Comment by mordymoop
2 months ago
The problem is that I have been seeing some version of the “crash imminent, sell everything” thesis for my entire life. Almost nobody who “saw the crash coming” in the case of the dotcom bubble, or covid, or the subprime crisis made any money, because almost nobody gets the timing or magnitude of the crash right. You can find YouTube channels that have been warning people that a crash is imminent for the last two years. If you had been out of the market for the last two years you would have missed historical gains, and for what? The magnitude of the crash you’re protecting yourself from would now have to be impractically huge for you to come out ahead.
Much better to just stay in the market, knowing that there will be crashes and you will have days where the numbers look awful, because they’ll look great again in a few years.
Agreed this sort of advice is standard - but many people don’t follow it because it’s boring.
One way to make this sort of advice “not boring” is to apply the advice to 90% of your net worth (or cash flow), but then give yourself permission to “gamble” with the other 10%.
For me, that has fulfilled my personal interest in playing around in the markets for fun while still building/growing a traditional “safe” portfolio at the same time.
This is the way. Boring is, well, boring. Slice off some small percentage to do high risk investments with to sate your FOMO. Buy GME, sell it for Doge, and short TSLA with that pool after inhaling too much r/WSB because you want to think you're a genius.
Why do I need to get my ya-yas off gambling any part of my retirement? There is zero coherent nor compelling reason to tie your enjoyment of gambling to the size of your portfolio.
To be clear I’m not opposed to gambling. I enjoy occasionally going to the local poker room and have an established bankroll. I have plenty of fun at $1/$2 tables even though the buyin is a fraction of a fraction of my net worth. I am mildly profitable in the long run, but nobody sane would suggest I’d be better off at the $100/$200 tables even though my Vanguard balance could easily support it.
All of this advice to keep it at 10% also ignores what happens when you lose most of that. Do you restart with a new 10%? Ideally no, but that’s really unsatisfying to somebody who’s enjoying their new day trading hobby.
Honestly just save yourself the headache. Put your nest egg into index funds and find some other way to make your life exciting. Gamble with pocket change from your entertainment budget. Or maybe even just don’t.
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I remember at one point a couple years ago, I saw a thread on the Bogleheads forum where people could basically call their shot on market crashes; they would post and timestamp when they exited the market and when they re-entered, so that people could go and calculate if the timing was correct or if they lost money by missing out on market growth.
I might not have the dates correct, but I remember the general strokes of one guy who decided in like 2017 or something that the market had topped out, the crash was coming any moment now, and he sold everything and called his shot. He missed out on three years of incredible gains, and then the market absolutely _crashed_ in early 2020. He got it right, by a very small amount; he had gotten more selling his positions than he would have gotten selling in march 2020. He buys back in at what ended up being the absolute nadir of the market in like april 2020 or something. The rare success story of timing the market, you love to see it.
And then a few days later, he decides that actually, no, the market still has more to drop, and he sells again. Oh well.
> He buys back in at what ended up being the absolute nadir of the market in like april 2020 or something. The rare success story of timing the market, you love to see it.
The stock market usually goes down faster than it goes up, which makes it slightly easier (well, less difficult anyway) to time the bottoms than to time the tops.
As the saying goes: "Elevator down; escalator up."
Yes, the problem with market timing is it requires two decisions that for the marginal investor are inconsistent. That's why people who sell at a high fail to reenter at a low, and also why people who stay invested at the high remain fully invested long after prices revert to a much lower level.
This suggests the answer is... fundamental analysis, which neither camp is doing.....
This is the reason dollar-cost-averaging works. You buy less (shares) when the market is high, and more when it is low, without thinking about it and without trying to "time" your transactions (which almost always fails unless you have inside info).
It works in a sense of not timing the market. Lump sum beats dollar-cost averaging - because you have more time in market.
Sure, if you have a lump sum to start with.
But dollar-cost-averaging beats saving up a lump sum and then investing.
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Depending on the definition of “beating”. On average investing right away is better but the variance of outcomes is higher.
On average across all investors. Not so much if you invested at the peak of dot.com (would have taken decades to break even) or even the covid bubble.
If dollar-cost-averaging is so great, why don't professional asset managers use this strategy? (Hint: They don't.) I think dollar-cost-averaging is an idea promoted to non-professional investors to help them manage the psychological burden of (initial) paper losses after making an investment. Assuming that very short term stock market performance is essentially random (long term: it is not), then the day after you make an investment is roughly 50/50: Am I up or down? Recall: The human brain wants to avoid losses much more than gains.
Please everyone note that there is a long-standing and somewhat pointless argument over whether or not DCA means “regular monthly contributions” versus “taking a lump sum contribution and dividing it up into contributions over time”.
Strictly speaking time in the market beats timing in the market. If you have a lump sum, the theoretically best option is to put it into an index fund today.
Most people in most situations don’t have one lump sum to invest, so recurrent monthly contributions to retirement accounts is the way to go (and what OP here is advocating).
So what you're saying is you avoid timing the market (which doesn't work) by timing when you buy shares? What?
You buy at a regular cadence, and sometimes it's low and others it's high, but on average you do OK.
No. You invest the same amount of money at a regular cadence throughout the year. The end result is that you obtain less shares when the price is high, and more shares when the price is low. It's explicitly not timing the market.
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Dollar cost averaging does not work and has never worked. Because most assets have unlimited upside and unlimited downside. A stock or asset can go ballistic for decades like Apple or Bitcoin, or it can fall to zero value.
There are no mathematical ways of winning investing. If it was that easy, everybody would do it. You can only follow your heart and do your due diligence.
> Because most assets have unlimited upside and unlimited downside. A stock or asset can go ballistic for decades like Apple or Bitcoin, or it can fall to zero value
Spot equities and crypto have limited downside. You put in x, most you can lose is x as you observed. Unlimited downside is not a thing outside certain exotic derivatives.
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X to 0 is an interesting definition of unlimited.
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The risk of a crash is why you stay out of single stock concentration and why you avoid day trading. Its not an argument to stay out of the market.
What do you think is the root cause for this kind of thinking? It is hard-wired from childhood, or borne of (difficult) experiences?
This assumes that you are talking about the US stock market. Most other stock markets are far slower to recover from economic downturns and crises. Why? Their economies are less dynamic and their political leaders are more fearful of difficult (economic policy) changes.
Lastly: The Nikkei 225 (Japan's most important equity index) peaked in 1990, then took 30+ years to recover.
Also: Look at Mainland China since it was opened to (direct) foreign investment in the last 15 years. Overall: The Mainland China economy has grown a lot, but their stock market is a terrible place to invest.
`What do you think is the root cause for this kind of thinking?`
It's probably quite advantageous to have some individuals irrationally hedging against catastrophe--even though they are likely to be wrong, when one of them is very occasionally right the humans survive.
I assume PP means they are staying out of leveraged bets and risky individual stocks.
Generally the saw it coming crowd is just sticking it in diversified index and bond funds and doing other things.
I just always buy and never sell until the leadership and the board of the company appear to be going full retard. And not in a good way like Netflix pivoting to streaming in 2006 but like HP in 2006. Haha.
What was the last sell you did?
the last big one was BABA.
The market is people making bets on bubbles and crashes. That's how we get prices.
At any point or during any stretch of time, one of these sides will be correct.
Your point is that patience and discipline, not panic or overconfidence, are the real superpowers in investing