3 ms·

As a counterpoint, I would quote the great John C Bogle: "Never, never get out of the market." [1] Knowing when the market has reached the bottom is not really

As a counterpoint, I would quote the great John C Bogle: "Never, never get out of the market." [1] Knowing when the market has reached the bottom is not really possible. During the dot com crash in 2000-2001, investors sold all the way down to the bottom (and lots of them sold at the very bottom), and then they eventually sold all the way up to the peak, when instead they could have just held onto their shares. Rebalancing doesn't really work. That's another thing Bogle showed us. Of course, if you need the cash, that's another matter. But then you arguably shouldn't have invested it in the stock market to begin with. If you have a time horizon less than 5 years, the market is just too volatile. [1] https://youtu.be/1SLb1QJvTvg https://youtu.be/1SLb1QJvTvg

notch656a 4y ago
>"Never, never get out of the market." Cash is a market though, just a different market. If you hold cash you're in a particular market, one that has earned significant returns measured against equities this year. (of course, depending on timespan you may want to pick _which_ market you think best) It's been strange indeed. My highest yielding investment the past couple years was buying a new vehicle. Conventional wisdom says new vehicles are horrible investment, but in this market it's exceeded yields of every single asset in my pretty diverse basket.
- sumedh 4y ago
  > If you hold cash you're in a particular market, one that has earned significant returns measured against equities this year. What about the last 100 years?
  - notch656a 4y ago
    Depends. Pennies from 1920? Beat inflation. $20 coin from 1924 ($20 was worth an ounce of gold, so it was just an ounce gold goin)? Beat inflation. Dollar bill from 1922? Lose, but mostly because the fed reneged on their obligation of gold backing. I believe If you held 100 years from 1805 to 1905 there wasn't much inflation at all. So it really depends.
    - TameAntelope 4y ago
      Not during the last 100 years, for the last 100 years. The whole point is you have no clue when the bear market will end, and a lot of the recovery happens in the first few days (or sometimes even just the one day) of the new bull market. Trying to pull in or out means you miss out on the best gain days.
- kqr 4y ago
  So the refinement of the statement might be "never, never move your allocation to 100 % of a single asset." (But since you speak of a diverse basket, you probably know this already.)
- atombender 4y ago
  In the context of Bogle's statement (and the parent's comment), it was the stock market, specifically index funds. It goes back to the realization that no investor can predict the peaks or troughs of the market, so getting out of the market is effectively trying to time it. One may be lucky and get out at the peak and then buy back in at the bottom, but on average you will lose money this way.
kqr 4y ago
> Rebalancing doesn't really work. That's another thing Bogle showed us. Wait, what? Rebalancing has worked very well in my backtesting, assuming the fairly generous trading fees I get, at least. What are you referring to?
- atombender 4y ago
  Bogle did extensive analysis on the impact of rebalancing (between stocks and bonds) on historical portfolio returns, and decided that it does not meaningfully increase your returns. His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to your target? Rebalancing will also generally generate capital gains in taxable accounts. If you're aiming for 60/40, but your stocks are now up and it's 70/30, selling those stocks to bring it back to 60/40 again means you will pay capital gains on whatever you sell. The data shows you can get better returns by rebalancing weekly, but this is really too much for most investors, unless you use something like M1 where rebalancing is a single button click. Of course, there's more complexity to this question. The above mostly applies to the accumulation phase. To someone in, or close to, retirement, for example, having a portfolio that's drifted too far into stocks can be a risk.
  - staticman2 4y ago
    "His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to your target?" Because of reversion to the mean. Rebalancing should insulate you from weird outcomes like 90% of your money being in GameStop stock then crashing to nothing a week later. Pretty much every professional fund of fund rebalances, including those by the company Bogle founded. This is weird advice.
  - kqr 4y ago
    Another way to phrase the reply you have already had: because these assets are martingale. In other words, to the extent good historic performance says anything about future performance, that effect is already priced in. This means you shouldn't hold on to a historically good investment just for that reason -- it's just as likely to be a loser going forward. If you determined that the amount of risk you're willing to put into equity is 60 %, the only thing that happens if you let it drift up to 70 % is that you increase your exposure to equity higher than you originally intended. Maybe you have good reason to do that, but historic good performance is not that reason.
atombender 4y ago
> they eventually sold all the way up to the peak Edit: Bought all the way up.

notch656a 4y ago

>"Never, never get out of the market." Cash is a market though, just a different market. If you hold cash you're in a particular market, one that has earned significant returns measured against equities this year. (of course, depending on timespan you may want to pick _which_ market you think best) It's been strange indeed. My highest yielding investment the past couple years was buying a new vehicle. Conventional wisdom says new vehicles are horrible investment, but in this market it's exceeded yields of every single asset in my pretty diverse basket.

sumedh 4y ago
> If you hold cash you're in a particular market, one that has earned significant returns measured against equities this year. What about the last 100 years?
- notch656a 4y ago
  Depends. Pennies from 1920? Beat inflation. $20 coin from 1924 ($20 was worth an ounce of gold, so it was just an ounce gold goin)? Beat inflation. Dollar bill from 1922? Lose, but mostly because the fed reneged on their obligation of gold backing. I believe If you held 100 years from 1805 to 1905 there wasn't much inflation at all. So it really depends.
  - TameAntelope 4y ago
    Not during the last 100 years, for the last 100 years. The whole point is you have no clue when the bear market will end, and a lot of the recovery happens in the first few days (or sometimes even just the one day) of the new bull market. Trying to pull in or out means you miss out on the best gain days.
kqr 4y ago
So the refinement of the statement might be "never, never move your allocation to 100 % of a single asset." (But since you speak of a diverse basket, you probably know this already.)
atombender 4y ago
In the context of Bogle's statement (and the parent's comment), it was the stock market, specifically index funds. It goes back to the realization that no investor can predict the peaks or troughs of the market, so getting out of the market is effectively trying to time it. One may be lucky and get out at the peak and then buy back in at the bottom, but on average you will lose money this way.

kqr 4y ago

> Rebalancing doesn't really work. That's another thing Bogle showed us. Wait, what? Rebalancing has worked very well in my backtesting, assuming the fairly generous trading fees I get, at least. What are you referring to?

atombender 4y ago
Bogle did extensive analysis on the impact of rebalancing (between stocks and bonds) on historical portfolio returns, and decided that it does not meaningfully increase your returns. His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to your target? Rebalancing will also generally generate capital gains in taxable accounts. If you're aiming for 60/40, but your stocks are now up and it's 70/30, selling those stocks to bring it back to 60/40 again means you will pay capital gains on whatever you sell. The data shows you can get better returns by rebalancing weekly, but this is really too much for most investors, unless you use something like M1 where rebalancing is a single button click. Of course, there's more complexity to this question. The above mostly applies to the accumulation phase. To someone in, or close to, retirement, for example, having a portfolio that's drifted too far into stocks can be a risk.
- staticman2 4y ago
  "His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to your target?" Because of reversion to the mean. Rebalancing should insulate you from weird outcomes like 90% of your money being in GameStop stock then crashing to nothing a week later. Pretty much every professional fund of fund rebalances, including those by the company Bogle founded. This is weird advice.
- kqr 4y ago
  Another way to phrase the reply you have already had: because these assets are martingale. In other words, to the extent good historic performance says anything about future performance, that effect is already priced in. This means you shouldn't hold on to a historically good investment just for that reason -- it's just as likely to be a loser going forward. If you determined that the amount of risk you're willing to put into equity is 60 %, the only thing that happens if you let it drift up to 70 % is that you increase your exposure to equity higher than you originally intended. Maybe you have good reason to do that, but historic good performance is not that reason.

atombender 4y ago

> they eventually sold all the way up to the peak Edit: Bought all the way up.