Author Topic: Are the markets going to tank on Tuesday?  (Read 14573 times)

FIRE_Buckeye

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Re: Are the markets going to tank on Tuesday?
« Reply #50 on: January 21, 2016, 09:27:00 PM »
I don't agree that that's actually true.  It's a demonstrable fact that DCA performs worse than lump sum investing in roughly two thirds of attempts.  You can no more pick when DCA would be superior to lump sum than you can time the market.  Thus, your statistically best chance is always to lump sum invest.

https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf
Everyone is entitled to their opinion.
Since you're into historically significant facts, here's one. Even with the ~8% drop this year, PE ratio's are still at their second highest level ever (by a significant margin), behind only those during the tech bubble of 2000. You can call acknowledging this fact, and the risk associated with it, "guessing", but a lot of people wouldn't. What goes up usually comes down, to one degree or another. I'd much rather DCA into that then dump a lump-sum into it at the top. Just one person's opinion though.

faramund

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Re: Are the markets going to tank on Tuesday?
« Reply #51 on: January 21, 2016, 09:49:26 PM »
I don't agree that that's actually true.  It's a demonstrable fact that DCA performs worse than lump sum investing in roughly two thirds of attempts.  You can no more pick when DCA would be superior to lump sum than you can time the market.  Thus, your statistically best chance is always to lump sum invest.

https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf
Everyone is entitled to their opinion.
Since you're into historically significant facts, here's one. Even with the ~8% drop this year, PE ratio's are still at their second highest level ever (by a significant margin), behind only those during the tech bubble of 2000. You can call acknowledging this fact, and the risk associated with it, "guessing", but a lot of people wouldn't. What goes up usually comes down, to one degree or another. I'd much rather DCA into that then dump a lump-sum into it at the top. Just one person's opinion though.

From the pdf

"Even though LSIís average outperformance and
risk-adjusted returns have been greater than those
of DCA, risk-averse investors may be less concerned about averages than they are about worst-case scenarios, as well as the potential feelings of regret that would occur if a lump-sum investment were made immediately prior to a market decline. These
concerns are not unreasonable. We found that DCA performed better during market downturns, so DCA may be a logical alternative for investors who prefer some short-term downside protection."

Why do people have so much problem, with the idea that different people have different risk tolerances, and different financial positions. I have a very large risk tolerance, but I understand that other people do not, and that's fine - as long as they understand that that means, on average, they will have a lower return.

Even the pdf you quoted understands this, its whole gist is that on average.. not using DCA gives a better return, but if you want to have less chance of a worst-case scenario - DCA is appropriate.

iamlindoro

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Re: Are the markets going to tank on Tuesday?
« Reply #52 on: January 21, 2016, 10:22:53 PM »
Why do people have so much problem, with the idea that different people have different risk tolerances, and different financial positions. I have a very large risk tolerance, but I understand that other people do not, and that's fine - as long as they understand that that means, on average, they will have a lower return.

Even the pdf you quoted understands this, its whole gist is that on average.. not using DCA gives a better return, but if you want to have less chance of a worst-case scenario - DCA is appropriate.

Sorry, but I don't believe I said anything that implies I have the "problem" you appear to be attributing to me.  All I said was that statistically speaking, DCA underperforms lump sum investing.  We appear to agree on that, so I'm not sure why the lashing out.

faramund

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Re: Are the markets going to tank on Tuesday?
« Reply #53 on: January 21, 2016, 10:48:46 PM »
Why do people have so much problem, with the idea that different people have different risk tolerances, and different financial positions. I have a very large risk tolerance, but I understand that other people do not, and that's fine - as long as they understand that that means, on average, they will have a lower return.

Even the pdf you quoted understands this, its whole gist is that on average.. not using DCA gives a better return, but if you want to have less chance of a worst-case scenario - DCA is appropriate.

Sorry, but I don't believe I said anything that implies I have the "problem" you appear to be attributing to me.  All I said was that statistically speaking, DCA underperforms lump sum investing.  We appear to agree on that, so I'm not sure why the lashing out.

You are correct, I'm sorry, I didn't read your post as thoroughly as I should of, and made a misassumption about what you had said.

iamlindoro

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Re: Are the markets going to tank on Tuesday?
« Reply #54 on: January 21, 2016, 11:10:43 PM »
No worries :)  We were in violent agreement!

YoungInvestor

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Re: Are the markets going to tank on Tuesday?
« Reply #55 on: January 22, 2016, 05:35:58 AM »
To me, a p/e ratio without more information is insignificant. With risk-free interest rates below 1%, even a 5% earnings yield (that is, a p/e of 20) seems rather good, because, frankly, what else are you going to do?

It's a pet peeve of mine when people compare something to its historical average without taking the context into account.