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In the dot-com crash, the NASDAQ lost 80% of it's value, which is something I'd certainly like to be sitting on the sidelines for. The trouble with a crash is

In the dot-com crash, the NASDAQ lost 80% of it's value, which is something I'd certainly like to be sitting on the sidelines for. The trouble with a crash is that it happens fast, and you are likely not going to be able to get out fast enough. There is also the psychology involved - say you lose 20% in one day, then do you sell, or wait for a bounce back before selling? What if there is no bounce, and it goes down another 20% the next day, then what do you do? Nowadays there are "circuit breakers" that will stop the market if it is crashing, so maybe you hear about the start of the crash an hour late, by which time the trading has been halted. What do you do now - put in a market sell order? If every one is trying to bail out at the same time, then the market will reopen at a much lower price (matching buy & sell orders), and so it goes ...

tempestn 1y ago
And conversely, if you try to preempt the crash, you might end up sitting out most of the run up. Lots of people called the dot.com bubble in the late 90s and got out, only to end up worse off than if they'd just held through the whole boom, crash, and recovery. (Of course, I'm sure there were also some that managed to time the market successfully! Not sure I'm that lucky though.)
- HarHarVeryFunny 1y ago
  Yes, you'd like to try to benefit from some of the run up, but the numbers of the dot-com boom are worth considering. The NASDAQ increase in 5 years preceding the crash was 600%, then the index lost 80% in the crash, so if you'd held through all of that you would have been left with 0.2 (100%-80%) x 7.0 (100% + 600%) of your original investment = 1.4 (140%), so you'd have been up 40% overall (OK for 5 years, but not amazing). However, say you got onboard late and were "only" up 300% before the crash, then post-crash you'd have been left with 0.2 x 4.0 = 0.8 (80%), so you'd have ended up having lost 20% of your original investment, and of course the later you got onboard the worst off you'd have been.
  - tempestn 1y ago
    I'd say you're biasing the analysis by ending at the bottom after the crash though. Certainly if you managed to time your capitulation for the market bottom you would have lost out, but if you're buy-and-hold long term, you'd catch all of the recovery too. The person who sold early, on the other hand, would most likely miss some of the recovery as well.
Havoc 1y ago
>NASDAQ lost 80% of it's value, which is something I'd certainly like to be sitting on the sidelines for. And google gained how much in subsequent years? Not disputing it was ugly & bloody, but rather saying the underlying tech was valid and the companies that built on it in a sound way crushed it. Tricky bit is telling which of the current crop are going to be the survivors
JohnnyMarcone 1y ago
If you're arguing to not have all investments in NASDAQ, that advice is good for any point in time. At least diversify to a total stock market fund such as VTSAX and have an allocation of bonds to fit your risk tolerance. Maybe add some international equities as well. Diversifing is smarter than timing the market.

tempestn 1y ago

And conversely, if you try to preempt the crash, you might end up sitting out most of the run up. Lots of people called the dot.com bubble in the late 90s and got out, only to end up worse off than if they'd just held through the whole boom, crash, and recovery. (Of course, I'm sure there were also some that managed to time the market successfully! Not sure I'm that lucky though.)

HarHarVeryFunny 1y ago
Yes, you'd like to try to benefit from some of the run up, but the numbers of the dot-com boom are worth considering. The NASDAQ increase in 5 years preceding the crash was 600%, then the index lost 80% in the crash, so if you'd held through all of that you would have been left with 0.2 (100%-80%) x 7.0 (100% + 600%) of your original investment = 1.4 (140%), so you'd have been up 40% overall (OK for 5 years, but not amazing). However, say you got onboard late and were "only" up 300% before the crash, then post-crash you'd have been left with 0.2 x 4.0 = 0.8 (80%), so you'd have ended up having lost 20% of your original investment, and of course the later you got onboard the worst off you'd have been.
- tempestn 1y ago
  I'd say you're biasing the analysis by ending at the bottom after the crash though. Certainly if you managed to time your capitulation for the market bottom you would have lost out, but if you're buy-and-hold long term, you'd catch all of the recovery too. The person who sold early, on the other hand, would most likely miss some of the recovery as well.

Havoc 1y ago

>NASDAQ lost 80% of it's value, which is something I'd certainly like to be sitting on the sidelines for. And google gained how much in subsequent years? Not disputing it was ugly & bloody, but rather saying the underlying tech was valid and the companies that built on it in a sound way crushed it. Tricky bit is telling which of the current crop are going to be the survivors

JohnnyMarcone 1y ago

If you're arguing to not have all investments in NASDAQ, that advice is good for any point in time. At least diversify to a total stock market fund such as VTSAX and have an allocation of bonds to fit your risk tolerance. Maybe add some international equities as well. Diversifing is smarter than timing the market.