Market Timing

Should I sell out stock positions with the anticipation of a market drop to buy back? SPOILER ALERT .... don't do it!

An excerpt of a commentary written by Howard Marks in his essay “selling out” from January 2022:

“…. what about the idea of selling because you think a temporary dip lies ahead that will affect one of your holdings or the whole market? There are real problems with this approach:

• Why sell something you think has a positive long-term future to prepare for a dip you expect to be temporary?
• Doing so introduces one more way to be wrong (of which there are so many), since the decline might not occur.
• Charlie Munger, vice chairman of Berkshire Hathaway, points out that selling for market-timing purposes actually gives an investor two ways to be wrong: the decline may or may not occur, and if it does, you’ll have to figure out when the time is right to go back in.
• Or maybe it’s three ways, because once you sell, you also have to decide what to do with the proceeds while you wait until the dip occurs and the time comes to get back in.
• People who avoid declines by selling too often may revel in their brilliance and fail to reinstate their positions at the resulting lows. Thus, even sellers who were right can fail to accomplish anything of lasting value.
• Lastly, what if you’re wrong and there is no dip? In that case, you’ll miss out on the ensuing gains and either never get back in or do so at higher prices.

So it’s generally not a good idea to sell for purposes of market timing. There are very few occasions to do so profitably and very few people who possess the skill needed to take advantage of these opportunities….”

In summary, have a high conviction portfolio and do not try to time the short term market volatility!

https://www.oaktreecapital.com/insights/memo/selling-out