already stretched to the breaking point on house payments. You don’t need a crystal ball to know that asset values can’t keep inflating indefinitely. There will be a market crash and it will be a surprise.
My contention is that right now is a bad time to buying real estate. There’s never a good time to buy an owner-occupied home, possibly the worst investment in history, but there are times that are better than others. 2011-2013 was a great time to buy real estate, that’s when my wife and bought the place we’re in now at a very attractive price. We didn’t know whether the real estate market had bottomed out or not, all we knew was that we could get great value for the money we were spending. Likewise we were selling all our real estate assets in 2005 and 2006. I was not timing the market, I did not see the market collapse coming and definitely couldn’t see the credit markets locking up. All I knew at the time was something was terribly wrong with the real estate market and we could get ridiculously attractive prices for our properties.
Not Really Market Timing
What my friend on the other end of the discussion was calling market timing, I call re-balancing. Let’s take the stock market today as an example. I am not buying stocks today, I’m selling stocks in this market but not all of them. I’m still staying invested in the stock market even though I feel it’s a little expensive right now. I’m selling because prices are attractive and I want to convert some of my profits in the stock market to hard assets, in my case that’s machinery. To me there’s a wide gulf between market timing and buying assets when prices are low and selling when prices are high.
When I suggested buying gold in December of last year, when prices dropped below $1,100 an ounce, I had no idea if gold prices were headed lower and, at the time, that was quite possible. All I knew was that $1,100 an ounce was a very attractive price. Gold is still attractive today and I’d still be more likely to buy than sell precious metals.
So, is that timing the market? I guess maybe in one sense it is. I’m buying assets when others are selling and selling when others are buying. I stay invested in the market but still skim profits when prices are high and buy when equities are out of favor. Whenever I’m writing about the latest stock market crash, I’m also seeing how much free cash I have available. I don’t know where the bottom will be, but count on it that I’ll be buying all the way down and selling all the way back up.
If you want to call that “market timing” so be it. Personally, I call it making money and I’m going to keep doing that because it’s fun.