Why "Stay the Course" Doesn't Work Anymore (borrow, buy, sell)
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But this money manager says that's actually a bad idea. He pulled out of the stock market last October ... is arguing that the common refrain "stay the course" where people are advised to hold on to stocks over the long term doesn't work anymore.
That increased market volatility and market leverage (where people borrow instead of paying cash for stocks) creates situations where you can lose your market value literally over night. Since it can take years for a portfolio to recover it's value, this is the reason why "stay the course" doesn't work anymore.
But this money manager says that's actually a bad idea. He pulled out of the stock market last October ... is arguing that the common refrain "stay the course" where people are advised to hold on to stocks over the long term doesn't work anymore.
That increased market volatility and market leverage (where people borrow instead of paying cash for stocks) creates situations where you can lose your market value literally over night. Since it can take years for a portfolio to recover it's value, this is the reason why "stay the course" doesn't work anymore.
Lets see, on one hand I can DCA into a portfolio of low cost, diversified mutual funds and have an excellent proven system that will outperform the majority of mutual funds over the long term (recommended by the likes of Bogle, noble award winners, lynch, buffett & countless others)
OR
I can follow a mutual fund manager's newsletter who made a lucky timing bet w/one of his predictions? (he pulled out of oil stocks at the wrong time).
nahhh, I'll stick to option #1.
Oh, and by the way, I'd like for him to give me his prediction w/100% certainty on where the dow, nasdaq, & s&P will be at the end of the year.....
And its amazing that some naive people will now pour money into thinking ALL his predictions will come true now....
To me, this is one of the greatest myths of all. Has it occurred to anyone that maybe this is all these other investment counselors can say at a time like this?
If the stock market drops 20-30 percent and your portfolio does the same (which definitely seems possible in this bear market where the market has already dropped more than 10 percent just this month alone, 15 percent since October) ...
And you're having to wait for that 20-30 percent to recover ... you're already losing.
Isn't one of the major points of investing hedging against inflation? The inflation hedge completely disappears when you're having to wait years to recover 20-30 percent of your portfolio.
You're also missing opportunities to buy stocks A LOT cheaper. So you're losing big opportunities there as well.
The key, of course, is to sell BEFORE the market takes a nose dive ... not during the nose dive.
I'm sure this guy has gotten some stuff wrong but at least he didn't get this wrong. Overall, I have to agree that stay the course doesn't work anymore, which is why I got out of stocks last summer.
If the stock market drops 20-30 percent and your portfolio does the same (which definitely seems possible in this bear market where the market has already dropped more than 10 percent just this month alone, 15 percent since October)
If you have a proper stock/bond allocation and your equity holdings are properly diversified, and you are in it for the long term, then this has happened before...REMEMBER 9/11? If you tried to time the market then, then you lost out big time. Again, the smart money didn't panic and are richer for it.
Isn't one of the major points of investing hedging against inflation? The inflation hedge completely disappears when you're having to wait years to recover 20-30 percent of your portfolio.
Quote:
Originally Posted by sheri257
You're also missing opportunities to buy stocks A LOT cheaper. So you're losing big opportunities there as well. The key, of course, is to sell BEFORE the market takes a nose dive ... not during the nose dive.
LOL, what makes you think your smarter than those rich guys on Wall st who can't even beat their own benchmarks?....No ones crystal ball is clear enough to time the market on a consistent basis.
Quote:
Originally Posted by sheri257
I'm sure this guy has gotten some stuff wrong but at least he didn't get this wrong. Overall, I have to agree that stay the course doesn't work anymore, which is why I got out of stocks last summer.
Again, I don't know what the market will bring tomorrow or the next day and neither do you w/100% certainty. You can bet on this guy in the future if you want and roll the dice.
I'll just stick to a PROVEN method of buy and holding low cost funds (w/yearly rebalancing) tailored to my AA. Which outperform a majority of mutual funds over the long term. I already have done well because I've stuck to this plan and have filtered out the so called "noise" that you are advocating.
We have been investing and tracking since around the early 80s. Started with less than $100,000, way less and now have increased the porfolio to over $2 million. Constant saving, asset allocation, and all the conservative methods.
We survived the 86/87 crash time, the 90s, the 2001 decline and all the inbetween. We have earned as high as 30% and lost as much as 10% per year. But the trend has stayed true and we have survived. The only problem we had was once we listened to the market and bought into some highly thought of tech stocks and lost all of that investment. But it was only a small position in our whole portfolio and a valuable lesson.
I wish the market was more stable but when speculation and emotion rule the day, there will be wild swings.
We took advantage of the maximum of all tax deferred accounts but also saved about as much outside so we could balance the possible tax effects.
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