Does DCA strategy really work in long term?

[deepblueli]

1. Not true that u can onli dca on high risk investment. U can also dca on Low risk investment such as bonds. In fact u can adjust the risk level based on how much u allocate to safe (e.g. Bond) and risky (e.g. Shares) assets.

2. Blindly is actually a key advantage. More than half the investors think they know wat they r doing, but in fact they don't. Blindly investing through a systematic approach is actually better off for most ppl. In Chinese, this is called 做多错多 （the more u do the more mistakes u make）. As I said before, this is an empirical fact that is concluded from many decades of research. Google it if u r interested.

3. I agree with ur point that if u Wan to invest in anything, u need to spend effort to learn, tho for a slightly different reason. U need to know enough to understand why dca is more applicable for diversified investments (e.g etf). Dca is a method for reducing time risk. To reduce stock specific risk, u need a diversified porforlio for it.

4. I'm not sure if High guaranteed endowment exists nowadays. But it is probably not dca. U pump in some money periodically doesnt mean the money are used to dca by the fund manager.

Thanks for the comment.

Ya, you can DCA in anything. I should have been more specific that the DCA I am discussing here is against those high risk non capital guarantee investment, e.g. stock market. And also DCA as a mean to replace traditional saving plan, like FD, ssb, endowment plan for your retirement needs or a foreseeable big spending like child education purpose.

Blindly is not an advantage unless you fully understand what the underlying investment is investing on and accept the downside risk. Lehman brother minibond is a perfect example where buyer doesn't understand about its underlying investment asset or probably choose to ignore it seeing the high interest. I agree that DCA should be chosen not against single stock, but chosen against index ETF or REIT is also a high risk, although with much lower default risk than against single stock.

I won't say that you invest blindly, if you know what you are investing just that you don't have time to manage it. You actually just adopting DCA as your investment strategy, not blindly buy it without knowing what it is.

My thought is DCA is good discipline way to invest your money, but I still think there is a need to adjusting or take profit of your portfolio along the way. I am not saying you need to do it daily, but you still need to monitor your portfolio on regular basis. You only make paper profit if you don't sell, you only make real profit when the time you sell or liquidate the portfolio.

 

[hindsight]

So basically, you are making my point for me.

It is easy to beat the market, it doesn't require much skill. What it requires is a set of balls.

https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

~94% of all active fund managers wouldn't have lagged the S&P500 in the last 15 years if beating the market is "so easy" and "doesn't require much skill".

People who have DCAed Apple and Google since their inception are raking in big compared to DCAing the index.

And I'd be 100 times richer now if I had put all my money on AMZN 15yrs ago. This is classic hindsight bias.

 

[BBCWatcher]

And I'd be 100 times richer now if I had put all my money on AMZN 15yrs ago.

Or you could have bet on Yahoo! At its peak, Yahoo! (YHOO) was the most valuable publicly traded company in the world. Verizon acquired Yahoo! earlier in 2017 for US$4.5 billion. That was not the price of the world's most valuable company.

Or maybe Nokia (NOK)? It was looking like a pretty good deal 15 years ago. It wasn't. BlackBerry (BB), perhaps (then called Research in Motion)? If you sold it in 2008, congratulations. If not, my sympathies.

There are many such examples of "sure bets" that weren't.

 

[Purplestars]

https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

~94% of all active fund managers wouldn't have lagged the S&P500 in the last 15 years if beating the market is "so easy" and "doesn't require much skill".



And I'd be 100 times richer now if I had put all my money on AMZN 15yrs ago. This is classic hindsight bias.

Once again you are confusing fund managers with individual investors.

There is nothing wrong with your hindsight bias. If you really did have the balls to put all your money in AMZN you'd have been rich. High risk high reward. The problem here is you were ball-less.

Again, I am not recommending this as an investment strategy. I'm saying plenty of people have beat the market and that is easily achievable. These people just take higher risk than you do. No need to doubt them.

 

[Purplestars]

Or you could have bet on Yahoo! At its peak, Yahoo! (YHOO) was the most valuable publicly traded company in the world. Verizon acquired Yahoo! earlier in 2017 for US$4.5 billion. That was not the price of the world's most valuable company.

Or maybe Nokia (NOK)? It was looking like a pretty good deal 15 years ago. It wasn't. BlackBerry (BB), perhaps (then called Research in Motion)? If you sold it in 2008, congratulations. If not, my sympathies.

There are many such examples of "sure bets" that weren't.

Yup, and people who beat the market didn't choose these stocks.

Are you really believing it is impossible to beat the market?

I'm actually curious about your investment returns. You seem to have money everywhere, from CPF to insurance and seem to want to have a little bit in everything. How is that working out for you?

 

[w1rbelw1nd]

Yup, and people who beat the market didn't choose these stocks.

Are you really believing it is impossible to beat the market?

I'm actually curious about your investment returns. You seem to have money everywhere, from CPF to insurance and seem to want to have a little bit in everything. How is that working out for you?

It is possible.

For me. I dont want my glass full or empty, I just want it half filled. When I look at people who have a full glass, I think of someone who has gotten an empty cup, and be satisifed with my half glass. I know a half glass is good enough for my financial goals, and is more likely to give me my LT expected returns.

Personality plays a part.

 

[Purplestars]

It is possible.

For me. I dont want my glass full or empty, I just want it half filled. When I look at people who have a full glass, I think of someone who has gotten an empty cup, and be satisifed with my half glass. I know a half glass is good enough for my financial goals, and is more likely to give me my LT expected returns.

Personality plays a part.

Yup. Some guys go to the party and fuck the Prom Queen. Some guys are happy to settle for the slightly chubby specky girl who will always be there for him.

It's your personal preference. But people shouldn't go around saying getting the Prom Queen is impossible just because they are too afraid to try.

 

[BBCWatcher]

Yup, and people who beat the market didn't choose these stocks.

Right, so all you need is a crystal ball? Or maybe a time machine?

Do you have a specific recommendation for the next Amazon, now? We can mark it down then check back in 10+ years.

Are you really believing it is impossible to beat the market?

Not impossible in the statistical zero probability sense. But it gets progressively tougher to beat the market consistently as the time horizon grows longer, assuming open and significant markets. There's also the asymmetric information problem, including potentially or actually illegal insider trading.

I'm actually curious about your investment returns.

Why?

You seem to have money everywhere, from CPF to insurance and seem to want to have a little bit in everything. How is that working out for you?

As it happens, quite well, and in a risk appropriate way, as far as I can tell.

Some guys go to the party and f**k the Prom Queen. Some guys are happy to settle for the slightly chubby specky girl who will always be there for him. It's your personal preference. But people shouldn't go around saying getting the Prom Queen is impossible just because they are too afraid to try.

Bad analogy in so many ways.

But I'll play along for a moment. Why the extremism here? Nobody is suggesting you don't approach the Prom Queen if you want. However (and this is a lousy analogy, but it's your analogy), why do you only want to f**k the Prom Queen, and then remain chaste if she doesn't agree? Monogamy is a terrible approach to investing.

 

[klarklar]

But I'll play along for a moment. Why the extremism here? Nobody is suggesting you don't approach the Prom Queen if you want. However (and this is a lousy analogy, but it's your analogy), why do you only want to f**k the Prom Queen, and then remain chaste if she doesn't agree? Monogamy is a terrible approach to investing.

Hahahaha. Funniest post I have read so far from our resident American financial adviser who is voluntarily serving National Service in Singapore by providing sound and free financial advice to Singaporeans.

Just to add one more point. While monogamy towards investing is bad financial advice, monogamy towards women is probably the most important personal finance advice to follow for men who have a tendency to diversify when it comes to women. Basically, this covers all straight men. Divorce will make even a rich man poor. So, concentrate your love to only one woman only. Monogamy pays.

By the way, one question for BBCWatcher. Why not CNNWatcher or FoxWatcher since you come from the New World? BBC sounds British, not American. What does BBC stand for in your context?

 

[doody_]

I don't even think there's an answer to this thread. No way to predict if DCA strategy works. There is backtesting but choice of time period affects results.

End of the day it is simply a strategy to adopt, no different from a "buy stock X cos it's a hot stock" strategy.

 

[w1rbelw1nd]

That's because the question from thread title is hopelessly ambiguous and unquantifiable. Define "really works" and "long term"?

Also, a poorly defined context doesn't help. using the term "DCA" implies that you have a chunk of money already, and you are spreading it out in investments over a period of time to DCA. That's not as common as investing as much as you can.

If I would to word the thread title, I would word it as " does investing consistently long term, over a period of more than 20 years, give you definitely reasonable risk adjusted return (which possibly can be defined by portfolio volatility )?

My personal preference is to go with indexing. It's not difficult to beat the market, but in the process you have to make sure that your excess returns against the risk you take compensates the unsystematic risk you take, compensate the losses you will make periodically.

Again, i think personality takes a big part in whether you stock pick or index.

I don't even think there's an answer to this thread. No way to predict if DCA strategy works. There is backtesting but choice of time period affects results.

End of the day it is simply a strategy to adopt, no different from a "buy stock X cos it's a hot stock" strategy.

 

[w1rbelw1nd]

Depends how you see it.

To me even though I am not a bbfa, unskilled novice (I work in an investment role, will get my cfa next year january, and have a finance degree), but I think life is more than chasing the prom queen. I rather play video games to be honest.

Also, not forgetting that some poor prom queen chasers fail and end up giving up on love! Some poor chaps never get any sexy action!

If you are making good returns then good for you, and all the best in the future that you can consistently be skilled (or lucky) with your investment choices

Yup. Some guys go to the party and fuck the Prom Queen. Some guys are happy to settle for the slightly chubby specky girl who will always be there for him.

It's your personal preference. But people shouldn't go around saying getting the Prom Queen is impossible just because they are too afraid to try.

 

[BBCWatcher]

Basically, this covers all straight men.

I imagine it's substantially the same for every adult, especially (but not only) in countries that recognize same sex unions.

What does BBC stand for in your context?

No particular significance.

 

[hindsight]

Once again you are confusing fund managers with individual investors.

Professional money managers have way more resources and inside information, what makes you think that its easier for retail investors to beat the market when these guys fail so miserably? Anyway there is ample evidence that points to the same thing - most retail investors underperform the market in the long run.

There is nothing wrong with your hindsight bias. If you really did have the balls to put all your money in AMZN you'd have been rich. High risk high reward. The problem here is you were ball-less.

If having balls was all it took to get rich, the average high roller at the casino would all be billionaires now. The fact of the matter is that for every AMZN there is also a FIT or GPRN, runaway success stories like AMZN are the exception, not the norm, you'd be seriously broke if you picked the wrong stock to go all in on. Nothing is obvious until after the fact, AMZN wasn't the online retail behemoth it is today 15, 20 years ago, GOOG wouldn't even be around today if YHOO hadn't rejected the offer to buy it out for 1m 20 years ago. Its only with hindsight bias that anyone would think any of these things are "obvious" or "easy to predict".

Again, I am not recommending this as an investment strategy. I'm saying plenty of people have beat the market and that is easily achievable. These people just take higher risk than you do. No need to doubt them.

I'm not doubting these people. My point was that the odds of anyone beating the market in the long run are extremely low, of course its not impossible, but just because some random guy won toto first prize with a 50c quick pick doesn't mean that the odds of that happening to you are good. Possible and easily achievable are 2 different things.

For the record I've done mostly value investing in the last 20 odd years and I reckon I've beaten the market, but its not by a large margin so I could have been just lucky. I think I would have been fine with market returns, all that time and energy could have been better spent elsewhere.

 

[Purplestars]

Right, so all you need is a crystal ball? Or maybe a time machine?

Do you have a specific recommendation for the next Amazon, now? We can mark it down then check back in 10+ years.

Looks like you still don't get it. You need no crystal ball to beat the market. All you need is balls. If you get it right, you beat the market. If you get it wrong, you lose. Just like you can lose money even if you beat a bear market.

You want my recommendation? DCA Apple and Google. Do it for a year, see the returns.

Nobody says you should do this. Risk is involved. But if you have done this you would have comfortably beat the market.

But I'll play along for a moment. Why the extremism here? Nobody is suggesting you don't approach the Prom Queen if you want. However (and this is a lousy analogy, but it's your analogy), why do you only want to f**k the Prom Queen, and then remain chaste if she doesn't agree? Monogamy is a terrible approach to investing.

Well, it's better than wanting to fuck the chubby specky girl and and then remain chaste if she doesn't agree.

 

[Purplestars]

Professional money managers have way more resources and inside information, what makes you think that its easier for retail investors to beat the market when these guys fail so miserably? Anyway there is ample evidence that points to the same thing - most retail investors underperform the market in the long run.

Looks like you are very convinced that no one is this planet beats the market. I have shown you the way to do this in the past few years. Of course I can't say that anyone can consistently beat the market, but I won't be doubting anyone who claims to have beat the market in this bull run market for the past decade taking outsized risk.

If having balls was all it took to get rich, the average high roller at the casino would all be billionaires now. The fact of the matter is that for every AMZN there is also a FIT or GPRN, runaway success stories like AMZN are the exception, not the norm, you'd be seriously broke if you picked the wrong stock to go all in on. Nothing is obvious until after the fact, AMZN wasn't the online retail behemoth it is today 15, 20 years ago, GOOG wouldn't even be around today if YHOO hadn't rejected the offer to buy it out for 1m 20 years ago. Its only with hindsight bias that anyone would think any of these things are "obvious" or "easy to predict".

Looks like you are pretty bad and math here too. Casino odds are rigged against you, you are more likely to lose than to win. Again, I don't know why hindsight bias has to do with this as it aids my argument. If someone comes in claiming he and his friends have beat the market for the past 5 years investing in Google and Tesla, I'd believe him. Do I think he's being smart? No, but I believe him.

I'm not doubting these people. My point was that the odds of anyone beating the market in the long run are extremely low, of course its not impossible, but just because some random guy won toto first prize with a 50c quick pick doesn't mean that the odds of that happening to you are good. Possible and easily achievable are 2 different things.

For the record I've done mostly value investing in the last 20 odd years and I reckon I've beaten the market, but its not by a large margin so I could have been just lucky. I think I would have been fine with market returns, all that time and energy could have been better spent elsewhere.

So if you don't doubt this people than what's your problem here? Here are some guys who only take shots and banging the prom queen and has been successful and are happy about it. Will I recommend everyone to only aim for prom queens? Definitely not. But I'll believe the winners and am happy for their success.

 

[Purplestars]

Hahahaha. Funniest post I have read so far from our resident American financial adviser who is voluntarily serving National Service in Singapore by providing sound and free financial advice to Singaporeans.

Just to add one more point. While monogamy towards investing is bad financial advice, monogamy towards women is probably the most important personal finance advice to follow for men who have a tendency to diversify when it comes to women. Basically, this covers all straight men. Divorce will make even a rich man poor. So, concentrate your love to only one woman only. Monogamy pays.

By the way, one question for BBCWatcher. Why not CNNWatcher or FoxWatcher since you come from the New World? BBC sounds British, not American. What does BBC stand for in your context?

Meh. The number one cause for divorce is marriage. Just avoid marriage and you'll do fine.

 

[Mecisteus]

You can see quite a number of skilled active investors/traders in this thread.

Personally, I am open to both active and passive ways.

 

[hindsight]

Looks like you are very convinced that no one is this planet beats the market.

State where and when I said that.

I have shown you the way to do this in the past few years.

Nobody's ever gone broke with hindsight investing, but thats only possible with a time machine.

Of course I can't say that anyone can consistently beat the market, but I won't be doubting anyone who claims to have beat the market in this bull run market for the past decade taking outsized risk.

Erm consistency is all that matters in the long run. Nobody cares that you manage to beat the market (taking outsized risk) in a bull market for a couple of years and then lose most of it in a bear market, btw thats typically what happens to the retail investor, they avoided the stock market between 2008-2015 and now they are coming back in when stocks are richly valued.

Looks like you are pretty bad and math here too. Casino odds are rigged against you, you are more likely to lose than to win.

94% fail to beat the market, those odds sound better than casino odds to you? Do you really think its so easy to pick a winner like AMZN when there are literally thousands of stocks that do poorly, even in a bull market?

Again, I don't know why hindsight bias has to do with this as it aids my argument. If someone comes in claiming he and his friends have beat the market for the past 5 years investing in Google and Tesla, I'd believe him. Do I think he's being smart? No, but I believe him.

Hindsight bias is a logical fallacy so its not a good thing, and no its got nothing to do with your example.

So if you don't doubt this people than what's your problem here? Here are some guys who only take shots and banging the prom queen and has been successful and are happy about it. Will I recommend everyone to only aim for prom queens? Definitely not. But I'll believe the winners and am happy for their success.

I specifically highlighted the words "possible" and "easily achievable" in my last reply and oh well... I don't even know why I bother to reply.

 

[Purplestars]

State where and when I said that.



Nobody's ever gone broke with hindsight investing, but thats only possible with a time machine.



Erm consistency is all that matters in the long run. Nobody cares that you manage to beat the market (taking outsized risk) in a bull market for a couple of years and then lose most of it in a bear market, btw thats typically what happens to the retail investor, they avoided the stock market between 2008-2015 and now they are coming back in when stocks are richly valued.




94% fail to beat the market, those odds sound better than casino odds to you? Do you really think its so easy to pick a winner like AMZN when there are literally thousands of stocks that do poorly, even in a bull market?



Hindsight bias is a logical fallacy so its not a good thing, and no its got nothing to do with your example.




I specifically highlighted the words "possible" and "easily achievable" in my last reply and oh well... I don't even know why I bother to reply.

So if you are happy it means you agree with me then. My post is to a response to doody's post saying that he doesn't have the time and skill to beat the market. And I'm telling if all he wants is to beat the market like alexchai01 did, he simply has to DCA Apple and Google.

Somehow this little comment can cause all you guys to get your panties in a bunch. It's amazing how defensive you just can get when someone invests differently from what you are doing. It reminds me of the saying "Those who drive slower than me are idiots, those who drive faster than me are maniacs.

I'll extend that to saying "Those who aim for the prom queen are idiots who will end up loveless and chaste for life, those who aim for ugly fat porkers are just losers. My wife is the best."

"Those who pick stock and beat the market are maniacs who will lose it all in the long term. Those who put all their money in a safe bank account are idiots who have no financial savvy. My way of investing is the best."