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If you didn’t buy the dip in March, you never will.

pinky1417 6y ago
I don’t think that’s true. For one, that dip lasted a very short time, which is atypical. Second, it wasn’t clear that the market fell below its value. Maybe the value of the market was 40% below its earlier highs. “Buying the dip” is a bad strategy if it’s not paired with understanding value. Dips are sometimes temporary overreactions or part of a continued decline. Enron had a big “dip” soon after reaching its high. I suppose if you bought the dip then sold very quickly after, you’d make money, but you’d have to choose the right dip.
- quickthrowman 6y ago
  Cmon now, Enron != VTI/SPY/index funds
  - pinky1417 6y ago
    Oh, I didn't mean to suggest they're the same, just explaining why buying the dip isn't a good principal on its own. Something like VTI has the advantage that it's not going to ever be totally worthless unlike any one particular stock. "Buying the dip" as a strategy only makes sense in hindsight. Say it's late 2007 and you have some cash. On Sep 28 of that year, the VTI was at $75.60. By April 2008, it had fallen over 12% to around $66. But it would still go down even more. Same thing as in early 2020: the market falls 5%... do you buy then? Once it fell around 30%, could you identify that as the "bottom" given the information you had at the time?
fallingfrog 6y ago
Yeah, I’m not really interested in dip buying, because a dip only has meaning relative to some other peak, and I’m not interested in comparing prices with other prices, I’m comparing prices with real value. And I still felt like the market price of stocks was above what they were really worth. Needed to go down another 30 or 40 percent I think, to reach neutral pricing. To use my Ford Fiesta analogy, if you come to me and say “this Ford Fiesta is only 60k! That’s 40 percent off! I would say you’re using a sleazy sales tactic on me, because it’s not worth 60k either. Comparing it with some other, even more outrageous price and then claiming that it’s therefore cheap is not something I’m going to fall for.
- wskinner 6y ago
  How do you compute real value? And does your model for real value include the quantity of money and future expectations for the same?
- quickthrowman 6y ago
  Ok, enjoy your treasuries, I’ll stick with dollar-cost averaging S&P 500. I’m sure your valuation models are better than Wall Street. Hope the treasury yields moving up don’t wreck you, if yields move N%, then bond values move (N*years remaining)% down. Disregard if you buy individual bonds and hold until redemption.
  - jdmoreira 6y ago
    That’s great and all. S&P 500 is a great passive investment. Just keep buying every month whatever the price for long enough and you will most likely hit 10% a year on average. The problem is that you could lose money for 10 years. 1970-80. Mindless buying S&P 500 is great but you might want to do better. Most people will do worse if they try to beat the index but some people will do 20% a year for as long as they keep buying good businesses at good prices.

I don’t think that’s true. For one, that dip lasted a very short time, which is atypical. Second, it wasn’t clear that the market fell below its value. Maybe the value of the market was 40% below its earlier highs. “Buying the dip” is a bad strategy if it’s not paired with understanding value. Dips are sometimes temporary overreactions or part of a continued decline. Enron had a big “dip” soon after reaching its high. I suppose if you bought the dip then sold very quickly after, you’d make money, but you’d have to choose the right dip.

quickthrowman 6y ago
Cmon now, Enron != VTI/SPY/index funds
- pinky1417 6y ago
  Oh, I didn't mean to suggest they're the same, just explaining why buying the dip isn't a good principal on its own. Something like VTI has the advantage that it's not going to ever be totally worthless unlike any one particular stock. "Buying the dip" as a strategy only makes sense in hindsight. Say it's late 2007 and you have some cash. On Sep 28 of that year, the VTI was at $75.60. By April 2008, it had fallen over 12% to around $66. But it would still go down even more. Same thing as in early 2020: the market falls 5%... do you buy then? Once it fell around 30%, could you identify that as the "bottom" given the information you had at the time?

fallingfrog 6y ago

Yeah, I’m not really interested in dip buying, because a dip only has meaning relative to some other peak, and I’m not interested in comparing prices with other prices, I’m comparing prices with real value. And I still felt like the market price of stocks was above what they were really worth. Needed to go down another 30 or 40 percent I think, to reach neutral pricing. To use my Ford Fiesta analogy, if you come to me and say “this Ford Fiesta is only 60k! That’s 40 percent off! I would say you’re using a sleazy sales tactic on me, because it’s not worth 60k either. Comparing it with some other, even more outrageous price and then claiming that it’s therefore cheap is not something I’m going to fall for.

wskinner 6y ago
How do you compute real value? And does your model for real value include the quantity of money and future expectations for the same?
quickthrowman 6y ago
Ok, enjoy your treasuries, I’ll stick with dollar-cost averaging S&P 500. I’m sure your valuation models are better than Wall Street. Hope the treasury yields moving up don’t wreck you, if yields move N%, then bond values move (N*years remaining)% down. Disregard if you buy individual bonds and hold until redemption.
- jdmoreira 6y ago
  That’s great and all. S&P 500 is a great passive investment. Just keep buying every month whatever the price for long enough and you will most likely hit 10% a year on average. The problem is that you could lose money for 10 years. 1970-80. Mindless buying S&P 500 is great but you might want to do better. Most people will do worse if they try to beat the index but some people will do 20% a year for as long as they keep buying good businesses at good prices.