In a sea of personal finance books it is nice to see something a bit different once in a while and I was nicely surprised when I was recently sent a copy of a new one called Juggling Dynamite by Danielle Park.
Danielle first breaks us of our concept of risk. She lays out how many of us are juggling dynamite and we don’t know it. We talk of risk tolerance, but unless you have lived through a major market down turn it is really hard to know how you will react. The plan seems good when the good times are rolling along, but the drop off is very painful and many people can’t follow through with the buy and hold method. Actually the drop off is typically so painful that she suggests a bit of different idea, we should time the market a bit.
Let me first put of the truce flag. She is not suggesting any as silly as day trading, but rather timing the market to the larger cycle that occurs approximately every five years. When the world is hitting record highs everyday and people are getting leveraged in to get even more gains, it is logically good idea to pull back to cash holdings and wait for the drop. Once the drop has occurred, you go in and pickup some of bargains. So how do we know when you hit the top or the bottom? You don’t. You just accept your choice and realize it is always better to sell a bit early and buy in a bit late. You make less, but you still make money. The trick of coarse is having a strong enough conviction to wait years in some cases for the market to drop back down.
To make our choices easier she suggests sticking to Exchange Traded Funds (EFT) and index funds to provide easy access to sectors and geography of the world markets without getting pulled into the game of picking individual stocks which is a losing game for most of us mortals.
Last but not least she provides a rare glimpse into the mind set of someone like myself who realizes true wealth is not your balance sheet, but rather the ability to have the freedom to do what is right for you regardless of what others think.
Overall the book was well written with some interesting insights into how investors think. I would suggest you pick up a copy if nothing else to see her interesting ideas on market timing. For more information check out her blog and the publisher's website.
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3 comments:
Thanks for the review. I'll check it out but I have a feeling I won't like it.
I'll grant that people's risk perception varies depending on market conditions. But market timing is a silly idea. When markets are hitting new highs, you might sit it out and the market may never hit that point again. Or it may hit new highs and plateau for a long time allowing valuations to catch up. The point is it is silly to suggest timing when all the evidence suggests nobody does it successfully.
CC,
But what happens if you pull out of the market before the worst of the low? Then you only need to capture a small portion of the upswing to make up your what you missed in 'gains' previously.
I don't think I'll be doing market timing myself today or anything, but it is an idea to look into a bit.
CD
Thanks for the book review CD. I appreciate your open minded comments. You have captured my message well. People who reject any effort at timing and buy whenever they happen to have money are unfortunately setting themselves up for a rough ride. The sales industry will aid and abet their pain. More critical thought and education are key to lasting gains. Remember its not what the market does that counts, its what the investor keeps. Best regards to you, DP,
author of Juggling Dynamite
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