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Learning, Sharing, and Teaching => Investor Alley => Topic started by: NewPerspective on January 26, 2015, 03:50:22 PM

Title: Stock Market - should I be concerned?
Post by: NewPerspective on January 26, 2015, 03:50:22 PM
DH apparently had an interesting conversation with his boss today (who seems to be successful and financially savvy).  He told DH that we should definitely sell when the market is going down and then get back in on the market rebound.

We have been much the types to hold and just keep investing no matter what is going on in the market (and we really don't pay too much attention to the market in general). 

Now my husband is wondering if we shouldn't sell as he thinks the market will be going down again soon(ish).   He did lose half the value of his 401k in the last recession and I think it is only now  that it has just about recovered.  His boss was telling him how much better off we would be if we had of gotten out before the big crash, held our cash and then gotten back in in the upswing (even if it wasn't "timed" exactly).

I'm sure this has been discussed on the forums and I would welcome any links.  I have read the JCollins stock series and felt the just stay in no matter what approach was the best.

DH's boss sent him this chart as an illustration of how much better off it is to sell when things start going down.

http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#%7B%22range%22%3A%22max%22%2C%22scale%22%3A%22linear%22%7D

Thoughts?

Edited to add: His boss must have been quite convincing because my husband is really feeling this is what we should do.  (That is my concern part). 
Title: Re: Stock Market - should I be concerned?
Post by: mxt0133 on January 26, 2015, 03:58:51 PM
It's not really an argument that if you can sell before the market goes down and buy on the rebound you will do much better than holding.

The trick is knowing when to sell and when to buy back in.  If you know then go for it, but there are armies of people that do this full-time, with advanced degrees from prestigious schools that still can't predict when the market will go down and when it will come back.

So odds are that retail investors will not be able to time the market consistently.  Ask your husbands boss when the market will go down and when does he think it will come back up, if he can do it consistently for over a 10 year period then I'd consider investing 10% of my money based on his recommendations.
Title: Re: Stock Market - should I be concerned?
Post by: 3okirb on January 26, 2015, 03:59:10 PM
If you could time the market, there would be a lot more rich people.  The billion dollar investors take a different approach.  They buy when the market it down and sell when the market is up.  You can do the same thing by reallocating.
Title: Re: Stock Market - should I be concerned?
Post by: Eric on January 26, 2015, 04:02:12 PM
Just google "Market Timing" and read the number of articles from Forbes, Market Watch, Wall St Journal, Charles Schwab, Kiplinger, etc all explaining why it's a bad idea.  Unless you have a crystal ball (you don't, right?), the chances of you successfully pulling this off are pretty slim.
Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 26, 2015, 04:08:21 PM
Thank you everyone.  I agree and I'm concerned because DH feels really strongly that this makes sense.   And on the surface, it does make sense. Obviously sell when it's high, you make money and buy when it's low. 

I think the fact that the boss told DH this is what he has been doing since the  90s (basically) and it has worked out much better for him than just staying in, has really gotten my husband's attention.
Title: Re: Stock Market - should I be concerned?
Post by: mxt0133 on January 26, 2015, 04:10:42 PM
If it's work out for him, why does he still work?
Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 26, 2015, 04:12:41 PM
If it's work out for him, why does he still work?

My question too!  He says because he wants to and is FI but enjoys working.  (I know he also owns a franchise business on the side and maybe one other business).

Title: Re: Stock Market - should I be concerned?
Post by: SaintM on January 26, 2015, 04:21:55 PM
Buy high and sell low!

Or never sell, but instead buy on a set schedule or when you see stocks on sale (ie down).
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 26, 2015, 04:37:35 PM
Thank you everyone.  I agree and I'm concerned because DH feels really strongly that this makes sense.   And on the surface, it does make sense. Obviously sell when it's high, you make money and buy when it's low. 

I think the fact that the boss told DH this is what he has been doing since the  90s (basically) and it has worked out much better for him than just staying in, has really gotten my husband's attention.

If there's anything I've learned from conversations like this...any normal person who claims to have beaten the market over a long period of time (90's in this example), does not know how to calculate returns.

Putting 1990-today in IndexView:

(http://i.imgur.com/bJZwPbL.png)

http://www.mrmoneymustache.com/2014/08/25/indexview/

We see the market returned an annualized 9.52%, with every single dollar invested in 1990, being worth $9.08 today.  Ask DH to sit down with the boss, and watch as the boss uses this Time Weighted Return Calculator on his personal portfolio, starting from the 1990's.  Make sure to start from the beginning, and not to cherry pick the starting date from when he started performing well.  It takes deposits and withdrawals into account, so make sure to put them in:

http://www.rateofreturnexpert.com/time-weighted-return-calculator/

So if you went from $1000 to $2000 in a year, your annualized return would be 100%:

(http://i.imgur.com/RAn9Nkt.png)

But if you made a $1000 deposit on that same day, you're annualized return would be 0%:

(http://i.imgur.com/3W4yYVH.png)

It's pretty straight forward.  If DH can't watch him as he does it, I'd say something like, "Hey I found this investment calculator online, and I want to see how much better than the market I could be doing.  Can you fill this out and tell me what your number is?"  If it's filled out correctly, you'll see he isn't beating the market at all.
Title: Re: Stock Market - should I be concerned?
Post by: skyrefuge on January 26, 2015, 04:42:02 PM
He did lose half the value of his 401k in the last recession and I think it is only now  that it has just about recovered.

If this is true, then just tell DH that since he is dumb, he will not be making any more investment decisions.

An 80/20 stock/bond mix would have surpassed its 2007 peak in mid/late 2012, around two-and-half years ago. Today its value would be more than 30% greater than its 2007 peak.

And that assumes no contributions were made since 2007! If he had continued making regular contributions, the return to 2007 levels would have happened much earlier, and the current value would be much greater.

So, DH either:
...or some combination of all of the above, all of which are dumb.

Ok, I guess when you give him this "bad news", you can phrase it a little more gently. :-)
Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 26, 2015, 05:54:40 PM
He did lose half the value of his 401k in the last recession and I think it is only now  that it has just about recovered.

If this is true, then just tell DH that since he is dumb, he will not be making any more investment decisions.

An 80/20 stock/bond mix would have surpassed its 2007 peak in mid/late 2012, around two-and-half years ago. Today its value would be more than 30% greater than its 2007 peak.

And that assumes no contributions were made since 2007! If he had continued making regular contributions, the return to 2007 levels would have happened much earlier, and the current value would be much greater.

So, DH either:
  • had a dumb asset allocation to begin with.
  • already has tried market timing, and failed.
  • failed to contribute since 2007.
...or some combination of all of the above, all of which are dumb.

Ok, I guess when you give him this "bad news", you can phrase it a little more gently. :-)

Hahaha - he just informed me it is up quite a lot since 2007 and more than broken even.  So that was my fault for misstating it.  (And we weren't contributing for two years because we were living internationally).

He seems hell bent on selling our Vanguard now though.  :-(
Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 26, 2015, 06:08:19 PM
Thank you everyone.  I agree and I'm concerned because DH feels really strongly that this makes sense.   And on the surface, it does make sense. Obviously sell when it's high, you make money and buy when it's low. 

I think the fact that the boss told DH this is what he has been doing since the  90s (basically) and it has worked out much better for him than just staying in, has really gotten my husband's attention.

If there's anything I've learned from conversations like this...any normal person who claims to have beaten the market over a long period of time (90's in this example), does not know how to calculate returns.

Putting 1990-today in IndexView:

(http://i.imgur.com/bJZwPbL.png)

http://www.mrmoneymustache.com/2014/08/25/indexview/

We see the market returned an annualized 9.52%, with every single dollar invested in 1990, being worth $9.08 today.  Ask DH to sit down with the boss, and watch as the boss uses this Time Weighted Return Calculator on his personal portfolio, starting from the 1990's.  Make sure to start from the beginning, and not to cherry pick the starting date from when he started performing well.  It takes deposits and withdrawals into account, so make sure to put them in:

http://www.rateofreturnexpert.com/time-weighted-return-calculator/

So if you went from $1000 to $2000 in a year, your annualized return would be 100%:

(http://i.imgur.com/RAn9Nkt.png)

But if you made a $1000 deposit on that same day, you're annualized return would be 0%:

(http://i.imgur.com/3W4yYVH.png)

It's pretty straight forward.  If DH can't watch him as he does it, I'd say something like, "Hey I found this investment calculator online, and I want to see how much better than the market I could be doing.  Can you fill this out and tell me what your number is?"  If it's filled out correctly, you'll see he isn't beating the market at all.

Thanks Dodge.  I don't think that his boss will fill this out.  Not sure exactly what he said to my husband but he seems completely convinced we should sell our Vanguard funds now.  He says he doesn't understand how we can go wrong, since he is very confident a crash is coming our way soon.

I'm not super well versed in finances (perhaps that is obvious) but I've been diligently reading for about the last year and half and trying to educate myself.  However, my knowledge isn't very deep so I really don't know what exactly to say to him.  His boss also invests in gold.  Thankfully DH said he didn't think he wanted to invest in gold. 
It is all a little frustrating (for me) to say the least.
Title: Re: Stock Market - should I be concerned?
Post by: innerscorecard on January 26, 2015, 07:31:19 PM
It's not good to talk to foolish people. It might rub off on you.
Title: Re: Stock Market - should I be concerned?
Post by: AlexK on January 26, 2015, 07:31:56 PM
What will your husbands plan be if he sells the stocks and the market keeps climbing for a year? 4 years?
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 26, 2015, 07:33:02 PM
Ask your DH what it would take for him to decide against doing this.  What type of evidence would sway his opinion?
Title: Re: Stock Market - should I be concerned?
Post by: EarlyStart on January 26, 2015, 07:39:09 PM
Thank you everyone.  I agree and I'm concerned because DH feels really strongly that this makes sense.   And on the surface, it does make sense. Obviously sell when it's high, you make money and buy when it's low. 

I think the fact that the boss told DH this is what he has been doing since the  90s (basically) and it has worked out much better for him than just staying in, has really gotten my husband's attention.

If there's anything I've learned from conversations like this...any normal person who claims to have beaten the market over a long period of time (90's in this example), does not know how to calculate returns.

Putting 1990-today in IndexView:

(http://i.imgur.com/bJZwPbL.png)

http://www.mrmoneymustache.com/2014/08/25/indexview/

We see the market returned an annualized 9.52%, with every single dollar invested in 1990, being worth $9.08 today.  Ask DH to sit down with the boss, and watch as the boss uses this Time Weighted Return Calculator on his personal portfolio, starting from the 1990's.  Make sure to start from the beginning, and not to cherry pick the starting date from when he started performing well.  It takes deposits and withdrawals into account, so make sure to put them in:

http://www.rateofreturnexpert.com/time-weighted-return-calculator/

So if you went from $1000 to $2000 in a year, your annualized return would be 100%:

(http://i.imgur.com/RAn9Nkt.png)

But if you made a $1000 deposit on that same day, you're annualized return would be 0%:

(http://i.imgur.com/3W4yYVH.png)

It's pretty straight forward.  If DH can't watch him as he does it, I'd say something like, "Hey I found this investment calculator online, and I want to see how much better than the market I could be doing.  Can you fill this out and tell me what your number is?"  If it's filled out correctly, you'll see he isn't beating the market at all.

Thanks Dodge.  I don't think that his boss will fill this out.  Not sure exactly what he said to my husband but he seems completely convinced we should sell our Vanguard funds now.  He says he doesn't understand how we can go wrong, since he is very confident a crash is coming our way soon.

I'm not super well versed in finances (perhaps that is obvious) but I've been diligently reading for about the last year and half and trying to educate myself.  However, my knowledge isn't very deep so I really don't know what exactly to say to him.  His boss also invests in gold.  Thankfully DH said he didn't think he wanted to invest in gold. 
It is all a little frustrating (for me) to say the least.


I have to second what Dodge said. The VAST majority of active investors who talk about their "impressive returns" actually don't know what their annualized returns are. As Dodge said, ask your DH, "Well, what are the returns? Can we see them?" A lot of people have very selective memories with regard to their investments, too. I'd bet half my meager net worth that your DH's boss didn't account for the dividends he missed at the times when he wasn't in the market.




Title: Re: Stock Market - should I be concerned?
Post by: DavidAnnArbor on January 26, 2015, 07:59:23 PM
I'm not sure why DH has to sell unless he has moved significantly away from his asset allocation model. After all if someone has been diligent about continuous investing, even through the 2008/9 market crash ( the worst economic crisis since the Great Depression ), one would be way ahead. Instead of trying to time when the next stock market route will occur, why doesn't DH simply check to make sure he's maintained his asset allocation? If DH is overinvested in stocks based on his asset allocation model then he can sell that portion to reallocate. 

I think the fear of the stock market can be understood if one looks at the Nikkei 225 stock market graph of the last 30 years. As the stocks kept climbing to such extreme highs in Japan in the late '80's one would have been converting gains into bonds. The other point is that hopefully by diversifying (geographically) one can shield against such destructive changes in the stock index. 
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 26, 2015, 08:39:26 PM
Thanks Dodge.  I don't think that his boss will fill this out.  Not sure exactly what he said to my husband but he seems completely convinced we should sell our Vanguard funds now.  He says he doesn't understand how we can go wrong, since he is very confident a crash is coming our way soon.

I'm not super well versed in finances (perhaps that is obvious) but I've been diligently reading for about the last year and half and trying to educate myself.  However, my knowledge isn't very deep so I really don't know what exactly to say to him.  His boss also invests in gold.  Thankfully DH said he didn't think he wanted to invest in gold. 
It is all a little frustrating (for me) to say the least.

Seriously, go through IndexView with him:

http://www.mrmoneymustache.com/2014/08/25/indexview/

Put in any two years.

(http://i.imgur.com/EIGx8pX.png)

Then put in two different years.

(http://i.imgur.com/SvbmDGO.png)

Then two different years again.

(http://i.imgur.com/h9Dos3k.png)

You'll see, no matter which years you put in,

(http://i.imgur.com/MpwK6Wf.png)

it looks like ***OMG A CRASH IS COMING***, because the line is so much up and diagonal to the right, it looks like it has no where to go but down!  This year is no different,

(http://i.imgur.com/NwpQ6FF.png)

Had you sold it all every year it looked like a crash was coming...you'd never be in the market.  Let's not argue about whether a crash is coming or not, let's agree that it feels that way right now. Like there's been a turning point, a division between an old era and a new era, and therefore past history is no longer a guide to the future.

And here's my point: it always feels that way. That's always what it feels like. It's not a number, it's a sense that there's been a break, the ground has shifted, the rules have changed.

This is why it's so hard to stay the course.  Your investment plan needs to be in tune with your own personal willingness to take financial risk.  When you're deciding what your risk tolerance is, it's not a tolerance for the number 10 or the number 15 or the number 25. It's not a tolerance for an "A" turning into a "+". It's a tolerance for accepting genuinely-scary, nothing-like-this-has-ever-happened-before, heralds-a-new-era news events.

When the stock market is falling, you can't cut back on your stock market risk without locking in a loss.  If your DH is afraid of a market crash, and that fear is causing him to want to change allocations, that fear will only be stronger when real market risk shows up.  It might be a good time to re-evaluate your position, and add more bonds.  If you're 100/0, go to 80/20.  If you're 80/20, to go 60/40...etc.

Then when stocks fall at some point in the future, you can sell bonds to buy back into stocks.  But it won't be called market-timing.  It'll be called rebalancing.
Title: Re: Stock Market - should I be concerned?
Post by: skyrefuge on January 26, 2015, 08:42:55 PM
He seems hell bent on selling our Vanguard now though.  :-(

That sucks, particularly since someone with such a seemingly-volatile decision-making approach is even more-likely to get his ass handed to him by the stock market over the long term.

Maybe some concrete examples of how hard market-prediction actually is would help?

Here's one from the middle of 2013 that predicted "an 87% chance" of a market crash by the end of that year. (http://www.marketwatch.com/story/doomsday-poll-87-risk-of-stock-crash-by-year-end-2013-06-05)  And includes support from 10 people way more into the markets than DH's boss. Since then the S&P 500 is up 26%. Whoops.
Here's one where 67 out of 67 actual economists were wrong (http://www.marketwatch.com/story/yes-100-of-economists-were-dead-wrong-about-yields-2014-10-21?mod=mw_share_twitter&n_play=5446b01fe4b073e9103eb3f8) about the direction interest rates would go in 2014.

The S&P 500 has currently been on an upward trend for 6 years. At the end of 1996, it had also been on an upward trend for 6 years. It stood at ~750, up from ~320. Great time to sell and wait for the crash, right? Too bad you would have been waiting 13 years for it to drop below 750 again, and then, you had less than a month to "buy low" before it went shooting to new heights. Brilliant strategy!

If that doesn't help, maybe another approach: why? What is the motivation to play such market-timing games? Is there some goal you expect to fall short of with a simple buy-and-hold strategy? If so, would simply increasing your savings rate be a more reasonable way to achieve your goals?

Just as a fairly-meaningless point of comparison, I, like DH's boss, am FI. But I've never done anything besides a basic buy-and-hold strategy. Probably unlike his boss, I have all the records and math and can say that I've had a 9.3% annualized time-weighted return over my 1998-present working career. My pre-crash investment peak in September 2007 was $374k. I had already surpassed that peak again by February 2010, and am currently over $1M. Well before that 2008 crash, I had set my goal to reach FI by 2018, and here I am already, a few years ahead of schedule, even with that crash, no market-timing necessary.
Title: Re: Stock Market - should I be concerned?
Post by: TreeTired on January 26, 2015, 08:52:34 PM
Maybe you can persuade him to sell only half.   That way he can compete with himself (the passive fully invested other half)  and see how it works out. 

Why now?   Why didn't he sell when the S&P reached it's old high of 1575ish ?    Many didn't think it could go much beyond that.   Now we are at 2057 and the bull market is very "old in the tooth" and the bears are predicting an imminent crash.... just as they have been doing for the past 2 years. 

I think I know this "boss" guy.   He went to 100% cash in October 2007 and went all in, bought 2x leveraged S&P 500 etf in Feb 2009 at the lows... and told you all about it 1 year later.

Personally I am ready to lighten up my equity positions considerably, but I am an old guy.
Title: Re: Stock Market - should I be concerned?
Post by: neil on January 26, 2015, 08:52:45 PM
Swing trading:
http://www.investopedia.com/articles/trading/06/dayofswingtrader.asp

Ignoring the odds of success, it's a full time job to do it right.  Doing less means you are behind the people who do this as their full time job.  There is a lot of implied effort involved.  There's a lot of data that shows many people fail, even after spending all this effort.

I'm not really going to bother arguing the merits because I think others have done that.  But a swing trader at least has a thesis on how he is going to make money.  It sounds like the thesis here is to sell because the boss said so.  Are you going to ask him when to buy back in?  He's not responsible for your retirement.  The job of managing your money is on you.
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 26, 2015, 09:15:48 PM
Everyone below is significantly more knowledgeable about the markets than your DH's boss:

Quote
What Experts say about Market Timing

"The stock market will fluctuate, but you can't pinpoint when it will tumble or shoot up. If you have allocated your assets properly and have sufficient emergency money, you shouldn't need to worry." AAII Guide to Mutual Funds

"Endless tinkering is unlikely to improve performance, and chasing last period's stellar achiever is a losing strategy." Frank Armstrong, author and adviser

"It must be apparent to intelligent investors--if anyone possessed the ability to do so (market time) he would become a billionaire--quickly--." David Babson, co-author of Investing for a Successful Future

"What it really takes to improve your returns and diminish your risks is a willingness to stop focusing exclusively on the movement of the markets." Baer & Ginsler authors of  The Great Mutual Fund Trap

"If we haven't said it enough, we'll say it again: Market timing is dangerous." Barron's Guide to Making Investment Decisions

"Only liars manage to always be "out" during bad times and "in' during good times." Bernard Baruch, famed investor

"You have to keep reminding yourself. We don't know what's going to happen with anything, ever." Peter Bernstein, author of 10 finance books.

"There are two kinds of investors, be they large or small: Those who don't know where the market is headed, and those who don't know that they don't know." Wm Bernstein, author and adviser

"After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently." Jack Bogle

The Boglehead Contest (http://www.lostsprings.com/diehards/contest/) began in 2001. Of 99 Diehard guesses that year, only 11 even guessed the direction of the stock market.

"If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor." Jack Brennan, former Vanguard CEO and author of Straight Talk on Investing)

"I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two." Warren Buffet

"Market timing is an ineffective strategy for mutual fund investors." CDA/Wiesenberger

"Any investment method that relies on predicting the future is doomed to fail." Chandan Sengupta author of The Only Proven Road to Investment Success.

"A successful investor has a good knowledge base, a well-defined investment plan, and nerves of steel to stick with it." (Andrew Clarke, financial adviser)

"Dalbar research has found that both stock and bond investors tend to overreact to events, moving money in and out of mutual funds with breathtakingly bad timing." Consumer Reports

"Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation." 2003Dalbar Study

"Take my word on it. Buy-and-hold is still your best long-run strategy." Jonathan Clements, author & Wall Street Journal columnist

"Market-timing is bunk." Pat Dorsey, former Morningstar Director of Fund Analysis."

"The performance of 185 tactical asset allocation mutual funds was compared with buy-and-hold strategies and equity mutual funds over the years 1985-97. Over this period the S&P 500 Index increased 734%, average equity funds increased 598%, and tactical asset allocation funds increased 384%." David Dreman, author of Contrarian   Investment Strategies

"Market timing is a wicked idea. Don't try it-ever." Charles Ellis author of The Loser's Game

"Forget market timing in any form." Paul Farrell, CBS Marketwatch.com

"The best practice for investors is to design a long-term globally diversified asset allocation based on present and future financial needs. Then follow that plan religiously, through all markets good and bad." Rick Ferri, adviser and co-author of seven books including The Bogleheads' Guide to Retirement Planning.

"Benjamin Graham spent much of his career trying to devise a goodformula for when to get into--and out of--the stock market. All formulas, he concluded, failed." Forbes

"Buy and hold. Diversify. But your money in index funds. Pay attention to to the one thing you can control--costs." Fortune Investor's Guide

"Dont' sell out of fear or buy out of greed. Just keep making investments, and let the market take its course over the long-term." Norman Fosback, author, researcher

"The only function of economic forecasting is to make astrology look respectful." John Kenneth Galbraith, Economist

"I've learned that market timing can ruin you." Elaine Garzarelli, Wall Street's best known strategist until fired by  Lehman Brothers

"Staying on course may be just as difficult in bull markets as in bear markets." Good & Hermansen, authors of Index Your Way to Investment Success

"For most investors the odds favor a buy-and-hold strategy." Carol Gould, author &  columnist

"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting that's going to happen to the stock market." Benjamin Graham

"From June 1980 through December 1992, 94.5% of 237 market timing investment newsletters had gone of business." Graham/Campbell Study

"Your very refusal to be active, and your renunciation of any pretended ability to predict the future, can become your most powerful weapon." Graham & Zweig, The Intelligent Investor

"Even in a bear market, market-timing and actively managed mutual funds generally hurt investment performance more than they help it." Mark Hulbert, Editor of Hulbert Financial Digest

"After receiving the Nobel Prize, Daniel Kahneman, was asked by a CNBC anchorman what investment tips he had for viewers. His answer: "Buy and hold."

"Timing the market is for losers. Time IN the market will get you to the winner's circele, and you'll sleep better at night." Michael Leboeuf, author of The Millionaire in You

"No one is smart enough to time the market's ups and downs." Arthur Levitt, former SEC Chairman)

"It never was my thinking that made the big money for me. It always was my sitting." Jesse Livermore, author & famed investor

"Nobody can predict interest rates, the future direction of the economy or the stock market." (Peter Lynch)

"Buying-and-holding a broad-based market index fund is still the only game in town." Burton Malkiel, author of the classic Random Walk Down Wall Street

"At the peak of the bull market in March of 2000 only 0.7% of all recommendations on stocks issued by Wall Street brokerages and investment banks were to "Sell." Source: Miami Herald 1/26/03 edition

"If you can't handle the short term, if the uncertainty is stressful and the headlines are unbearable, then the markets are too hot for you: get out of the kitchen." (Moshe Milevsky, author & researcher)

"We're not keen on market-timing. It just doesn't work." Morningstar Course 106

"We've yet to find anyone who can accurately and consistently predict the market's short-term moves." Motley Fools

"Odean and Barber tested over 66,400 investors between 1991 and 1997. Their findings: "The most active traders earned 7% less annually than buy-and-hold investors."

"Forget trying to time the market and do something productive instead." Gerald Perritt, financial author

"The market timer's Hall of Fame is an empty room." Jane Bryant Quinn author and syndicated columnist

"Countless studies have proved that no one is able to time the market effectively." Mary Roland, author of Best Practices for Financial Advisors

"Trading is based on the rather arrogant belief that the trader knows more than the buyers and sellers with whom he is trading." Ron Ross, author of The Unbeatable Market

"In the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested." Louis Rukeyser, famous (deceased) TV host

"For the 10 years that ended 12-31-2000, only one newsletter out of the 112 that Timers Digest follows managed to beat the S&P 500 Benchmark." Jim Schmidt, Editor

"I have learned the hard way that market timing and trying to pick a fund that will out-perform the market are both losing strategies." Bill Schultheis, adviser and author of The Coffeehouse Investor

"I'm a strong advocate of buying and holding." (Charles Schwab)

"It turns out that I should have just bought them (securities), and thereafter I should have just sat on them like a fat, stupid peasant. A peasant however, who is rich beyond his limited dreams of avarice." Fred Schwed Jr., 'Where are the Customers' Yachts?

"If you are not going to stick to your chosen investment method through thick and thin, there is almost no chance of your succeeding as an investor. Chandan Sengupta, financial author

"Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator." W. Scott Simon, author of Index Funds

"Buying and holding a few broad market index funds is perhaps the most important move ordinary invests can make to supercharge their portfolios." Stein & DeMuth, authors of Yes, You Can Get A Financial Life!

"It's my belief that it's a waste of time to try to time any market decline, or try to pinpoint a market bottom." James Stewart, Smart Money columnist

"It's a staple of personal finance advice: Buy-and-hold, because trading the stock market is a sucker's bet." Larry Swedroe, author and adviser.

"People should stop chasing performance and just put together a sensible portfolio regardless of the ups and downs of the market." David Swensen, Manager of Yale Investments

"Trust in time and forget market timing. Allow time to work its compounding magic for you. Let market timing inflict its miseries on someone else." Tweddell & Pierce, financial authors

"Stay invested. Not only does buy-and-hold investing offer better returns, but it's also less work." Eric Tyson, author, Mutual Funds for Dummies.

"Few if any investors manage to be consistently successful in timing markets." Wall Street Journal Lifetime Guide to Money 

"If you're considering doing your own market timing, the best advice is this: Don't." John Waggoner, USA Today financial columnist

"If you buy, and then hold a total-stock-market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run." Jason Zweig, author and Wall Street Journal columnist

Source: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=156499
Title: Re: Stock Market - should I be concerned?
Post by: One Noisy Cat on January 27, 2015, 03:39:11 AM
    I am curious when the OP says her husband lost half his 401 (k) in the 2008 crash and has probably gotten back to where it was now.  I keep about 80% of mine in equity mutual funds and looking back at my monthly records (which date back to 2000).

11/2007 (peak)       $583,715
 2/2009 (bottom)    $325,173
 3/2011 (return)     $584,284

So the worst stock market crash was wiped away after a mere 3 years 4 months without market timing but with bi weekly payroll deductions and (mostly monthly) IRA contributions. Was that so bad?

      My advice is to politely listen but don't try to time the markets. 
     
Title: Re: Stock Market - should I be concerned?
Post by: PEIslander on January 27, 2015, 04:28:34 AM
    I am curious when the OP says her husband lost half his 401 (k) in the 2008 crash and has probably gotten back to where it was now. 

Noisy Cat - she explains later in the thread that her numbers were wrong. Their investment performance grew past the losses.
Title: Re: Stock Market - should I be concerned?
Post by: One Noisy Cat on January 27, 2015, 05:00:44 AM
    I am curious when the OP says her husband lost half his 401 (k) in the 2008 crash and has probably gotten back to where it was now. 

Noisy Cat - she explains later in the thread that her numbers were wrong. Their investment performance grew past the losses.

Oops, my bad. That's what happens when you type before the first cup of coffee. But I see these "people lost 40% of their investments in 2008 so stay out of stocks" statements without considering dividends, dollar-cost-averaging, etc it makes my head spin.
   There are people like Elaine Garzarelli who got famous for predicting the 1987 crash on television. But her later predictions were wrong.

http://en.wikipedia.org/wiki/Elaine_Garzarelli
Title: Re: Stock Market - should I be concerned?
Post by: Workinghard on January 27, 2015, 05:18:16 AM
There's a thread on Bogleheads about what the experts say regarding market timing. Maybe you should print this out for your husband. Who's the expert? These people or your husband's boss? :)

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=156499
Title: Re: Stock Market - should I be concerned?
Post by: PEIslander on January 27, 2015, 05:59:52 AM
I started saving money back in 1987 when I graduated university & started my career. At that time the office's accountant was very into investments and was always offering unsolicited advice to others on how they should invest their money. He seemed impressed that I was starting to save at the start of my career. Had I been seeking an investment mentor he would have been the obvious choice. At the time I went the mutual fund route and didn't pay much attention to his "sage" advice -- with hindsight I'm glad I didn't!

His 1987 advise was to get out of the markets and buy gold bullion & coins. At the time gold was selling for almost $500/oz in USD. It started a long slow fall in value. He preached that was good. It meant you could get more gold for your dollars. Anyway, it took 18 years (!!!) for gold to get back to $500/oz. (Then over the next five years it finally did what he was predicting and shot up, eventually reaching over $1800/oz. in 2011).  Had I taken his advice I would have seen many years of steady decline & sideways movement in the value of my investments. No doubt that poor performance would have turned me off investing. Instead with the less speculative approach of investing in mutual funds I saw good years and bad, experiencing a fantastic bull market and a gut-wrenching major bear market. Although my funds during that time were not "index" funds, mutual funds were being marketed as buy & hold long-term investments just as index funds & index ETFs are promoted today. The mantra was the same - history has shown that over the long term the markets are likely to grow - so invest easy and ignore the short-term volatility. At the end of that 18-year period gold was in the same place but the S&P index with dividends reinvested was up 535%. I'm glad I didn't take the accountant's "expert" advice even if some might say he was eventually vindicated when gold eventually went to $1800/oz. -- I don't know if he was still into gold when it eventually surged. For his sake I hope so because 18 years is a long time to wait for some returns.

There will always be people like the OP's "boss" and my "accountant" who will claim to know the sure thing and they can be persuasive. Likewise, TV financial pundits, newsletter writers, and bloggers can be persuasive. It is hard to stay focused through all the noise - but stay focused we must...
Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 27, 2015, 06:58:52 AM

Quote
Seriously, go through IndexView with him:

http://www.mrmoneymustache.com/2014/08/25/indexview/

Put in any two years.





it looks like ***OMG A CRASH IS COMING***, because the line is so much up and diagonal to the right, it looks like it has no where to go but down!  This year is no different,



Had you sold it all every year it looked like a crash was coming...you'd never be in the market.  Let's not argue about whether a crash is coming or not, let's agree that it feels that way right now. Like there's been a turning point, a division between an old era and a new era, and therefore past history is no longer a guide to the future.

And here's my point: it always feels that way. That's always what it feels like. It's not a number, it's a sense that there's been a break, the ground has shifted, the rules have changed.

This is why it's so hard to stay the course.  Your investment plan needs to be in tune with your own personal willingness to take financial risk.  When you're deciding what your risk tolerance is, it's not a tolerance for the number 10 or the number 15 or the number 25. It's not a tolerance for an "A" turning into a "+". It's a tolerance for accepting genuinely-scary, nothing-like-this-has-ever-happened-before, heralds-a-new-era news events.

When the stock market is falling, you can't cut back on your stock market risk without locking in a loss.  If your DH is afraid of a market crash, and that fear is causing him to want to change allocations, that fear will only be stronger when real market risk shows up.  It might be a good time to re-evaluate your position, and add more bonds.  If you're 100/0, go to 80/20.  If you're 80/20, to go 60/40...etc.

Then when stocks fall at some point in the future, you can sell bonds to buy back into stocks.  But it won't be called market-timing.  It'll be called rebalancing.

This is very very helpful.  Thank you!  This is basically what I was trying to explain to him last night.  That you can't really know when the right time to sell/buy is.  He definitely feels a market crash is coming (he works in the oil industry so the low oil prices are hitting close to home for him).

And, I totally agree about rebalancing, I think that makes sense.

I've asked him to read this thread and ask questions he might have.
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 27, 2015, 07:18:00 AM
I started saving money back in 1987 when I graduated university & started my career. At that time the office's accountant was very into investments and was always offering unsolicited advice to others on how they should invest their money. He seemed impressed that I was starting to save at the start of my career. Had I been seeking an investment mentor he would have been the obvious choice. At the time I went the mutual fund route and didn't pay much attention to his "sage" advice -- with hindsight I'm glad I didn't!

His 1987 advise was to get out of the markets and buy gold bullion & coins. At the time gold was selling for almost $500/oz in USD. It started a long slow fall in value. He preached that was good. It meant you could get more gold for your dollars. Anyway, it took 18 years (!!!) for gold to get back to $500/oz. (Then over the next five years it finally did what he was predicting and shot up, eventually reaching over $1800/oz. in 2011).  Had I taken his advice I would have seen many years of steady decline & sideways movement in the value of my investments. No doubt that poor performance would have turned me off investing. Instead with the less speculative approach of investing in mutual funds I saw good years and bad, experiencing a fantastic bull market and a gut-wrenching major bear market. Although my funds during that time were not "index" funds, mutual funds were being marketed as buy & hold long-term investments just as index funds & index ETFs are promoted today. The mantra was the same - history has shown that over the long term the markets are likely to grow - so invest easy and ignore the short-term volatility. At the end of that 18-year period gold was in the same place but the S&P index with dividends reinvested was up 535%. I'm glad I didn't take the accountant's "expert" advice even if some might say he was eventually vindicated when gold eventually went to $1800/oz. -- I don't know if he was still into gold when it eventually surged. For his sake I hope so because 18 years is a long time to wait for some returns.

There will always be people like the OP's "boss" and my "accountant" who will claim to know the sure thing and they can be persuasive. Likewise, TV financial pundits, newsletter writers, and bloggers can be persuasive. It is hard to stay focused through all the noise - but stay focused we must...

I love it when people start talking about Gold, it gives me an opportunity to show the latest inflation-adjusted gold chart!

(http://www.inflationdata.com/inflation/images/charts/Gold/Gold_inflation.jpg)

A few fun points:


Compared to the stock market over this same time period, with no market timing:

(http://i.imgur.com/SP0SbbY.png)

Honestly, if DH's boss is recommending selling all stocks, and putting it into gold, that alone should be enough to discredit him.
Title: Re: Stock Market - should I be concerned?
Post by: lizzie on January 27, 2015, 07:28:06 AM
Wow. This whole thread is really what I needed to read right now. I've evolved from someone who was terrified of the stock market to someone who deposits almost all of her paycheck into it. Now that that amount is getting pretty big, though, I feel like I have more to lose, my old ways of thinking were starting to intrude, and I've been wondering if I can emotionally handle logging in to Mint someday and seeing huge declines in my investments. I'm commenting mostly so that I can quickly find this again and re-read it in the future! Thanks everyone.
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 27, 2015, 07:29:14 AM

DH's boss sent him this chart as an illustration of how much better off it is to sell when things start going down.

http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#%7B%22range%22%3A%22max%22%2C%22scale%22%3A%22linear%22%7D


All I see when I look at that chart is that if you hadn't sold anything from the very peak of the market in 2007 you'd have ~35% more money than you did back then (even excluding dividends/buying more while low).   

What this guy 'technically' says is true...but in reality its extremely hard for even professionals to pick the right times, much less the rest of us. 
Title: Re: Stock Market - should I be concerned?
Post by: breezer74 on January 27, 2015, 03:37:32 PM
Disclaimer: First time poster who quite enjoys these boards and the wise advice!

I was having similar feelings as your husband and was fully allocated using the Personal Capital allocations as a guide but I couldn't get comfy. Yesterday, I ran a few scenarios in a spreadsheet which included a 30% correction with up to three years of 12% growth in the meantime. After the correction, I modeled 6% growth per year until retirement. And while I could very well prove foolish for getting out of the market, this visualization guided my decision to exit. According to my tinkering, I'd have more money in retirement by staying out and waiting for a correction even with three more years of 12% growth. A possible dummy move? Probably. But I feel comfier knowing what my break even is in terms of time to correction.




Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 27, 2015, 04:26:04 PM
Disclaimer: First time poster who quite enjoys these boards and the wise advice!

I was having similar feelings as your husband and was fully allocated using the Personal Capital allocations as a guide but I couldn't get comfy. Yesterday, I ran a few scenarios in a spreadsheet which included a 30% correction with up to three years of 12% growth in the meantime. After the correction, I modeled 6% growth per year until retirement. And while I could very well prove foolish for getting out of the market, this visualization guided my decision to exit. According to my tinkering, I'd have more money in retirement by staying out and waiting for a correction even with three more years of 12% growth. A possible dummy move? Probably. But I feel comfier knowing what my break even is in terms of time to correction.

A visualization of fake data, made up in a spreadsheet where you can perfectly time the market, guided your decision?  Did you look at any real data to see how often your plan would have worked?  Did you calculate the missed dividends in your spreadsheet?  Unlikely, as the dividends increase as the market drops, making it difficult to calculate, but further rewarding those who stay the course.  Did you calculate how you'll know when to get back in?  Did you calculate how it will feel emotionally, when trying to get back in while you're watching the stock market fall more and more each day (catching a falling knife they call it)?

Yes, if you can time a crash perfectly, you will make more money.  No one is denying that.  What we're showing NewPerspective, is that no one can time it consistently.  Even if you got out at the perfect time, how will you know when to get back in?

How do you think the 1987 investor felt, when they correctly timed the market crash:

(http://i.imgur.com/ICGI3gg.png)

But expected a bigger drop than occurred, and didn't get back in:

(http://i.imgur.com/GueeZ0R.png)

...they're still waiting:

(http://i.imgur.com/cYIXHrt.png)

I still know people who are waiting for prices to get back to 2008-2009 levels so they can get back into the market.  This has severely impacted their retirement.  However you're feeing about the market today, you very likely would've felt that way in 1980, and 1946, and 1952...pretty much any year on record.  There is nothing special about today.  Statistically, your move has permanently lowered your lifetime returns.
Title: Re: Stock Market - should I be concerned?
Post by: breezer74 on January 27, 2015, 04:34:32 PM
Goddamn some of you are bullies. Good riddance - off to play with my fake data/spreadsheets.

Love, Kelly
Level III Chartered Financial Analyst Candidate
Title: Re: Stock Market - should I be concerned?
Post by: rocketpj on January 27, 2015, 04:57:29 PM
That's the trouble with living in 'today' instead of 'the future'.  We are always at the far right of the graph.

I'm not sure about everyone else, but I tend to track my investments in Google finance.  Mostly because I can log into it anywhere and just see how it's doing.  I don't really need to - I have no intentions of selling anything for a very long time.  But I like to watch the graph over time. 

Any time the default graph (which shows the last few weeks at most) looks scary, I just scroll 'out' until the short term fluctuations even out into a much larger graph - which really takes the pain out of whatever happened today or this week.  But no matter what I am still at the far right hand side of the graph, which is today.  If it looks like a long, upward slope the natural inclination is to expect it to change direction and dramatically fall back down the other side.  But scroll out far enough and it always shows a gradual upward rise (with occasional dips).

But probably not.  It can help psychologically to just put 'today' in the center of the graph - which really helps show you that tomorrow's graph could really be anything.  But who really knows - we can all have a theory.  Unless you are retiring this year there isn't much point worrying about it, and if it that worrisome you probably aren't in a position to retire this year anyways.

One thing that some of the more experienced investors I have read always say is that when everybody is calling for one thing - in this case a market crash - the opposite tends to happen.  If we look at the global economy right now we see economic chaos everywhere, sovereign debt crises, instability and a bunch of other scary stuff (as usual).  Maybe more than usual.  Historically speaking, when that happens in some places, capital tends to flee to other places.

Right now North America is looking like the safest, stablest place for money to go.  Certainly lots of it is pouring in from Europe as people flee the crashing Euro and all the debt crises there.  No matter what is happening locally (which is actually fairly good as far as I can tell) money will flow to North America as long as it is ugly everywhere else.  So I don't actually expext the market to crash this year, or even next.  Certainly it will sometime, but probably not now because there is nowhere else for all that capital to go.

I could be wrong of course, maybe tomorrow will be horrible.  But it doesn't matter really.
Title: Re: Stock Market - should I be concerned?
Post by: MrMoogle on January 27, 2015, 05:59:16 PM
Personally I have moved away from 100% stocks, and moved to a more conservative asset allocation. I look at the Shiller P/E, and according to it, we are high.  There are many other indicators, this is the one I like.  It is very possible it will continue to go up for a couple years, so I'm not completely out of stocks. 

If you look historically, a high Shiller P/E corresponds to lower average returns in the next 5-10 years.  So the chance of dropping drastically is higher, and the chance of reward is lower.  No risk, no reward, but if the reward isn't there, then why risk?  Going to an 80/20 (stocks/bonds) or 60/40 makes sense to me.  Maybe I'm a big chicken :)

Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 27, 2015, 06:05:27 PM
OP here - great news!!!  My husband has returned to his senses  (his boss should really go into sales!).  He read this thread this morning and is back on track with our original long term financial plan (which most definitely does not involve selling our investments right now).   

We are going to sell some of his company stock because we are holding too much and pay some toward our house.   We both feel comfortable with this.

Thank you all so very very much.  All of your input has really been invaluable.   
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 27, 2015, 06:16:20 PM
OP here - great news!!!  My husband has returned to his senses  (his boss should really go into sales!).  He read this thread this morning and is back on track with our original long term financial plan (which most definitely does not involve selling our investments right now).   

We are going to sell some of his company stock because we are holding too much and pay some toward our house.   We both feel comfortable with this.

Thank you all so very very much.  All of your input has really been invaluable.

Great news indeed!  I'm happy to hear you and your husband are again on the same page.  Let us know if you or DH have any more questions :)
Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 27, 2015, 06:20:24 PM
OP here - great news!!!  My husband has returned to his senses  (his boss should really go into sales!).  He read this thread this morning and is back on track with our original long term financial plan (which most definitely does not involve selling our investments right now).   

We are going to sell some of his company stock because we are holding too much and pay some toward our house.   We both feel comfortable with this.

Thank you all so very very much.  All of your input has really been invaluable.

Great news indeed!  I'm happy to hear you and your husband are again on the same page.  Let us know if you or DH have any more questions :)

Dodge, he actually copy and pasted one of your comments and emailed it to me this morning and said it made a lot of sense. :-)

Everyone else's input was very helpful too.  I think he was just feeling panicked for a minute there.  It helped for him to read so many responses with such great information to reassure him.

Title: Re: Stock Market - should I be concerned?
Post by: Psychstache on January 27, 2015, 06:58:39 PM
OP here - great news!!!  My husband has returned to his senses  (his boss should really go into sales!).  He read this thread this morning and is back on track with our original long term financial plan (which most definitely does not involve selling our investments right now).   

We are going to sell some of his company stock because we are holding too much and pay some toward our house.   We both feel comfortable with this.

Thank you all so very very much.  All of your input has really been invaluable.

That's awesome. Score one for logic and math! Take that, popular jocks!
Title: Re: Stock Market - should I be concerned?
Post by: TreeTired on January 27, 2015, 07:40:31 PM
Quote
There are people like Elaine Garzarelli who got famous for predicting the 1987 crash on television. But her later predictions were wrong. 

Have you noticed that someone calls a market crash almost every week?   Interesting how the frequency of negative forecasts increases dramatically when the market trades down for 1 or 2 days.   So every week somebody predicts a crash, week after week.  Eventually, one of these forecasters may be right,  if we actually get a CRASH and not a sustained bear market.   At that point,  this random journalist will be celebrated as a market forecasting guru!
Title: Re: Stock Market - should I be concerned?
Post by: aspiringnomad on January 27, 2015, 08:53:59 PM
What a great thread. I'm not too surprised the CFA candidate who dropped in supports market timing. I know a few CFAs and they tend to dislike passive investing. I've never asked, since they're proud of their very difficult to attain distinction (and should be), but I suspect it sometimes has to do with its effect on the fees their employers charge.

Anyway, I'll just leave this link to add a little more support to the OP and her husband staying the course: http://awealthofcommonsense.com/worlds-worst-market-timer/

Title: Re: Stock Market - should I be concerned?
Post by: Riff on January 27, 2015, 10:20:22 PM
What if the boss was just trying to trip up his employee's road to financial independence?  A bit nefarious, yeah, but it makes one wonder.  "Hey, you should buy a bigger house and a boat, and time the market with your 'stach!"
Title: Re: Stock Market - should I be concerned?
Post by: CorpRaider on January 28, 2015, 06:26:42 AM
If you can't talk him out of it tell him he should experiment first with a small account, maybe open a Roth IRA just for that and if he outperforms the market over say a decade than you can scale into his strategy. 
Title: Re: Stock Market - should I be concerned?
Post by: RapmasterD on January 28, 2015, 09:32:00 PM
Let's say you DID want to time the market. Rather than listen to the boss at work, or looking at a P/E chart, I think you'd want to look at price charts for a holding (e.g., a total stock market fund) compared to both a shorter term and a longer term moving average of that same holding. Unfortunately I can't/won't get more specific....but when I do this looking at "the market," things still look fine to me.

In other words, I think you'd want to base your decision on a consistent quantitative analysis that tells you when to get in and out - one that you won't "break" with emotion or hearsay or 'gut.'

Again, I'm not recommending timing the market per se, but am suggesting a potentially wise course if opting to do so.

LINK: http://www.investopedia.com/articles/active-trading/052014/how-use-moving-average-buy-stocks.asp
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on January 28, 2015, 10:16:20 PM
My 2 cents: tell (Command) your husband NOT to do this
The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early.

In theory, his boss is right. Hypothetical example, XYZ stock at 200. Going to 190---180---...150...---then rebounds to 190-200s again in a few weeks. If he sells at 180s and then buy those back again at 150-160s, he may have net profit even though he sold at loss. The problems are:
1) commissions - will eat up the "potential" profits
2) most of the "mini crashes" happens quickly and also recovers quickly. It is hard to find the "bottom."
3) Just because the entire market rebounds does not mean XYZ stock will rebound at the same time or to same degree.
4) % down does not equal % up. A stock that lost 10% will need to rise more than 10% to break even
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 28, 2015, 10:20:59 PM

The only time you sell when price is LOW is if you think the entire market is going to crash like 2008.

Quite possibly the worst advice I've ever seen on this forum.
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 28, 2015, 10:27:02 PM

Let's say you DID want to time the market. Rather than listen to the boss at work, or looking at a P/E chart, I think you'd want to look at price charts for a holding (e.g., a total stock market fund) compared to both a shorter term and a longer term moving average of that same holding. Unfortunately I can't/won't get more specific....but when I do this looking at "the market," things still look fine to me.

In other words, I think you'd want to base your decision on a consistent quantitative analysis that tells you when to get in and out - one that you won't "break" with emotion or hearsay or 'gut.'

Again, I'm not recommending timing the market per se, but am suggesting a potentially wise course if opting to do so.

LINK: http://www.investopedia.com/articles/active-trading/052014/how-use-moving-average-buy-stocks.asp

I've used, and seen other people attempt to use moving averages in active trading for over a decade now. It's no different than any other technical analysis, it does not work. It used to be a hobby of mine to visit active trading forums, program trading robots based on the buy/sell rules of the thread, run them against decades of historical charts, and publish the results.

On a long enough timeline, they all crashed and burned.
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on January 28, 2015, 10:34:13 PM
@ Dodge: well, sweetheart, don't do anything to your portfolio the next time market crashes.   
Title: Re: Stock Market - should I be concerned?
Post by: MDM on January 28, 2015, 11:55:40 PM
...don't do anything to your portfolio the next time market crashes.
Now that actually is very good advice!

One might improve on it a bit by rebalancing instead of holding, but simply holding beats selling once the market has crashed.

Of course if one is fortunate to have foresight glasses, selling just before the market crashes is a great strategy.  Alas, my glasses work only in hindsight....
Title: Re: Stock Market - should I be concerned?
Post by: waltworks on January 29, 2015, 01:24:56 AM
He posted a real gem of a clown question in the RE forum too asking why leverage RE wasn't a better investment than stocks since "assuming 20% down payment = you get 5x leverage. Unless it's in Florida or California, housing price is unlikely to go down."

-W


The only time you sell when price is LOW is if you think the entire market is going to crash like 2008.

Quite possibly the worst advice I've ever seen on this forum.
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 29, 2015, 07:24:28 AM

The only time you sell when price is LOW is if you think the entire market is going to crash like 2008.

Quite possibly the worst advice I've ever seen on this forum.

+1

Wow.  Just....wow.
Title: Re: Stock Market - should I be concerned?
Post by: RapmasterD on January 29, 2015, 01:19:15 PM

Let's say you DID want to time the market. Rather than listen to the boss at work, or looking at a P/E chart, I think you'd want to look at price charts for a holding (e.g., a total stock market fund) compared to both a shorter term and a longer term moving average of that same holding. Unfortunately I can't/won't get more specific....but when I do this looking at "the market," things still look fine to me.

In other words, I think you'd want to base your decision on a consistent quantitative analysis that tells you when to get in and out - one that you won't "break" with emotion or hearsay or 'gut.'

Again, I'm not recommending timing the market per se, but am suggesting a potentially wise course if opting to do so.

LINK: http://www.investopedia.com/articles/active-trading/052014/how-use-moving-average-buy-stocks.asp

I've used, and seen other people attempt to use moving averages in active trading for over a decade now. It's no different than any other technical analysis, it does not work. It used to be a hobby of mine to visit active trading forums, program trading robots based on the buy/sell rules of the thread, run them against decades of historical charts, and publish the results.

On a long enough timeline, they all crashed and burned.

Yup. I tend to agree. Really I do. Most people should simply stay 'in'....

LINK: http://dqydj.net/sp-500-return-calculator/   -- I love playing around with this to make myself feel good about that.

HOWEVER:

a) What I'm thinking of is not a model for "active trading" but a longer term quantitative indication of when to get in and when to get out...an indicator that has you in most of the time and may have you dumping out every few years...and not every few months/weeks/days.

b) That said, taxes COULD fuck you over on this model if you're dealing with a large stock portfolio...meaning that with taxes alone you could be better off simply staying in, unless you selectively only sell lots where you have a loss;

c) At its best, what I'm thinking of is still a blunt butter knife. You WILL still have exposure on the downside. You WILL miss some upside.
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on January 29, 2015, 03:23:02 PM
@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.
Title: Re: Stock Market - should I be concerned?
Post by: Eric on January 29, 2015, 03:52:03 PM
I think the "trick" is to not do it unless you have a crystal ball.  Which you might, but probably don't.  Otherwise, you're just guessing.  Please remember, time in the market is much more important than timing the market.  Trying to jump out and in every time there's a change will leave you on the sidelines way too often and frankly is a sucker's bet.  The quicker you learn that you can't predict the future, the better investor you'll be.

I mean, you're welcome to attempt this on your own.  No one gives a shit.  Just don't advise others that it's somehow an beneficial strategy.  You have the google, right?  Read some of the gazillion articles about this.

Wait, you aren't NewPerspective's husband's boss are you?
Title: Re: Stock Market - should I be concerned?
Post by: Dodge on January 29, 2015, 03:54:17 PM
@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

I would highly advise any investing newbies to disregard this advice.  If you sell every time the market goes down 15%, you'll be selling out your entire portfolio every few years or so, without any concrete way of knowing when to get back in.  This is quite literally the most damaging, wealth destroying advice this forum has seen in quite some time.
Title: Re: Stock Market - should I be concerned?
Post by: RapmasterD on January 29, 2015, 04:10:50 PM
@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

I would highly advise any investing newbies to disregard this advice.  If you sell every time the market goes down 15%, you'll be selling out your entire portfolio every few years or so, without any concrete way of knowing when to get back in.  This is quite literally the most damaging, wealth destroying advice this forum has seen in quite some time.

This is where I suggest "investing newbies" put all their money.

Invest in alpaca farms. They are the money-making wave of the future. Get in now while there is still time. You can shear these puppies once per year and make killer profits at flea markets from selling alpaca sweaters, alpaca scarves, alpaca mittens, alpaca socks, etc. Nothing says warm and snuggly-poo like....alpaca. #creepyalpacamanlove

Or...you could just buy and hold VOO (S&P 500 ETF) forever. It's up to you.

(http://justsomething.co/wp-content/uploads/2014/01/hilarious-alpaca-hairstyles-15.jpg)
Title: Re: Stock Market - should I be concerned?
Post by: NoraLenderbee on January 29, 2015, 04:57:56 PM

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

Selling at -15% works if you know that the market is going down further. But how would you know, at the time? If the market then goes -30%, you need a time machine to buy at -15%.
You're getting chaff because it sounds like you're telling people to either predict the future, or to sell low and buy high.
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 29, 2015, 05:07:12 PM
@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

I said "The only time you sell when price is LOW is if you think the entire market is going to crash like 2008. Even then you have to do this early. " Did you miss the entire second part which is crucial?

Yes, when the entire market went down by 15%, it would have been smarter to sell off stocks and then wait until market recovers on solid footing. (Please also try to comprehend in such a severe financial crash, a lot of companies will go bankrupt.)
The trick is to do early. If you wait when the stocks were down by 30%, it's already too late.

I didn't 'selectively read' anything....all I did was agree with someone who said that was terrible advice.   I second eric...you're welcome to do what you like.  But advocating this as a 'good' strategy is contrary to vast amounts of market research. 

The inherent problem with this is that it's very easy to say that would have been a good idea with 20/20 hindsight.  Nobody is disputing that you are theoretically better off if you sell early into a major crash and then rebuy near the bottom.  But NOBODY KNOWS if you're near the bottom or just getting going.  What if you decide 15% is your magic sell number and the market only ends up going down 16% before surging back...sucks to be that guy I guess (or was he also supposed to have the insight to buy back in?).  Nobody knows what 'early' is, nor do you know when it's about done and time to get back in.   Theories are well and good but that's why this doesn't realistically work well for almost anybody IN ACTUAL PRACTICE.

Your own reasoning on this miracle strategy doesn't even make any sense as you seem to have picked the numbers totally arbitrarily.  Selling at 15% is great but 30% is too late?  Why??  The S&P crashed from a high of about 1550 down to a low right around 700 before it reversed.  About a 55% drop.  If you sold at 30% down that was only a little over halfway through the plummet...why is that apparently the point of being 'too late'...think of all the money people could have saved avoiding that last full 25% of pounding before they bought back in!

Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 29, 2015, 05:12:22 PM

Wait, you aren't NewPerspective's husband's boss are you?

Hahaha...well done.

He can't be, though.  The boss' amazing strategy was to sell right at these market highs before the impending crash even starts, not when we're already 15% down.
Title: Re: Stock Market - should I be concerned?
Post by: waltworks on January 29, 2015, 06:11:24 PM
As long as you don't try to time the Alpaca market - just go for a broad craft and flea market index fund like VTJNK.

-W
Title: Re: Stock Market - should I be concerned?
Post by: trailrated on January 29, 2015, 06:26:08 PM
@waltworks: I am going to ignore you. Completely. 
@Terrestrial: Please do not try selective reading. It makes you sound unintelligent.

Anyone else find this to be hilarious paired together?
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on January 29, 2015, 06:31:31 PM
@NoraLenderbee @Terrestrial

Think of this as a loss minimization strategy. Of course, when the market is good like right now, you are not going to use it.
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.
Why not 30, 40% 50%, etc? Because You can't predict the bottom ( see below) and it might be already too late.

How do you know when it bottomed out? You can't. You just wait (at least 3+ months) and see if the whole market is rising in a CONSISTENT fashion. (Take weekly prices or SMA50/200 to see the larger trend.)

To those with reading disability: I am NOT suggesting you buy high and sell low. I am suggesting a road plan when crisis strikes.

Btw, did everyone miss the part that I actually spoke against NewPerspective's husband's boss' plan and gave 4 good reasons why that would be idiotic?
Title: Re: Stock Market - should I be concerned?
Post by: NewPerspective on January 29, 2015, 06:51:14 PM

Wait, you aren't NewPerspective's husband's boss are you?

Bahahahahaha!!!


And now I want an Alpaca - freaking adorable!  who knew?!?!

In other news, it is really amazing how emotional investing is (I mean yes, of course it is but wow). My husband is right back to his sensible reasonable self, but he temporarily went insane!

We did sell company stock on Wednesday (although there was some question of, omg, should we have waited, will it go back up soon?!?) and all feels peaceful.  Our regular Vanguard investment is scheduled for Friday as usual.  :-)
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 29, 2015, 07:01:43 PM
@NoraLenderbee @Terrestrial

Think of this as a loss minimization strategy. Of course, when the market is good like right now, you are not going to use it.
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.
Why not 30, 40% 50%, etc? Because You can't predict the bottom ( see below) and it might be already too late.

How do you know when it bottomed out? You can't. You just wait (at least 3+ months) and see if the whole market is rising in a CONSISTENT fashion. (Take weekly prices or SMA50/200 to see the larger trend.)


There are so many things wrong with these broad generalizations/assumptions about percentages and time frames of market movement that I'm not going to tackle them.  Since you seem pretty set in your ways I really hope you try this to 'minimize your losses'.

This is what I will say.  You are dead wrong that this is a 'loss minimization strategy'.  What you advocate is a loss guarantee strategy. Let me explain.  By selling at 15% down you guarantee that you are selling at 15% less (this may or may not be 'losses' depending on your basis, but the point remains) and are locking that in.  Perhaps you will time it well enough to buy back lower and it works out.  Many credible studies have postulated that you won't, at least not consistently. 

Let's be clear, paper losses are not losses.  They are an adjustment to current value of an asset.  If you don't sell it you haven't lost anything.  If you HAVE to sell it you were probably investing money you shouldn't have so sucks for you and better luck next time. 

You know who didn't lose anything in the financial collapse?  Me...and probably a lot of other people on this forum, who left our accounts alone and now have a minimum of 35% more money than in 2007 by not doing stupid stuff.  For those smart enough to leave their accounts alone and also buy regularly on the way down and back up that return is substantially more.

Warren Buffett and countless other professional, successful investors have written extensively about how this type of scheme is total poppycock, fyi.  As a quick anecdote, Buffett's preferred holding period is a one word answer, forever, not 'until the market goes down 15% which probably means it's not just a nuisance pullback but a major crash so sell because the financial system is collapsing but be sure to buy again after the market is stable for 3 months and hopefully that's lower than where you sold but maybe not.' 
Title: Re: Stock Market - should I be concerned?
Post by: waltworks on January 29, 2015, 07:07:31 PM
The whole market can drop steadily for several weeks and then... anything can happen. Yesterday, or last week, or last year do not predict anything about how the market will behave going forward. 10%, 15%, 20% drop - doesn't matter. It can plummet the next day or skyrocket for the next decade.

It is, for all practical purposes, random, with (thus far) a historical upward trend. That is a great environment for simply investing the most you can, whenever you can.

-W

@NoraLenderbee @Terrestrial
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 29, 2015, 07:31:50 PM

Think of this as a loss minimization strategy. Of course, when the market is good like right now, you are not going to use it.
But if the WHOLE  market (not just specific sectors) does drop in a steady fashion over several weeks, pretty reasonable to say its a financial crash rather than a nuisance pullback. Why 15-20%? Because smaller percentage would include volatility and pullbacks.
Why not 30, 40% 50%, etc? Because You can't predict the bottom ( see below) and it might be already too late.


Want to know when the last time the market dropped 15-20%?  Mid 2011, after the market had been recovering nicely out of the bottom of the collapse.  Since according to our arbitrary guidelines we now know that it wasn't a nuisance pullback but rather an indication of another financial collapse, hopefully everyone bailed.

Except that the market bottomed quickly at almost exactly 20% down and has since gone on to surge 85% in an almost uninterrupted straight line with minimal pullbacks for the last 3.5 years.  Wouldn't have wanted to be in the market for that almost doubling up of money.

Solid advice on loss mitigation.  I think you forgot to mention all the gain mitigation that can go on as well.
Title: Re: Stock Market - should I be concerned?
Post by: Riff on January 29, 2015, 07:41:45 PM
Reminds me of what Jack Bogle had to say about the market.


(http://www.voninsphotography.com/personal/BOGLE.jpg)
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on January 29, 2015, 08:02:02 PM
@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better. 

That being said, I do agree that "hold and it will recover" method is a sound advice even though it may not the best advice. On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.) The trick is to separate fear (pullback) from real disaster (financial crash). Let's not forget that you have to take action VERY quickly. Once the decline is further (e.g.  to 30%) then you have no choice but to hold and pray.

Lets end this in a civil fashion. Lets all just agree to disagree and agree that NewPerspective's husband's boss gave the wrong advice.
Title: Re: Stock Market - should I be concerned?
Post by: waltworks on January 29, 2015, 08:29:14 PM
Dude, coming here with chump stuff like this is just going to get you mocked.

Your method can easily be backtested. Go do it. Then compare to holding. You will lose, horribly, even before accounting for all the taxes and fees you'll pile up. I'm too lazy (and I'm not sure what your rule for buying back in is) and I assume Dodge is too because this comes up so often but you're new here so - go read some other "can I beat the market" threads before you chime in again.

-W
Title: Re: Stock Market - should I be concerned?
Post by: Kstar on January 29, 2015, 09:33:27 PM
Well, this has been a fascinating read.  I too am trying to educate myself about all of this, but my knowledge is also very superficial.  Assuming people still have the energy to continue to contribute to this thread,  I have a question for you.

Some background..

I just recently sold some index funds with the intention to turn around and re-invest through a Questrade RRSP (yes, I'm Canadian)  account.  I'm doing this to get some tax relief (I haven't been so great at consistently contributing to the RRSP this year) and also to get out of an arrangement with an MER that is too high for my taste.   

Perhaps the answer to this question is obvious, but should I reinvest right now?

I'm the first to admit I'm quite the novice about all of this - any advice is most appreciated!





Title: Re: Stock Market - should I be concerned?
Post by: skyrefuge on January 29, 2015, 09:36:25 PM
That being said, I do agree that "hold and it will recover" method is a sound advice even though it may not the best advice. On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.) The trick is to separate fear (pullback) from real disaster (financial crash). Let's not forget that you have to take action VERY quickly. Once the decline is further (e.g.  to 30%) then you have no choice but to hold and pray.

Let's see, eyeballing the S&P 500 chart, outside of what I assume you consider the two "crashes" of the 2000s, it had >15% declines in 2011, 2010, 1990, and 1987, none of which were harbingers of further losses. So your system maybe works 2 out of 6 times, assuming you also know when to get back in?

Oh god, this is so dumb.

And no, I will not agree to disagree. Normally, I would say "this guy's advice is so patently and obviously dumb that there's no need to point out its dumbness; everyone here is smart enough to see that on their own". But the fact that you're here giving such advice makes me question that premise, so I am forced to speak.
Title: Re: Stock Market - should I be concerned?
Post by: skyrefuge on January 29, 2015, 09:40:55 PM
Perhaps the answer to this question is obvious, but should I reinvest right now?

Yes. Both "yes it's obvious", and "yes you should reinvest right now". :-)

(disclaimer: I don't know much about Canadian tax optimization. But it seems like your goal was to reduce your tax exposure and your expenses, and if you can do that without changing your basic investment plan, then fantastic!)
Title: Re: Stock Market - should I be concerned?
Post by: CanuckExpat on January 29, 2015, 09:46:34 PM
Nope don't do it. Smile and politely nod, tune him out and don't listen.
Stay the course (http://www.bogleheads.org/blog/bogleheads-principles-stay-the-course/), stay the course, stay the course..
Title: Re: Stock Market - should I be concerned?
Post by: dividendman on January 29, 2015, 09:59:33 PM
@goodrookie - I hope, for your sake, you're trolling.
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 29, 2015, 10:01:01 PM
@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

Do you even think about how ridiculous some of these things sound before you write them?  All i said is the people who didn't sell didn't lose any money and thus didn't need their 'losses mitigated'. 


almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better.

On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.)

Ah...i didn't know that the arbitrary rules don't work if the drop happens TOO quickly.  How silly of me. Just so I'm prepared to mitigate my losses next time, now i know that impending doom is only if the drop takes 6-8 weeks, not 1 month.  What about 10 weeks?  Too long? 

BTW I didn't have to go to any 'fancy studies' to point out why your method is ridiculous.  I looked at a chart for 3 minutes and picked out the most recent period where your advice probably would have really screwed someone.  I'm sure there are many more but it's not worth the effort to look. 
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on January 29, 2015, 10:05:15 PM
@goodrookie - I hope, for your sake, you're trolling.

I kind of think he is...the question he posed about real estate was almost as bad. 

I keep responding because it's fun to read what he writes though. :)
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on January 29, 2015, 11:46:04 PM
@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

Do you even think about how ridiculous some of these things sound before you write them?  All i said is the people who didn't sell didn't lose any money and thus didn't need their 'losses mitigated'. 


almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better.

On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.)

Ah...i didn't know that the arbitrary rules don't work if the drop happens TOO quickly.  How silly of me. Just so I'm prepared to mitigate my losses next time, now i know that impending doom is only if the drop takes 6-8 weeks, not 1 month.  What about 10 weeks?  Too long? 

BTW I didn't have to go to any 'fancy studies' to point out why your method is ridiculous.  I looked at a chart for 3 minutes and picked out the most recent period where your advice probably would have really screwed someone.  I'm sure there are many more but it's not worth the effort to look.

Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

It's not a rocket science.
Title: Re: Stock Market - should I be concerned?
Post by: rpr on January 30, 2015, 12:07:53 AM


Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

It's not a rocket science.

goodrookie -- Just for discussion sake, can you quantify your exit and re-entry conditions please?

It sounds like Exit is when both i)  the drop is 20% and ii) 3 months have gone by.
Entry -- later?? Did you say, wait for the market to have a 3 month gain? How much should this gain be -- 10%? 20%?
Title: Re: Stock Market - should I be concerned?
Post by: innerscorecard on January 30, 2015, 12:11:43 AM
Discussions like these are why I always recommend that people first completely understand the efficient-market hypothesis. It's not 100% true, but it needs to be your starting point. Otherwise you'll end up saying some laughable things.

(I talk about why in detail in my most recent blog post.)
Title: Re: Stock Market - should I be concerned?
Post by: RapmasterD on January 30, 2015, 01:32:25 AM
innerscorecard - I'm keeping a tab open with your blog. It's quite good. I like your writing style and tone.
Title: Stock Market - should I be concerned?
Post by: Dodge on January 30, 2015, 07:40:30 AM
@Terrestrial: You know who didn't lose anything in the financial collapse? People who held cash. If you are going to go base  your policy by anecdote, then it's better to hold cash!

Do you even think about how ridiculous some of these things sound before you write them?  All i said is the people who didn't sell didn't lose any money and thus didn't need their 'losses mitigated'. 


almost a good example - 16% drop over 1 month. (btw, problem with this example is that the decline is too rapid.) Now, let's try this over long horizon. After all, why bother inferring to all the fancy studies to prove your point when you use only one to disprove mine? It's all about averages, isn't it? Pick a random 10-15 year time period and see which loss prevention method is better.

On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come. (Use 20% and 8 weeks to increase the sensitivity if you are risk adverse.)

Ah...i didn't know that the arbitrary rules don't work if the drop happens TOO quickly.  How silly of me. Just so I'm prepared to mitigate my losses next time, now i know that impending doom is only if the drop takes 6-8 weeks, not 1 month.  What about 10 weeks?  Too long? 

BTW I didn't have to go to any 'fancy studies' to point out why your method is ridiculous.  I looked at a chart for 3 minutes and picked out the most recent period where your advice probably would have really screwed someone.  I'm sure there are many more but it's not worth the effort to look.

Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

It's not a rocket science.

Since it seems your wealth-destroying advice has piqued the interest of some other posters, I feel compelled to continue.

"On AVERAGE, 15-20% drop over 6-8 weeks is a harbinger of more bad things to come."

So you acknowledge half the time you're wrong?  Please post detailed analysis of:

1.  What your rules are for reentry
2.  How often you would've been right over the last 150 or so years
3.  How often you would've been wrong over the last 150 or so years
4.  How much you gain on average when you're right
5.  How much you lose on average when you're wrong
6.  Show us a graph of the best success
7.  Show us a graph of the worst failure

If you don't have this information, you have no basis to make these claims.
Title: Re: Stock Market - should I be concerned?
Post by: Eric on January 30, 2015, 08:37:57 AM
Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

Ahhh, yes.  The classic "I'll know it when I see it strategy".  I bet you're first person to ever devise something so clever.  There probably isn't even anything written on this subject since it's such a new and innovative idea.  Oh, wait....

http://www.forbes.com/sites/rickferri/2014/06/12/the-problem-with-market-timing/
http://www.marketwatch.com/story/why-market-timing-doesnt-work-2013-10-23
http://www.usatoday.com/story/money/columnist/waggoner/2014/09/25/how-to-ease-market-worries/16218337/
http://www.wsj.com/articles/bad-stock-market-timing-fueled-wealth-disparity-1414355341
http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work
http://www.kiplinger.com/article/investing/T052-C016-S001-resist-the-folly-of-market-timing.html
http://online.barrons.com/articles/SB50001424052748704836204578354851782592898
http://moneymorning.com/2014/12/11/the-secret-about-market-timing-i-wish-everyone-knew/
http://www.mainstreet.com/article/investors-must-refrain-from-market-timing-to-avoid-pitfalls
http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion

But no.  All of us and all of the experts, we're all wrong.  Everyone else is wrong but you.  Of course.
Title: Re: Stock Market - should I be concerned?
Post by: waltworks on January 30, 2015, 09:20:17 AM
I use a similar technique with roulette. If I can detect where the ball is going to go before it happens, I will be able to make a fat profit!

It's not rocket science.

-W

But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss.
It's not a rocket science.
Title: Re: Stock Market - should I be concerned?
Post by: DoubleDown on January 30, 2015, 10:26:59 AM
@goodrookie: If what you are suggesting was possible, you would clearly be a billionaire. You keep saying "it's not rocket science," but none of the brightest minds on Wall Street has been able to pull off what you are advocating. Any of the major investment houses will happily put you in their employ and pay you multi-millions to show them what you know about when to exit the market, and when to re-enter.
Title: Re: Stock Market - should I be concerned?
Post by: RapmasterD on January 30, 2015, 11:26:19 AM
Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

Ahhh, yes.  The classic "I'll know it when I see it strategy".  I bet you're first person to ever devise something so clever.  There probably isn't even anything written on this subject since it's such a new and innovative idea.  Oh, wait....

http://www.forbes.com/sites/rickferri/2014/06/12/the-problem-with-market-timing/
http://www.marketwatch.com/story/why-market-timing-doesnt-work-2013-10-23
http://www.usatoday.com/story/money/columnist/waggoner/2014/09/25/how-to-ease-market-worries/16218337/
http://www.wsj.com/articles/bad-stock-market-timing-fueled-wealth-disparity-1414355341
http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work
http://www.kiplinger.com/article/investing/T052-C016-S001-resist-the-folly-of-market-timing.html
http://online.barrons.com/articles/SB50001424052748704836204578354851782592898
http://moneymorning.com/2014/12/11/the-secret-about-market-timing-i-wish-everyone-knew/
http://www.mainstreet.com/article/investors-must-refrain-from-market-timing-to-avoid-pitfalls
http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion

But no.  All of us and all of the experts, we're all wrong.  Everyone else is wrong but you.  Of course.

The Paul Merriman article (second link) and the additional article from him that is linked to within the article are both brilliant. I would recommend a careful, deliberate and unemotional reading of these two...
Title: Re: Stock Market - should I be concerned?
Post by: innerscorecard on February 02, 2015, 08:27:15 PM
I use a similar technique with roulette. If I can detect where the ball is going to go before it happens, I will be able to make a fat profit!

It's not rocket science.

-W

But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss.
It's not a rocket science.

It's actually funny you mention that. I have been reading about how Ed Thorpe, who later became a hedge fund manager, used Newtonian physics to model roulette and was able to get a good edge, by using wearable computing devices on his body. The casinos almost killed him for that, of course.
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on February 03, 2015, 06:58:44 PM
Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.
Title: Re: Stock Market - should I be concerned?
Post by: Eric on February 03, 2015, 07:08:14 PM
Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.

Isn't the whole goal of hitch hiking to get a ride in a car?
Title: Re: Stock Market - should I be concerned?
Post by: waltworks on February 03, 2015, 07:09:58 PM
GR's baaaack!

Woo!

-W

Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on February 03, 2015, 07:24:05 PM
Yes, you should hitch hike rather than drive to work because statistic has shown that you are more likely to die in a car accident than get killed by a stranger. So, shut your brain and let the law of average work out for you.

Isn't the whole goal of hitch hiking to get a ride in a car?

Eric, I'm slow clapping for you right now. 
Title: Re: Stock Market - should I be concerned?
Post by: goodrookie on February 03, 2015, 07:37:12 PM
Hitch hiking and car accident together are rarity. I have never read on the news XYZ died in a car crash while she was hitch hiking.
Title: Re: Stock Market - should I be concerned?
Post by: DutchGirl on February 15, 2015, 12:12:12 PM
We are going to sell some of his company stock because we are holding too much and pay some toward our house.   We both feel comfortable with this.

That is actually a very good idea. You don't want too much of your money into the stock of the company you also work for. That is not diversified... So good for you guys, cashing some of it in and putting it somewhere where it will reduce your expenses, making you even more able to weather some storms...
Title: Re: Stock Market - should I be concerned?
Post by: kudy on February 15, 2015, 12:24:39 PM
I think it's the other way around... hitch hiking somehow eliminates the dangers of riding in a car, for the hitch hiker.
Title: Re: Stock Market - should I be concerned?
Post by: dungoofed on February 15, 2015, 03:09:19 PM
"Don't risk it. Pick up a hitch hiker today" - I can sense a new road safety advertising campaign.
Title: Re: Stock Market - should I be concerned?
Post by: Runge on February 15, 2015, 03:36:28 PM
"Don't risk it. Pick up a hitch hiker today" - I can sense a new road safety advertising campaign.

So how can we apply this to stock picking? Is there a hitch hiking index fund I can buy when things are feeling gloomy out?
Title: Re: Stock Market - should I be concerned?
Post by: SK Joyous on February 15, 2015, 03:56:00 PM
Dodge, Terrestrial, Eric et al. I just love you guys, you are awesome. If people want to mess up their own finances by timing the market, there's only so much others can do to help - but thank you for stepping in so others don't follow their horrible advice. Lifetime index investor, buying ETFs for free from Questrade, and rebalancing upon contribution every quarter - I'm very happy to be an educated investor, and wish it for everyone
Title: Re: Stock Market - should I be concerned?
Post by: ChrisLansing on February 15, 2015, 04:58:33 PM
From what I've read on Joshua Kennon's site for beginning investors it would be a really bad idea to try to time the market.   

I can give you an example of my own stupidity - I reallocated my 403b to all savings because I was upset at having taken losses on stocks several years ago.     Like you I didn't really pay all that much attention to the market.   I got out when it was obvious even to my dog that the market was down.    I didn't get back in until it was obvious even to my dog that the market had rebounded - I missed a lot of upward momentum.     I'd have been better off just letting everything ride out the duration of the ups and downs of the market.     I lost a couple thousand and am just now back to where I was.      Live and learn.   

What your husband contemplates doing is essentially the same thing I did.   He may be smarter than me (who isn't?)  but he still may sell out too soon and buy back in too late.    A lot of really brilliant people have tried to time the market and failed.     

I notice even someone as savvy as Joshua Kennon (or for that matter Warren Buffet) never sell all their stock then buy back into the market later.    They buy and sell individual stocks when it seem appropriates (given their knowledge of the market and their individual stocks  - knowledge which you and your hubby do not possess) but they don't just sell their entire portfolio when they think the market is going down (in fact I think that is when they buy).

Can you talk hubby into doing what he plans with only 10% of the total portfolio?   That way you guys won't get hurt too bad and he can see if it was a winning strategy or not on 10% of the stash rather than all of it.   

But don't listen to me, listen to the experienced people here who are telling you don't do this. 
Title: Re: Stock Market - should I be concerned?
Post by: Cheddar Stacker on February 15, 2015, 09:26:18 PM
innerscorecard - I'm keeping a tab open with your blog. It's quite good. I like your writing style and tone.

+1.

Thanks for the recommendation. Good stuff.
Title: Re: Stock Market - should I be concerned?
Post by: phillyvalue on February 15, 2015, 09:51:52 PM
I don't know that any of the great value investors - guys like Buffett, Seth Klarman, etc - have ever tried to time the market themselves. Their philosophy is to buy undervalued stocks or other assets when they can. If they can't buy something at what they perceive is an attractive price, then they don't buy anything. The consequence of this is that you will, on average, see guys like Klarman holding significant cash near market tops, not because they are making a macro call, but because they are unable to find things attractive enough to buy. For index investors, this philosophy doesn't make sense. Market timing is making a macro call, which few would argue is a successful strategy.
Title: Re: Stock Market - should I be concerned?
Post by: Runge on February 15, 2015, 09:56:25 PM
Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

Ahhh, yes.  The classic "I'll know it when I see it strategy".  I bet you're first person to ever devise something so clever.  There probably isn't even anything written on this subject since it's such a new and innovative idea.  Oh, wait....

http://www.forbes.com/sites/rickferri/2014/06/12/the-problem-with-market-timing/
http://www.marketwatch.com/story/why-market-timing-doesnt-work-2013-10-23
http://www.usatoday.com/story/money/columnist/waggoner/2014/09/25/how-to-ease-market-worries/16218337/
http://www.wsj.com/articles/bad-stock-market-timing-fueled-wealth-disparity-1414355341
http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work
http://www.kiplinger.com/article/investing/T052-C016-S001-resist-the-folly-of-market-timing.html
http://online.barrons.com/articles/SB50001424052748704836204578354851782592898
http://moneymorning.com/2014/12/11/the-secret-about-market-timing-i-wish-everyone-knew/
http://www.mainstreet.com/article/investors-must-refrain-from-market-timing-to-avoid-pitfalls
http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion

But no.  All of us and all of the experts, we're all wrong.  Everyone else is wrong but you.  Of course.

I came across this today and the first section reminded me of this thread.http://scottberkun.com/essays/40-why-smart-people-defend-bad-ideas/
Title: Re: Stock Market - should I be concerned?
Post by: dungoofed on February 15, 2015, 10:22:25 PM
I don't know that any of the great value investors - guys like Buffett, Seth Klarman, etc - have ever tried to time the market themselves. Their philosophy is to buy undervalued stocks or other assets when they can. If they can't buy something at what they perceive is an attractive price, then they don't buy anything. The consequence of this is that you will, on average, see guys like Klarman holding significant cash near market tops, not because they are making a macro call, but because they are unable to find things attractive enough to buy. For index investors, this philosophy doesn't make sense. Market timing is making a macro call, which few would argue is a successful strategy.

Interesting. Two points that come to mind:

1) One of the inputs to value investing screeners is usually bond yield so these formulas are not operating in a vacuum. The moment a central bank does something, the formulas have taken it into account.

2) If an index investor has a target percentage in another uncorrelated asset class then they will naturally buy less at the peak as they need to spend more money topping up their underperformer.

Title: Re: Stock Market - should I be concerned?
Post by: hoppy08520 on February 16, 2015, 08:06:39 AM
Did the boss also tell your DH that you should bet on the horse that wins the race?

And that you drive in the lane that is not the one behind the truck that blows up?

And that you shouldn't take a job if the company is going to lay you off in a few months?

Do you see a pattern?

Yes, all good ideas, but the problem is you don't know these in advance.
Title: Re: Stock Market - should I be concerned?
Post by: hoppy08520 on February 16, 2015, 08:13:03 AM
Your husband's boss reminded me of this excellent thread on Bogleheads:
Bogleheads ē View topic - Help: Girlfriend's Dad Believes She Should Time the Market (http://www.bogleheads.org/forum/viewtopic.php?f=1&t=99890):
Quote
Several weeks later [my girlfriend] mentioned to her Dad that she had begun contributing to her 401k. This is where the problem started. He advised her that she should put 100% of her contributions into the money market and he would tell her when the market was high or low and based on his judgement when it was "low" he will tell her when to move some of money into one of these funds so she didn't buy into the market when it was "high". Basically like many people he believes that he has an idea when the market his high or low and can time the market.
Anyone who knows anything about investing realizes that this dad and your husband's boss are this guy's girlfriend's father are the same guy.

Here's what John Bogle, founder of Vanguard, has said about market timing:
Quote from: John C. Bogle
After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I donít even know of anybody who knows anybody who has done it successfully and consistently.
So if Boss guy is smarter than John Bogle, why isn't he running a Wall Street firm from his yacht?
Title: Re: Stock Market - should I be concerned?
Post by: mrshudson on February 17, 2015, 09:25:39 PM

I look at the Shiller P/E, and according to it, we are high.

Please understand what that the P/E ratio means. A ratio/fraction can be high as a result of two things: a) numerator being high and b) denominator being low. If you do look historically, a lower E in the P/E corresponds to a lower return (look for say, "real earnings" overlay in Indexview). The higher P/E is sometimes as a *result* of E (in the denominator) being lower, rather than being a *cause* of lower return or a predictor of market crash. So yes, a higher than average P/E (frequently as a result of lower than average "E") may be correlated with a lower than average return, but a higher P/E alone is no indicator of a market crash. You need to look into the E in addition to the P/E. And I won't even get into being able to predict the "average shiller p/e" accurately to determine whether we are currently "high".

Sorry if I sound professorial, but this is the third time in the same day I'm encountering the "Shiller P/E is too high, so stocks are overpriced -> MARKER CRASH!", so I felt the compulsive need to clarify. :)


Title: Re: Stock Market - should I be concerned?
Post by: YoungInvestor on February 17, 2015, 10:12:47 PM

I look at the Shiller P/E, and according to it, we are high.

Please understand what that the P/E ratio means. A ratio/fraction can be high as a result of two things: a) numerator being high and b) denominator being low. If you do look historically, a lower E in the P/E corresponds to a lower return (look for say, "real earnings" overlay in Indexview). The higher P/E is sometimes as a *result* of E (in the denominator) being lower, rather than being a *cause* of lower return or a predictor of market crash. So yes, a higher than average P/E (frequently as a result of lower than average "E") may be correlated with a lower than average return, but a higher P/E alone is no indicator of a market crash. You need to look into the E in addition to the P/E. And I won't even get into being able to predict the "average shiller p/e" accurately to determine whether we are currently "high".

Sorry if I sound professorial, but this is the third time in the same day I'm encountering the "Shiller P/E is too high, so stocks are overpriced -> MARKER CRASH!", so I felt the compulsive need to clarify. :)

P/E is historically high, which does mean that we are paying more money for $1 of profit than we used to, but bond yields are historically low. Shiller P/E doesn't seem so far out of whack with this taken into account.
Title: Re: Stock Market - should I be concerned?
Post by: DavidAnnArbor on February 17, 2015, 10:58:13 PM
The earnings in the Schiller P/E goes back ten years I believe, which included a very difficult time for company earnings. If we don't undergo a recession by 2020 the Schiller P/E might revert back to a lower number as it no longer includes those poor earnings years of 2008 and 2009.
Title: Re: Stock Market - should I be concerned?
Post by: Terrestrial on February 18, 2015, 08:23:34 AM
The earnings in the Schiller P/E goes back ten years I believe, which included a very difficult time for company earnings. If we don't undergo a recession by 2020 the Schiller P/E might revert back to a lower number as it no longer includes those poor earnings years of 2008 and 2009.

+1

It's worth looking at it with some context and not a blanket rule, given the inordinately deep and prolonged nature of this more recent recession/stangnant recovery versus what could be considered a more 'normal' economic cycle.
Title: Re: Stock Market - should I be concerned?
Post by: Mighty-Dollar on February 18, 2015, 03:35:29 PM
Timing the market is a fools game more of often than not. You are more likely to get it wrong. Instead just stay constantly diversified.

Nobody but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time." - John Markese, President, American Association of Individual Investors Journal

"There is an overwhelming body of evidence to support the view that believing in the ability of market timers is the equivalent of believing astrologers can predict the future." - Larry Swedroe, Author

"I donít believe in market timing. Iíve been around this business darn near a half-century, and I know I canít do it successfully. In fact, I donít even know anyone who knows anyone who has ever successfully timed the market over the long term." - John Bogle, Founder of The Vanguard Group
Title: Re: Stock Market - should I be concerned?
Post by: jmusic on February 18, 2015, 05:08:15 PM
Unlikely, as the dividends increase as the market drops...

Actually, I don't think this is true. 

Yes, the "Yield" increases but if you're already invested (and suffering the decline) then YOUR yield should be based on your purchase price, not the current price (which the news outlets would report). 

If you're automatically reinvesting, you'll also buy more shares due to the lower price.