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Buying the dip always feels intelligent in a bull market. In a bear market, it's not so wise. The future is unknown to all of us. In some cases, looks are not

Buying the dip always feels intelligent in a bull market. In a bear market, it's not so wise. The future is unknown to all of us. In some cases, looks are not deceiving. When the market appears to be on the cusp of freefall, it can in fact accelerate downward.

dhosek 7y ago
That happened to me when I bought my first house.
arez 7y ago
"never catch a falling knife"
- PaulHoule 7y ago
  That's a slogan of pro traders who have three problems: (1) They trade on margin, so huge drops are much more dangerous to them (2) Their boss sees a Profit & Loss for the trading day that evening, if they don't like what they see they might give their portfolio to somebody else. (3) Customers are calling the sales desk and they want to sell; hopefully sales can slow them down, but you may need to sell to pay for redemptions. Many customers may need to sell to rebalance their portfolios, get liquidity, etc. This is a mechanism which can carry instability from one market into another one which would otherwise be doing just fine.
organsnyder 7y ago
When my wife and I bought our first house in 2006, the prevailing wisdom was that real estate was an incredibly safe (if often conservative) investment. Then 2008 happened. From that experience, I've decided that I will never invest in a market I don't understand.
- thomascgalvin 7y ago
  That's the beauty of long-haul investing, though. Two years is nothing in terms of an investment strategy, and real estate, along with pretty much everything else, has rebounded since then. There are a handful of hyper-geniuses that can make gobs of money by actively trading. For the rest of us, there's buy and forget.
  - Cthulhu_ 7y ago
    Hyper-genius or lucky bastard that is recognized for survivorship bias?
    - thomascgalvin 7y ago
      The lucky bastards are the ones selling get rich quick schemes. The hyper-geniuses are the ones keeping their mouth shut and managing the Harvard Endowment.
      - lozaning 7y ago
        Those who know dont tell, and those that tell dont know.
      - jjeaff 7y ago
        You mean they are genius in the sense that they get paid to manage other people's money? Because the Harvard endowment, like most all other funds out there, generally fails to beat the market and has had down years even while the market was up. This is probably due to lower risk tolerance, but it doesn't really show that hyper geniuses are running it either.
  - Finnucane 7y ago
    We bought our house in 2009. It was kinda scary--there was no telling when the recovery would come, and I was working a temp job that ended the day we signed papers. But we had been saving for a downpayment for several years--by 2005 or so it was clear that the Great Bubble was going to end very badly, so we just hunkered down in our crummy tenement apartment and waited it out.
  - wincent 7y ago
    > Two years is nothing in terms of an investment strategy, and real estate, along with pretty much everything else, has rebounded since then. Where I live real estate was massively overpriced, so still hasn't rebounded, more than 10 years later.
- piffey 7y ago
  So you're never investing then? The market's a wild, unpredictable beast.
- maccard 7y ago
  Even if you bought at the peak of 2007, assuming* you kept up repayments, you will have recovered by now in most western markets. * this is obviously the caveat and where things went wrong for people.
  - derangedHorse 7y ago
    Recovered in what way? I know a couple that just recently had the price of their home return to the price they paid for it over 10 years ago. With inflation taken into account, the house is still worth less than what the couple got it for.
    - maccard 7y ago
      It obviously depends on where you are (hence _most_ western markets) but in most parts of the UK and Ireland (and indeed many places in the US) if you bought at the _peak_ of 2007, mortgaged to the hilt, if you sold now, you would break even on inflation. You're also forgetting that they had somewhere to live for a decade for the cost of inflation of the house, which is significantly cheaper than normal rental prices in many places. To come out even after a decade, after housing costs, seems a pretty "safe" investment to me. Certainly not as lucrative as having invested in an index tracker, but it beats the 0% interest my bank pays on my current account balance.
egdod 7y ago
Investing money that I don’t anticipate needing for decades, I’m happy to keep buying all the way down.
piffey 7y ago
There's also the saying though of "buy when there's blood in the streets, especially if it's your blood". All got to go up sometime. Just how much capital do you have to wait out the drop?
- Finnucane 7y ago
  >All got to go up sometime. Why?
  - whatshisface 7y ago
    We're not near any fundamental limits on growth. They exist, but the economy can get a lot bigger before it hits them. I have heard some really daft arguments about it ("the observable universe is finite!") and some less daft arguments ("resource shortages are more likely than asteroid mining within our lifetimes") but all of these predictions are for things a long time in the future.
    - Finnucane 7y ago
      Or even "our political economy is managed by corrupt morons who would rather see the world burn than deal with our actual problems."
    - reroute1 7y ago
      Just because you aren't at the limit doesn't mean that it will go up though
      - whatshisface 7y ago
        Yes, it does. All of the processes that have driven growth in the past are still working, and they will until they reach their limits. That's what it means for them to have limits. Why would people stop engaging in economic activity while it's still possible to do so?
        blackflame7000 7y ago
techopoly 7y ago
Yes, nobody has a crystal ball. It always feels like other people do though. It's good to make decisions with a sober view of risk and reward. I feel so much market advice that filters down to us laypeople is whether we should or should not buy or sell, when really it is all based on our level of risk tolerance, how much in terms of assets we have, what our time horizons are, what our expertise is. I would say a healthy young person with plenty of cash to burn might well look at buying stocks now. But a person nearing retirement, perhaps with health issues, they should probably board up and get ready for the storm. Most people below retirement age should probably just stop freaking out and keep contributing to their retirement plan as they (hopefully) have been doing, and make sure to have some cash on hand. Our society does not do well with self-control or with gray areas. We want easy answers, which, unfortunately, don't usually exist.
- koonsolo 7y ago
  > It always feels like other people do though. That's because you hear them when they are making gains, never when they are losing.
  - jagged-chisel 7y ago
    Sounds like a case of survivorship bias. Is there a phenomenon more descriptive, or do I have it right?
    - charliepark 7y ago
      "Reporting bias" might be a little closer to the mark. https://en.wikipedia.org/wiki/Reporting_bias https://en.wikipedia.org/wiki/Reporting_bias. Or, in current terminology, "the Instagram effect". I could be wrong, but I'd see survivor bias as "at the end of the day, everyone still in the game reports their results", not acknowledging that those doing really poorly might walk away from the game.
- dannylandau 7y ago
  You are making a fundamental mistake with your assumption that there is a clear distinction between laypeople and experts in the stock-market, there isn't. Money managers, mutual fund managers and hedge funds managers make terrible mistakes and lose money all the time, and are usually the 1st to panic. So, there is no such thing as an "expert" in the stock market.
deleted 7y ago
[deleted]
teekert 7y ago
So what you are saying with a lot of words "The Future is uncertain" ;)
simonh 7y ago
Indeed, if anyone things the Virus panic is as bad as it's going to get they're going to get some pretty rude shocks over the next few months. Right now it really isn't that bad. I'm in London and going to work normally, the city is busy and the trains are still full in the mornings. Our company is starting to migrate people to working from home though. So a proportion of each team is wfh and staying there, for 14 days or until otherwise notified, and more will probably follow not because there is immediate danger, but because we want to be well prepared when there is. If the markets are like this when there are a few hundred cases in the UK and US, what will they be like when there are tens, or hundreds of thousands of cases and major cities are in lockdown? Back to investing, stocks are down significantly and it's quite possible now is a good time to start buying, for those with the capital. Maybe spreading out a balanced equity investment portfolio over the next several months. I don't know if or when the market might go lower, or by how much, but it seems unlikely it's going to rally all that much given that we can be pretty sure there's plenty more bad news still to come. So investing too much now might miss further falls, but IMHO buying over several months is unlikely to miss the dip. That's how I see it anyway.
- samdoidge 7y ago
  > If the markets are like this when there are a few hundred cases in the UK and US, what will they be like when there are tens, or hundreds of thousands of cases and major cities are in lockdown? Investors are trying to judge the likelihood of these very events and selling / buying accordingly. Markets are based on predictions.
  - oxymoran 7y ago
    Exactly. When the virus is at its worst is when the market will start to bounce back because recovery will be priced in. The markets are all about the value of the future. That’s why it’s all kind of a joke to me. Its based on hopes and dreams(or fears and nightmares) instead of how a company is actually doing.
  - simonh 7y ago
    Of course, but those predictions are only based on available information. We probably won’t know which companies will be worst affected, or where. There’s no way anyone could have predicted Lombardy would be the first part of Europe to be hit so hard. When particular companies, regions and industries turn out to be more severely affected, they will take the hit asymmetrically, but that will hurt the overall market. The current impact us being gauged fairly tentatively IMHO. For example it’s likely several more airlines will go to the wall, but we don’t know which ones yet.
tibiahurried 7y ago
I agree I bought some of the early dips to later discover that it wasn't even closer to the bottom. So I chilled out and just paused on any further investment until the situation gets clear. I think US specifically has not seen yet the spread of the coronavirus, but it will come and things will get worse.
triceratops 7y ago
> Buying the dip always feels intelligent in a bull market. In a bear market, it's not so wise. Why not? Assuming you can weather the bear market, the bulls will eventually return, no?

dhosek 7y ago

That happened to me when I bought my first house.

arez 7y ago

"never catch a falling knife"

PaulHoule 7y ago
That's a slogan of pro traders who have three problems: (1) They trade on margin, so huge drops are much more dangerous to them (2) Their boss sees a Profit & Loss for the trading day that evening, if they don't like what they see they might give their portfolio to somebody else. (3) Customers are calling the sales desk and they want to sell; hopefully sales can slow them down, but you may need to sell to pay for redemptions. Many customers may need to sell to rebalance their portfolios, get liquidity, etc. This is a mechanism which can carry instability from one market into another one which would otherwise be doing just fine.

organsnyder 7y ago

When my wife and I bought our first house in 2006, the prevailing wisdom was that real estate was an incredibly safe (if often conservative) investment. Then 2008 happened. From that experience, I've decided that I will never invest in a market I don't understand.

thomascgalvin 7y ago
That's the beauty of long-haul investing, though. Two years is nothing in terms of an investment strategy, and real estate, along with pretty much everything else, has rebounded since then. There are a handful of hyper-geniuses that can make gobs of money by actively trading. For the rest of us, there's buy and forget.
- Cthulhu_ 7y ago
  Hyper-genius or lucky bastard that is recognized for survivorship bias?
  - thomascgalvin 7y ago
    The lucky bastards are the ones selling get rich quick schemes. The hyper-geniuses are the ones keeping their mouth shut and managing the Harvard Endowment.
    - lozaning 7y ago
      Those who know dont tell, and those that tell dont know.
    - jjeaff 7y ago
      You mean they are genius in the sense that they get paid to manage other people's money? Because the Harvard endowment, like most all other funds out there, generally fails to beat the market and has had down years even while the market was up. This is probably due to lower risk tolerance, but it doesn't really show that hyper geniuses are running it either.
- Finnucane 7y ago
  We bought our house in 2009. It was kinda scary--there was no telling when the recovery would come, and I was working a temp job that ended the day we signed papers. But we had been saving for a downpayment for several years--by 2005 or so it was clear that the Great Bubble was going to end very badly, so we just hunkered down in our crummy tenement apartment and waited it out.
- wincent 7y ago
  > Two years is nothing in terms of an investment strategy, and real estate, along with pretty much everything else, has rebounded since then. Where I live real estate was massively overpriced, so still hasn't rebounded, more than 10 years later.
piffey 7y ago
So you're never investing then? The market's a wild, unpredictable beast.
maccard 7y ago
Even if you bought at the peak of 2007, assuming* you kept up repayments, you will have recovered by now in most western markets. * this is obviously the caveat and where things went wrong for people.
- derangedHorse 7y ago
  Recovered in what way? I know a couple that just recently had the price of their home return to the price they paid for it over 10 years ago. With inflation taken into account, the house is still worth less than what the couple got it for.
  - maccard 7y ago
    It obviously depends on where you are (hence _most_ western markets) but in most parts of the UK and Ireland (and indeed many places in the US) if you bought at the _peak_ of 2007, mortgaged to the hilt, if you sold now, you would break even on inflation. You're also forgetting that they had somewhere to live for a decade for the cost of inflation of the house, which is significantly cheaper than normal rental prices in many places. To come out even after a decade, after housing costs, seems a pretty "safe" investment to me. Certainly not as lucrative as having invested in an index tracker, but it beats the 0% interest my bank pays on my current account balance.

egdod 7y ago

Investing money that I don’t anticipate needing for decades, I’m happy to keep buying all the way down.

piffey 7y ago

There's also the saying though of "buy when there's blood in the streets, especially if it's your blood". All got to go up sometime. Just how much capital do you have to wait out the drop?

Finnucane 7y ago
>All got to go up sometime. Why?
- whatshisface 7y ago
  We're not near any fundamental limits on growth. They exist, but the economy can get a lot bigger before it hits them. I have heard some really daft arguments about it ("the observable universe is finite!") and some less daft arguments ("resource shortages are more likely than asteroid mining within our lifetimes") but all of these predictions are for things a long time in the future.
  - Finnucane 7y ago
    Or even "our political economy is managed by corrupt morons who would rather see the world burn than deal with our actual problems."
  - reroute1 7y ago
    Just because you aren't at the limit doesn't mean that it will go up though
    - whatshisface 7y ago
      Yes, it does. All of the processes that have driven growth in the past are still working, and they will until they reach their limits. That's what it means for them to have limits. Why would people stop engaging in economic activity while it's still possible to do so?
      - blackflame7000 7y ago

techopoly 7y ago

Yes, nobody has a crystal ball. It always feels like other people do though. It's good to make decisions with a sober view of risk and reward. I feel so much market advice that filters down to us laypeople is whether we should or should not buy or sell, when really it is all based on our level of risk tolerance, how much in terms of assets we have, what our time horizons are, what our expertise is. I would say a healthy young person with plenty of cash to burn might well look at buying stocks now. But a person nearing retirement, perhaps with health issues, they should probably board up and get ready for the storm. Most people below retirement age should probably just stop freaking out and keep contributing to their retirement plan as they (hopefully) have been doing, and make sure to have some cash on hand. Our society does not do well with self-control or with gray areas. We want easy answers, which, unfortunately, don't usually exist.

koonsolo 7y ago
> It always feels like other people do though. That's because you hear them when they are making gains, never when they are losing.
- jagged-chisel 7y ago
  Sounds like a case of survivorship bias. Is there a phenomenon more descriptive, or do I have it right?
  - charliepark 7y ago
    "Reporting bias" might be a little closer to the mark. https://en.wikipedia.org/wiki/Reporting_bias https://en.wikipedia.org/wiki/Reporting_bias. Or, in current terminology, "the Instagram effect". I could be wrong, but I'd see survivor bias as "at the end of the day, everyone still in the game reports their results", not acknowledging that those doing really poorly might walk away from the game.
dannylandau 7y ago
You are making a fundamental mistake with your assumption that there is a clear distinction between laypeople and experts in the stock-market, there isn't. Money managers, mutual fund managers and hedge funds managers make terrible mistakes and lose money all the time, and are usually the 1st to panic. So, there is no such thing as an "expert" in the stock market.

deleted 7y ago

[deleted]

teekert 7y ago

So what you are saying with a lot of words "The Future is uncertain" ;)

simonh 7y ago

Indeed, if anyone things the Virus panic is as bad as it's going to get they're going to get some pretty rude shocks over the next few months. Right now it really isn't that bad. I'm in London and going to work normally, the city is busy and the trains are still full in the mornings. Our company is starting to migrate people to working from home though. So a proportion of each team is wfh and staying there, for 14 days or until otherwise notified, and more will probably follow not because there is immediate danger, but because we want to be well prepared when there is. If the markets are like this when there are a few hundred cases in the UK and US, what will they be like when there are tens, or hundreds of thousands of cases and major cities are in lockdown? Back to investing, stocks are down significantly and it's quite possible now is a good time to start buying, for those with the capital. Maybe spreading out a balanced equity investment portfolio over the next several months. I don't know if or when the market might go lower, or by how much, but it seems unlikely it's going to rally all that much given that we can be pretty sure there's plenty more bad news still to come. So investing too much now might miss further falls, but IMHO buying over several months is unlikely to miss the dip. That's how I see it anyway.

samdoidge 7y ago
> If the markets are like this when there are a few hundred cases in the UK and US, what will they be like when there are tens, or hundreds of thousands of cases and major cities are in lockdown? Investors are trying to judge the likelihood of these very events and selling / buying accordingly. Markets are based on predictions.
- oxymoran 7y ago
  Exactly. When the virus is at its worst is when the market will start to bounce back because recovery will be priced in. The markets are all about the value of the future. That’s why it’s all kind of a joke to me. Its based on hopes and dreams(or fears and nightmares) instead of how a company is actually doing.
- simonh 7y ago
  Of course, but those predictions are only based on available information. We probably won’t know which companies will be worst affected, or where. There’s no way anyone could have predicted Lombardy would be the first part of Europe to be hit so hard. When particular companies, regions and industries turn out to be more severely affected, they will take the hit asymmetrically, but that will hurt the overall market. The current impact us being gauged fairly tentatively IMHO. For example it’s likely several more airlines will go to the wall, but we don’t know which ones yet.

tibiahurried 7y ago

I agree I bought some of the early dips to later discover that it wasn't even closer to the bottom. So I chilled out and just paused on any further investment until the situation gets clear. I think US specifically has not seen yet the spread of the coronavirus, but it will come and things will get worse.

triceratops 7y ago

> Buying the dip always feels intelligent in a bull market. In a bear market, it's not so wise. Why not? Assuming you can weather the bear market, the bulls will eventually return, no?