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How many people really buy and hold and don't question their strategy when the 30%+ drawdowns come? We know sticking to your plan is key to long term success. C

How many people really buy and hold and don't question their strategy when the 30%+ drawdowns come? We know sticking to your plan is key to long term success. Can the masses stick to simple buy and hold long term?

nonethewiser 3y ago
Almost no one that trades for a living, including finance professionals. Lots of people saving for retirement do though.
- fantasticshower 3y ago
  Lots of people have stronger stomachs for drawdowns than I do then!
  - nonethewiser 3y ago
    It’s basically just determined by how closely you are watching the market.
  - phil21 3y ago
    It's why having a plan and a strong conviction of that plan (for me this means having to schedule time to purposefully "sit down" with myself quarterly to ensure the plan is still accurate) is so important. When the shit hits the fan you want to be able to realize you are dealing with emotion, and to go look at your pre-flight checklist so to speak before you sell anything. If pre-set conditions aren't met, you have no decisions to make. If you go into a "situation" thinking you are already overleveraged or whatever, you are much more likely to do something silly vs. if you went into the same situation comfortable in the logic of how you have your finances configured.
  - sxg 3y ago
    You don’t have to have a strong stomach if you don’t pay attention to the market. Buy and hold or “set and forget” are legitimately good strategies at least in part because of this reason.
    - fantasticshower 3y ago
      Of course you also have to believe the theory of buy and hold is sound and likely to work in the future. I think that's another part of why I struggle with it.
      - trey-jones 3y ago
        Hello, fellow emotional trader. You would benefit from Set and Forget, heed my words.
        fantasticshower 3y ago
        I do think it's important to be aware of our emotions when it comes to money and investing. I've realized that I won't be comfortable enduring drawdowns much more than 20% and so I've found alternative strategies that let me sleep at night.
  - Zetice 3y ago
    Your stomach should turn more by actually realizing those losses rather than just letting it ride. Market downturns mean nothing! You lose literally nothing; you still own the same things you did in the morning, and will own those things again in 5 years (or more based on splits/dividends). Honestly yeah, this is kind of a critical part of profitable investing; if you can’t hold through downturns, you ought to find someone who can and then forget about that money entirely.
    - fantasticshower 3y ago
      My thinking used to be this way but then I experienced some things in life that made me consider the non-zero possibility that something could happen to me that would require me to tap into retirement savings. If my retirement strategy involves waiting out large drawdowns, then there's a chance I would need to tap into my retirement accounts at the bottom of a large drawdown. I like the comfort of not having to endure large drawdowns for that reason.
      - Zetice 3y ago
        Er, you’re acting like you have a choice here, but you don’t. You either endure the drawdown or you just straight up lose your money. You’re trying to say that straight losing money is better than not losing money, but that’s nonsense.
        fantasticshower 3y ago
        We all choose what investment strategy to follow. I have chosen other strategies that have smaller drawdowns. In the case where I have to tap into my retirement account because of unlucky life circumstances, I'm happier that I'm selling something I bought for 100 at 75 vs having to sell it at 50 (hypothetically).
        Zetice 3y ago
        Except 50 was never on the table, and 75 is a fraction of what it would be worth if you stopped trying to actively manage your portfolio. I cannot overstate how bad of an idea this is. Investing is not the same as decorating, there are objectively bad ways of managing your investments and this is one of them. You will end up poorer as a result of this behavior. I hope that happiness is worth it, because you are paying through the nose.
  - ManuelKiessling 3y ago
    If you think about it, actually you should PRAY for drawdowns, unless you are very close to retirement, and assuming you buy-and-hold an accumulating ETF. Here’s why: An accumulating ETF constantly uses the dividends from its underlying stocks to buy more of itself (instead of paying those dividends out to you). And it can buy twice as many pieces of itself when it is at 50 versus when it is at 100. It is thus to your advantage if the ETF is really low for a really long time.
    - fantasticshower 3y ago
      > It is thus to your advantage if the ETF is really low for a really long time. As long as you don't start retirement at the beginning of one of those decade-long periods where the market is flat. It would hurt to have to start selling shares at 50 when you bought them for 100.
nameless912 3y ago
Anecdotally, all my moderately- to very-well paid tech friends have a robo investor and don't touch anything ever until they need to withdraw. I'd say most people don't play the day trading game, and that includes HODL'ing (man, that term is literally the only thing that came from crypto that I like) during bad downturns.
mcguire 3y ago
Raises hand This is, by the way, the intended strategy behind most index-based retirement funds.
- fantasticshower 3y ago
  I find it interesting that most of the popular index funds are market-cap weighted, and that's just how it is. Why is it that way? Why do we think that owning the biggest companies should be the default?
  - saltcured 3y ago
    Aren't there two main reasons? 1. You need some way of normalizing shares to produce a statistical sampling of the market, and capitalization is the obvious, existing market mechanism to do this. 2. You need to resist brute attacks on the index investment strategy. I.e. if a giant fund is known to just consider all shares equal, you could soak them by doing wild stock splits to put more of your shares on the market. Or if they consider all companies equal, you could soak them by bringing lots of empty shell companies to the market.
    - fantasticshower 3y ago
      It seems kind of like circular logic to me. What is the market? The market is something like the returns of the S&P 500 index. How do we get the returns of the market? Make a fund that tracks the S&P 500 index. Why do we have funds that use market-cap weightings? Because we want to track the market. I guess it's not about having an equal representation of companies or industries or sectors, it's about having an equal representation of where dollars are allocated. The goal isn't to take a dollar and buy a share of each company, the goal is to take a dollar and buy more of the companies that other people own more of and less of the ones they don't? My point is market-cap weighted index funds are an investment strategy and not some neutral default thing that people seem to think they are (or maybe I'm projecting).
      - saltcured 3y ago
bryananderson 3y ago
Me! I’ve only ever bought total market index funds and they’re just gonna sit there for as long as I live, no matter what. If the world’s total stock value crashes permanently, I’m probably worried about something other than my retirement plans.
- fantasticshower 3y ago
  I am more worried that when I want to start selling them so I can retire coincides with the beginning of a long drawdown. I suppose one way to address this risk would be to save even more and don't retire until you have way more than you calculate you'll need.
  - bryananderson 3y ago
    One adjustment you could make is to slowly rotate into bonds (also via a highly diversified fund) as you approach retirement to dampen volatility (at the cost of lower returns, but hopefully that’s fine by the time you’re approaching retirement)
Eridrus 3y ago
I don't know about how many people keep holding, but we just experienced a 30%+ fall in tech stocks (and 25% fall in sp500) last year. I held all my stocks because, well, what else was I going to invest in? And if I don't have a different preferred allocation, then I'm just trying to time the market. My experience (thankfully not paid for with real money, but fake trading) has shown me I am not good at market timing, particularly knowing when to get back in, so I don't bother trying. It doesn't really take restraint so much as an acceptance that I will likely not do better than buy & hold. I don't enjoy seeing my balance go down, but I am not close to retirement, so I accept that I need to wait it out to catch market rallies because I am not paying super close attention to markets.
- foobarian 3y ago
  I have your mind set now. But it took me multiple painful lessons over the years until the learning stuck :-) Luckily I was much poorer back then or I would really be bummed right now.
- fantasticshower 3y ago
  > I held all my stocks because, well, what else was I going to invest in? I recently learned about a class of investment strategies called tactical asset allocation. One aspect of TAA is to switch to some other asset when your main one isn't performing well. It's a form of market timing but it's systematic and backtestable. Reallocating once a month, a lot like a rebalancing that even B&Hers probably do. This site [0] has some interesting articles on their blog. HAA has really piqued my interest [1]. [0] https://allocatesmartly.com/what-we-do/#whatistaa https://allocatesmartly.com/what-we-do/#whatistaa [1] https://indexswingtrader.blogspot.com/2023/02/introducing-hybrid-asset-allocation-haa.html https://indexswingtrader.blogspot.com/2023/02/introducing-hy...
kamaal 3y ago
>>Can the masses stick to simple buy and hold long term? This statement here is the key. This is why many times real estate investments work. You more likely to pay monthly payments on a loan with discipline, than have discipline to DCA into a index. People think and work very differently under 'compulsions' and 'freedom'. There is always a phone to buy, car to change, vacation to take, and eating out to do with the money if you were not forced to put it away, like a compulsory monthly payment. Even in cases where I have seen disciplined folks, one emergency/pleasure life situation is enough to ensure they fall of the wagon(spend thrift'ism). This is why most calculations that don't take into account emotional aspects of investments are doomed to fail. And they almost always do. One thing nearly everyone is bad at is waiting, with patience.
- fantasticshower 3y ago
  I hear people say, in finance and in other domains, that sticking to the plan is the key. I think it's an essential principle to keep in mind to be an effective human. Many diets will work if you'll just stick to them. Find an investment strategy you that lets you sleep at night and stick to it for decades. To steal a phrase from a diet book, "compliance is the science".
high_byte 3y ago
me (it does not work well)

nonethewiser 3y ago

Almost no one that trades for a living, including finance professionals. Lots of people saving for retirement do though.

fantasticshower 3y ago
Lots of people have stronger stomachs for drawdowns than I do then!
- nonethewiser 3y ago
  It’s basically just determined by how closely you are watching the market.
- phil21 3y ago
  It's why having a plan and a strong conviction of that plan (for me this means having to schedule time to purposefully "sit down" with myself quarterly to ensure the plan is still accurate) is so important. When the shit hits the fan you want to be able to realize you are dealing with emotion, and to go look at your pre-flight checklist so to speak before you sell anything. If pre-set conditions aren't met, you have no decisions to make. If you go into a "situation" thinking you are already overleveraged or whatever, you are much more likely to do something silly vs. if you went into the same situation comfortable in the logic of how you have your finances configured.
- sxg 3y ago
  You don’t have to have a strong stomach if you don’t pay attention to the market. Buy and hold or “set and forget” are legitimately good strategies at least in part because of this reason.
  - fantasticshower 3y ago
    Of course you also have to believe the theory of buy and hold is sound and likely to work in the future. I think that's another part of why I struggle with it.
    - trey-jones 3y ago
      Hello, fellow emotional trader. You would benefit from Set and Forget, heed my words.
      - fantasticshower 3y ago
        I do think it's important to be aware of our emotions when it comes to money and investing. I've realized that I won't be comfortable enduring drawdowns much more than 20% and so I've found alternative strategies that let me sleep at night.
- Zetice 3y ago
  Your stomach should turn more by actually realizing those losses rather than just letting it ride. Market downturns mean nothing! You lose literally nothing; you still own the same things you did in the morning, and will own those things again in 5 years (or more based on splits/dividends). Honestly yeah, this is kind of a critical part of profitable investing; if you can’t hold through downturns, you ought to find someone who can and then forget about that money entirely.
  - fantasticshower 3y ago
    My thinking used to be this way but then I experienced some things in life that made me consider the non-zero possibility that something could happen to me that would require me to tap into retirement savings. If my retirement strategy involves waiting out large drawdowns, then there's a chance I would need to tap into my retirement accounts at the bottom of a large drawdown. I like the comfort of not having to endure large drawdowns for that reason.
    - Zetice 3y ago
      Er, you’re acting like you have a choice here, but you don’t. You either endure the drawdown or you just straight up lose your money. You’re trying to say that straight losing money is better than not losing money, but that’s nonsense.
      - fantasticshower 3y ago
        We all choose what investment strategy to follow. I have chosen other strategies that have smaller drawdowns. In the case where I have to tap into my retirement account because of unlucky life circumstances, I'm happier that I'm selling something I bought for 100 at 75 vs having to sell it at 50 (hypothetically).
        Zetice 3y ago
        Except 50 was never on the table, and 75 is a fraction of what it would be worth if you stopped trying to actively manage your portfolio. I cannot overstate how bad of an idea this is. Investing is not the same as decorating, there are objectively bad ways of managing your investments and this is one of them. You will end up poorer as a result of this behavior. I hope that happiness is worth it, because you are paying through the nose.
- ManuelKiessling 3y ago
  If you think about it, actually you should PRAY for drawdowns, unless you are very close to retirement, and assuming you buy-and-hold an accumulating ETF. Here’s why: An accumulating ETF constantly uses the dividends from its underlying stocks to buy more of itself (instead of paying those dividends out to you). And it can buy twice as many pieces of itself when it is at 50 versus when it is at 100. It is thus to your advantage if the ETF is really low for a really long time.
  - fantasticshower 3y ago
    > It is thus to your advantage if the ETF is really low for a really long time. As long as you don't start retirement at the beginning of one of those decade-long periods where the market is flat. It would hurt to have to start selling shares at 50 when you bought them for 100.

nameless912 3y ago

Anecdotally, all my moderately- to very-well paid tech friends have a robo investor and don't touch anything ever until they need to withdraw. I'd say most people don't play the day trading game, and that includes HODL'ing (man, that term is literally the only thing that came from crypto that I like) during bad downturns.

mcguire 3y ago

Raises hand This is, by the way, the intended strategy behind most index-based retirement funds.

fantasticshower 3y ago
I find it interesting that most of the popular index funds are market-cap weighted, and that's just how it is. Why is it that way? Why do we think that owning the biggest companies should be the default?
- saltcured 3y ago
  Aren't there two main reasons? 1. You need some way of normalizing shares to produce a statistical sampling of the market, and capitalization is the obvious, existing market mechanism to do this. 2. You need to resist brute attacks on the index investment strategy. I.e. if a giant fund is known to just consider all shares equal, you could soak them by doing wild stock splits to put more of your shares on the market. Or if they consider all companies equal, you could soak them by bringing lots of empty shell companies to the market.
  - fantasticshower 3y ago
    It seems kind of like circular logic to me. What is the market? The market is something like the returns of the S&P 500 index. How do we get the returns of the market? Make a fund that tracks the S&P 500 index. Why do we have funds that use market-cap weightings? Because we want to track the market. I guess it's not about having an equal representation of companies or industries or sectors, it's about having an equal representation of where dollars are allocated. The goal isn't to take a dollar and buy a share of each company, the goal is to take a dollar and buy more of the companies that other people own more of and less of the ones they don't? My point is market-cap weighted index funds are an investment strategy and not some neutral default thing that people seem to think they are (or maybe I'm projecting).
    - saltcured 3y ago

bryananderson 3y ago

Me! I’ve only ever bought total market index funds and they’re just gonna sit there for as long as I live, no matter what. If the world’s total stock value crashes permanently, I’m probably worried about something other than my retirement plans.

fantasticshower 3y ago
I am more worried that when I want to start selling them so I can retire coincides with the beginning of a long drawdown. I suppose one way to address this risk would be to save even more and don't retire until you have way more than you calculate you'll need.
- bryananderson 3y ago
  One adjustment you could make is to slowly rotate into bonds (also via a highly diversified fund) as you approach retirement to dampen volatility (at the cost of lower returns, but hopefully that’s fine by the time you’re approaching retirement)

Eridrus 3y ago

I don't know about how many people keep holding, but we just experienced a 30%+ fall in tech stocks (and 25% fall in sp500) last year. I held all my stocks because, well, what else was I going to invest in? And if I don't have a different preferred allocation, then I'm just trying to time the market. My experience (thankfully not paid for with real money, but fake trading) has shown me I am not good at market timing, particularly knowing when to get back in, so I don't bother trying. It doesn't really take restraint so much as an acceptance that I will likely not do better than buy & hold. I don't enjoy seeing my balance go down, but I am not close to retirement, so I accept that I need to wait it out to catch market rallies because I am not paying super close attention to markets.

foobarian 3y ago
I have your mind set now. But it took me multiple painful lessons over the years until the learning stuck :-) Luckily I was much poorer back then or I would really be bummed right now.
fantasticshower 3y ago
> I held all my stocks because, well, what else was I going to invest in? I recently learned about a class of investment strategies called tactical asset allocation. One aspect of TAA is to switch to some other asset when your main one isn't performing well. It's a form of market timing but it's systematic and backtestable. Reallocating once a month, a lot like a rebalancing that even B&Hers probably do. This site [0] has some interesting articles on their blog. HAA has really piqued my interest [1]. [0] https://allocatesmartly.com/what-we-do/#whatistaa https://allocatesmartly.com/what-we-do/#whatistaa [1] https://indexswingtrader.blogspot.com/2023/02/introducing-hybrid-asset-allocation-haa.html https://indexswingtrader.blogspot.com/2023/02/introducing-hy...

kamaal 3y ago

>>Can the masses stick to simple buy and hold long term? This statement here is the key. This is why many times real estate investments work. You more likely to pay monthly payments on a loan with discipline, than have discipline to DCA into a index. People think and work very differently under 'compulsions' and 'freedom'. There is always a phone to buy, car to change, vacation to take, and eating out to do with the money if you were not forced to put it away, like a compulsory monthly payment. Even in cases where I have seen disciplined folks, one emergency/pleasure life situation is enough to ensure they fall of the wagon(spend thrift'ism). This is why most calculations that don't take into account emotional aspects of investments are doomed to fail. And they almost always do. One thing nearly everyone is bad at is waiting, with patience.

fantasticshower 3y ago
I hear people say, in finance and in other domains, that sticking to the plan is the key. I think it's an essential principle to keep in mind to be an effective human. Many diets will work if you'll just stick to them. Find an investment strategy you that lets you sleep at night and stick to it for decades. To steal a phrase from a diet book, "compliance is the science".

high_byte 3y ago

me (it does not work well)