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sure by low and sell high is a goal but usually it fails to produce the results you expect because the trend is your friend. an object in motion stays in motion until it finally hits something .
buy high and sell higher has made way more money for investors.
back in 2008 many folks trying to buy low felt low was when we fell 2000 points.
so they bought in and ended up trying to catch a falling knife as we fell another 4000 points.
many bailed out and lost money or triggering stop losses .
on the other hand the odds of making money and not being the last guy on the line in an up trend are pretty good.
rebalancing when things are down is fine but trying to predict the bottom for a buying spree is usually not going to pan out for a number of reasons.
if you want to take advantage of dips just rebalance or do value dollar cost averaging . but if you think you are going to sit on the sideline and plunk money in at just the right time you will find it isn't going to work as well as you think.
markets are down only 1/3 of the time and up 2/3's so the deck is stacked against you and odds are you will give up more waiting then you get in return for that waiting.
simple example illustrates this point. (We'll ignore the effect of compounding to keep the math simple.) An investor has a choice between:
A one-year CD yielding 1 percent
A two-year CD yielding 2 percent
Because of the fear of rising rates, he bought the one-year CD, and it turns out he was right about rates. The rate on a one-year CD increased 1.5 percentage points to 2.5 percent. Was he better off? If he had bought the two-year CD, he would have earned total interest of 4 percent. By investing in two consecutive one-year CDs, he earned 3.5 percent.
usually those who wait could buy in 25% cheaper but they would have given up more than that by waiting for that opportunity.
back in 2008 many folks trying to buy low felt low was when we fell 2000 points.
so they bought in and ended up trying to catch a falling knife as we fell another 4000 points.
I just kept buying as it fell, then kept buying as it climbed, and I'll keep buying when it falls/rises in the future. My returns have been outstanding just keeping the course and not getting emotional about what the market is doing.
Hey, thanks Mathjak for the explanation (I tried to rep you but ran into some "technical difficulties" with my computer that decided right then would be a good time to restart for updates.) Not sure if you got the rep or not (although it says I can't rep you again).
I am in an bit of an unfortunate situation where in a month, I will have to "plunk money" into the market. I am cashing out an Roth IRA annuity and putting it into a mutual fund. I am waiting a month because, while I will take a 10% penalty, it will be less of one. I don't think I have a lot of time to hold on to the cash before I have to reinvest it (60 days I believe... it's confusing because, while it's a Roth, I haven't had the account for more than 5 years). I keep thinking I will figure it all out close to the date I roll things over, but time is getting short so I need to figure it all out soon.
I just kept buying as it fell, then kept buying as it climbed, and I'll keep buying when it falls/rises in the future. My returns have been outstanding just keeping the course and not getting emotional about what the market is doing.
Ok, I'll expose my lack of experience, knowledge etc..
I have a small amount in stock, a lot sitting on the side. My goal is to buy dividend stock for cash flow in retirement a few years off. I'm not trying to time but don't want to buy too pricey. Right now I'm in the negative but holding (DIS, BX, played a little with BRK.B although no dividend). I haven't been watching because I get too tempted to bail if it goes down. But now someone posted...
Quote:
"that is the mistake investors make who think because a stock pays them a piece of their own share value as a dividend that being down doesn't count."
Ok, I'll expose my lack of experience, knowledge etc..
I have a small amount in stock, a lot sitting on the side. My goal is to buy dividend stock for cash flow in retirement a few years off. I'm not trying to time but don't want to buy too pricey. Right now I'm in the negative but holding (DIS, BX, played a little with BRK.B although no dividend). I haven't been watching because I get too tempted to bail if it goes down. But now someone posted...
"that is the mistake investors make who think because a stock pays them a piece of their own share value as a dividend that being down doesn't count."
It makes sense. Oh xxxx
I agree that for a single snapshot in time (market opening of the day that a stock goes ex-dividend), your share value is reduced by the exact amount of the dividend. But it is not set in stone that it is always going to be lower priced due to the dividend.
Once the trading starts, it goes to what someone else is willing to pay you for your stock. And people like dividend stocks at this point in time. So with a popular dividend paying company, you may get your dividend and the stock may hold it's value.
To me, dividends are are not a big point when I am buying a stock as I am looking for capital appreciation. But if I can get both, it is like frosting on the cake.
actually no ,it has nothing todo with the value at a point in time.
What you need to understand about dividends is all compounding is based on your total value at the start of the gate each quarter. if you have 100 bucks invested then it is 100 bucks that gets compounded on.
exchange computers reduce the stock automatically before the open to adjust for the dividend. those are the sec rules. your value invested is the same as it was when you went to sleep ASSUMING YOU REINVESTED THE DIVIDEND. you just have more shares at a lessor price making up that value .
If you had 100 bucks in value the night before the adjustment the next morning at the open if the dividend is reinvested you have pretty much the same dollar value invested as you had the night before.
if you didn't reinvest you have a dividend in pocket and a lower value starting out compounding at the start of the new quarter.
Compounding does not care if it is less shares /higher price or more shares / lower price. all the quarters compounding is on that 100 bucks you started the quarter with .
the markets action the next quarter will compound gains or produce losses all based on that total dollar value invested . that dollar value is the same amount in both cases ex: a 5% gain for the quarter on 100 bucks does not care if it is 2% in reinvested dividends and 4% capital appreciation or all 6% capital appreciation. all that matters is the dollar amount it started compounding off of.
Last edited by mathjak107; 06-09-2015 at 02:13 PM..
But we know stocks are only up due to people's stupidity. It's not about fundamentals that generated the cycle up. This is really just about profiting on people's stupidity.
Is next week when everyone in the US is scheduled to stop being stupid?
they may chose to switch assets in your example but they were just as down in either case.
in another example if you sold VTI at a loss and bought SPY and road it back up it would make makes no difference than if you sat with VTI and rode it back up.
selling and buying another asset is irrelevant to whether you have a gain or loss at any given time.
...
Preventing inevitable erosion of your holdings in a fast moving bear market is what stop loss orders are for, if I understand them correctly. My read is that THIS was OP's concern - how do you stop the bleeding.
If that was the concern, here are my two cents:
You can do stop loss orders with stocks and with ETFs, which are traded like stocks. Mutual funds are too illiquid, they only calculate Net Asset Values at the end of the trading day. In a fast-moving market, your stop loss price for a fund may have been passed at 1 PM and you are SOL. In such a scenario, with active stop loss orders on your ETFs, you lose (say) 15% on your portfolio ( which is now sitting in a money market fund) where others may lose 37%. IIRC, 37% is one number that describes the broad equity decline over the Great Recession.
If prices go down to your 15% loss trigger point, the stop loss orders kick in (hopefully you have a brokerage where this is automated) and brokerage sells your positions. They plop the proceeds into a money market account. A money market acct rarely declines in price. One share = $1.
In today's environment, IMHO, it IS soothing to contain your loss to 15% (or wherever you choose - don't make it too small a number, otherwise your shares are sold during the course of normal volatility, makes unnecessary work, and it's a pain to pay transaction fees you did not intend to pay).
Assuming you have a gut toughened up with decades of bad coffee, you can trade those stable money market shares back into the equity or ETF of your choice at the "right time" and ride it back up. Many posters on C-D and on Bogleheads believe you cannot time market entry points. They advocate riding it out all-in, nerve-wracking though it may be. Rationale: biggest upward moves occur over the course of a couple of days. I don't watch my holdings like a hawk, and I'd likely miss some portion of the ride back up, so I go with this philosophy. Although I do feel like a dullard at times for doing it.
Difference between taking a 37% loss (as in 2008) and a 15% loss is substantial. At least your 15% loss is not turning into a 37% loss while-u-wait (because it's in a stable money market acct). As noted, I have other things to do with my time (earn-zee-paycheck) (read and hike) and cannot be glued to a stock screen. If things are moving too fast for me to catch, oh well. I'll take a look during lunch tomorrow. I like to think I have a robust asset allocation that will provide a degree of stability. Pride goeth before a fall.
For REAL pros, such an attitude is an inexcusable defalcation in fiduciary responsibility to self, lol! And in truth, given my five year planning horizon, I could get caught flat-footed. OTOH, the PPT (plunge protection team) has interests that are aligned with mine and yours. They'd start injecting confidence like mad, and they do have investment banking arms.
Best wishes, I am no x-pert and certainly don't work in this arena: this is my layman's understanding.
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