Author Topic: Be Greedy When Others Are Fearful?  (Read 11458 times)

hownowbrowncow

  • 5 O'Clock Shadow
  • *
  • Posts: 92
Be Greedy When Others Are Fearful?
« on: February 05, 2014, 10:05:20 PM »
So this dip in the market the past couple weeks is making me rethink some of my plans...

I have been throwing any extra money at my student loan just to be free and clear of debt but now I'm thinking I can slow down a little?  I was able to consolidate my loans and get my rate from 6.55% to 3.91% a month ago.  I started with over $70k in early 2013 and now I'm at $6.9k so 90% done.

Anyway for Feb I will have about a $4200 surplus that was going to all go to my loan but maybe I should put it in my rollover IRA instead? Go 50% 50%?  Keep hammering away at the loan?

Thanks!

Khan

  • Pencil Stache
  • ****
  • Posts: 616
Re: Be Greedy When Others Are Fearful?
« Reply #1 on: February 05, 2014, 11:14:03 PM »
You have ~7k at <4%. Yeah, you can cut back a bit on paying it off, and start building up a solid stash instead.

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5444
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Be Greedy When Others Are Fearful?
« Reply #2 on: February 06, 2014, 05:16:43 AM »
^ +1 if you have some dry powder in the keg i would add to the market since its down 7%. Now i will get crap for this from some others on here but the trend right now is down and I am a DCA guy. So maybe save a little of your powder in case it pulls back another 3% or so and if not then apply it to your loan.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 36
  • Location: Missouri
Re: Be Greedy When Others Are Fearful?
« Reply #3 on: February 06, 2014, 06:14:10 AM »
There are several fantastic dividend stocks on sale, once I get my IRA funded here in the next week I'll be taking advantage of this dip. If it falls more after that? No worries, I'm in it for the long haul.

Exflyboy

  • Walrus Stache
  • *******
  • Posts: 6481
  • Age: 58
  • Location: Corvallis, Oregon
  • Expat Brit living in the New World..:)
Re: Be Greedy When Others Are Fearful?
« Reply #4 on: February 06, 2014, 12:13:19 PM »
I added half of my spare cash to the market after the 300 point drop two days ago.

Good luck all.

Nords

  • Magnum Stache
  • ******
  • Posts: 3215
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Be Greedy When Others Are Fearful?
« Reply #5 on: February 06, 2014, 08:15:24 PM »
Whenever I read "adding more on the dip" sentiments, I feel as if it's calling the top and taunting the market into dropping another 25%.

So here's the question:  if the market drops another <10% 15% 25%> from here, will you be happier that you've put the money into the stock market or into your student loan debt?

Personally I agree with you.  If you're paying off $6.9K at 3.91% then I'd revert to the minimum payments and start maxing out contributions to the tax-deferred accounts.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28056
  • Age: -999
  • Location: Seattle, WA
Re: Be Greedy When Others Are Fearful?
« Reply #6 on: February 07, 2014, 07:39:17 AM »
My question when people add on little dips like this is: why were you sitting with so much cash to begin with?  Was your plan to hold it until a small dip?  Did you actually hit a rebalancing band from the small dip?  What does your AA say about your current cash and equities holding?

I guess, if I thought about it, most people adding on the dip wouldn't be able to answer these questions adequately, and are investing on emotion, rather than an IPS.

(No offense to anyone intended, I genuinely wonder these questions, and I'm sure a few have this as their exact written plan, to hold X% cash, deploy Y% of that during a Z% dip, etc... that just seems the rare case to me, rather than the random "market feels down a little, shove in the excess cash I've been too lazy to invest already!" scenario.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5444
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Be Greedy When Others Are Fearful?
« Reply #7 on: February 07, 2014, 08:31:10 AM »
I dont think this answers your question really but I like to keep some dry powder in the keg so when the market dips (which it does) and this case a 7% dip , in a separate account I like to add to what becomes "accidentally high yielders in sectors that are beaten down. This is looked at by people different ways but for me its about 10% of my portfolio and it keeps me reading about investments etc...but i also see your point as well. I also do enjoy doing the research.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28056
  • Age: -999
  • Location: Seattle, WA
Re: Be Greedy When Others Are Fearful?
« Reply #8 on: February 07, 2014, 08:55:28 AM »
I dont think this answers your question really but I like to keep some dry powder in the keg so when the market dips (which it does) and this case a 7% dip , in a separate account I like to add to what becomes "accidentally high yielders in sectors that are beaten down. This is looked at by people different ways but for me its about 10% of my portfolio and it keeps me reading about investments etc...but i also see your point as well. I also do enjoy doing the research.

But how much "dry powder"?  How big of a dip is necessary?  Do you actually have hard answers to the questions I posed in the post above, or is it a "gut feeling" sort of thing?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

KingCoin

  • Pencil Stache
  • ****
  • Posts: 783
  • Location: Manhattan
  • Achieved FI @ 30
Re: Be Greedy When Others Are Fearful?
« Reply #9 on: February 07, 2014, 09:32:20 AM »
I guess
But how much "dry powder"?  How big of a dip is necessary?  Do you actually have hard answers to the questions I posed in the post above, or is it a "gut feeling" sort of thing?

I guess on the one hand, it's better to have the attitude that you're going to buy "dips" rather than panic and sell on "dips". On the other hand, there's no evidence that I'm aware of that holding cash to buy "dips" is a good strategy. If you bought a 7% dip in 2008 you would have gotten destroyed. In the beginning of last year, the S&P500 went on a 7% run to hit a mufti-year high of 1520. You would have been much better off buying that "high" than buying the "dip" at 1740.

I guess it comes down to arebelspy's question, what's the rule and does it work? If you can't answer either question, you're just trading on gut feel.

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1088
Re: Be Greedy When Others Are Fearful?
« Reply #10 on: February 07, 2014, 09:56:13 AM »
If you bought a 7% dip in 2008 you would have gotten destroyed. In the beginning of last year, the S&P500 went on a 7% run to hit a mufti-year high of 1520. You would have been much better off buying that "high" than buying the "dip" at 1740.

But you would have been better off buying at that dip to 1740 than having previously invested the cash at the earlier higher prices. I'm in the "no data, no opinion" camp, but that's the mystery in this, isn't it? Where'd the powder come from? What did it represent not having done? The only thing that publicly noteworthy drops in one market or sector mean to me is that I do a check on allocation, rather than letting it drift to New Year's Day or Independence Day.

hownowbrowncow

  • 5 O'Clock Shadow
  • *
  • Posts: 92
Re: Be Greedy When Others Are Fearful?
« Reply #11 on: February 07, 2014, 11:29:46 AM »
My question when people add on little dips like this is: why were you sitting with so much cash to begin with?  Was your plan to hold it until a small dip?  Did you actually hit a rebalancing band from the small dip?  What does your AA say about your current cash and equities holding?

I guess, if I thought about it, most people adding on the dip wouldn't be able to answer these questions adequately, and are investing on emotion, rather than an IPS.

(No offense to anyone intended, I genuinely wonder these questions, and I'm sure a few have this as their exact written plan, to hold X% cash, deploy Y% of that during a Z% dip, etc... that just seems the rare case to me, rather than the random "market feels down a little, shove in the excess cash I've been too lazy to invest already!" scenario.)

For me, I'm not actually sitting on the cash.  I've been  keeping my liquid account relatively low this past year.  After fixed expenses are paid, every extra dollar has been going to my student loan.  Now that I have a balance under $7k and a new lower interest rate, I'm thinking of diverting some of that cash to the market.  I don't actually even have it yet - $4.2k is my leftover after Feb take home pay minus expenses.

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: Be Greedy When Others Are Fearful?
« Reply #12 on: February 07, 2014, 11:59:48 AM »
I don't know about holding cash (if you don't hold 10% of the portfolio in cash, you don't have enough to make much of a difference and if you do hold 10%, that is a real drag) but asset rebalancing pretty much is the buy the dips and sell the peaks strategy.  It stands up pretty well in studies (slightly less return, quite a bit less volatility)



If you bought a 7% dip in 2008 you would have gotten destroyed. In the beginning of last year, the S&P500 went on a 7% run to hit a mufti-year high of 1520. You would have been much better off buying that "high" than buying the "dip" at 1740.

But you would have been better off buying at that dip to 1740 than having previously invested the cash at the earlier higher prices. I'm in the "no data, no opinion" camp, but that's the mystery in this, isn't it? Where'd the powder come from? What did it represent not having done? The only thing that publicly noteworthy drops in one market or sector mean to me is that I do a check on allocation, rather than letting it drift to New Year's Day or Independence Day.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28056
  • Age: -999
  • Location: Seattle, WA
Re: Be Greedy When Others Are Fearful?
« Reply #13 on: February 07, 2014, 12:29:31 PM »
I don't know about holding cash (if you don't hold 10% of the portfolio in cash, you don't have enough to make much of a difference and if you do hold 10%, that is a real drag) but asset rebalancing pretty much is the buy the dips and sell the peaks strategy.  It stands up pretty well in studies (slightly less return, quite a bit less volatility)

We're not talking about rebalancing (which is awesome, and I specifically mentioned hitting rebalancing bands above), but a specific strategy of holding dry powder to take advantage of dips.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

PeteD01

  • Bristles
  • ***
  • Posts: 415
Re: Be Greedy When Others Are Fearful?
« Reply #14 on: February 07, 2014, 12:44:45 PM »
There is actually a technical term for the effects of holding "dry powder" in reserve on overall investment performance - it is called "cash drag"

Peter

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5444
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Be Greedy When Others Are Fearful?
« Reply #15 on: February 07, 2014, 01:03:36 PM »
Numbers...I have 7  figures currently I am allocating into index funds. I have put 200k in the last couple weeks and yes I/will be actively adjusting my funds as i see fit.  In the meantime separate of that monies i have of course my 401k , IRA etc... that i am adding too (maxing out as also my wifes) because we have a business that she still wants to work part time at because it provide the income to still cover our costs to live and add to our 401ks etc... In the mean time i have Toys and vacation properties i am selling. This is all monies that will go completely to ER. I am 49 she is 45 and at 52 we are done barring some unforseen ? i don't know about.  I have come to this forum from reading on Marketwatch and have read from beginning to end and am trying to learn as much as I can so when we are totally in ER we succeed. This is whats motivated me to already have chopped 200$ a month gym bill. 600$ off our homeowners, Cut cable to the bare minimum and numerous other things. I have cut at least 1k a month in expenses but i am relentless in doing alot more. Like i said selling toys etc.. Our real estate is all paid for..no car payments etc.. So why dont i retire because i have 4 kids and that can/might wipe out alot of  our monies. In addition, While i was good at making money most of the time I always felt i would just pay for things when they come but I lost money in the Real Estate boom.  I have always traded and have had fun doing it BUT i also am smart enough to realize that its not the game I want to play anymore and would rather just dabble. So for me the comfort is to get the monies in the index funds and its already there with about 35% invested and the rest in a money market fund for ease of transfer so its going in. I have 10% +/- in a day trading account to dabble and keep my mind sharp. I do some specs but for the most part I am a value investor that buys when stocks are trading below book value and have cash on the books then I also have my long term picks that i buy that are high yielders and have been paying yield long term.  I study charts and watch the 200/50 day moving averages , buy at key support levels. There is so much that goes into this which is why I enjoy it.  So while i am becomming more Mustachian , everything i sell will go into the index funds or retirement accounts that i can and I will dabble with a small amount of cash in the meantime.  What i am trying do accomplish here is getting better at balancing /allocating and understanding all the tax advantage ways to better my position. There is alot of smarter people than me here so I am just wanting to share my experience while i learn from people here as well and try to slide into what i call protectionism. So far the family hasnt noticed really any change or griped. I took over the grocery shopping over a year ago and cut that in half. I like the challenge.  So what might seem as a gut feeling to some i understand but its not that simplistic and i guess i dont know really how to explain other than i do my own research and i feel the market needs to have healthy pull back but I will add when i see a 7% pullback. In addition i will add to my funds throughout the month to the sectors that are legging and adjust. So Thats where i am at.  So i ask you guys to help me and I will try to answer or give advice where i can from experience.  So here is a question after you guys beat me up  I have. I have a Annuity with about 72k  in with NorthEast Investors Trust. I put 16 k into it in the late 90's trying back then to think long term and actually forgot about it. Its now as i said worth 72k. What is the thought on annuities and should i just keep it or roll it over into Vanguard funds or? again this is an area in which i need help in.

Thanks in advance,
DB

Nords

  • Magnum Stache
  • ******
  • Posts: 3215
  • Age: 59
  • Location: Oahu
    • Military Retirement & Financial Independence blog
Re: Be Greedy When Others Are Fearful?
« Reply #16 on: February 07, 2014, 01:08:38 PM »
There is actually a technical term for the effects of holding "dry powder" in reserve on overall investment performance - it is called "cash drag"
I think Warren Buffett would use the term "value investing".

Sure, it's a cash drag when it's missing out on 7% APY for 2-3 years.  You feel pretty stupid watching the pitches go over the plate, even when there's no umpires or strike zones.  You have a hard time keeping a straight face when you say "Don't do something-- just stand there!" 

But when you can jump in on a 30%-off sale, you feel a lot better.

Yeah, I can hear the naysayers now:  "Easy for Buffett, he has billions and opportunities that we retail investors will never see."  Well, they're just looking in the wrong places.  Chances for a 30% discount on an S&P500 index fund come along only every decade or two.  However smaller sectors (like international, emerging, and small-cap value) go crazy every 5-10 years.  Brewer is an expert at buying bonds for 75 cents on the dollar, and he only has to wait a year or two before cleaning up behind that elephant parade.  Individual stocks get cut in half with every annual or quarterly report (admittedly sometimes for very good reasons).  You landlords know how to find distressed real estate and either flip it or cash flow it-- and that's practically every day.

"Dry powder" is only an asset if you know how to hunt & shoot.  If you're just getting your meat from the supermarket with every paycheck, then it makes no sense for you to stash a hoard of ammunition.

I try to limit myself to six clichéd analogies per post.  I'll stop now.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28056
  • Age: -999
  • Location: Seattle, WA
Re: Be Greedy When Others Are Fearful?
« Reply #17 on: February 07, 2014, 01:16:12 PM »
I can agree in principal Nords, but I think Mr. Buffett has specific criteria which he uses, which is what I was trying to get at above.

Most (expert/professional/etc.) landlords the same.

Do most "regular" investors who are trying to buy on dips also have that specific criteria and stick to it?  I would guess, in most cases, no.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Undecided

  • Handlebar Stache
  • *****
  • Posts: 1088
Re: Be Greedy When Others Are Fearful?
« Reply #18 on: February 07, 2014, 01:18:59 PM »
I try to limit myself to six clichéd analogies per post.  I'll stop now.

I think you've earned the right to bump that up to 7.

PeteD01

  • Bristles
  • ***
  • Posts: 415
Re: Be Greedy When Others Are Fearful?
« Reply #19 on: February 07, 2014, 01:54:43 PM »

I think Warren Buffett would use the term "value investing".

Sure, it's a cash drag when it's missing out on 7% APY for 2-3 years.  You feel pretty stupid watching the pitches go over the plate, even when there's no umpires or strike zones.  You have a hard time keeping a straight face when you say "Don't do something-- just stand there!" 

But when you can jump in on a 30%-off sale, you feel a lot better.

Yeah, I can hear the naysayers now:  "Easy for Buffett, he has billions and opportunities that we retail investors will never see."  Well, they're just looking in the wrong places.  Chances for a 30% discount on an S&P500 index fund come along only every decade or two.  However smaller sectors (like international, emerging, and small-cap value) go crazy every 5-10 years.  Brewer is an expert at buying bonds for 75 cents on the dollar, and he only has to wait a year or two before cleaning up behind that elephant parade.  Individual stocks get cut in half with every annual or quarterly report (admittedly sometimes for very good reasons).  You landlords know how to find distressed real estate and either flip it or cash flow it-- and that's practically every day.

"Dry powder" is only an asset if you know how to hunt & shoot.  If you're just getting your meat from the supermarket with every paycheck, then it makes no sense for you to stash a hoard of ammunition.

I try to limit myself to six clichéd analogies per post.  I'll stop now.

Buffet has to invest profits on an ongoing basis and in fact has at some point admitted that it is becoming more and more difficult to find deals because of the large sums involved. Buffet does not hold cash in reserve but invests on an ongoing basis - which is much more like ongoing investing using a stream of income, like most of us do. Directing cash flows in different directions depending on the market conditions and interest rates as they are at the time the cash becomes available makes a whole lot of sense and value investing is one of several strategies - but for us mortals it is more often the question when to buy stock index funds, bonds, paying off mortgage debt and the like.

"Cash Drag" refers to the effects of idle cash held in reserve for opportunistic stock market investing - usually by actively managed mutual funds. By holding cash in reserve, an investor can reproduce the cash drag effect of actively managed mutual fund in a portfolio  otherwise only invested in index funds.

Peter
 


soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5444
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Be Greedy When Others Are Fearful?
« Reply #20 on: February 07, 2014, 02:04:59 PM »
I can agree in principal Nords, but I think Mr. Buffett has specific criteria which he uses, which is what I was trying to get at above.

Most (expert/professional/etc.) landlords the same.

Do most "regular" investors who are trying to buy on dips also have that specific criteria and stick to it?  I would guess, in most cases, no.

Depends on what you mean" regular investors". Bu in any case t if they don't follow a discipline of sorts and protect themselves then chances are there not doing it very long. As you say...you cant do it with your gut. And better have stop loss protection in place at the very least unless you don't mind riding a stock down which could be out. Again, different for different strategies.

PeteD01

  • Bristles
  • ***
  • Posts: 415
Re: Be Greedy When Others Are Fearful?
« Reply #21 on: February 07, 2014, 02:09:50 PM »
  So here is a question after you guys beat me up  I have. I have a Annuity with about 72k  in with NorthEast Investors Trust. I put 16 k into it in the late 90's trying back then to think long term and actually forgot about it. Its now as i said worth 72k. What is the thought on annuities and should i just keep it or roll it over into Vanguard funds or? again this is an area in which i need help in.

Thanks in advance,
DB

You need to find out what the fees are. You probably have a deferred variable annuity and gains unfortunately will be taxed as income if you sell it. You are probably better off keeping the funds in an annuity for now. Compare the fees of your annuity with the fees at Vanguard, Fidelity and TIAA CREF (these are just the ones coming to my mind). Vanguard variable annuities have the best fund choices in my opinion. In order to transfer your annuity to a cheaper company you will need to do a 1035 exchangefor which you will get help from the receiving company.

Peter


arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28056
  • Age: -999
  • Location: Seattle, WA
Re: Be Greedy When Others Are Fearful?
« Reply #22 on: February 07, 2014, 02:10:38 PM »
I can agree in principal Nords, but I think Mr. Buffett has specific criteria which he uses, which is what I was trying to get at above.

Most (expert/professional/etc.) landlords the same.

Do most "regular" investors who are trying to buy on dips also have that specific criteria and stick to it?  I would guess, in most cases, no.

Depends on what you mean" regular investors". Bu in any case t if they don't follow a discipline of sorts and protect themselves then chances are there not doing it very long. As you say...you cant do it with your gut. And better have stop loss protection in place at the very least unless you don't mind riding a stock down which could be out. Again, different for different strategies.

I mean average people investing for retirement.  Say, the average member of this forum (see all the posts above).  Not someone who invests for a living.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

soccerluvof4

  • Walrus Stache
  • *******
  • Posts: 5444
  • Location: Artic Midwest
  • Retired at 50
    • My Journal
Re: Be Greedy When Others Are Fearful?
« Reply #23 on: February 07, 2014, 02:17:57 PM »
  So here is a question after you guys beat me up  I have. I have a Annuity with about 72k  in with NorthEast Investors Trust. I put 16 k into it in the late 90's trying back then to think long term and actually forgot about it. Its now as i said worth 72k. What is the thought on annuities and should i just keep it or roll it over into Vanguard funds or? again this is an area in which i need help in.

Thanks in advance,
DB

You need to find out what the fees are. You probably have a deferred variable annuity and gains unfortunately will be taxed as income if you sell it. You are probably better off keeping the funds in an annuity for now. Compare the fees of your annuity with the fees at Vanguard, Fidelity and TIAA CREF (these are just the ones coming to my mind). Vanguard variable annuities have the best fund choices in my opinion. In order to transfer your annuity to a cheaper company you will need to do a 1035 exchangefor which you will get help from the receiving company.

Peter

oh so at the very least it sounds like i can change it over to Vanguard. Will give them a call tomorrow. Thanks

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: Be Greedy When Others Are Fearful?
« Reply #24 on: February 07, 2014, 02:21:03 PM »
Buffet is a market timer:) And you are probably not Buffet.:)

Some back of the envelope numbers think about
100k @10% for 7 years = 200k.  20% drop = 160k
80k@10% for 7 years = 160k . 20% drop = 128k+20k of dry powder = 148k
 Now I picked those numbers to make the math easy enough to do without a calculator but they are in the ballpark (10% is low (only about a 6% return after the crash)  but you should probably give the cash 2-3% return also) but you can see what drag holding something that underperforms on average. And yes changing the numbers so the crash happens first makes you look like a genius:)

Now if you start selling at peaks and investing at bottoms, you can obviously beat the market by huge margins but that is a lot more than having a cash stash. But as people pointed out that is really hard.  As far as picking individual stocks and sectors, your sort of in the same boat. When a company like Blackberry drops 90% are you getting it on sale or are you buying rotten fruit? You will not know for 5 years as you can almost find stories on either side to justify your point of view. For fun go back and read through 5 year old Money magazine (or any newsletter) and read about the various recommendations. Maybe you can out perform the market. After all someone has to. But the odds are stacked against you.



There is actually a technical term for the effects of holding "dry powder" in reserve on overall investment performance - it is called "cash drag"
I think Warren Buffett would use the term "value investing".

Sure, it's a cash drag when it's missing out on 7% APY for 2-3 years.  You feel pretty stupid watching the pitches go over the plate, even when there's no umpires or strike zones.  You have a hard time keeping a straight face when you say "Don't do something-- just stand there!" 

But when you can jump in on a 30%-off sale, you feel a lot better.

Yeah, I can hear the naysayers now:  "Easy for Buffett, he has billions and opportunities that we retail investors will never see."  Well, they're just looking in the wrong places.  Chances for a 30% discount on an S&P500 index fund come along only every decade or two.  However smaller sectors (like international, emerging, and small-cap value) go crazy every 5-10 years.  Brewer is an expert at buying bonds for 75 cents on the dollar, and he only has to wait a year or two before cleaning up behind that elephant parade.  Individual stocks get cut in half with every annual or quarterly report (admittedly sometimes for very good reasons).  You landlords know how to find distressed real estate and either flip it or cash flow it-- and that's practically every day.

"Dry powder" is only an asset if you know how to hunt & shoot.  If you're just getting your meat from the supermarket with every paycheck, then it makes no sense for you to stash a hoard of ammunition.

I try to limit myself to six clichéd analogies per post.  I'll stop now.

Kriegsspiel

  • Guest
Re: Be Greedy When Others Are Fearful?
« Reply #25 on: February 07, 2014, 04:09:59 PM »
Maybe something along the lines of a Taleb or Swedroe portfolio with tight rebalancing bands? It seems to me like it's a more systematic way to "buy on dips with dry powder" than if the thing that is "dipping" is what most of your asset allocation is in.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8796
  • Registered member
Re: Be Greedy When Others Are Fearful?
« Reply #26 on: February 07, 2014, 05:03:06 PM »
http://www.youtube.com/watch?v=jllJ-HeErjU

Seriously though, waiting to "buy the dip" is a modified version of cost averaging, which has been shown historically as inferior to lump sum.  Basically, if you are buying index funds, get in as early as possible.  This doesn't apply to keeping cash around for non-conventional investments as discussed above (e.g. once a year opportunities).

clifp

  • Pencil Stache
  • ****
  • Posts: 540
Re: Be Greedy When Others Are Fearful?
« Reply #27 on: February 11, 2014, 07:57:19 PM »
I can agree in principal Nords, but I think Mr. Buffett has specific criteria which he uses, which is what I was trying to get at above.

Most (expert/professional/etc.) landlords the same.

Do most "regular" investors who are trying to buy on dips also have that specific criteria and stick to it?  I would guess, in most cases, no.

I generally keep a small amount of cash to buy on dips. It tends to mostly accumulated dividends in my IRA and money from cash secured puts I write which didn't get exercised.
Since I am generally purchasing individual stock, I have a list of several individual stocks and associated prices point for each stock.  I generally write either puts or limit orders at specific prices.

In the Jan/Fed dip I was interested in reestablishing a position in emerging markets funds, that I sold in Dec to harvest the tax loss. I put it three limit orders each starting a a couple of percent below the market and then an additional 1% below each other.  Somewhat unusual all 3 orders were executed over a couple days. I am currently fully invested after buying about 150K worth in the last few weeks.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8796
  • Registered member
Re: Be Greedy When Others Are Fearful?
« Reply #28 on: February 11, 2014, 09:37:20 PM »
I can agree in principal Nords, but I think Mr. Buffett has specific criteria which he uses, which is what I was trying to get at above.

Most (expert/professional/etc.) landlords the same.

Do most "regular" investors who are trying to buy on dips also have that specific criteria and stick to it?  I would guess, in most cases, no.

I generally keep a small amount of cash to buy on dips. It tends to mostly accumulated dividends in my IRA and money from cash secured puts I write which didn't get exercised.
Since I am generally purchasing individual stock, I have a list of several individual stocks and associated prices point for each stock.  I generally write either puts or limit orders at specific prices.

In the Jan/Fed dip I was interested in reestablishing a position in emerging markets funds, that I sold in Dec to harvest the tax loss. I put it three limit orders each starting a a couple of percent below the market and then an additional 1% below each other.  Somewhat unusual all 3 orders were executed over a couple days. I am currently fully invested after buying about 150K worth in the last few weeks.

I like how you had the "small amount" of $150k just lying around... you know, from accumulated dividends and pocket change and such.

clifp

  • Pencil Stache
  • ****
  • Posts: 540
Re: Be Greedy When Others Are Fearful?
« Reply #29 on: February 11, 2014, 10:24:49 PM »

I like how you had the "small amount" of $150k just lying around... you know, from accumulated dividends and pocket change and such.

Well I am  retired,  and $150k represented the majority of cash on hand.  Also don't forget to check the couch cushions there is tons of money hidden in those puppies. :)
But having that amount of cash in portfolio did  mean my portfolio lagged slightly last year.  The interesting question is did I do any better buying on the dip, than being fulling invested. I suspect the answers is probably it made little difference.

DCW

  • 5 O'Clock Shadow
  • *
  • Posts: 24
  • Age: 31
  • Location: Midwest
Re: Be Greedy When Others Are Fearful?
« Reply #30 on: February 13, 2014, 07:35:33 PM »
I try to limit myself to six clichéd analogies per post.  I'll stop now.

I think you've earned the right to bump that up to 7.

Ditto :)

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: Be Greedy When Others Are Fearful?
« Reply #31 on: February 13, 2014, 09:18:51 PM »
Lets just look at the s&p 500. Lets say you bought at the "bottom" on feb 1743. If you bought after Oct 21st your a winner other wise your a loser:)

The other problem with buying dips is that it is hard to say if your buying a dip or a crash:) You will not know for another couple of months.


I like how you had the "small amount" of $150k just lying around... you know, from accumulated dividends and pocket change and such.

Well I am  retired,  and $150k represented the majority of cash on hand.  Also don't forget to check the couch cushions there is tons of money hidden in those puppies. :)
But having that amount of cash in portfolio did  mean my portfolio lagged slightly last year.  The interesting question is did I do any better buying on the dip, than being fulling invested. I suspect the answers is probably it made little difference.

Caoineag

  • Pencil Stache
  • ****
  • Posts: 533
  • Age: 38
  • Location: Denver
    • My Journal
Re: Be Greedy When Others Are Fearful?
« Reply #32 on: February 13, 2014, 09:32:43 PM »
My question when people add on little dips like this is: why were you sitting with so much cash to begin with?  Was your plan to hold it until a small dip?  Did you actually hit a rebalancing band from the small dip?  What does your AA say about your current cash and equities holding?
...
(No offense to anyone intended, I genuinely wonder these questions, and I'm sure a few have this as their exact written plan, to hold X% cash, deploy Y% of that during a Z% dip, etc... that just seems the rare case to me, rather than the random "market feels down a little, shove in the excess cash I've been too lazy to invest already!" scenario.)

Not sitting on cash, I scrounge up new money to invest that I wasn't planning on otherwise investing. Everything you ask about cash is inapplicable to me since I don't "hold" cash in my investment portfolio. I am still in the accumulation phase and its just a game for me that allows me to contribute more than I was originally planning too.

For example, when I bought in January, I had just put a ton of overtime in and been paid that when I saw the market drop dramatically. It made me think that money should be shoved in my account right now. What was my original plan for that money? I didn't have one because I hadn't known I would have overtime but a lot of times "found" money like that gets shoved into investments. Drops are just reminders that if I have excess cash, it needs to be put to use. What if I have found money and no drop? I will still figure out where to shove it because I don't really like having cash on hand. I never hoard cash waiting for an opportunity to invest, I will just move it to investments a little faster if its near a drop.

As to Nord's question about what happens if it goes down more, I generally will review my budget and see if I can "find" some more money to invest. I expect the market to gyrate and don't tend to worry too much about it either direction. The only way it helps me earn more is that its a fun little way of increasing my investment contributions.

fmzip

  • Stubble
  • **
  • Posts: 190
  • Location: CT
Re: Be Greedy When Others Are Fearful?
« Reply #33 on: February 14, 2014, 01:42:58 PM »
Re: Be Greedy When Others Are Fearful?

With absolute certainty! The world is never coming to an end just because of XYZ...

Having the stomach to believe it is easier said than done. Buy while everyone is selling, absolutely! Wish I had the guts to buy lots of investment property in 2008 during the fire sale.

Vjklander

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: Be Greedy When Others Are Fearful?
« Reply #34 on: February 25, 2014, 11:02:39 AM »
So this dip in the market the past couple weeks is making me rethink some of my plans...

I have been throwing any extra money at my student loan just to be free and clear of debt but now I'm thinking I can slow down a little?  I was able to consolidate my loans and get my rate from 6.55% to 3.91% a month ago.  I started with over $70k in early 2013 and now I'm at $6.9k so 90% done.

Anyway for Feb I will have about a $4200 surplus that was going to all go to my loan but maybe I should put it in my rollover IRA instead? Go 50% 50%?  Keep hammering away at the loan?

Thanks!

Assuming you will continue earning as you are now, by all means put as much money in your IRA as possible.  Remember, you can make 2013 contributions until April 15th. After you have maxed out your 2013 contribution or tax day rolls around, you can make your 2014 contributions, then payoff your loans.
Vjk