A serious question (for once), about the theory of buy and hold and down markets
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ScaredtoQuit
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The only thing I don't like about the "Buckets" approach is that it is soooo conservative. Lucia advocates a full 50% of your money in cash or bonds. It seems to me that with his approach you take such a big hit on growth.
donheff
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Re: A serious question (for once), about the theory of buy and hold and down mar
Yeah, that was my reaction. First, he was all "you are such dick heads." Then he is all, "Nords you are the man," and "help me please, the market is down."
AJ: the first thing you should do is get some Lithium Carbonate. Then stop worrying about the recession. You are bound to experience a few of them before you ER. Pick your preferred allocation of managed funds or index funds, keep adding to them regularly and forget about the ups and downs. A lot of us watched our portfolios tumble by hundreds of thousands a few years back and we still get by without Ambien.
a said:
Yeah, that was my reaction. First, he was all "you are such dick heads." Then he is all, "Nords you are the man," and "help me please, the market is down."
AJ: the first thing you should do is get some Lithium Carbonate. Then stop worrying about the recession. You are bound to experience a few of them before you ER. Pick your preferred allocation of managed funds or index funds, keep adding to them regularly and forget about the ups and downs. A lot of us watched our portfolios tumble by hundreds of thousands a few years back and we still get by without Ambien.
teejayevans
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Re: A serious question (for once), about the theory of buy and hold and down mar
out of office, Alan must be working on a book. If I were Ben I'd tell him to
shut up.
Tom
Ex-feds use to have a unwritten rule that they kept their mouth shut onceAirJordan said:
out of office, Alan must be working on a book. If I were Ben I'd tell him to
shut up.
Tom
free4now
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Buy and Hold = Buy and Hold.
Re: A serious question (for once), about the theory of buy and hold and down mar
I agree. That post was confusing. Here, let me try to explain it in simpler terms.
Buy and hold means buy and hold. Hope that helped.
AirJordan said:
I agree. That post was confusing. Here, let me try to explain it in simpler terms.
Buy and hold means buy and hold. Hope that helped.
donheff
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Re: A serious question (for once), about the theory of buy and hold and down mar
Unless you are really smart and you have read all the books we mentioned. Then you place a stop limit - like a drop of 20% and liquidate everything to cash. Then when the market comes back up toward normal - say a 15% rise - you get back into equities.justin said:
donheff said:
Pick your preferred allocation of managed funds or index funds, keep adding to them regularly and forget about the ups and downs. A lot of us watched our portfolios tumble by hundreds of thousands a few years back.
Treat the stock market like your favorite sports team: it can be entertaining, you may want to know the score each day, but there is nothing you can do if they have a losing streak. They will win again. Thankfully, I believe (don't quote me) that the stock market has on average 7 up years for every 3 down years, so the odds are in your favor. Forget market timing. Before 2 weeks ago, no one knew a downturn was imminent. This is nothing and no one knows how long it will last, nor when it will end and go back up.
I think people who are "successful" market timers are like people who bet on horses. You only hear about the winning moves, not all the rest. With so much evidence out there, I am amazed that so many people try to beat the market. AJ, buy and hold, index funds, you'll sleep out night, pay no taxes, and not waste time figuring what to do with your money.
AirJordan said:
Buy-and-Hold philosophy is really based on the Efficient Market Hypothesis. i.e. No one is smart enough to consistently time the market. This is of course the same logic behind Index Funds.
If you are a "true believer" then you do not sell just because some "expert" on TV thinks that there will be a correction.
The action that you take to address your own uncertainty is to reduce your stock allocation to your own comfort level but maintain it at that level, i.e. reduce stocks and put it in bonds, cash, etc. to the point that you will no longer by "spooked" by a bear market or some guy on TV even if it is Greenspan. "If you can't take the heat stay out of the kitchen."
Some that usually practice slice and dice asset allocation, indexing and buy-and-hold deviate from it on occasion. If you read enough past posts you will find a lot of comments to the effect that "(tech) stocks were just to out of whack with the fundamentals in 2000 so I sold" or more recently "REITs are overpriced so I sold them."
A hybrid approach is to let your AA wander a bit based on your outlook. For example if your're optimistic then increase stocks a bit (maybe 10%) or reduce them a bit if you're pessimistic. I dropped my REIT allocation a couple of percent about six months ago but I still own some and they have gone up since then. I would never be totally out of the market ala Bob Brinker. You lose to much if you're wrong. Many think that any kind of timing is a "loser's game" and you should determine your AA and only change it based on your own financial needs and risk tolerance. You have to make that decision.
MB
(c) Neither of the above.ScaredtoQuit said:
I'd rebalance whenever an asset class got significantly out of whack-- selling when it rises from 10% of the portfolio to 15%... or buying more when it drops from 20% to 15%.
But I don't think we're ever going to sell any Berkshire Hathaway shares. 31% of the ER portfolio yet every time we think about selling some...
Hey Nords
Sequoia Fund - a long time BRK holder reduced their holdings a little in 2006. Its still their largest but the value guys seem to think 2006 is as good as it gets. But I wouldn't want to underestimate the big man yet and it is only 5% of my portfolio
-h
p.s: http://www.sec.gov/Archives/edgar/data/89043/000008904307000002/0000089043-07-000002.txt
Sequoia Fund - a long time BRK holder reduced their holdings a little in 2006. Its still their largest but the value guys seem to think 2006 is as good as it gets. But I wouldn't want to underestimate the big man yet and it is only 5% of my portfolio
-h
p.s: http://www.sec.gov/Archives/edgar/data/89043/000008904307000002/0000089043-07-000002.txt
Nords,
lswswein,
In the 90s, sorry don't remember the justification, I read that someone determined that BH was 100% over valued based on the intrinsic value of the holdings. i.e. The "Warren Factor" increased the value of BH stock by a factor of two!
So what happens to the stock price if/when Warren is no longer able to run Berkshire Hathaway?
MB
lswswein,
In the 90s, sorry don't remember the justification, I read that someone determined that BH was 100% over valued based on the intrinsic value of the holdings. i.e. The "Warren Factor" increased the value of BH stock by a factor of two!
So what happens to the stock price if/when Warren is no longer able to run Berkshire Hathaway?
MB
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Thats always been my question.
The unknown factor in equity ownership in the short term is usually psychological. I've seen BRK shareholder meetings, they're like woodstock. IMO its a long term psychosis thats like Ben and Jerrys or Krispy Kreme stockholders...only the company makes good money and has sound financial foundations.
I'm quite sure that the stock takes a healthy drubbing the minute Warren bites the dust. And eventually comes back to 80-85% of the value of the day before.
Theres a Buffet premium though that I dont think you ever get back.
I might be a buyer on that "day after" though. But you might have to hold a few years to get the full effect of the bounce-back.
The unknown factor in equity ownership in the short term is usually psychological. I've seen BRK shareholder meetings, they're like woodstock. IMO its a long term psychosis thats like Ben and Jerrys or Krispy Kreme stockholders...only the company makes good money and has sound financial foundations.
I'm quite sure that the stock takes a healthy drubbing the minute Warren bites the dust. And eventually comes back to 80-85% of the value of the day before.
Theres a Buffet premium though that I dont think you ever get back.
I might be a buyer on that "day after" though. But you might have to hold a few years to get the full effect of the bounce-back.
mb said:
The way things have been over the last few yrs BRK is if not anything else, selling at a discount because everyone knows Buffett is going to croak sometime in the next 15 yrs. All the intrinsic value calculations say it is selling at a discount. Also based on who owns the stock a lot of people will never sell their BRK stock - it wil upto the estates or kids to sell them. If there is a big selloff because buffett died, I think a lot of the current owners would swoop in to buy. I know I would be one of them - it just is an amazing collection of companies which just keep generating amazing amounts of cash.
-h
The Buffett premium is in the companies he buys and invests in. Whoever is the successor will have a tough time doing that - btw the new annual report has an ad for a successor to get started on the investing side of things. He has internal guys identified to take of the other stuff - insurance and top level organization.
He is looking for the following in the new guyFrom the annual letter)
I intend to hire a younger man or woman with the potential to manage a very large portfolio, who we hope will succeed me as Berkshire's chief investment officer when the need for someone to do that arises. As part of the selection process, we may in fact take on several candidates.
Picking the right person(s) will not be an easy task. It's not hard, of course, to find smart people, among them individuals who have impressive investment records. But there is far more to successful longterm investing than brains and performance that has recently been good. Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered. Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions. Temperament is also important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success. I've seen a lot of very smart people who have lacked these virtues. Finally, we have a special problem to consider: our ability to keep the person we hire. Being able to list Berkshire on a resume would materially enhance the marketability of an investment manager. We
will need, therefore, to be sure we can retain our choice, even though he or she could leave and make much more money elsewhere.
He is looking for the following in the new guy
From the annual letter)I intend to hire a younger man or woman with the potential to manage a very large portfolio, who we hope will succeed me as Berkshire's chief investment officer when the need for someone to do that arises. As part of the selection process, we may in fact take on several candidates.
Picking the right person(s) will not be an easy task. It's not hard, of course, to find smart people, among them individuals who have impressive investment records. But there is far more to successful longterm investing than brains and performance that has recently been good. Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered. Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions. Temperament is also important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success. I've seen a lot of very smart people who have lacked these virtues. Finally, we have a special problem to consider: our ability to keep the person we hire. Being able to list Berkshire on a resume would materially enhance the marketability of an investment manager. We
will need, therefore, to be sure we can retain our choice, even though he or she could leave and make much more money elsewhere.
newyorklady
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Re: A serious question (for once), about the theory of buy and hold and down mar
First of all, I appreciate your change in attitude AirJordan. I guess you have been reading and researching and realizing just how little you know. At 24 you are way ahead of the curve though. I have the same issues with buy and hold strategy, I mean I logically know that it is what I should do but it still makes me nervous. But I have health problems that most people do not know about, so that is an extra issue for me and makes my strategy a little different. Plus I am married to a man who will probably amass wealth at least equal to mine, and just recently became a millionaire, so that eases some fears, but who knows if kids are brought into the equation or if he gets fired or if he runs off with another woman, etc. However, for you, I wouldn't worry too much as your portfolio now isn't that large and from what I gather you plan on having a career in law, so the fluctuations shouldn't be of great concern for you. I would say just chill out and keep up with your lbym strategy and keep buying and holding, however do keep the general market in mind not so that you sell in a panic, but when you feel the market is overvalued/undervalued, etc., use that in deciding what you will do with your newly earned money to invest. And the number one factor for you is to remember to marry well. I know quite a few dumb men who are seemingly brilliant and should have tens of millions of dollars now, while sipping fruity drinks from some island retirement haven, but instead they are 60 and still working due to multiple divorces. Never underestimate the idiocy of men when faced with a beautiful woman.
First of all, I appreciate your change in attitude AirJordan. I guess you have been reading and researching and realizing just how little you know. At 24 you are way ahead of the curve though. I have the same issues with buy and hold strategy, I mean I logically know that it is what I should do but it still makes me nervous. But I have health problems that most people do not know about, so that is an extra issue for me and makes my strategy a little different. Plus I am married to a man who will probably amass wealth at least equal to mine, and just recently became a millionaire, so that eases some fears, but who knows if kids are brought into the equation or if he gets fired or if he runs off with another woman, etc. However, for you, I wouldn't worry too much as your portfolio now isn't that large and from what I gather you plan on having a career in law, so the fluctuations shouldn't be of great concern for you. I would say just chill out and keep up with your lbym strategy and keep buying and holding, however do keep the general market in mind not so that you sell in a panic, but when you feel the market is overvalued/undervalued, etc., use that in deciding what you will do with your newly earned money to invest. And the number one factor for you is to remember to marry well. I know quite a few dumb men who are seemingly brilliant and should have tens of millions of dollars now, while sipping fruity drinks from some island retirement haven, but instead they are 60 and still working due to multiple divorces. Never underestimate the idiocy of men when faced with a beautiful woman.
newyorklady
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Re: A serious question (for once), about the theory of buy and hold and down mar
i don't know about this advice, sounds like a losing strategy to me. unless we hit a depression or something horrible like that, you would just be hurting your returns with this type of a play.
donheff said:
i don't know about this advice, sounds like a losing strategy to me. unless we hit a depression or something horrible like that, you would just be hurting your returns with this type of a play.
newyorklady
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Re: A serious question (for once), about the theory of buy and hold and down mar
sorry, you were being sarcastic on second examination. but the funny thing is i know people who have done stuff like that. get really scared sell off and then enter the market at a higher price. that is what i think about when i get the itch to panic, don't want to be a sucker like that.
sorry, you were being sarcastic on second examination. but the funny thing is i know people who have done stuff like that. get really scared sell off and then enter the market at a higher price. that is what i think about when i get the itch to panic, don't want to be a sucker like that.
free4now
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Re: A serious question (for once), about the theory of buy and hold and down mar
I used to have a strategy of selling when share price fell below the 39 week moving average, and then buying when it rose up again past the 39 WAR. Eventually I realized that every round trip in and out of the market costs me money because one can never transact exactly at the average-crossing moment; you always overshoot the sell on the way down and overshoot the buy on the way up. These losses are magnified with the whipsaw effect that happens if the price crosses its averages frequently in a sideways market. Add in transaction costs and the psychological drama of needing to watch the market every minute, and it just wasn't worth it.
donheff said:
I used to have a strategy of selling when share price fell below the 39 week moving average, and then buying when it rose up again past the 39 WAR. Eventually I realized that every round trip in and out of the market costs me money because one can never transact exactly at the average-crossing moment; you always overshoot the sell on the way down and overshoot the buy on the way up. These losses are magnified with the whipsaw effect that happens if the price crosses its averages frequently in a sideways market. Add in transaction costs and the psychological drama of needing to watch the market every minute, and it just wasn't worth it.
Empty Pockets
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Do like I do.
I have a long range plan to invest in equities. I buy a lot every month and only check my statements when the market is up. There were quite a few months in a row in 2000-2003 where I never opened an envelope.
I remember when someone asked Sam Walton what he thought when the value of his Walmart stock dropped about 20% one day in 1987, he told them "I wasn't going to sell any today anyway".
Jumping out of the market and back in, you have to be right twice, and believe me most of us aren't that good.
I have a long range plan to invest in equities. I buy a lot every month and only check my statements when the market is up. There were quite a few months in a row in 2000-2003 where I never opened an envelope.
I remember when someone asked Sam Walton what he thought when the value of his Walmart stock dropped about 20% one day in 1987, he told them "I wasn't going to sell any today anyway".
Jumping out of the market and back in, you have to be right twice, and believe me most of us aren't that good.
newyorklady
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Re: A serious question (for once), about the theory of buy and hold and down mar
good advice. now how do i get your discipline? seriously need some valium with a volatile market as of late.
good advice. now how do i get your discipline? seriously need some valium with a volatile market as of late.
Re: A serious question (for once), about the theory of buy and hold and down mar
NYL, what should be comforting to you and me hopefully in the future, is that you have amassed enough money (wellll maybe not i you live in Manhattan) but at least enough in most places to live pretty comfortably off of what you make alone, even without putting it in a money market. Since this is the first time I've seen the market hit a big dip since I've gotten in, I wanted to just hit the cash out button. But the minds here have assuaged my concerns, and shown me that (barring another Great Depression), sticking through those ups and downs it is the way to go.
Otherwise I just smoke a bowl, and have a few scotches, that works too
newyorklady said:
NYL, what should be comforting to you and me hopefully in the future, is that you have amassed enough money (wellll maybe not i you live in Manhattan) but at least enough in most places to live pretty comfortably off of what you make alone, even without putting it in a money market. Since this is the first time I've seen the market hit a big dip since I've gotten in, I wanted to just hit the cash out button. But the minds here have assuaged my concerns, and shown me that (barring another Great Depression), sticking through those ups and downs it is the way to go.
Otherwise I just smoke a bowl, and have a few scotches, that works too
REWahoo
Give me a museum and I'll fill it. (Picasso) Give
Re: A serious question (for once), about the theory of buy and hold and down mar
Try to put in perspective the 3-4% drop that just occurred vs 20 years ago when those of us who were around and invested in equities participated in this:
"Black Monday is the name given to Monday, October 19, 1987, when the Dow Jones Industrial Average (DJIA) fell dramatically, and on which similar enormous drops occurred across the world. By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%."
http://en.wikipedia.org/wiki/Black_Monday_(1987)
Turns out that was a dynamite buying opportunity providing bargain basement prices for stocks that would take off on a run lasting more than a decade. For those who sold and tried to figure out when it was "safe" to buy back in, it was the end of their retirement dreams.
Moral of the story: Hang on and try to enjoy the ride.
Try to put in perspective the 3-4% drop that just occurred vs 20 years ago when those of us who were around and invested in equities participated in this:
"Black Monday is the name given to Monday, October 19, 1987, when the Dow Jones Industrial Average (DJIA) fell dramatically, and on which similar enormous drops occurred across the world. By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%."
http://en.wikipedia.org/wiki/Black_Monday_(1987)
Turns out that was a dynamite buying opportunity providing bargain basement prices for stocks that would take off on a run lasting more than a decade. For those who sold and tried to figure out when it was "safe" to buy back in, it was the end of their retirement dreams.
Moral of the story: Hang on and try to enjoy the ride.
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