Why I am reducing mkt exposure+have been since 2015.

[MrDelane]

That is a lot of money for a janitor that never made more the $14 an hour at JC Penny.

Maybe he did invest $500 a month. Im going to guess that will Murphy involved-- he invested less than that. That is a guess. Not exactly science. Although all his dividends were set to pay out in cash and he frequently used direct stock purchases.

You're probably right that he didn't invest $500 a month.
I guess my point was that if you were in a position to invest that much (and considering many have car payments that are that much, I don't think its out of the question) you can reach his 8.5 million mark with much less risk.  Though this does highlight the fact that without knowing how much he actually invested, it is difficult to know how much better he did compared to a basic index strategy.

Also, not to nitpick, but from what I've been able to find about him he reinvested all dividends.
He also bought a variety of sectors, in order to diversify.  He also bought and held for the long term.

Looking at it in the broad strokes, his 'method' doesn't seem all that different from indexing - except for the fact that he took on more risk and was lucky enough to wind up on top.  I'm not saying it's not possible, I'm just saying there is a reason he made the news.

Of course, in the end, I guess no one writes articles about the people who don't beat the market after 62 years of investing.

[steveo]

That example sounds great but its one example. You expect that to happen. Will it occur again - maybe but maybe not.

[Telecaster]

Maybe he did invest $500 a month. Im going to guess that will Murphy involved-- he invested less than that. That is a guess. Not exactly science. Although all his dividends were set to pay out in cash and he frequently used direct stock purchases.

Even if he did $300/month he should have been able to amass $8MM over that time period, just with normal market returns.

The extraordinary part is that very few people have the discipline to do it. His investment returns were pretty normal.

[Retire-Canada]

Of course, in the end, I guess no one writes articles about the people who don't beat the market after 62 years of investing.

Yup. This is why anecdotes are not particularly strong evidence of anything.

[MrDelane]

Yup. This is why anecdotes are not particularly strong evidence of anything.

Reminds me of one of my favorite sayings, 'the plural of anecdote is not data.'

[Aphalite]

except for the fact that he took on more risk and was lucky enough to wind up on top.

Please separate the vehicle (an index) from the actual process. Just because you're buying an index versus someone who is buying a diversified basket of stocks, doesn't mean your index is less risky. Your current index is full of junk like Facebook, Amazon, and Netflix as top holdings (not to mention shipbuilders, aluminum, paper, and steel companies). Depending on the basket of stocks you are comparing it to, it's MORE risky, not less. In 2008, it held the same Lehman/Bear Stearns stocks Ronald Reed did. In 2001, it was full of startup tech companies with no real earnings. You get the idea.

When you buy an index, you're buying the diversified basket of stocks someone else picked, don't delude yourself into thinking that a total market index is "safer" than the basket of stocks Ronald Reed held just because you hold a higher number of stocks. The diversification benefit goes away after 20 to 30 stocks (the studies that say 100 stocks isn't enough is choosing haphazardly from the total universe of stocks, which includes stocks that are making no money with debt higher than liquid assets, whereas the earlier diversification studies put stringent criteria related to earnings and capital structure in place for its studies, so you should be able to see logically why later studies concluded there wasn't a limit to how diversified you could be. If you're diversified by holding a catalog of crap, you're still going to experience crap)

[MrDelane]

Please separate the vehicle (an index) from the actual process. Just because you're buying an index versus someone who is buying a diversified basket of stocks, doesn't mean your index is less risky.

Fair enough, I should have been more clear.
My point was that by choosing individual stocks as opposed to investing in a total market index fund you run the risk of underperforming the market (while also having the potential benefit of 'beating' the total market). 

As with many people here, I don't view the potential benefit of beating the market worth the potential risk of underperforming.  That is a decision that we each make for ourselves.

There is risk in any investment (obviously) - I suppose what I was trying to say was that once we accept there is risk in the market, the least risky move seems to be to aim for average market returns over a long term (which is most easily done by indexing).  We give up the hope of beating the market... and also the fear of underperforming it.  But we are all still subject to the swings of the market as a whole, so yes, there is obviously still risk involved.

[Cycling Stache]

Threads like this can really be dangerous.  For people looking at investing in the market, consider the following:

First--you (average you) will not beat the market.  You are not special.

Second--if you (average you) try to beat the market by timing the market, you will most likely lose to the market.

Third--if you make consistent investments in the market over the long term, you will most likely get rich.  7% annual growth with regular contributions over 20-30 years creates big numbers. 

Fourth--if you are tempted to follow any advice here other than just invest in the market, ask yourself how you know something special that a trillion dollars in New York doesn't know.  All the money on Wall Street is trying to beat the market.  If you know it, so do they.

Fifth--save more (by spending less).  That's where your "extra" growth is going to come from.  And it ultimately reduces the amount you need to retire.

This forum is great for giving people a different way to look at money and early retirement.  But some of the ideas put forth are really risky.

P.S.  Market means Vanguard Total Market Index Fund, or close enough for average you's purpose.  That captures a major part of the economic engine of the world.  The top 500 US companies do business and bring in revenue from all over.  Adding other funds and asset allocations are probably a fine idea, but overthinking it is a mistake.  You're sure Facebook is the company that's crazy overvalued and makes the index not ideal?  What do you know that New York doesn't?  Don't worry about crap like that.  Buy the market, keep buying the market, and sit back and get rich while other people post about how to beat the market.

Okay, off my soap box.  Carry on.

[Interest Compound]

Buy the market, keep buying the market, and sit back and get rich while other people post about how to beat the market.

While other people post about how to beat the market, and fail.

[MrDelane]

I think much of this discussion relies on the unspoken goal that each investor might have.
Those attempting to maximize returns and 'beat' the market seem to aim to to maximize wealth.
Don't get me wrong, I like money as much as anyone, but the truth is that I don't need 8.5 million in order to FIRE (and the potential benefit of gaining more than I need isn't worth increasing my risk at underperforming).

I think William Bernstein summed it up nicely when he wrote: "The goal is not to maximize the chances of getting rich, but rather to simultaneously allow for a comfortable retirement and to minimize the odds of dying poor."

Granted, everyone's goals may not be the same, and I think that may be where much of the disconnect in discussion comes from.

[Retire-Canada]

I think much of this discussion relies on the unspoken goal that each investor might have.
Those attempting to maximize returns and 'beat' the market seem to aim to to maximize wealth.

People also really like to feel like they are a special unicorn. Even if that means they actually achieve a less than average result.

[steveo]

Those attempting to maximize returns and 'beat' the market seem to aim to to maximize wealth.

I don't see it like this. I think we all want to maximise wealth. Some like myself don't want to be rich but want to FIRE as quickly as possible. Others probably have different goals.

My point with all of this is that trying to maximise wealth by trying to beat the market will typically lead to below average returns. That is why trying to bet on the market (the index) typically leads to beating the average investor. So index investing = market returns = above average investor. Trying to beat the market = more active investment = below market returns = average or below average investor.

[faramund]

Threads like this can really be dangerous.  For people looking at investing in the market, consider the following:

First--you (average you) will not beat the market.  You are not special.

Second--if you (average you) try to beat the market by timing the market, you will most likely lose to the market.

People love to make absolute statements, but we don't have divine knowledge. I'd agree with your points if you changed First to

First - you will almost certainly not beat the market. You are not special.

People do, do it, like Buffett, over long enough periods (12 years) to be significant. Its not impossible, just, very, very hard, and as per your second point, most who try, fail.

[BlankCheck]

I don't think it's true that someone who doesn't habitually invest in indexes is necessarily trying to "time" the market.  Granted, some of the people in this thread have demonstrated that some of their techniques, such as value investing or searching for down sectors, are tantamount to timing.  However, my own personal philosophy is more geared towards capital preservation.  Now, some may see that as having a low risk tolerance, but I don't agree.  I just like my risks to have more upside than downside.  At times I have been heavily invested in the market, while other times, like today, I have very little exposure. 

So, am I trying to "time" the market?  Indeed I do believe the market is expensive right now, and I am of the belief that the Fed has dramatically inflated equities with their policies in the past several years, and that it is unsustainable.  If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab.  But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage. 

So sure, anyone is welcome to critique my strategy, but in no way do I think I'm going the "beat" the market.  Rather, I accept the risk that I will miss some gains, with the main goal of avoiding loss.  I do not think I am smarter than anyone on Wall Street - however: I do not believe the folks on Wall Street are playing the same game that the average investor is playing.  Nor will I get a bail out, like they will, if things go sour.  I just don't believe in following the herd, especially if the herd does not have my best interests in mind.

[steveo]

I don't think it's true that someone who doesn't habitually invest in indexes is necessarily trying to "time" the market.  Granted, some of the people in this thread have demonstrated that some of their techniques, such as value investing or searching for down sectors, are tantamount to timing.  However, my own personal philosophy is more geared towards capital preservation.  Now, some may see that as having a low risk tolerance, but I don't agree.  I just like my risks to have more upside than downside.  At times I have been heavily invested in the market, while other times, like today, I have very little exposure. 

So, am I trying to "time" the market?  Indeed I do believe the market is expensive right now, and I am of the belief that the Fed has dramatically inflated equities with their policies in the past several years, and that it is unsustainable.  If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab.  But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage. 

So sure, anyone is welcome to critique my strategy, but in no way do I think I'm going the "beat" the market.  Rather, I accept the risk that I will miss some gains, with the main goal of avoiding loss.  I do not think I am smarter than anyone on Wall Street - however: I do not believe the folks on Wall Street are playing the same game that the average investor is playing.  Nor will I get a bail out, like they will, if things go sour.  I just don't believe in following the herd, especially if the herd does not have my best interests in mind.

I understand where you are coming from but how do you do it and how successful will it be ? I think all you can do is basically just get a feeling that the market is overvalued and then amend your holdings. You may get it right but you may also get it wrong. It may also have tax implications. You could state that you are using indicators but those indicators aren't really forward looking.

It's easy to state what you are stating. It's harder to turn that into an actionable plan that works over the long term.

Meanwhile if you just keep putting money into indexes as per your asset allocation over time you can be pretty confident that you will more than likely beat most investors doing what you are doing.

[BlankCheck]

I understand where you are coming from but how do you do it and how successful will it be ? I think all you can do is basically just get a feeling that the market is overvalued and then amend your holdings. You may get it right but you may also get it wrong. It may also have tax implications. You could state that you are using indicators but those indicators aren't really forward looking.

It's easy to state what you are stating. It's harder to turn that into an actionable plan that works over the long term.

Meanwhile if you just keep putting money into indexes as per your asset allocation over time you can be pretty confident that you will more than likely beat most investors doing what you are doing.

I should clarify: I'm not talking about short-term decisions like buying dips or anything like that.  I've made very few moves in and out of the market over the last 20 years, with no intentions of quickly reversing them.  I might be out of the market for many years to come, and I'm fine with that. 

And actually, that's one advantage I (and all of us) have over the fund managers who don't beat the market.  Yes, they are smarter than I am.  But they have to answer to their bosses, and their investors.  I do not.  A fund manager cannot do what I'm doing.  He cannot write quarterly letters saying "all your money is in cash, and has been for years, and may continue to be indefinitely.  Peace out."  But I can.  People in this thread have said how important it is to stick to your plan, but I wonder how many fund managers or Wall Street traders really have that luxury. 

I don't use indicators at all, for the reason you state among others.  I'm just going on the notion that seven years of zero percent interest rates, trillions of dollars of QE, and a bull market that has tripled the low point, might possibly point to a market that is inflated well beyond where it should be, and that such a thing is unsustainable.  I think our economy is stagnant at best and the world economy sucks.  So, I don't care what the indicators say; I just don't see equities soaring under these conditions.  I could certainly be wrong.  But I don't see my decision to exit the market being "dangerous" as was mentioned earlier. To me, missing out on some returns isn't real danger.  Danger is seeing your life savings getting demolished.

As far as buy-and-hold "beating most investors", I'm not trying to beat anyone.  If other people make better returns than I do, that's great for them.  There will always be people richer, and poorer, than I am.  But I would find no solace during a market crash that hey, everyone else is going down with me, and nobody is beating me.  I just don't want to go down, period.

[ScarElbow]

Right now my 401k is 100% sitting in cash waiting for a big correction. I don't call that market timing. I'm calling it oh crap there's a bunch of dark clouds and I'm hiding in my house sleeping soundly under my blanket to the tune of that hard rain outside. I might even watch some cool Netflix movies while waiting for the storm to pass.

My other personal savings are siphoning into a trading account. I'm taking 1-5% each position while learning everyday how to ju jit su the market. I may get punched in the face here and there, but as long as you play with high probability and have defined risk/hedge your positions. You should be able to slaughter the market. Easy. The key here is to educate yourself. Don't let the market determine your returns because investing/indexing is only a long position/ up directional play. That means you are at the mercy of a bear with no way of ptofitting from it because your money is stuck. How does that make much sense is beyond me. My opinion is, take control of your money, you can manage it yourself people. Learn, educate yourself, deploy your capital efficiently. Beating the market is easier than you think. Pssh what is that, like 7%? C'mon

[Interest Compound]

Right now my 401k is 100% sitting in cash waiting for a big correction. I don't call that market timing. I'm calling it oh crap there's a bunch of dark clouds and I'm hiding in my house sleeping soundly under my blanket to the tune of that hard rain outside. I might even watch some cool Netflix movies while waiting for the storm to pass.

My other personal savings are siphoning into a trading account. I'm taking 1-5% each position while learning everyday how to ju jit su the market. I may get punched in the face here and there, but as long as you play with high probability and have defined risk/hedge your positions. You should be able to slaughter the market. Easy. The key here is to educate yourself. Don't let the market determine your returns because investing/indexing is only a long position/ up directional play. That means you are at the mercy of a bear with no way of ptofitting from it because your money is stuck. How does that make much sense is beyond me. My opinion is, take control of your money, you can manage it yourself people. Learn, educate yourself, deploy your capital efficiently. Beating the market is easier than you think. Pssh what is that, like 7%? C'mon

Doesn't matter what you decide to call it. It's literally the definition of market timing.

So you think you're beating the market. That's great. Have you calculated your personal returns and compared them to a benchmark? I'm shocked that 100% of the people I've asked that question either say, "No", or they say "Yes" then end up having 0 knowledge on how to actually calculate returns.

To a person, literally 100% of the people I've met who think they're beating the market, fail this test. And when we properly run the numbers, they end up way behind. Keith123 failed this test pretty embarrassingly. The "I'm not going to spend hours and hours back-testing something for you." response is quite telling. Not because he won't do it for me...he even refuses to do it for himself.

To the newbies of the thread, I'd like you to think about that for a moment. Does this sound like a good idea?

These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"

[steveo]

As far as buy-and-hold "beating most investors", I'm not trying to beat anyone.  If other people make better returns than I do, that's great for them.  There will always be people richer, and poorer, than I am.  But I would find no solace during a market crash that hey, everyone else is going down with me, and nobody is beating me.  I just don't want to go down, period.

This to me sounds okay but I definitely wouldn't do it. It sounds like a very risk averse approach where you are looking for the perfect entry point. This approach in my opinion is more risky than buying at some point because you may miss the upward movement.

You should be able to slaughter the market. Easy. The key here is to educate yourself.

Your choice but this sounds really really really bad. I can't emphasis this enough. It's not easy to beat the market over the long term. It definitely doesn't come down to education.

[mrpercentage]

Deciding when the best time is to enter and exit the market is timing. You are timing the market as a whole

Picking areas you believe to be undervalued is entirely different. There is a reason for multiple definitions. Thats because timing doesn't cover them all.

I am one of the heretics that believe in timing. I said to get out when Disney dumped and the market did drop like a rock. I said there was billions waiting on the sidelines recently and they just started stepping back in.

Further, Im tired of listening to people said you need to mathematically prove something. Let me tell you something. Good judgement is one of the most complicated things out there. The Skipper of a ship makes snap judgements on imprecise and incomplete information. When I look at the market that is exactly what I am doing. No I don't want to trade. I do think that I can find the right timing to turbo charge a new long term investment. If you don't believe you can do that then don't try. Indexing works.

[steveo]

These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"

I still don't like this idea. It's easy to have a winner or two. Then you go - "f... yeah I'm so smart". I've done it. The problem is getting consistent returns over a long period of time is a lot harder.

[ScarElbow]

Didn't know I had horns that thick. You're making me out to be a bad guy. I'm simply advacating self education/empowerment. You know, as in power to the people. You have your opinions and seems to me  regurgitated from some other readings. Point is, don't take absolute position. That is likely a herd mentality, however logical/valid/traditional/conservative/whatever that is. Educate then initiate then innovate. I believe Einstein said that. And Einstein absolutely slaughtered the market.

[Cycling Stache]

I just don't want to go down, period.

Not to beat a dead horse, but here's the issue.  And there are two ways of looking at in.

One--don't be in the market at all.  There is a risk premium because there is risk.  That's what gets you your rate of return over the savings rate.  Sometimes up, sometimes down, more often up over time.

Two--unless you invested in the market for the first time in Summer 2015, the market has never lost money.  It's just a question of how long you held it for. 

The reason market timers don't beat the market is because they time the market wrong--they buy high and sell low.  Yes, the market is probably going to go down, but when will it go up for good?  Did you catch the 6% bump last week?  Did you go all in in March 2009 on the way to doubling your money?  March 2010 and make about 80%?  March 2011 and make about 60%?  March 2012 and make about 30%?

It's hard to stomach the volatility, but that's why the market gives the return it does.  And why there is a risk premium--because people can't take it and bail at the wrong time.

I say this like it's easy, but it's not.  Behavioral economics takes people down--repeatedly.  My secret for making several hundred thousand in the market since 2002?  Max the retirement accounts and know that market risk over long, long periods is almost nil.  And the very first $5,000 I put in a non-retirement account I had to convince myself that my life probably wouldn't come down to $5,000.  Even if I lost every penny, I would be fine.  And almost every pay check since--I made the decision about some portion of it, and into the market it went.

I have been crazy conservative with my money.  I have paid off all my debts.  I have paid off my house.  I knew that I couldn't stomach the huge market drop if it meant I suddenly couldn't pay off my mortgage.  That's not economically rational, but it addressed the behavioral weakness that I knew would exist.  Once that was taken care of, I maxed every penny into the market knowing that it was the most rational approach, and that being willing to lose every penny is what would make me one of those rare investors--the ones who don't time the market, and who win as a result. 

Btw, I still don't trust myself, so I have everything set up to contribute automatically.  My strength is knowing my weakness, and accounting for it.

[Interest Compound]

These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"

I still don't like this idea. It's easy to have a winner or two. Then you go - "f... yeah I'm so smart". I've done it. The problem is getting consistent returns over a long period of time is a lot harder.

Haha! I've played this game before. They all lose. Every last one of them. You don't even have to wait that long.

[Interest Compound]

Didn't know I had horns that thick. You're making me out to be a bad guy. I'm simply advacating self education/empowerment. You know, as in power to the people. You have your opinions and seems to me  regurgitated from some other readings. Point is, don't take absolute position. That is likely a herd mentality, however logical/valid/traditional/conservative/whatever that is. Educate then initiate then innovate. I believe Einstein said that. And Einstein absolutely slaughtered the market.

My question may have gotten lost above, so I'll try again.

Have you calculated your personal returns and compared them to a benchmark?

[ScarElbow]

Question marks are naughty, ya know. Don't you just love the way they're bent?

Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!

[Interest Compound]

Question marks are naughty, ya know. Don't you just love the way they're bent?

Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!

Great job! How did you calculate those returns? You say 2 small positions, but I'm asking about your whole portfolio. Wouldn't want to exclude all your losers :)

Would you be willing to participate in the Market-Timers thread? Make a live-post when you enter back into the market? Then this can all be publicly verified.

[steveo]

Didn't know I had horns that thick. You're making me out to be a bad guy. I'm simply advacating self education/empowerment. You know, as in power to the people. You have your opinions and seems to me  regurgitated from some other readings. Point is, don't take absolute position. That is likely a herd mentality, however logical/valid/traditional/conservative/whatever that is. Educate then initiate then innovate. I believe Einstein said that. And Einstein absolutely slaughtered the market.

You aren't really discussing the issue that is being discussed. All the talk about horns and power to the people etc doesn't really help does it. It comes down to facts and results. It's not a rhetorical argument.

I think I'm pretty well educated on this topic as well. Not many people beat the market and even less do it consistently over their investment life. My opinion is that you should try and get the odds in your favour. You get this via choosing your asset allocation and using low cost index funds to construct your portfolio. I think it's pretty simple.

Save money. Invest it wisely. That to me is power to the people.

[steveo]

Question marks are naughty, ya know. Don't you just love the way they're bent?

Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!

This is exactly why I don't like the market timing /show me your returns approach.

I made 150% and 87% over the last 2 years. My approach is a simple trend following momentum agnostic approach. I'm speaking shit but who really knows that I am. Even if I got the supposed returns I've stated I could lose it all next week. There is a difference between getting a winner or two and managing your portfolio to fund your retirement. The difference is freaken huge. A hot run for a year or two could honestly be a massively losing approach over 20-30 years.

[MrDelane]

If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab.  But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage.

I ask this sincerely - how will you know 'the carnage' has passed?  What are you looking for exactly as your cue to re-enter the market?

[Interest Compound]

Question marks are naughty, ya know. Don't you just love the way they're bent?

Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!

This is exactly why I don't like the market timing /show me your returns approach.

I made 150% and 87% over the last 2 years. My approach is a simple trend following momentum agnostic approach. I'm speaking shit but who really knows that I am. Even if I got the supposed returns I've stated I could lose it all next week. There is a difference between getting a winner or two and managing your portfolio to fund your retirement. The difference is freaken huge. A hot run for a year or two could honestly be a massively losing approach over 20-30 years.

Agreed. I've had a +100% year with market-timing, only to lose all the gains and more in the span of a week. This is why it's so funny to hear people talk like beating the market is easy, then give stats for 2 years worth of trading! Are we to believe they only started investing 2 years ago? Of course not. But "those other years don't count, I wasn't educated yet"

I've seen dozens of "gurus" get laughed off the forum (it's especially fun when they delete all their threads out of embarrassment!) after signing up for one of those sites that publishes their wins/losses for all to see. I doubt the "experts" here would actually publish their picks on a site like that, so I think a public "live-post" is the best we'll get.

[ScarElbow]

Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing

[iamlindoro]

Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing

[BlankCheck]

It sounds like a very risk averse approach where you are looking for the perfect entry point.

Well, certainly a better entry point, if not perfect.  Risk-averse?  I suppose by definition it is, and of course you are correct that the downside, which I am accepting, is missing upswing.

Not to beat a dead horse, but here's the issue.  And there are two ways of looking at in.

One--don't be in the market at all.  There is a risk premium because there is risk.  That's what gets you your rate of return over the savings rate.  Sometimes up, sometimes down, more often up over time.

Two--unless you invested in the market for the first time in Summer 2015, the market has never lost money.  It's just a question of how long you held it for. 

The reason market timers don't beat the market is because they time the market wrong--they buy high and sell low.  Yes, the market is probably going to go down, but when will it go up for good?  Did you catch the 6% bump last week?  Did you go all in in March 2009 on the way to doubling your money?  March 2010 and make about 80%?  March 2011 and make about 60%?  March 2012 and make about 30%?

It's hard to stomach the volatility, but that's why the market gives the return it does.  And why there is a risk premium--because people can't take it and bail at the wrong time.

I say this like it's easy, but it's not.  Behavioral economics takes people down--repeatedly.  My secret for making several hundred thousand in the market since 2002?  Max the retirement accounts and know that market risk over long, long periods is almost nil.  And the very first $5,000 I put in a non-retirement account I had to convince myself that my life probably wouldn't come down to $5,000.  Even if I lost every penny, I would be fine.  And almost every pay check since--I made the decision about some portion of it, and into the market it went.

I have been crazy conservative with my money.  I have paid off all my debts.  I have paid off my house.  I knew that I couldn't stomach the huge market drop if it meant I suddenly couldn't pay off my mortgage.  That's not economically rational, but it addressed the behavioral weakness that I knew would exist.  Once that was taken care of, I maxed every penny into the market knowing that it was the most rational approach, and that being willing to lose every penny is what would make me one of those rare investors--the ones who don't time the market, and who win as a result. 

Btw, I still don't trust myself, so I have everything set up to contribute automatically.  My strength is knowing my weakness, and accounting for it.

Excellent, and I completely agree about market risk and the associated benefits and premiums.  As steveo alluded to, I can't build much of an argument against my being risk-averse, and I concede that my main priority is capital preservation.  Whether or not that means I can't "stomach" a downturn or if I'm logically looking for a better entry point, I suppose that is subjective.

Here's the thing - I used to be buy-and-hold.  I started investing as a youngin back in 1995, and I bought-and-held through the dot com bust, 9/11, and the beginning of the bear market in 2007.  It was the collapse of Bear Stearns and the near-collapse of Lehman Brothers that made me question continuing to hold, and I got out.  Certainly not at the high, but before the steep selloff Q4 of 2008.  I started moving back in mid 2009. 

So, it worked out for me that time.  How much of it was luck that I missed a downswing?  I'm sure a lot of it was.  But sometimes maybe it really is better to be lucky than good.  And it was a great ride back up again as the market took off.  But as I mentioned, I just don't believe this long, dramatic bull market can be based purely on fundamentals, given the $3.5 trillion in QE and seven years of 0% rates that helped fuel it, and I just don't want to be around if/when the bottom falls out again.

[MrDelane]

I started investing as a youngin back in 1995, and I bought-and-held through the dot com bust, 9/11, and the beginning of the bear market in 2007.  It was the collapse of Bear Stearns and the near-collapse of Lehman Brothers that made me question continuing to hold, and I got out.  Certainly not at the high, but before the steep selloff Q4 of 2008.

Out of curiosity - any idea what your average return was in that time (from 95 to 08)?
Just curious.

But sometimes maybe it really is better to be lucky than good.

If we could choose, I would pick 'luck' every time.
:)

[Interest Compound]

Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing

I'll take that as a, "I won't discuss how I calculated my returns. I won't discuss if I've compared them against a benchmark. I won't make my claims publicly verifiable."

I don't blame you. FVelociraptor is a big proponent of option trading as well, and 90% of the 350 trades he made over the last year underperformed the market according to the tracking website he uses:



http://caps.fool.com/player/fvelociraptor.aspx?tab=qs

Considering that site doesn't include dividends for the index, but does include dividends for FVelociraptor's trades, it's even worse than it looks. I completely understand why you'd want to avoid letting us see your ju jit su. But if you're going to make ridiculous claims, you'll have to do better than "Data. BAM!!" if you don't want to look like an idiot.

[BlankCheck]

If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab.  But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage.

I ask this sincerely - how will you know 'the carnage' has passed?  What are you looking for exactly as your cue to re-enter the market?

Ha, well, as Han Solo once said, "that's the real trick, isn't it?"  I do not know the answer.  There isn't a certain level on the S&P or any technicals that would trigger it.  I would just need some confidence that the QE $$ and low-interest-rate avoidance has washed out of the market.  Whether it's a huge selloff, or a very long time in a sideways market, I don't know.  But you're right, I have to be right twice - when I get out, and when I get back in. 

It's quite possible I'm just a contrarian at heart.  Cycling Stache mentioned how the market has never lost money.  I might be the world's biggest pessimist, but I don't think by rule that has to continue to be true.  It's an entirely different world now than it was for the previous 100 years.  Maybe I need a tin-foil hat or something to take the final step into full-on paranoia.  But whenever I hear something is a sure-thing and has never gone wrong, I get skeptical.  The world is a mean place.  It doesn't care what the markets have always done in the past.  It really doesn't.

[BlankCheck]

Out of curiosity - any idea what your average return was in that time (from 95 to 08)?
Just curious.

Oh, I really couldn't say.  I mean, I started with just a few thousand dollars, and made full contributions to my 401k every year, and would occasionally put accumulated savings into mutual funds (index funds weren't all the rage yet). I would imagine I tracked pretty close to what the market did during that time.  I never made any moves in or out of the market.  I believe the DOW was in the 7000's back in '95, and I think my '08 exit was around 11,000 (about 3,000 off the all-time high to that point).

[steveo]

Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing

I'm really confident that over time you will not only not beat the market but you will lose money. I think the odds are against you.

http://www.travismorien.com/FAQ/trading/futradersuccess.htm

It's your choice but it definitely isn't something that I would consider doing with my retirement funds.

[BattlaP]

Nah, man, get outta here with that loser talk! Just gotta educate yourself, man, ju jit su the shit out of that market! Einstein blew the hell out of it and you can too!

[ScarElbow]

Nah nah dawg. Don't educate yourself, man. Just DCA that dough into a fund. Market goes up, down , and sometimes sideway. But eventually it will go up. Have faith. Chill out. One love one love.

Hmm, the tonality turns ugly quick in this thread. Sigh. OK OK I admit defeat. Indexing is king. I will now walk in shame with my head down.

[AdrianC]

Have you calculated your personal returns and compared them to a benchmark?

I do.

S&P 500 Total Return Index 5yr 9.71% 10yr 6.31% 15yr 4.67%
Our performance 5yr 8.01% 10yr 6.88% 15yr 6.97%

Our performance is net of fees but does not account for some long term capital gains and dividend income taxes paid along the way. Passively owning the  benchmark would have given zero cap gains but more dividends. Our performance numbers are from Quicken.

My main strategy would be described as long term buy and hold value investing. Our portfolio is not well diversified. I personally think it is less risky than owning the stock index right now, conventional wisdom would say it is more risky. Market outperformance is not achieved by following the conventional wisdom.

At times I have thought that the effort involved wasn't really worth it. I have gotten a free education in finance, accounting, markets, economics, etc. So that's good. Going forward I'm looking to passively index more of the portfolio...but not until valuations are reasonable.

[Interest Compound]

Have you calculated your personal returns and compared them to a benchmark?

I do.

S&P 500 Total Return Index 5yr 9.71% 10yr 6.31% 15yr 4.67%
Our performance 5yr 8.01% 10yr 6.88% 15yr 6.97%

Our performance is net of fees but does not account for some long term capital gains and dividend income taxes paid along the way. Passively owning the  benchmark would have given zero cap gains but more dividends. Our performance numbers are from Quicken.

My main strategy would be described as long term buy and hold value investing. Our portfolio is not well diversified. I personally think it is less risky than owning the stock index right now, conventional wisdom would say it is more risky. Market outperformance is not achieved by following the conventional wisdom.

At times I have thought that the effort involved wasn't really worth it. I have gotten a free education in finance, accounting, markets, economics, etc. So that's good. Going forward I'm looking to passively index more of the portfolio...but not until valuations are reasonable.

That's great! Is that a money-weighted return, or a time-weighted return? My understanding is that Quicken isn't a good tool for this, as it doesn't provide returns in a way that can be compared to an index.

[frugledoc]

Nah nah dawg. Don't educate yourself, man. Just DCA that dough into a fund. Market goes up, down , and sometimes sideway. But eventually it will go up. Have faith. Chill out. One love one love.

Hmm, the tonality turns ugly quick in this thread. Sigh. OK OK I admit defeat. Indexing is king. I will now walk in shame with my head down.

good luck.  Don't worry,  you'll find solace in your quick millions made from beating the market with your genius investing techniques.

Are you really surprised that in an enlightened forum of experienced investors who have seen many of your ilk before that nobody really cares what you think, other than worry you may cause damage to an unitiated investors' wallet?

Perhaps you should head over the Bogleheads forum next and try and convince them?  I'm sure they will be more open to your supreme investing prowess.

[Jack]

Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.

If you think being on the winning side is "easy," you must necessarily be able to explain how and why you're smarter than all the people who are just as "educated" as you! (And that includes other individual-investor counterparties, who also don't have to answer to managers and clients.)

And you -- all of you so far in this thread -- have utterly and completely failed to do it, despite repeated attempts. You've lost, and you don't even realize it yet.

It's like Global Thermonuclear War: the only winning move is not to play. Or, at least, to stop trying to win.

[protostache]

Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.

If you think being on the winning side is "easy," you must necessarily be able to explain how and why you're smarter than all the people who are just as "educated" as you! (And that includes other individual-investor counterparties, who also don't have to answer to managers and clients.)

And you -- all of you so far in this thread -- have utterly and completely failed to do it, despite repeated attempts. You've lost, and you don't even realize it yet.

It's like Global Thermonuclear War: the only winning move is not to play. Or, at least, to stop trying to win.

I don't understand why this tone is necessary. It's not like people on this forum who choose to make their own portfolio of companies instead of buying someone else's don't know the alternatives.

Also, why do you think the buying and selling that happens at a stock exchange is a zero sum game? Or that people always trade rationally, weighting all information both public and private calmly and thoughtfully? If you actually put a bit of thought into it you'd see that EMH is maybe not complete donkey dung, it's not often reflective of reality. People trade for all kinds of reasons, most of which have nothing to do with any particular company. Emotions play an enormous role.

[Cycling Stache]

Nah nah dawg. Don't educate yourself, man. Just DCA that dough into a fund. Market goes up, down , and sometimes sideway. But eventually it will go up. Have faith. Chill out. One love one love.

Hmm, the tonality turns ugly quick in this thread. Sigh. OK OK I admit defeat. Indexing is king. I will now walk in shame with my head down.

good luck.  Don't worry,  you'll find solace in your quick millions made from beating the market with your genius investing techniques.

Are you really surprised that in an enlightened forum of experienced investors who have seen many of your ilk before that nobody really cares what you think, other than worry you may cause damage to an unitiated investors' wallet?

This is a little tough, but it highlights the concern: that new investors might read these posts and decide it's a good idea to emulate.  If you have extra money that you've saved to put in the market and try your investment techniques, then you're probably in good shape anyway, and it won't matter as much if things don't pan out.  But for people trying to figure out what to do with their initial investments, or serious long-term holdings, that's probably a mistake.

ScarElbow and MrPercentage, both of you have posted previously about investing pretend money.  ScarElbow--you're going to try options, and like that you can practice for 60 days to "see how you'd do" before doing any real trading.  MrPercentage, you're excited about how you're doing in an investing competition and posting about what kind of returns you would have gotten if the money had been real.

Those aren't bad things.  But the pushback you're getting is from people who have been in the market a while, and who have real assets at real risk.  We see this forum as a place where people can come and make informed decisions about money, savings, and investing.  And the talk about how each person is a unique butterfly with jujitsu market talents is--statistically--inaccurate.  That's just not how it actually works.

You might make some money doing what you do, but your odds are probably no better than gambling.  And just like the vast majority of people believe they're above-average drivers, the market (especially in the last 5 years) can make everyone feel like a success.  Why?  Because just like other people try to avoid hitting and getting hit by you (so look how well you drive), the market generally goes up, so most positions are going to be a success over time.  It's just a question of whether they're more successful than the market over that same time period, which is why you keep getting pressed about how you're doing compared to a benchmark.

The desire to learn more about the market, and specific companies, is a good thing.  But the advice you're getting is to be very careful when you start feeling like you're special.  A lot of people make mistakes that way, especially in the market.
   

[Paul der Krake]

These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"

I still don't like this idea. It's easy to have a winner or two. Then you go - "f... yeah I'm so smart". I've done it. The problem is getting consistent returns over a long period of time is a lot harder.

Haha! I've played this game before. They all lose. Every last one of them. You don't even have to wait that long.

Oh yeah. This is why people lose money playing the stock market.

I have played that game too. I made a sector bet at the beginning of my investing career that paid off big time (not in absolute numbers because I was a pauper back then, but it trounced percentage returns). It's still my biggest investing mistake because in retrospect I had no idea what I was doing.

I have since sold that position and plan on keeping my 100% win record, by never making bets again.

I still believe value investing has its place for sophisticated investors, but I certainly don't have the chops or the stomach for it.

[Jack]

I don't understand why this tone is necessary. It's not like people on this forum who choose to make their own portfolio of companies instead of buying someone else's don't know the alternatives.

Because some noob who really doesn't know about the alternatives (or who has an inflated sense of his own skill because you and/or others in this thread have called it "easy!") will take your advice and go bankrupt. It's dangerous and irresponsible.

[Cathy]

Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.

This claim is flawed because different people risk different amounts of money. For example, I might be on the winning side of a bet in which I had invested $1,000,000, but the losing side didn't involve a single investor risking $1,000,000 but rather a million investors each risking $1. In that case, there would be a million losers but only one winner. In the result, there's no simple way to calculate the ratio of people who "beat the market".