5 ms·

I'm going to recycle advice I gave earlier this week [1] and say it's way too premature to consider this a buying opportunity. Short term dips followed by recov

by cletus 7y ago

I'm going to recycle advice I gave earlier this week [1] and say it's way too premature to consider this a buying opportunity. Short term dips followed by recoveries are the hallmarks of a bull market. We're now clearly in bear market territory. In a bear market, you need to be wary of "dead cat bounces" ie a short term rally followed by a steeper decline. In 2008 this bear market lasted well over a year. If you're already in the market, well you're kind of stuck now. Who knows how much further it will fall or even if it will? If anyone knew that, they'd be rich. But this, as always, is a question of probabilities. In the short term there seems to be way more downside than upside potential. As much as it may have fallen in the last month, we're only now really getting back to the long term mean. Typically, during a market correction, the market oversells so further drops are entirely possible, even likely. Another 10-20% drop is (IMHO) completely realistic. [1]: https://news.ycombinator.com/item?id=22527631 https://news.ycombinator.com/item?id=22527631

whatshisface 7y ago
I don't think it makes sense for there to be such a thing as a bear market. If everybody knows that it's going to go down, then they will sell until the price drops to about the place where they expect it to eventually hit. That's what a crash is. The final price after the crash is the price at which the market is split between "it will go up" and "it will go down." If the bears and the bulls had any other proportion than 50/50 then the price would go up or down until the bears and bulls changed teams back to 50/50. The only thing that's guaranteed about stocks is that the average person is always uncertain.
- empath75 7y ago
  People don't know how far it's going to go down. We have no idea what kind of disruption is going to happen to global GDP. As the situation clarifies itself, it may very easily become worse, which would continue to drive it down.
  - positr0n 7y ago
    What OP is saying is that the current price reflects the average investors best guess at how bad it's going to get. If some more people start thinking it's going to get worse they will sell and that statement will (essentially be) instantaneously true again.
misja111 7y ago
But the 2008 credit crisis was structural in nature and this one is not.
- anarazel 7y ago
  The US political proceed being so fucked up that it can't react in a meaningful and halfway coordinated way is structural. That's far from the whole problem, but it's part.
GhostVII 7y ago
> If you're already in the market, well you're kind of stuck now. I don't think this really makes sense, unless there is some barrier to entry to selling. If you wouldn't advise someone with a free $20k to invest, why would you advise someone with $20k in investments to hold on, just because of sunk cost? It's effectively the same thing. If you don't need the money for a long time, you should invest regardless of what the market is doing. If you do need the money soon, you shouldn't be in the market at all.
- cletus 7y ago
  I certainly understand your sentiment and it's a reasonable one: if you wouldn't buy, why would you hold? Normally I like this POV. People stick with "losers" (stocks, not people) to "get their money back" and that certainly applies there: you've already lost that money, you just haven't realized it. But there is a difference. Like if you're in the market now, it's for a reason. Likewise, if you're out of the market now, there's a reason. Hopefully your reason for being in is long term (5+ years), at which point, not a lot has changed. If you still have gains and those aren't in a tax-deferred account, you may accrue a tax debt by selling now. But for those not in yet, there will be opportunity here. There always is because at some point the market is oversold. My point is that we're nowhere near that yet because the number of cases is only going to go up for at least another 3-6 months and the likelihood that you miss a sustained rally in that period is pretty low.

by cletus 7y ago

whatshisface 7y ago

I don't think it makes sense for there to be such a thing as a bear market. If everybody knows that it's going to go down, then they will sell until the price drops to about the place where they expect it to eventually hit. That's what a crash is. The final price after the crash is the price at which the market is split between "it will go up" and "it will go down." If the bears and the bulls had any other proportion than 50/50 then the price would go up or down until the bears and bulls changed teams back to 50/50. The only thing that's guaranteed about stocks is that the average person is always uncertain.

empath75 7y ago
People don't know how far it's going to go down. We have no idea what kind of disruption is going to happen to global GDP. As the situation clarifies itself, it may very easily become worse, which would continue to drive it down.
- positr0n 7y ago
  What OP is saying is that the current price reflects the average investors best guess at how bad it's going to get. If some more people start thinking it's going to get worse they will sell and that statement will (essentially be) instantaneously true again.

misja111 7y ago

But the 2008 credit crisis was structural in nature and this one is not.

anarazel 7y ago
The US political proceed being so fucked up that it can't react in a meaningful and halfway coordinated way is structural. That's far from the whole problem, but it's part.

GhostVII 7y ago

> If you're already in the market, well you're kind of stuck now. I don't think this really makes sense, unless there is some barrier to entry to selling. If you wouldn't advise someone with a free $20k to invest, why would you advise someone with $20k in investments to hold on, just because of sunk cost? It's effectively the same thing. If you don't need the money for a long time, you should invest regardless of what the market is doing. If you do need the money soon, you shouldn't be in the market at all.

cletus 7y ago
I certainly understand your sentiment and it's a reasonable one: if you wouldn't buy, why would you hold? Normally I like this POV. People stick with "losers" (stocks, not people) to "get their money back" and that certainly applies there: you've already lost that money, you just haven't realized it. But there is a difference. Like if you're in the market now, it's for a reason. Likewise, if you're out of the market now, there's a reason. Hopefully your reason for being in is long term (5+ years), at which point, not a lot has changed. If you still have gains and those aren't in a tax-deferred account, you may accrue a tax debt by selling now. But for those not in yet, there will be opportunity here. There always is because at some point the market is oversold. My point is that we're nowhere near that yet because the number of cases is only going to go up for at least another 3-6 months and the likelihood that you miss a sustained rally in that period is pretty low.