Confessons Of A Reluctant Market Timer

As we turned the corner to a new year just a few short weeks ago I have to admit to feeling a twinge of disappointment at its outset because of the outcome of the great “Fiscal Cliff”. You see I had been patiently waiting for what I thought would be a cliff dive and had my mouth almost watering at the prospect of all the stocks on my watch list that were going to be on sale due to the correction the market would go through as investors of all stripes adapted to the changes. Alas, it was not to be and I would have to continue my wait. No worries, there is always a storm on the horizon, you just never know when and where it is going to hit…

Traditionally the investor who attempts to time the market does so by trying to guess the highs and the lows. The object of this game is to ride the market to its peak and bail out before it bottoms only to repeat the cycle again. Sounds like an easy way to make some fast money right? Well, yes if you have the knack for predicting such things. I for one do not, yet I believe my behavior does reflect glimpses of what is described above. I’ll call it “strategic” market timing because anything that begins with strategic just sounds more sophisticated.

I never try to call the market highs; that just screams exercise in futility. However, I do confess to being a sucker for a good dip from time to time. Problem is you can’t reliably call a bottom either, but I do like finding attractive prices to enter a position or add to current holdings even it means I don’t quite call the exact bottom and the occasional down trend allows me to do just that. Some of my better investment choices have been made while patiently waiting for a stock to move lower. On the other side of the coin is the fact that I’ve missed many an opportunity waiting too long and the stock leaving the station without me. The great thing about opportunity is that it likes giving out second chances for those who are patient and prepared.

With that in mind let us take a look at a few stocks that I have on my wish list waiting for the moment that the market freaks out and decides to take a dive:

Intel (INTC)

Intel is the Rodney Dangerfield of stocks, it gets no respect! I waited a year to open a position in INTC and the opportunity presented itself last fall when Intel adjusted its outlook for the remainder of the year. This earnings season we see a sell off due partially because too many investors believing that INTC is being too aggressive with its CAPEX for the following “reasons”:

  • The PC is dead
  • Intel missed the mobile revolution
  • The PC is dead

Please don’t think that I’m giving too little credit to the challenges that Intel faces; I am not. However, I think we should reconsider if the worries listed above are factual or mere concerns masquerading as facts.

Here is a different approach to The PC is Dead mantra: “The PC is Transforming” or “The PC is Dead, but has been reincarnated into a second generation ultrabook“. What I’m trying to convey here is that regardless of what you think about PC sells there is one thing we can agree on: the PC experience is undergoing a rapid transformation. Will that transformation be towards tablets only or will the PC morph into something altogether different? No one really knows, but I do think The PC is Dead battle cry of the bears has everyone’s cage a little rattled.

Intel missed the mobile revolution; ok I’ll give you that one. Every company missteps from time to time, after all management is made up of humans just as likely to err as the rest of us. Let me ask you this; do you think Intel’s management doesn’t realize this and are aggressively trying to make up for lost ground? My answer is in the affirmative. True, trying to make up for lost ground is not the position of strength you would like for your company to be working from, but I believe Intel is desperately trying to make good on its miscalculation. Bottom line; if Intel drops below my last entry price of 19.50 I am a buyer of more shares.

Yum! (YUM)

How many of you have driven past a Taco Bell, Pizza Hut, or Kentucky Fried Chicken? How many of you have eaten there? If you answered yes to either question then you are familiar with Yum! Their interest to me lies not in how well I like or dislike either of these brands, not at all; it’s how much the people of China will like them, especially KFC.

There is a tremendous amount of potential in China for Yum!. Whether that potential is capitalized on is yet to be seen. With disappointing earnings in the last quarter and a PR nightmare with the quality of their chicken supplies, Yum! stock has taken a hit. I’m waiting for more of a pullback. If it drops to 60 a share I will likely open a position in Yum! and wait for that hoped for expansion in China.

Lorillard (LO)

I’ve been watching Lorillard for a while now. I missed a buying opportunity back when it dipped to the 110 share price. Since then I’ve watched it move between 115-122 for a few months now. The recent 3:1 split had me leery of making a purchase. I’ve not seen a stock split before and I wasn’t sure what to expect.

Some may think that a company that faces further scrutiny by the FDA and a large percentage of revenues coming from one particular brand reason enough to stay clear. However, LO offers a nice dividend and the potential for further price appreciation at these depressed levels. If LO drops down to the 37.80 range I would consider opening a position.

AT&T (T)

Although I sold my position in AT&T back in the fall, the recent down trend in price has me reconsidering if I would own shares of T again. With the announcement of a $10 billion charge that T will take in Q4 and talk of another merger deal possibly in the works T may continue down to a more appealing price range. Combine the above with any news that may make the overall market drop and I may get my 30.00 share price I’m wanting.

Being a market timer of any type is risky. My insistence on waiting for that perfect price has left me with many memories of stocks that ran away. Some would say that I would be better off dollar cost averaging on any of the stocks that I’m interested in owning. I would say that I’m not totally opposed to this method; I do it with my 401k contributions. However when it comes to the money I have invested in my taxable account I prefer waiting for a really good entry price. In 2011 and early 2012 I usually pulled the trigger a little too early and ran out of funds to pick up shares when they were close to their final lows. Over the last few months I’ve had better luck at getting in closer to the low I was looking for. I emphasize luck because it would be a mistake in matters of predicting future events to assume that my success was from skill alone.

The companies I have listed above are appealing to me for reasons that coincide with my goals and overall investment temperament. You should consider them as only ideas for further due diligence not as recommendations.

Is anyone else guilty of “strategic” market timing or are these lessons you learned early in your investment career to avoid? I look forward to hearing your comments.

9 thoughts on “Confessons Of A Reluctant Market Timer

  1. This looks less like Market Timing and more like a Wish List. You’ve identified a few companies you’d like to own along with entry criteria and you’re delaying a purchase until market conditions bring the company’s price to your desired range. Sounds like a prudent exercise to me.

    • I tend to agree with you Executioner, but sometimes I wonder if I’m better off going the DCA route. Short-term it seems like my approach works well, but spread out over years is there much of a difference? I’m not sure…

  2. I’m with Executioner – you’re not timing the market so much as being patient for prices you like. For the stocks you missed on the way up, maybe you missed something in setting your purchase price target that could be altered so you don’t miss other opportunities? That is to say: maybe you forgot to value the upside from a new product/service/etc that the market didn’t? Or the market could be crazy and you are right. I’m guessing it’s a combination of the two.

    • Headed Home…. I think it is more about me just waiting too long. I’m a bit too slow to react because I think something might go lower and I’m hoping to get rock bottom.

  3. I am also guilty of “strategic market timing” to a certain degree. The fiscal cliff seemed very real with all the corporations accelerating payments and paying special dividends. I had a pile of cash ready to jump on cheap stocks if it happened.

    But I also hedged my bet and bought some shares of KO a couple days before the cliff. I do not regret the strategy, but obviously I would have been better off buying more!

    I was disappointed that the fiscal cliff failed to materialize. There might be a cliff 2.0 next month however.

  4. Hi Stoic,

    you are waiting for LO to come down, me for MO. Because of the beginning dividend story and the hoard of gold its sitting on I just built up a position in Apple – part of the hoard now also belongs to me!

    Another thing I recently did was to strengthen my position in NYMT. I now own a hybrid and an agency mREIT (AGNC).

    The next black swan is always looking around the corner. And there are missed chances in investing every day. So keep on waiting! But don´t wait always for a share to meet a pre-set price. Sometimes its worth it buying it while coming close.

    • Thanks for stopping by! I’ve had my eye on Apple for the last couple of weeks as well. It’s price swing has been interesting to watch. Still not ready to take a bite of it though…

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