Sell Everything

So The Royal Bank of Scotland (RBS) says 2016 will be a cataclysmic year and to “sell everything except high quality bonds”.  There’s even a cute analogy, “In a crowded hall, exit doors are small.  Risks are high.”  So says RBS analyst Andrew Roberts.

“Risks are high.”  Risk is the chance for permanent loss of capital.  So are stocks going to go to zero?  The article says he sees a pullback of 10 – 20 percent for stocks.  Not exactly the craziest prediction since the stock market sees a 14% pullback once a year on average.  This isn’t ‘high risk’.  This is standard operating procedure for a healthy stock market.

It’s silly to say “Sell everything!” and this guy is catching some flak on the internet from people who manage real money for real people.  Timing the market has been revealed to be a sham and is in the same category as fad diets as far as results go.  The way to get rich with market timing is to sell a market timing strategy to people who don’t know any better.

Is RBS going to come out with a buy call later?  “Buy everything”???  This is the hard part about timing and the piece that is not obvious when we are being seduced by timing during a downturn.  When do you get back in?  Do you get in all at once or tiptoe back?  In the meantime, how much is the tax hit on the “everything” you just sold?

Along the same lines as the market timers are the perma-bears, the guys who say this is the year the market will crash.  Read this post by Josh Brown about Marc Faber, a famous perma-bear.  Somehow, Faber gets invited onto financial entertainment shows every year to tell us how this year will be just like the crash of 1987.  Eventually, we will have another big down year and this guy will make the rounds and say he called it.  A stopped clock is right twice a day.

Photo by Tambako the Jaguar