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Hello everyone. Its my first time posting on this thread, and after reading through the whole thing I have a couple questions.
It seems there are two main topics. One is trying to time the market, and two what to invest in. My question revolves more around the timing aspect.
I've been thinking about parameters based on metrics to remove any remaining emotion in making "rebalancing" decisions. Say you sold off when the market is up a certain percentage or reached new highs. And then you started to buy on the way down once the market is off 15-20 percent.
The reason I ask is I got lucky earlier this year. I had extra cash to invest. I started buying index funds around DJIA 25000. As the market went down, I bought more around 22500. When it kept going down, I bought more (the rest of my extra cash) around 20000.
I just sold a third of that cash I invested yesterday. If the index goes down 15-20 percent I start buying again. If it goes up, I sell more. In the meantime the cash will be invested in bond mutuals or etfs.
Can you please give me your thoughts on a system such as this?
Can you please give me your thoughts on a system such as this?
The presumption among most of us, is that the market goes up, most of the time. Your strategy would be sensible in oscillatory conditions. So for example if you were investing in a cyclical thing like the weather, where you gained money when it’s warm and lost money when it’s cold, then you’d sell your shares in mid-summer, stay in cash, and buy back into the market in mid-winter… because the weather oscillates annually (never mind the day-to-day perturbations) but stays more or less constant perennially.
If we believe that the stock market will be higher in 10 years, than it is today, and higher yet in 20 years, and so on, then an attempt to capture the oscillations, will be inferior, to the perhaps stolid and bovine buy-and-hold.
The trouble arises when someone is lucky. If the other day I drove drunk, 30 mph over the speed limit, and nothing bad happened, then I’m likely to overestimate my prowess, extrapolating to the general, from the specific. This is dangerous. And this is why at least in a mainstream setting you are likely to meet with skepticism, when proposing a strategy such as yous.
The presumption among most of us, is that the market goes up, most of the time. Your strategy would be sensible in oscillatory conditions. So for example if you were investing in a cyclical thing like the weather, where you gained money when it’s warm and lost money when it’s cold, then you’d sell your shares in mid-summer, stay in cash, and buy back into the market in mid-winter… because the weather oscillates annually (never mind the day-to-day perturbations) but stays more or less constant perennially.
If we believe that the stock market will be higher in 10 years, than it is today, and higher yet in 20 years, and so on, then an attempt to capture the oscillations, will be inferior, to the perhaps stolid and bovine buy-and-hold.
The trouble arises when someone is lucky. If the other day I drove drunk, 30 mph over the speed limit, and nothing bad happened, then I’m likely to overestimate my prowess, extrapolating to the general, from the specific. This is dangerous. And this is why at least in a mainstream setting you are likely to meet with skepticism, when proposing a strategy such as yous.
I've thought about this strategy doing better in times of volatility, like now. And I'm not talking about pulling everything out or putting everything in. In my own IRA, I've been keeping around 60/40, and the only timing is when I rebalance. I will have to run some numbers trying to take into account varying scenarios to see if trying to utilize this method could prove viable.
Plus while I agree its hard to outperform the market over time, I'm not so sure I agree with the presumption that it goes up most of the time. It goes up a lot, it goes down a lot. I'm trying to capture a little more return by buying on the way down, and selling on the way up. I might not capture the acme or the bottom of the trough, but I would, in general be buying lower and selling higher than simply dollar cost averaging.
I guess I'm only trying to drive 5 or 10 mph over without being drunk Is the possibility of a ticket worth getting to the destination faster. It feels more like that to me.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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@DannoCO
Very difficult to time Indexes other than gross cycles and obvious crisis points. But you gotta be guessing correctly. A bad guess, is very bad.
I do have OGIG as an Index/ETF but it is a very focused Index (Cloud related), limited number of stocks, and relatively easy to guess direction.
I trade in discretionary accounts. It's an expensive hobby that is replacing Travel in my old age and CoVid isolation.
Last edited by leastprime; 11-18-2020 at 06:27 PM..
I don't foresee it being a situation when there will be 12 people at a house, the cops come in and do a count and then issue a fine. I see it more of a situation where some college kids throw a party with 50+ people, the cops are called because of a noise disturbance, and then it that scenario fines are issued.
If the cops knock on my door I would simply refuse to let them in.
Absent of a law you've broke, how would they issue a fine?
Dollar cost averaging is actually the worst way to do things ..since stocks are up 67% of the time and down only one third you would need some pretty dramatic timing to come out better .
If dollar cost averaging worked better , every investor would reach their desired allocation, sell everything and start from zero all over again...you can see the results would not be good .
Don’t believe for a second that averaging in outperforms lump sum as a general statement
Mathjak - If most investors were as interested and conscientious as you, I would agree with you 100%. But, they aren't. Many people want to Set It And Forget It. For them, DCA is the best option rather than panicking during a steep market crash.
Mathjak - If most investors were as interested and conscientious as you, I would agree with you 100%. But, they aren't. Many people want to Set It And Forget It. For them, DCA is the best option rather than panicking during a steep market crash.
that is a different reason totally .
dca is the worst way to invest compared to lump sum ..it is the same as those who are long term investors yet they mitigate short term dips which are temporary with bonds and permanently hurt their long term results .
mentally people do things which from a financial stand point that show not the best logic or results WHEN THEY HAVE CHOICES TO DO THINGS DIFFERENTLY.
once the nervous nellies are invested they are invested , the fact the used dollar cost averaging in is irrelevant when what they already invested is taking a beating .
being on the 401k committee at work i saw what many employees did in 2008 as they ran for the hills and many did not come back for years. the new money they may be putting in over the future had nothing to do with the old money that was in suffering steep losses .
most have to dca from pay check to pay check but the fact is over time target funds work worse that way then non target funds because the glide path is reducing equities at the same time share prices rise over time making you far more conservative than the fund is designed to be if lump sum was used .
since people all put different amounts in there is no way to design a target fund glide path for dca'ing
Last edited by mathjak107; 11-22-2020 at 07:50 AM..
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Is the possibility of a ticket worth getting to the destination faster. It feels more like that to me.
