5 ms·

Every time I see this, I fail to grasp the logic. So you had money sitting on the sidelines for safety during boom times, and you elect to put it in a riskier a

by rconti 7y ago

Every time I see this, I fail to grasp the logic. So you had money sitting on the sidelines for safety during boom times, and you elect to put it in a riskier asset class during a panic? I'm not saying this isn't likely the most profitable action, I just don't see how the principles are consistent with each other. The former is conservative; the latter is wildly speculative and risky.

bduerst 7y ago
Market has been hot so far this year, so the wise thing to do has been to slowly trim holdings for cash - i.e. up to 30% of your portfolio - so that you can buy on the dip. The correction has been a long time coming but the pandemic is making it even worse.
adam_fallon_ 7y ago
You're forgetting the fundamental rule of the stock market. Buy low, Sell high.
- refurb 7y ago
  Exactly. The people that got in in 2008 made out like bandits. The people that wait until 2010 or later missed out on a lot of the gains.
  - akvadrako 7y ago
    The people that bought right before the crash also made out like bandits. It’s impossible to time the market, just buy if you have money.
    - _delirium 7y ago
      [deleted, got numbers wrong]
      - refurb 7y ago
        If you invested when the S&P peaked (June 2007) and held until now, you'd have an annualized return of 6.8% (dividends reinvested), according to this calculator. If you look at June 2007 to Feb 2020 (missing the current dip), the return is 8.75%. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
    - refurb 7y ago
      Agree 100%.
- ninkendo 7y ago
  > Buy low, Sell high. Come up with a good definition of "low" and "high" when you don't know the short/medium term future, and you'll have figured out this whole "investing" thing better than anyone else!
kaitai 7y ago
If you have enough money, you can do some of both.
ksj2114 7y ago
Would I have rather bought two weeks ago at 3000+ or today at 2400? Answer: today! The logic is that eventually the market will recover and you want to buy before that happens.
- mantap 7y ago
  No the risk/reward is fucked up. Buy at the start of a bull market not the midst of a bear market. In the context of the last recession buying in 2010-13 would have been ideal. Trying to find the bottom is simply gambling, investing isn't an optimisation problem. The goal is to sleep at night, not to make the most money at any cost.
gizmo686 7y ago
Its not fundamentally crazy. In one sense, standard investing advice is to periodically rebalance between investment classes when your holdings diverge too much from you desired profile. In this, for a "simple" investor, that would probably mean transfering from bonds to stocks; since the portion of your portfolio that is in stocks recently fell substantially below your desired portion. Assuming an efficient market, it is almost a no brainer that you should rebalance. Since your risk profile didn't change from a month ago, and stocks are being correctly valued, your portfolio is now overly conservative. If you dont believe the market is effiecient, the question becomes 'in what way is the market inefficient?'. If you believe it is now undervalues stocks, you should buy them since they are now on sale for a bargain price. Personally, my view is that the market is irrational, but I don't know how; so I am planning on not reballancing until after the dust settles. This minimizes the downside risk caused by me not knowing what I am doing.
- milesvp 7y ago
  You may be missing one of the more fundamental reason to rebalance your portfolio at predetermined points in time to a predetermined balance. That it takes emotion out of the equation. By rebalancing, say, every time you put money into your IRA, you're always "selling high and buying low" without the risk that you'll let emotion overturn a generally good investing strategy. While you may actually be in a position to time the market, my understanding is that empirical evidence suggests that the vast majority would be better off not trying to time the market. And that people who mechanically follow rebalancing procedures will tend to outperform those who rebalance based on some kind of intuition or market calculation.
- rconti 7y ago
  yeah, the rebalancing is a very fair point and perhaps something my long-term (401k) needs. I don't think it's being done automatically today.
steveklabnik 7y ago
A related idea that might interest you: https://www.investopedia.com/terms/d/dollarcostaveraging.asp https://www.investopedia.com/terms/d/dollarcostaveraging.asp
rupert1234 7y ago
Prices is the answer. That's why you are failing to grasp the situation. If you can buy a house for 100 in boom times but 50 in panic times, it's often better to get it for 50. Same asset, lower price = less risk. The only thing which is up for debate during a panic is "is it the same asset now? How similar?"
reggieband 7y ago
Can't speak to OP but I always think about the "buy low, sell high" cliche. If you follow that idea then when you think the market is high you should not buy. My personal feeling the last 2 years was that the market was higher than it should have been. So I avoided buying equities. Now that the market is going lower I'm considering buying again.
deleted 7y ago
[deleted]

by rconti 7y ago

bduerst 7y ago

Market has been hot so far this year, so the wise thing to do has been to slowly trim holdings for cash - i.e. up to 30% of your portfolio - so that you can buy on the dip. The correction has been a long time coming but the pandemic is making it even worse.

adam_fallon_ 7y ago

You're forgetting the fundamental rule of the stock market. Buy low, Sell high.

refurb 7y ago
Exactly. The people that got in in 2008 made out like bandits. The people that wait until 2010 or later missed out on a lot of the gains.
- akvadrako 7y ago
  The people that bought right before the crash also made out like bandits. It’s impossible to time the market, just buy if you have money.
  - _delirium 7y ago
    [deleted, got numbers wrong]
    - refurb 7y ago
      If you invested when the S&P peaked (June 2007) and held until now, you'd have an annualized return of 6.8% (dividends reinvested), according to this calculator. If you look at June 2007 to Feb 2020 (missing the current dip), the return is 8.75%. https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
  - refurb 7y ago
    Agree 100%.
ninkendo 7y ago
> Buy low, Sell high. Come up with a good definition of "low" and "high" when you don't know the short/medium term future, and you'll have figured out this whole "investing" thing better than anyone else!

kaitai 7y ago

If you have enough money, you can do some of both.

ksj2114 7y ago

Would I have rather bought two weeks ago at 3000+ or today at 2400? Answer: today! The logic is that eventually the market will recover and you want to buy before that happens.

mantap 7y ago
No the risk/reward is fucked up. Buy at the start of a bull market not the midst of a bear market. In the context of the last recession buying in 2010-13 would have been ideal. Trying to find the bottom is simply gambling, investing isn't an optimisation problem. The goal is to sleep at night, not to make the most money at any cost.

gizmo686 7y ago

Its not fundamentally crazy. In one sense, standard investing advice is to periodically rebalance between investment classes when your holdings diverge too much from you desired profile. In this, for a "simple" investor, that would probably mean transfering from bonds to stocks; since the portion of your portfolio that is in stocks recently fell substantially below your desired portion. Assuming an efficient market, it is almost a no brainer that you should rebalance. Since your risk profile didn't change from a month ago, and stocks are being correctly valued, your portfolio is now overly conservative. If you dont believe the market is effiecient, the question becomes 'in what way is the market inefficient?'. If you believe it is now undervalues stocks, you should buy them since they are now on sale for a bargain price. Personally, my view is that the market is irrational, but I don't know how; so I am planning on not reballancing until after the dust settles. This minimizes the downside risk caused by me not knowing what I am doing.

milesvp 7y ago
You may be missing one of the more fundamental reason to rebalance your portfolio at predetermined points in time to a predetermined balance. That it takes emotion out of the equation. By rebalancing, say, every time you put money into your IRA, you're always "selling high and buying low" without the risk that you'll let emotion overturn a generally good investing strategy. While you may actually be in a position to time the market, my understanding is that empirical evidence suggests that the vast majority would be better off not trying to time the market. And that people who mechanically follow rebalancing procedures will tend to outperform those who rebalance based on some kind of intuition or market calculation.
rconti 7y ago
yeah, the rebalancing is a very fair point and perhaps something my long-term (401k) needs. I don't think it's being done automatically today.

steveklabnik 7y ago

A related idea that might interest you: https://www.investopedia.com/terms/d/dollarcostaveraging.asp https://www.investopedia.com/terms/d/dollarcostaveraging.asp

rupert1234 7y ago

Prices is the answer. That's why you are failing to grasp the situation. If you can buy a house for 100 in boom times but 50 in panic times, it's often better to get it for 50. Same asset, lower price = less risk. The only thing which is up for debate during a panic is "is it the same asset now? How similar?"

reggieband 7y ago

Can't speak to OP but I always think about the "buy low, sell high" cliche. If you follow that idea then when you think the market is high you should not buy. My personal feeling the last 2 years was that the market was higher than it should have been. So I avoided buying equities. Now that the market is going lower I'm considering buying again.

deleted 7y ago

[deleted]