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Even if you predict a crash, predicting the bottom is almost impossible. As an example, among many people who had sat on cash during the 2021 March, how many of

Even if you predict a crash, predicting the bottom is almost impossible. As an example, among many people who had sat on cash during the 2021 March, how many of them actually bought at the bottom? For layman investor the best course of action is to invest and forget, ideally in a balanced or semi-balanced portfolio.

mikevm 5y ago
You don't need to predict the bottom. If you manage to sit out the first 20-30% drop you can probably go back in. You can use something like https://recessionalert.com/ https://recessionalert.com/ or a combination of your own signals to time the exit of the market. Of course, it will never be perfect and there will be times where you will get a false positive, but being right most of the time can still massively reduce risk. Big drawdowns really hurt the geometric compounding of returns. A 50% loss requires a 100% gain to offset.
- kqr 5y ago
  Do you have any evidence that your suggestion actually works for real people? All studies on this I've come across say that anyone using common wisdom will both exit and re-enter too late -- i.e. they tend to end up selling low and buying high, and even just holding would be an improvement. (I'm saying "even just holding" because a constant-fraction rebalanced portfolio is a disciplined way of actually buying low and selling high, and not only in a bear market.
  - mikevm 5y ago
    The ERN blog had a few nice posts regarding market timing: https://earlyretirementnow.com/2018/02/21/market-timing-and-risk-management-part-1-macroeconomics/ https://earlyretirementnow.com/2018/02/21/market-timing-and-... https://earlyretirementnow.com/2018/04/25/market-timing-and-risk-management-part-2-momentum/ https://earlyretirementnow.com/2018/04/25/market-timing-and-... In the second one he simulates a momentum strategy which does pretty well, which can be used along with multiple other signals to increase confidence. I was thinking of simulating using leverage after these kind of drops to try to increase returns even further.
baal80spam 5y ago
> during the 2021 March I think you meant 2020 March?
sys_64738 5y ago
I was sitting on cash and bought in at the bottom. Although I do this every two weeks automatically. I must be a market expert!

mikevm 5y ago

You don't need to predict the bottom. If you manage to sit out the first 20-30% drop you can probably go back in. You can use something like https://recessionalert.com/ https://recessionalert.com/ or a combination of your own signals to time the exit of the market. Of course, it will never be perfect and there will be times where you will get a false positive, but being right most of the time can still massively reduce risk. Big drawdowns really hurt the geometric compounding of returns. A 50% loss requires a 100% gain to offset.

kqr 5y ago
Do you have any evidence that your suggestion actually works for real people? All studies on this I've come across say that anyone using common wisdom will both exit and re-enter too late -- i.e. they tend to end up selling low and buying high, and even just holding would be an improvement. (I'm saying "even just holding" because a constant-fraction rebalanced portfolio is a disciplined way of actually buying low and selling high, and not only in a bear market.
- mikevm 5y ago
  The ERN blog had a few nice posts regarding market timing: https://earlyretirementnow.com/2018/02/21/market-timing-and-risk-management-part-1-macroeconomics/ https://earlyretirementnow.com/2018/02/21/market-timing-and-... https://earlyretirementnow.com/2018/04/25/market-timing-and-risk-management-part-2-momentum/ https://earlyretirementnow.com/2018/04/25/market-timing-and-... In the second one he simulates a momentum strategy which does pretty well, which can be used along with multiple other signals to increase confidence. I was thinking of simulating using leverage after these kind of drops to try to increase returns even further.

baal80spam 5y ago

> during the 2021 March I think you meant 2020 March?

sys_64738 5y ago

I was sitting on cash and bought in at the bottom. Although I do this every two weeks automatically. I must be a market expert!