Should you time the market in today's world

Question

According to Rich Dad Poor Dad, I received a mixed message. While he says NOT to time the market, he also says to get into position. This is contradictory a little bit.

"As we used to say as surfers: 'There is always another wave.' People who hurry and catch a wave late usually are the ones who wipe out. Smart investors don't time the markets. If they miss a wave, they search for the next one and get themselves in position. This is hard for most investors because buying what is not popular is frightening. Timid investors are like sheep going along with the crowd. Or their greed gets them in when wise investors have already taken their profits and moved on. Wise investors buy an investment when it's not popular. They know their profits are made when they buy, not when they sell. They wait patiently. As I said, they do not time the market. Just like a surfer, they get in position for the next big swell."

The 2001 recession in the dot-com bust, home values continued to rise. This is because the recession wasn't driven by the housing market like the 2008 recession. In fact, it's the strong housing market that got us out of the 2001 recession rather quickly. Having said that, while I don't think prices will dip much nationwide, in California, they may drop up to 15% due to our local housing bubble. That can be $1000/mo in mortgage savings on certain properties. That's a lot.

The real estate agents I talk to say to buy buy buy now. But perhaps they have an agenda? Some of the podcast hosts suggest to NOT buy right now in markets that are ripe for appreciation such as SF and LA. These podcast hosts are instead buying for cash flow in other markets that are opposite of ours. They are not worried about appreciation at this time, at least not until prices dip.

So I'm trying to get an opinion of local investors. I feel that real estate agents may give a biased answer. I don't want to buy out of state at this time.

Are you guys timing the market or are you actively buying now?

Account Closed · Answer

@Paul Wolfson you should always time the market. That doesn't mean stop investing and wait for things to crash. Timing the market means adjusting your investment strategies to maximize your returns and capitalize on opportunities best for the conditions of the current market phase. Every investor I've ever met who has made serious money has taken this into consideration.

These adjustments to strategy might push you to do something very different than you are currently doing or have done before. That's not a bad part of the business to have to embrace from time to time.

Nathaniel Hovsepian · Answer

I would never try to "time the market". If you are buying at the right price, dips in the market won't matter that much.

I am a buy and hold investor primarily, so if a property is cash flowing, who cares if it drops in value by 10, 20, 30% in the short term? I know almost for certain that 30 years from now properties will be higher in value than they are today. (of course, not if we get taken over by china somehow haha).

It is the same thing with the stock market. Do you think that 10, 20, 30 years from now the Dow and S&P are going to be higher or lower than they are today?

Don't get me wrong, we will never be all in. We will always have some cash reserves ready for market dips where we can enter at better prices, but we aren't waiting around to try and time the market out and letting cash flowing properties pass us by in the meantime.

@Paul Wolfson you are in one of the toughest markets in the world being in LA. What you need to do is go out and find some deals on your own that you can get for 60 cents on the dollar or better. Then you put yourself in an excellent position no matter what the market does.

Liam B. · Answer

@Paul Wolfson if you want to wait for that 15% drop that is fine, but stack up as much cash as possible now. Change your finances around to allow you to save the most each month. Maybe you can save up to buy a property all cash out of state and not have to worry about rates and loans :)

Jeffrey Isenberg · Answer

@Paul Wolfson Of course $1,000/month cash flow is significant, but keep in mind that interest rates on investor loans are at or near historic lows and this is reflected in market pricing.

I agree with @Nathaniel Hovsepian in that if you are cash flowing, a short-term drop in value has no effect if you are not forced to sell. Even under this scenario you are still getting a return on cash flow, equity build up through amortization and tax benefits.

Say prices go up 15% before they drop 10% and then rebound. You will have already missed your market low, so timing the market is not recommended. It is important to weigh the opportunity cost of sitting out while your capital could be working for you.

Not to sound cliche, but in appreciating markets such as LA its all about "time in the market" and not "timing the market".

Scott Mac · Answer

Hi Paul,

Time the market, ride the wave correctly and get out before you even have the chance of falling (because most people who fall get eaten by sharks as tasty Seal Meat, and the Dolphins are too far out to save you--playing happily in the sun.) Dolphins have high IQ's, sharks have a primitive brain.

Good Luck!

Theresa Harris · Answer

You can't know what the market is going to do. The only thing you can do is buy smart. If the opportunity presents itself for you to sell and get a large profit that you can reinvest in something else, then do it.

Nathaniel Hovsepian · Answer

@Paul Wolfson there are some variables at play that you aren't taking into account, and probably can't take into account because we don't know what the next downturn is going to look like.

First off, what if the market falling doesn't happen until 5 years from now? You would have lost all of that cash flow in the meantime, and would have actually lost money due to inflation and your money just sitting there.

Second, why would you assume that interest rates are going to remain the same during the downturn? More than likely, the interest rate is going to rise, causing that mortgage to look very similar to what you assumed it would be at the moment.

The best thing you can do is to use a "dollar cost averaging" kind of strategy. Always be buying. That doesn't mean that you should just buy anything and everything that comes your way. Like @Jeffrey Isenberg said, you still have to be selective in what you are purchasing.

There are very few people out there that have timed the market successfully, and it may just be that they were lucky, because there are tens of thousands more that thought they were timing the market, but totally missed the mark.

Paul Wolfson · Answer

@Jeffrey Isenberg and @Nathaniel Hovsepian I totally agree that for long term appreciation, it won’t matter if I bought it during a market low or high. However, look at this from a cash flow perspective, not long term appreciation.

If I buy a 1.5 mil fourplex at 3.5%, my mortgage will be 10k/mo.

If the market falls by let’s say 15%, and I buy that same fourplex at 1.35 mil at 3.5%, my mortgage will be 9k.

That’s a $1000/mo difference in terms of cashflow. Isn’t that a big deal?

Jeffrey Isenberg · Answer

@Paul Wolfson I am both a local investor and real estate agent. If your goals are long-term buy and hold to build net worth in this market, trying to time the market is not the best strategy for a variety of reasons.

FWIW, I am still acquiring property, but more selective in searching for the best opportunities that will align with my investing plan.

Should you time the market in today's world

Should you time the market in today's world

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