Author Topic: Market Top  (Read 15388 times)

tomq04

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Market Top
« on: January 30, 2014, 09:29:35 AM »
I just posted this in my investment club message boards, and am starting to come to grips that we hit our top a month ago.  What do you guys think?  I know we aren't a group of market timers, but I would advise people start paying down debt/mortgage aggressively rather than increased investing, beyond "minimal" 401k/IRA contributions.

"There are lots of factors in place that have me believing we are well passed the market top set a month ago and things are set to go down from here.

1.) Easing of the Easing:
The fed is slowing down the QE, granted it's a slow process but, people have been waiting for this to happen and many people will consider selling based on this alone.

2.) "Feeling"
Never a good reason to act, but certain a good reason for research, something is amiss and the general tone of the masses has been exuberance and a belief that we can only go up...most of us should realize that isn't true.

3.) January Barometer
Another stupid one, but it seems to be relatively accurate, As January goes, so does the market. This has certainly been a volatile month to the down side.


Now what?"

Spork

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Re: Market Top
« Reply #1 on: January 30, 2014, 09:36:07 AM »
Maybe my feelings would be different if I was past the ER point.   ...but I just keep buying the same dollar amount every month.  Price goes up: I buy fewer shares.  Market tanks: I get a whole bunch on sale.

In general my personal feelings are something like: don't follow what everyone else is doing.    If everyone is nervous and selling: that's the time to buy. 

I constantly hear woeful tales from coworkers on how they lost so much money when blah blah blah in the market.  And in almost every case they lost because they pulled back or pulled out.  (Edit to add:  Or bought a huge amount of something hugely popular as it was zooming up.)
« Last Edit: January 30, 2014, 09:48:04 AM by Spork »

thepokercab

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Re: Market Top
« Reply #2 on: January 30, 2014, 09:43:57 AM »
I also might feel differently if I was FIRE right now, but i'm a long way off. 

Not sure if its a good thing, but I honestly have no idea what the market has been doing.  I get the sense its been going down because there have been a few forum postings about it..  I guess I'll google something about it to see what is up.  Vanguard keeps withdrawing money out of my checking account every week so I assume they still exist :)

Undecided

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Re: Market Top
« Reply #3 on: January 30, 2014, 09:59:44 AM »
No offense, but to me that's all as credible as if you'd told me that you recognized a sign in the clouds.

Mazzinator

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Re: Market Top
« Reply #4 on: January 30, 2014, 11:01:52 AM »
I just posted this in my investment club message boards, and am starting to come to grips that we hit our top a month ago.  What do you guys think?  I know we aren't a group of market timers, but I would advise people start paying down debt/mortgage aggressively rather than increased investing, beyond "minimal" 401k/IRA contributions.


Now what?"

Uuummm, i was actually excited, so i could start "saving aggressively" rather than "paying down debt"

Buy low...
Buy low...
Buy low...

Zoot Allures

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Re: Market Top
« Reply #5 on: January 30, 2014, 11:04:39 AM »
Not sure if its a good thing, but I honestly have no idea what the market has been doing.  I get the sense its been going down because there have been a few forum postings about it..  I guess I'll google something about it to see what is up.  Vanguard keeps withdrawing money out of my checking account every week so I assume they still exist :)

My understanding is that this approach is a good way to get rich. :)

My attitude, albeit as somewhat of a newbie, is that the market's average return rate for long periods of investing (9-11%?) sounds pretty good to me. The crazy growth in 2013--what was it, 30%?--created a nice cushion that will make the inevitable correction hurt less. Returns like we had in 2013 are certainly not something to get used to. I think I'd be happy to see a sharp correction followed by a slow recovery. It sure beats a crash.
« Last Edit: January 30, 2014, 11:43:28 AM by Spine »

matchewed

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Re: Market Top
« Reply #6 on: January 30, 2014, 11:06:58 AM »
So why is the advice to not invest? It makes much more sense when investing for the long term to keep doing DCA by investing periodically in whatever increments you've determined work for you.

Market performance bogeymen don't bother me. Keep saving your money and investing. See every other claim that we were at a market top for the last X number of years. No offense but I doubt your crystal ball is more clear than anyone else's.

Frankies Girl

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Re: Market Top
« Reply #7 on: January 30, 2014, 11:22:41 AM »
Quote
There are lots of factors in place that have me believing we are well passed the market top set a month ago and things are set to go down from here.


Well, damn. I guess if you think so, then I guess it's true, right?

I can also read tarot cards - want me to get them out and let you know about your future? They'd have the same chance of being right after all. ;)

Investing in the market is still a solid way to increase your money holdings. This might be a bad year, but they're bound to happen every so often and any "experts" or signs of going all Chicken Little isn't going to change my investment strategy.

Tyler

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Re: Market Top
« Reply #8 on: January 30, 2014, 11:37:55 AM »
Even the best investments and portfolios have bad years periodically.  That's perfectly normal.  Economically healthy, even.

Most people screw things up by overreacting to any given situation and following the crowd by buying high/selling low.  Rather than worry about predicting what may happen, perhaps you should think more about what you will do when it does happen.  Foresight or not.

For example, if the prospect of the stock market falling bothers you, why not (permanently) diversify into bonds, commodities, gold, real estate, or something else?  That way, when stocks inevitably do fall you can just cash in some shares from something else doing well to buy more.

Jamesqf

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Re: Market Top
« Reply #9 on: January 30, 2014, 11:51:18 AM »
So why is the advice to not invest? It makes much more sense when investing for the long term to keep doing DCA by investing periodically in whatever increments you've determined work for you.

But isn't paying down a mortgage also a form of investment?  One with a fixed return, probably better than most bond funds in today's market.

I have started putting a few hundred extra on the mortgage each month, just as a bit of diversification.  My own opinion - or more accurately, wild-assed guess - is that it's not the market top, just backing off the spectacular growth of the last couple of years.

Tyler

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Re: Market Top
« Reply #10 on: January 30, 2014, 11:55:46 AM »
But isn't paying down a mortgage also a form of investment?  One with a fixed return, probably better than most bond funds in today's market.

Good point.  While I think market timing is unproductive, I'm a big fan of eliminating debt.  I wouldn't fault anyone for paying down a mortgage no matter the reason.

PeteD01

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Re: Market Top
« Reply #11 on: January 30, 2014, 12:02:09 PM »
There is no way to identify a "market top" as it is occurring because it is defined as the beginning of a protracted downturn - which will not have occurred  as the top was occurring. It is therefore foolish to try to extract sell signals from the market itself.

There are, however, unequivocal sell signals available but those are personal and are generally not covered in the news.
For me one sell signal came last fall when I was able to fully fund our TIAA Traditional annuities with a little more than half of our stock fund holdings.
Of course, fully fund our annuities is a personal goal - in this case $2000/month from a high quality participating annuity as a retirement income floor.
We still fully contribute to our 403b accounts but eliminating the mortgage and finishing the basement rental apartment are now priorities.
These goals will both be reached within 15 months.
After that it will be building a cushion of liquid assets and after that it will be more stock market investing.
All the market could ever do to our FIRE strategy is to shorten the time to FI somewhat - but not by much.

I believe the sanest approach to stock market investing is to acknowledge that one will possibly buy cheap equities for a long time but not much more, or the market allows one to reach other goals earlier than otherwise, kind of like a bonus.

All our sell decisions were and are triggered by our diversification goals:

1) annuity income floor (done)
2) Payed off house (close)
3) Income apartment (almost there)
4) Own some rural residential lots free and clear with power available and septic permit in hand - ready for the Armageddon trailer(done)
5) Cash cushion (none)
6) A decent amount of horses in the market race (done and ongoing tax deferred investment)
7) Sufficient Social Security credits (done)
8) Small pension eligibility (done)
8) Two carbines and sufficient ammo as well as a good watchdog (done)

We are 51 and 53 and will be there in less than three years - regardless of what the market is doing

Cheers,
Peter

matchewed

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Re: Market Top
« Reply #12 on: January 30, 2014, 12:52:00 PM »
So why is the advice to not invest? It makes much more sense when investing for the long term to keep doing DCA by investing periodically in whatever increments you've determined work for you.

But isn't paying down a mortgage also a form of investment?  One with a fixed return, probably better than most bond funds in today's market.

I have started putting a few hundred extra on the mortgage each month, just as a bit of diversification.  My own opinion - or more accurately, wild-assed guess - is that it's not the market top, just backing off the spectacular growth of the last couple of years.

Please don't take my comments too far out of the context in which they were made. I was specifically addressing the OP stating
Quote
but I would advise people start paying down debt/mortgage aggressively rather than increased investing, beyond "minimal" 401k/IRA contributions.
where the OP has made a distinction between investing and mortgage payments. I'm following that mode of thought as part of the discussion.

My statement is more along the lines of follow your AA rather than adjust it based on some perceived market fear.

Jack

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Re: Market Top
« Reply #13 on: January 30, 2014, 02:09:28 PM »
I had been holding my recent paycheck in my checking account instead of immediately investing it because I, too, "feel" like we're at a market top (and because I needed to decide where best to put it: IRA, Roth, taxable or pay down loans). I ended up putting it in my taxable account (because I need to hit the minimum for a bonus promotion soon), and invested it in international equities because that's what my asset allocation says to do.

I have to admit, I felt happier about it because international has been flat-to-bearish for over a year now, and decided to put it in VWO instead of VXUS because of the recent bearish news on emerging markets (VWO seems more "on sale" than VXUS to me).

tomq04

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Re: Market Top
« Reply #14 on: January 30, 2014, 02:12:52 PM »
Jack is in the spirit of what I was intending to post.  I don't like US Equities at the moment, and am considering other methods of investing, (mortgage, international, etc etc) I was just hoping to stir the pot.

That being said, dollar cost average wins every time (in the long run)...so as always you are all right!

the fixer

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Re: Market Top
« Reply #15 on: January 30, 2014, 02:18:15 PM »
I thought I remembered reading in A Random Walk Down Wall Street that there's a statistically significant underperformance of the stock market in January, probably due to people making tax-related decisions. It's not enough of a difference to overcome extra trading costs to make money off of, though.

That would totally contradict the "as January goes, so does the rest of the year" theory.

IMO this is no better or worse a time to buy than any other. The market is freaked out by QE getting tapered, but it could turn out better than everyone expects. If anything, that's a contrarian viewpoint which I would trust more than a bunch of loss-averse apes on TV.

sheepstache

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Re: Market Top
« Reply #16 on: January 30, 2014, 02:29:18 PM »
Hm, I recently read that the market is usually artificially high in January due to all the institutional retirement plans making their purchases in the beginning of the year.

So there ya go!

MissPeach

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Re: Market Top
« Reply #17 on: January 30, 2014, 03:00:42 PM »
I feel like overall much of the US market seems overpriced but I do see some good deals out there for individual stocks. I am a little different from what MM talks about because when I see companies I understand and believe will improve 'on sale', especially with good dividends, I will buy them too in addition to my index funds. I've lost small amounts of money on a few but overall I'm up 30-60% on most of the one offs.

Some people around me are freaking out about their portfolios losing value. I am trying to convince them this is a good time to find deals. I do feel this year will be a volatile year but I am going to be in the market for long enough that I can ride out and come ahead of a correction.

Heart of Tin

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Re: Market Top
« Reply #18 on: January 30, 2014, 04:56:51 PM »
I thought I remembered reading in A Random Walk Down Wall Street that there's a statistically significant underperformance of the stock market in January, probably due to people making tax-related decisions. It's not enough of a difference to overcome extra trading costs to make money off of, though.

That would totally contradict the "as January goes, so does the rest of the year" theory.

I thought that this was an interesting allegation, so I did some back testing with S&P 500 data. I looked at the S&P 500 monthly opening numbers from January 1950 to January 2014. Additionally I'd like to note that these two ideas aren't mutually exclusive. January can be indicative of the entire year while still underperforming. That is January can have 1% annualized growth when there is 5% growth on the year, or January can have 5% negative growth when there is 1% negative growth on the year. Both of these cases demonstrate January underperforming the yearly return, but revealing the general direction of growth.

The annualized growth in the S&P 500 during January underperformed the growth during the entire year about 39% of the time. Restricting ourselves to 1990 or later, annualized growth during January underperformed growth during the entire year about 41.5% of the time. This reveals a general trend of January outperforming the year more often than in it underperforms on the year.

When the S&P 500 lost value during January, annualized January growth underperformed growth during the rest of the year about 84.5% of the time. About half of the time that the S&P 500 lost value during January it gained value during the entire year. From that information we can conclude that when the S&P 500 loses value both during January and during the entire year annualized January growth underperforms growth during the entire year about 69% of the time. For reference, annualized growth of the S&P 500 as of this afternoon is about -20%.

Interestingly, when the S&P 500 gained value in January, it gained value during the entire year about 92% of time.

From the above I would say that historically January growth generally has predicted positive returns on the year quite accurately, but it hasn't faired so well at predicting negative growth. Additionally, in years where negative growth in January has accurately predicted negative growth for the year, the annualized January return is generally more dire than the return for the entire year. So, stocks have faired worse in January than the rest of the year in years where stocks are down in January.

With a broader context in mind that the market has generally trended up and monthly returns are extremely volatile, these results aren't surprising. If you are to conclude anything from them (which is ill-advised), conclude that you should keep to the plan of investing as early and often as possible.

Undecided

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Re: Market Top
« Reply #19 on: January 30, 2014, 05:21:03 PM »

Jwesleym

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Re: Market Top
« Reply #20 on: January 30, 2014, 10:12:45 PM »

conclude that you should keep to the plan of investing as early and often as possible.


It is amazing how the truth (data) always leads you back to Boglehead beliefs.

bigchrisb

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Re: Market Top
« Reply #21 on: January 30, 2014, 10:48:56 PM »
I'm quietly hoping that you are right.  I'm fully invested.  However, I'd like some of my investments to be in different structures for tax purposes, and can't move them without a capital gain.  Market tanks - I can move them and avoid the taxes.  Market plots along - I keep buying regular investments.

MissPeach

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Re: Market Top
« Reply #22 on: February 03, 2014, 12:54:33 PM »
I feel the indexes are going to go lower so I haven't been putting ALL my investing money there and have been a slower about moving it to the indexes hoping to get more on sale. I believe when people freak out combined with the fed tapering will mean a rough year for stocks. I do keep contributing to it though. The stocks I bought in 2008-2009 were some of my most appreciating stocks in my portfolio. Having said that I have time to wait the market.

I'm a little different than many on here in that I also purchase individual stocks and have had good luck doing this. I have been taking excess money and looking for stocks on sale. For example one stock was hit this week because it's biggest competitor was down and lost market share to them. There have been several on my list I wanted to buy as a longish term hold but I felt most stocks were just too highly priced a month ago to pull the trigger on many of them.

AccidentalMiser

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Re: Market Top
« Reply #23 on: February 03, 2014, 01:10:15 PM »
I just posted this in my investment club message boards, and am starting to come to grips that we hit our top a month ago.  What do you guys think?  I know we aren't a group of market timers, but I would advise people start paying down debt/mortgage aggressively rather than increased investing, beyond "minimal" 401k/IRA contributions.

Good observations...

Three quick things:

If you slow down and speed up investing based on market signals, you are trying to time the market by definition. (Which I do all the time, I'm not saying you're wrong; I agree the market is looking pretty frothy.) 

If people have debt other than their mortgage, they should be paying that off aggressively anyway.

My 401k is used as much for its tax benefits as for its investment/savings benefit.  If I dialed back to "minimal" contributions, the US Treasury might be happy, but I wouldn't be!  Having said that, I have been storing up some "dry powder" in the money market account in my 401k waiting for a few -200 point days so I can buy more of my favorite companies.

Chuck

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Re: Market Top
« Reply #24 on: February 03, 2014, 03:40:43 PM »
Tom,

That feeling you feel? That the market is going bad, that now isn't a good time to buy, with a 7% pull back.

That is the surest, most absolute indicator that now is the PERFECT time to buy stocks. Because everyone else feels just like you, and a ton of them are selling.

tomq04

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Re: Market Top
« Reply #25 on: February 03, 2014, 06:03:44 PM »
In case anyone is worried, I am still contributing what I can (full match at least), and buying each paycheck.  I know the power of dollar cost!

I was legitimately curious of peoples interest, since market timing is a fascinating topic to me.  In the end the piranha's chomped me up!

clutchy

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Re: Market Top
« Reply #26 on: February 03, 2014, 06:37:10 PM »
I thought I was only allowed to buy at the "Market Top".  I guess stop buying until it hits the top again.

i_am_the_slime

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Re: Market Top
« Reply #27 on: February 03, 2014, 07:17:26 PM »
I just posted this in my investment club message boards, and am starting to come to grips that we hit our top a month ago. 

DAMN IT!!!!!!!!!!!!  WHY DIDN'T YOU TELL ME THIS A MONTH AGO?????

Everyone "knew" it was coming, but the hard part is what happens now?  Down another 5%?  20%?  Or up 15% from here?  Either way, I'm convinced that 20 years from now the S&P500 will be well above where it is now.

Eric

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Re: Market Top
« Reply #28 on: February 03, 2014, 07:25:07 PM »
I thought I was only allowed to buy at the "Market Top".  I guess stop buying until it hits the top again.

Don't forget to sell on the way down too.  Gotta lock in those losses while you can!

wtjbatman

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Re: Market Top
« Reply #29 on: February 03, 2014, 08:02:47 PM »
The market dropping means my limited funds will get me even more shares of the blue chip dividend stocks I love, meaning in 20 years when I actually retire, I will have that much more income. Bring on the correction/market drop!

Roland of Gilead

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Re: Market Top
« Reply #30 on: February 03, 2014, 09:11:47 PM »
Wait, so now I am totally confused.  I thought I was supposed to sell in May and go somewhere.  Or buy because it is an election year.  Or hold when Jupiter lies with Mars.   Something like that.

Now I sell in January and come back in June???

OceanCid

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Re: Market Top
« Reply #31 on: February 04, 2014, 12:51:23 AM »
Bring it on! I was hoping for shares on sale :)

aclarridge

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Re: Market Top
« Reply #32 on: February 04, 2014, 07:45:54 AM »
Bring it on! I was hoping for shares on sale :)

Ditto, I want the market to crash hard now, in the early stage of my accumulation phase.

Pointless thread, though.

Dr. Doom

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Re: Market Top
« Reply #33 on: February 04, 2014, 08:53:23 AM »

>> I think I'd be happy to see a sharp correction followed by a slow recovery. It sure beats a crash.

My feelings exactly.  I'm tired of complete panicky crashes.  Let's have a nice 15% correction and then have things stabilize.  I never expected the market to get as high as it did and I'm relieved it's heading down again, to be honest. 

+1001 to everyone who said, in one form or another, stay the course and don't worry about it. 

foobar

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Re: Market Top
« Reply #34 on: February 04, 2014, 11:06:52 AM »
If you want the optimist point of view, why do we need a correction? Lets look at some recent time periods. What has been the s&ps return for the past
10 years - ~7%
15 years ~4.5%

That huge surge over the past couple of years is just returning us back to where the average growth should be.  If your worried that last year was a good year look at http://moneyover55.about.com/od/howtoinvest/a/marketreturns.htm and you will see good years followed by good year (and bad ones). Will there be a 10% correction in the next 5 years?  Most likely. Will that happen next year or in 3 years after stocks are up another 30%? Who knows.

Now obviously you can look at other stats and draw whatever conclusions you want. The human brain is great at trying to find patterns in random data. And if you apply enough theories you can find one that matches past data pretty well. I have been getting news letter pitches for market corrections/crashes pretty much since Obama was elected. They will be right one of these days. I just don't know which one.



>> I think I'd be happy to see a sharp correction followed by a slow recovery. It sure beats a crash.

My feelings exactly.  I'm tired of complete panicky crashes.  Let's have a nice 15% correction and then have things stabilize.  I never expected the market to get as high as it did and I'm relieved it's heading down again, to be honest. 

+1001 to everyone who said, in one form or another, stay the course and don't worry about it.

grantmeaname

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Re: Market Top
« Reply #35 on: February 04, 2014, 08:05:46 PM »
I know we aren't a group of market timers, but I would advise people start paying down debt/mortgage aggressively rather than increased investing, beyond "minimal" 401k/IRA contributions.
Why do people continually say "I'm not a market timer, but I'm about to try and time the market because I think I know which way it will go" here? Buy all the way up and all the way down, and then when you have enough money stop buying and retire. That whole sentence didn't need a single instance of the word "overvalued", and neither do you.

Spork

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Re: Market Top
« Reply #36 on: February 05, 2014, 07:39:04 AM »
I know we aren't a group of market timers, but I would advise people start paying down debt/mortgage aggressively rather than increased investing, beyond "minimal" 401k/IRA contributions.
Why do people continually say "I'm not a market timer, but I'm about to try and time the market because I think I know which way it will go" here? Buy all the way up and all the way down, and then when you have enough money stop buying and retire. That whole sentence didn't need a single instance of the word "overvalued", and neither do you.

I know exactly what you mean.  And that's pretty much what I try to do.  BUT there is a little (possibly irrational) part of me that sees something that appears notably over/under valued that will occasionally make me sell/buy.  I do try to minimize this to a a very small part of my overall value.  I don't know if that's "adventurous" or "gambling" or what.

soccerluvof4

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Re: Market Top
« Reply #37 on: February 05, 2014, 08:07:23 AM »
Its human nature to have gut feelings and fear the worst or market predict. Bottom line its down 7% ...if you have some powder do some nibbling...

matchewed

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Re: Market Top
« Reply #38 on: February 05, 2014, 08:35:10 AM »
Its human nature to have gut feelings and fear the worst or market predict. Bottom line its down 7% ...if you have some powder do some nibbling...

It is also human to optimize; by recognizing fallacies in our thoughts and biases, carrying out a strategy that has proven more effective than wasting our valuable attention on that which we cannot control. Staring at the market and leaving money aside and not investing until you see a 7% drop just loses out on all the previous gains.

See all the other threads in this sub forum about market fears on and off for the last two years. I don't mean to discount gut feelings or fears but they have an ability to bite you in the ass when it's something that that deserves a bit more of a logical/practical approach.

soccerluvof4

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Re: Market Top
« Reply #39 on: February 05, 2014, 09:22:16 AM »
Its human nature to have gut feelings and fear the worst or market predict. Bottom line its down 7% ...if you have some powder do some nibbling...

It is also human to optimize; by recognizing fallacies in our thoughts and biases, carrying out a strategy that has proven more effective than wasting our valuable attention on that which we cannot control. Staring at the market and leaving money aside and not investing until you see a 7% drop just loses out on all the previous gains.

See all the other threads in this sub forum about market fears on and off for the last two years. I don't mean to discount gut feelings or fears but they have an ability to bite you in the ass when it's something that that deserves a bit more of a logical/practical approach.

I don't see anywhere that i disagreed with you and in fact said IF you have some dry powder with a 7% drop i would add. 

grantmeaname

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Re: Market Top
« Reply #40 on: February 05, 2014, 09:28:10 AM »
He's saying that if you have dry powder you're already not optimum.

matchewed

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Re: Market Top
« Reply #41 on: February 05, 2014, 09:40:53 AM »
Its human nature to have gut feelings and fear the worst or market predict. Bottom line its down 7% ...if you have some powder do some nibbling...

It is also human to optimize; by recognizing fallacies in our thoughts and biases, carrying out a strategy that has proven more effective than wasting our valuable attention on that which we cannot control. Staring at the market and leaving money aside and not investing until you see a 7% drop just loses out on all the previous gains.

See all the other threads in this sub forum about market fears on and off for the last two years. I don't mean to discount gut feelings or fears but they have an ability to bite you in the ass when it's something that that deserves a bit more of a logical/practical approach.

I don't see anywhere that i disagreed with you and in fact said IF you have some dry powder with a 7% drop i would add.

I don't see where I disagreed with you either. :)

Here is where I would disagree though. I personally advocate not having a dry powder scenario as you have money that isn't earning you anything waiting for that opportune moment, unless cash is part of your asset allocation. And if cash is part of your asset allocation and you shift positions due to market fluctuations then you're just doing market timing anyway and not really following a good investment plan.

grant is much more succinct than I am.

soccerluvof4

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Re: Market Top
« Reply #42 on: February 05, 2014, 10:05:33 AM »
haha! ok then we do disagree there. I do always have cash ready. But well put!