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"He’s “hoarding cash” on the chance he can buy stocks when prices dip, as he expects they will" That's called market timing, and it does. not. work. It doesn't

by xref 10y ago

"He’s “hoarding cash” on the chance he can buy stocks when prices dip, as he expects they will" That's called market timing, and it does. not. work. It doesn't work for professional traders, it doesn't work for algorithms, and it will not work for you. Don't. Do. It.

throwaway_xx9 10y ago
1) No, it's not market timing. It's crash timing, and it works great. 2) Buy low, sell high - never goes out of style.
koonsolo 10y ago
Strange you got downvoted for this. So I will enforce you stance. Suppose you have $50.000 to invest, what is the best strategy to invest it? If you run over the history of stocks, the best strategy is to invest it all at once, now. Not wait until you THINK the market is low, not splitting it up and buying in smaller chunks to spread your risk.
- harperlee 10y ago
  ...but the history of stocks is sufficiently short and localized as to have weak predictive power over what's going to happen in the future.
- bryanbuckley 10y ago
  well.. it depends. You didn't really specify goals, which is the most important thing. In many cases you are correct. Somewhat related see Vanguard's research "Dollar-cost averaging just means taking risk later" [1] which finds lump sum investing is better in ~2/3 of the cases they considered. They had a specific time horizon. Individual's have unique situations and goals and should consider those instead of just dumping everything into an s&p index fund asap. Maybe an individual is more sensitive to sequence risk at different points in his life? There is an entire profession (financial planners) which allows you to outsource these decisions to if you want. Same for the spending part of retirement (hint: most common advice (bond/stock mix) is exactly the opposite of what it should be e.g. "Rising Equity Glidepath" [2]) [1] https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c... [2] https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/ https://www.kitces.com/blog/should-equity-exposure-decrease-...
aws_ls 10y ago
I think timing the market doesn't work, when you look at short term. Short term is hard to define. But say, a target from a few months to even 3-4 years is short term. And long term say 10-15 years or more. After seeing a few crashes, eg. one in 2000 (dot com bust) and then later in 2007 (real estate crash), and you go back in history and see some more. But after living through a few crashes, you can draw the common trait of them, and that is market wide gloom and doom. When the sentiment is very low. So, IMHO, its not bad to wait for those kind of crashes, and then invest. And the market does bounce back in a few years (if we look at history). Of course there's always a first time for anything, and its possible that it never does come up. But then you are screwed anyway, if you invest by any strategy. A safeguard for that is classic not all eggs in a basket. So what's wrong in timing this way? And this heuristic matches with all the classic investment advise buy low and sell high. My personal translation to that is buy, when all the TV channels are saying it will never come up, and don't buy when most TV channels are saying its going to go up. The latter has been the case, for past 2 years, in my geography at least.

by xref 10y ago

throwaway_xx9 10y ago

1) No, it's not market timing. It's crash timing, and it works great. 2) Buy low, sell high - never goes out of style.

koonsolo 10y ago

Strange you got downvoted for this. So I will enforce you stance. Suppose you have $50.000 to invest, what is the best strategy to invest it? If you run over the history of stocks, the best strategy is to invest it all at once, now. Not wait until you THINK the market is low, not splitting it up and buying in smaller chunks to spread your risk.

harperlee 10y ago
...but the history of stocks is sufficiently short and localized as to have weak predictive power over what's going to happen in the future.
bryanbuckley 10y ago
well.. it depends. You didn't really specify goals, which is the most important thing. In many cases you are correct. Somewhat related see Vanguard's research "Dollar-cost averaging just means taking risk later" [1] which finds lump sum investing is better in ~2/3 of the cases they considered. They had a specific time horizon. Individual's have unique situations and goals and should consider those instead of just dumping everything into an s&p index fund asap. Maybe an individual is more sensitive to sequence risk at different points in his life? There is an entire profession (financial planners) which allows you to outsource these decisions to if you want. Same for the spending part of retirement (hint: most common advice (bond/stock mix) is exactly the opposite of what it should be e.g. "Rising Equity Glidepath" [2]) [1] https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c... [2] https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/ https://www.kitces.com/blog/should-equity-exposure-decrease-...

aws_ls 10y ago

I think timing the market doesn't work, when you look at short term. Short term is hard to define. But say, a target from a few months to even 3-4 years is short term. And long term say 10-15 years or more. After seeing a few crashes, eg. one in 2000 (dot com bust) and then later in 2007 (real estate crash), and you go back in history and see some more. But after living through a few crashes, you can draw the common trait of them, and that is market wide gloom and doom. When the sentiment is very low. So, IMHO, its not bad to wait for those kind of crashes, and then invest. And the market does bounce back in a few years (if we look at history). Of course there's always a first time for anything, and its possible that it never does come up. But then you are screwed anyway, if you invest by any strategy. A safeguard for that is classic not all eggs in a basket. So what's wrong in timing this way? And this heuristic matches with all the classic investment advise buy low and sell high. My personal translation to that is buy, when all the TV channels are saying it will never come up, and don't buy when most TV channels are saying its going to go up. The latter has been the case, for past 2 years, in my geography at least.