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Old 02-12-2014, 01:31 PM   #41
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I don't know that we can say that is a fact. Some studies have shown rebalancing hurts overall returns. As REWahoo points out, you are really talking market timing - maybe you can win, maybe you can't, but I don't think it rises to the level of 'fact'. But when you look backwards at a stock chart, it sure seems easy to pick the right times to get in and out!

-ERD50
I know I've hurt myself a few times by rebalancing. For example, I sold off some Apple stock once it went over $200 per share, the second time around. I paid about $45/share for it back in early 2005, and by late 2007 it briefly broke $200/sh. And then when the Great Recession hit, it fell to around $90-100 I think. Well, once it got back up to around $200 in late 2009/early 2010, I sold some off, figuring I'd lock in that gain. Well, it kept going back up, I re-thought it, and started buying back in, but at around $250-260/share. It's around $530 now, so it's all well and good. But I would have done better to have just left it alone.
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Old 02-12-2014, 01:47 PM   #42
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I think it is very dangerous to give investment advice to others. Rather I would simply tell them what I am doing: "I'm bailing out entirely and buying CD's from PenFed", or " "I'm borrowing on the house, because I think the market can only go Up, Up, UP!!!", or "I rebalanced to keep my AA where I want it - x% stocks and y% bonds/CDs".
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Old 02-12-2014, 02:39 PM   #43
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I'm with haha on this one. I don't really do market timing myself, not that I don't believe in it, I just don't trust my abilities in it enough.

But to 'throw money in the market' near all time highs Sounds like a buy high, sell low disaster in the making.

-ERD50
I beg to disagree.
That's fine - no begging required I appreciate thoughtful feedback.

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The markets were making "all time highs" throughout the 80's and 90's. You mean you would have stopped investing in 1985 because the markets were at "all time highs". Who knows, in 10 years folks will be wondering why people didn't "throw" money in the market in 2014 since it soared over 10,000 points by 2024. I mean who would have thought in 1987 that in 12 years the market would be up 10,000 points.
There's a big difference - I would not have been out of balance to begin with, so no, I would not be throwing money in at any point like that, as I would already have a reasonable AA. And new money would go in at that same rate (and in hindsight, I was too conservative for my current tastes back then, ~ 60/40). Your examples point out exactly why I'm really questioning the re-balancing 'mantra'. We can easily get out too early.

I find it difficult to provide useful information to someone who is outside an AA they would have chosen had they thought about it. Sure, we could look back and see this was a good time to go all in, or we could experience the opposite. So what do we do?

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The market can always make fools out of the smartest of us.
Exactly. So if I were to offer anything at all to someone outside their AA at this point, it would be DCA slowly to your target AA. After the fact, we can see if they could have done better or worse, but they probably would not have done too bad. That would not have been bad advice in the 80's and 90's. Not optimal, but not bad. Lacking a crystal ball, I think it's a reasonable approach.

OK, so I guess I should soften the statement I made - instead of 'But to 'throw money in the market' near all time highs Sounds like a buy high, sell low disaster in the making.

I probably should have said 'it could well be a disaster....'

-ERD50
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Old 02-12-2014, 03:04 PM   #44
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To clarify - the suggestion was that since the market was dipping in January (compared to December) they wanted to sell.
That's selling on the dip.

And these questions all came last week when we were see more red than green.

Yes, historically we're at highs - but the people asking weren't seeing it that way and wanted to divest entirely.

I still find it odd that 3 unrelated folks asked me if it was time to sell/get out... within a few days.
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Old 02-12-2014, 04:24 PM   #45
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The market is not, contrary to what reading this board might lead you to believe, the only place to generate income. Some might be high stakes poker players. Some might buy and sell real estate. Some might make short term loans to property flippers. In those cases having a damn silly wad of cash is kind of normal.
Ohhhhhhhh love "damn silly wad of cash" that's one of my favorite things.
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Old 02-12-2014, 04:52 PM   #46
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I still find it odd that 3 unrelated folks asked me if it was time to sell/get out... within a few days.
I don't think your experience is unusual at all, except maybe for the triple repetition in a short period of time. I have noticed similar jitters every single time there has been even the slightest dip in the stock market ever since the current rally began in March, 2009. There have been rather regular posts in this forum on the same subject throughout 2013 when I first started monitoring this board regularly, even though last year the dips were exceptionally mild compared to the huge uptrend we all enjoyed.

I think this behavior is an inevitable by-product of recency bias. Investors still haven't forgotten 2007, when all time highs were quickly followed by the biggest crash in memory. We are all generals fighting the last war, determined not to let it happen again.

Contrast the current tendency to be nervous in the face of good news with a year like 1999, when investors were in an era when every dip was quickly followed by a new all time high. The recency bias back then was to welcome the dip and respond by putting all your available cash into the latest hot internet stock.

Is today's nervousness any more justified than 1999's complacency? I certainly don't know. It all depends on how the stock market performs going forward. I'm sure of one thing, though. Letting your emotions get the best of you is a terrible way to invest.
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Old 02-12-2014, 10:16 PM   #47
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I beg to disagree. The markets were making "all time highs" throughout the 80's and 90's. You mean you would have stopped investing in 1985 because the markets were at "all time highs". Who knows, in 10 years folks will be wondering why people didn't "throw" money in the market in 2014 since it soared over 10,000 points by 2024. I mean who would have thought in 1987 that in 12 years the market would be up 10,000 points.

The market can always make fools out of the smartest of us.

I agree. This strong three year run of the Stock Market may just be the beginning of a new unprecedented Bull. Can't forecast it.
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Old 02-12-2014, 10:20 PM   #48
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I think it is very dangerous to give investment advice to others. Rather I would simply tell them what I am doing: "I'm bailing out entirely and buying CD's from PenFed", or " "I'm borrowing on the house, because I think the market can only go Up, Up, UP!!!", or "I rebalanced to keep my AA where I want it - x% stocks and y% bonds/CDs".

What the heck is the difference? You are still providing them financial information.
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Old 02-12-2014, 10:25 PM   #49
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To clarify - the suggestion was that since the market was dipping in January (compared to December) they wanted to sell.

That's selling on the dip.



And these questions all came last week when we were see more red than green.



Yes, historically we're at highs - but the people asking weren't seeing it that way and wanted to divest entirely.



I still find it odd that 3 unrelated folks asked me if it was time to sell/get out... within a few days.

I think what other people "feel" regarding the Market is absolutely a key data point to consider. Apply that with other fundamental data and technical indicators to formulate your best decision.
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Old 02-13-2014, 01:49 PM   #50
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I think what other people "feel" regarding the Market is absolutely a key data point to consider. Apply that with other fundamental data and technical indicators to formulate your best decision.
Wow, I can't think of a no more dangerous suggestion than to consider what people "feel" and regard it as a key data point. As to "fundamental data" and "technical indicators", several hundred years of investing history demonstrates repeatedly that no such thing exists.
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Old 02-13-2014, 11:44 PM   #51
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Wow, I can't think of a no more dangerous suggestion than to consider what people "feel" and regard it as a key data point. As to "fundamental data" and "technical indicators", several hundred years of investing history demonstrates repeatedly that no such thing exists.

Well then I guess that simply reduces your strategy to just guessing LoL. There ain't nothin left since you excluded facts, data, information and psychology.

Good luck with that plan.
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Old 02-14-2014, 01:24 AM   #52
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Well then I guess that simply reduces your strategy to just guessing LoL. There ain't nothin left since you excluded facts, data, information and psychology.

Good luck with that plan.
Can't speak for Options, but for myself I don't think it means guessing at all. Only that you cannot use "fundamental" or "technical" analysis to beat the market. That is why I think a large majority of us here use indexing.
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Old 02-14-2014, 06:26 AM   #53
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My experience has been that more people take a lot more risk in the market than they need to, are driven by emotion, and ignore the context. A market down about 5% after a 30% run up in a year (not to speak of the 5 year record) is a "meh" event and frankly to be expected. But, media outlets need to keep and increase their viewers, so the message of OMG THE END IS NEAR is what gets people's attention and scares them and causes them to ask those questions.
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Old 02-14-2014, 06:34 AM   #54
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From the contrarian point of view, this would be a bullish anecdotal sign. When many everyday people are talking about getting out, a contrarian would say it's time to get in. And vice-versa; when everyone from your plumber to your waitress at the local greasy spoon to your hairdresser to the local dog catcher has stock tips and goes all in, a contrarian would say that's a sign to pull back.

FWIW, I put a lot of stock (no pun intended) in contrarian thought but I don't make huge money moves because of it.
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Old 02-14-2014, 09:26 AM   #55
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Can't speak for Options, but for myself I don't think it means guessing at all. Only that you cannot use "fundamental" or "technical" analysis to beat the market. That is why I think a large majority of us here use indexing.
+1

IMO, a lot easier indexing and just working with percent allocations (I learned fractions in 5th grade, this I can handle ) than trying to predict market psychology.

Sometimes boring is good
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Old 02-14-2014, 12:25 PM   #56
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...(snip)...
So... Is it time to throw more money into the market since there appears to be some panic in the general population?
3 people is not a big sample

I love these echoes of 2008. That is what we are all experiencing, memories of fear ... but some greed creeping into the picture too.

We need to remember there will always be sellers and buyers. That is what defines the current price levels.
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Trend or just a microcosm of my friends/family....?
Old 02-14-2014, 07:19 PM   #57
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Trend or just a microcosm of my friends/family....?

I doubt the general population, directly, has much effect on the stock market. There are other factors with far more influence. But, when it drops, time to buy more.

In each case, though, it depends on the individual's personal situation. We haven't that information, so we can't advise. In my situation, should it drop significantly I'll hold what I have, and when it hits a particular point I'll buy more. If it continues upward, I'll eventually sell to lock in profits. I have my own trigger points.

Personally, I wouldn't give out generic advice to people. Might work for some and backfire for others. Encourage them to learn more about what they're doing...
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Old 02-14-2014, 08:30 PM   #58
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Can't speak for Options, but for myself I don't think it means guessing at all. Only that you cannot use "fundamental" or "technical" analysis to beat the market. That is why I think a large majority of us here use indexing.
I do agree that indexing does fairly well. I've been a fan if it and invested in S&P500 more than anything else. It certainly is easier to BE the market rather than try to BEAT the market.

The 15% who beat the market on avg annually are likely applying classic analysis of fundamentals, technicals and price movements. Maybe I'm wrong but I believe all investors are following a form of a System...for example buy and hold seasoned with AA periodically.
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Old 02-15-2014, 02:24 AM   #59
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I do agree that indexing does fairly well. I've been a fan if it and invested in S&P500 more than anything else. It certainly is easier to BE the market rather than try to BEAT the market.

The 15% who beat the market on avg annually are likely applying classic analysis of fundamentals, technicals and price movements. Maybe I'm wrong but I believe all investors are following a form of a System...for example buy and hold seasoned with AA periodically.
Bolding mine.

I agree that we are all are following some sort of system. The difference is that some use a system which assumes that they are smarter than the others in the market, others use a system which assumes that they are not. As far as those that "beat the market on avg annually", there are no more of these than would be predicted by chance. Lots of studies have shown this to be true. A quick search turned up this one: Measuring Chance | The University of Chicago Booth School of Business

I don't think this means we should not gamble a little. We might get lucky and get a great hit. Just not gamble with the grocery budget so to speak. Do whatever we want in that regard, but just call it what it is, gambling.
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Old 02-16-2014, 09:51 PM   #60
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Bolding mine.

I agree that we are all are following some sort of system. The difference is that some use a system which assumes that they are smarter than the others in the market, others use a system which assumes that they are not. As far as those that "beat the market on avg annually", there are no more of these than would be predicted by chance. Lots of studies have shown this to be true. A quick search turned up this one: Measuring Chance | The University of Chicago Booth School of Business

I don't think this means we should not gamble a little. We might get lucky and get a great hit. Just not gamble with the grocery budget so to speak. Do whatever we want in that regard, but just call it what it is, gambling.

Agreed. It's definitely a gamble.
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