Official Shiny Things thread—Part III

[celtosaxon]

I am still sticking by the principle to enter only during the initial stages of recovery.

Why?

Assume that I was right about the recovery stage. Now I have entered near the bottom of the market and protected myself from the capital loss of those who DCA down the market. If I DCA from then on then my average price will perpetually be lower than those who had entered earlier and DCA down before market goes up again.

Assume that I was wrong. The initial recovery was just a false dawn and market continues to dip after that. I am still better off than those who DCA down the market because my entry point is lower than their DCA average. I will then stop buying as long as the market is going down, and start buying again when it is going up. My average price will still be perpetually lower than those who had entered earlier and DCA down before market goes up again (and they probably will continue to DCA if it goes down again).

In both cases I am still better off? Or is there anything else that I have overlooked?

My analysis is that as long as I buy on the way up and stop buying on the way down, it is perpetually better than those who DCA blindly?

The great majority of investors are better off blindly dollar cost averaging at fixed intervals for a few reasons -

1. Discipline is the single most important factor for success with most investors. DCA drives that discipline.

2. Only a very small minority of investors are successful at market timing, this is a proven statistic.

3. Keeping large cash reserves on the sidelines puts a major drag on investment returns over time. The sooner you put your available savings to work, the better.

Anyone who doubts it should put themselves to the test - put a portion of your portfolio on DCA and a portion on market timing. See which one wins long-term.

With that said, if anyone was guilty of #3 above, it’s certainly a good time to right that wrong.

 

[culepico]

The great majority of investors are better off blindly dollar cost averaging at fixed intervals for a few reasons -

1. Discipline is the single most important factor for success with most investors. DCA drives that discipline.

2. Only a very small minority of investors are successful at market timing, this is a proven statistic.

3. Keeping large cash reserves on the sidelines puts a major drag on investment returns over time. The sooner you put your available savings to work, the better.

Anyone who doubts it should put themselves to the test - put a portion of your portfolio on DCA and a portion on market timing. See which one wins long-term.

With that said, if anyone was guilty of #3 above, it’s certainly a good time to right that wrong.

You said it, keeping large cash reserves on the sidelines puts a major drag on investment returns over time. Positive investment returns is only possible if the market goes up. But during down times, your returns are negative, so cash is better.

Do a calculation according to the two scenarios that I have given in my previous post. Assume the total money invested and the timeline are the same for those who blindly DCA and those who DCA only on the way up. Then see for yourself the difference.

The numbers don't lie. And that eradicates your point #2 because even if you fail at market timing, as long as you don't buy the dips, you are still better off than those who DCA blindly.

With that said, everyone should take out your calculator and do your calculations.

EDIT: If you did your calculations, you will find that even if your timing failed, as long as you don't buy the dips, your returns will not deviate much from that of timing correctly.

 

[hkchew03]

The great majority of investors are better off blindly dollar cost averaging at fixed intervals for a few reasons -

1. Discipline is the single most important factor for success with most investors. DCA drives that discipline.

2. Only a very small minority of investors are successful at market timing, this is a proven statistic.

3. Keeping large cash reserves on the sidelines puts a major drag on investment returns over time. The sooner you put your available savings to work, the better.

Anyone who doubts it should put themselves to the test - put a portion of your portfolio on DCA and a portion on market timing. See which one wins long-term.

With that said, if anyone was guilty of #3 above, it’s certainly a good time to right that wrong.

DCA is good in many situations, but with this specific situation where you know we are still no where near the bottom of the downwards trend, cutting losses and then re-enter and continue to DCA once stablised might be a better choice. You don't have to perfectly time the bottom, make sure that situation is improving. US is just starting to do testing, and they are already reporting about 2k infected on a daily basis.

 

[celtosaxon]

DCA is good in many situations, but with this specific situation where you know we are still no where near the bottom of the downwards trend, cutting losses and then re-enter and continue to DCA once stablised might be a better choice. You don't have to perfectly time the bottom, make sure that situation is improving. US is just starting to do testing, and they are already reporting about 2k infected on a daily basis.

The problem with many investors is they get out thinking the market will go lower... then then they miss the bottom, then the recovery when it comes and they miss that too. In the end they are much worse off than if they had just stayed in. You are taking a risk being out of the market, and nobody can predict with perfect accuracy.

 

[BBCWatcher]

Whole world on quarantine means no consumer spending.

It doesn't mean that. As one example, Amazon announced on Monday that they urgently need to hire 100,000 more workers. They're accepting applications right now.

I expect overall consumer demand will be lower, but there are going to be some winners, even some big ones.

 

[MichealScott]

It doesn't mean that. As one example, Amazon announced on Monday that they urgently need to hire 100,000 more workers. They're accepting applications right now.

I expect overall consumer demand will be lower, but there are going to be some winners, even some big ones.

E-commerce will probably boom. People would want to stay at home with the groceries and shopping delivered for them

Sent from Stamford Bridge using GAGT

 

[BBCWatcher]

People would want to stay at home with the groceries and shopping delivered for them

People still have to eat. But it's not just "e-commerce" as such. Some small retailers are able to shift to home deliveries. Pizza restaurants, for example, aren't particularly sensitive to where diners consume their products. Let me take a quick look here....

OK, Domino's Pizza (DPZ on the New York Stock Exchange) closed at 298.74 yesterday. That's 21.8% off what appears to be its all-time high. The S&P 500 is off 25.5% from its all-time peak (based on yesterday's close), so investors are favoring DPZ a little versus the overall market. That makes sense to me.

Back during the Global Financial Crisis even food company stocks were clearly oversold, or at least I was highly confident they were. I was right.

 

[hwckhs]

DCA is good in many situations, but with this specific situation where you know we are still no where near the bottom of the downwards trend, cutting losses and then re-enter and continue to DCA once stablised might be a better choice.

Cutting losses? Are you sure?

I hope nobody follows your advice.

 

[aYu82]

Hi, can someone recommend a good portfolio managing app? I read that investingNotes and Investing.com is good, not sure if there are better alternatives esp for someone who have IWDA as well. Thanks!

 

[Investnewbie82]

I think the key is to keep the money to be invested. So instead of buying in with yr DCA amount, put it in warchest. Then when prices stabilize or start recovery, Empty warchest and continue DCA.

DCA is good in many situations, but with this specific situation where you know we are still no where near the bottom of the downwards trend, cutting losses and then re-enter and continue to DCA once stablised might be a better choice. You don't have to perfectly time the bottom, make sure that situation is improving. US is just starting to do testing, and they are already reporting about 2k infected on a daily basis.

 

[Thoreldan]

Any robot programmers here ?
Anyone know how to embed sarcasm-detection ability into a robot ?

 

[jacky5297]

Doesn’t make sense, DCA at market crash means you buy more shares at low prices, why you want to stop DCA and wait for the price to come back up, ended up buying lesser share as it is now more expensive?

Unless you don’t trust what you are buying, then you shouldn’t buy it at all.

I think the key is to keep the money to be invested. So instead of buying in with yr DCA amount, put it in warchest. Then when prices stabilize or start recovery, Empty warchest and continue DCA.

 

[tesarise]

Doesn’t make sense, DCA at market crash means you buy more shares at low prices, why you want to stop DCA and wait for the price to come back up, ended up buying lesser share as it is now more expensive?

Unless you don’t trust what you are buying, then you shouldn’t buy it at all.

prices stabilize or start recovery doesn't mean it is higher than the price today. At the current trajectory, it is very likely that the price will be lower than current prices even after the recovery signal is formed

 

[cassowary18]

What happens if a company whose stock is in an index goes bankrupt? How will that affect the net value of our ETF (and don't say drop, of course I know will drop; drop by how much?)

 

[shallow]

What happens if a company whose stock is in an index goes bankrupt? How will that affect the net value of our ETF (and don't say drop, of course I know will drop; drop by how much?)

It not hard to think that it will drop roughly by the amount of weightage in the basket of stocks. Open up the etf datasheet and look for the %composition of said bankrupt stock.

 

[culepico]

Doesn’t make sense, DCA at market crash means you buy more shares at low prices, why you want to stop DCA and wait for the price to come back up, ended up buying lesser share as it is now more expensive?

Unless you don’t trust what you are buying, then you shouldn’t buy it at all.

See post #640 and #642 and do the calculations yourself? The more you buy during market dips, the more you lose? Market crash isn't a one day thing. You may buy at low prices, but it may get even lower. You will be kidding yourself if you are happy to keep buying down the market. It is a really false concept.

 

[streetfighter]

I felt otherwise because i sold all my stocks & ETFs about a month ago by ignoring such advice & i saved myself from losing >35% of my portfolio.
I am fully cash & ready to take advantage of this stock market crash.
I am lucky but also because i am willing to act swiftly and contrary to popular opinions here.

The great majority of investors are better off blindly dollar cost averaging at fixed intervals for a few reasons -

1. Discipline is the single most important factor for success with most investors. DCA drives that discipline.

2. Only a very small minority of investors are successful at market timing, this is a proven statistic.

3. Keeping large cash reserves on the sidelines puts a major drag on investment returns over time. The sooner you put your available savings to work, the better.

Anyone who doubts it should put themselves to the test - put a portion of your portfolio on DCA and a portion on market timing. See which one wins long-term.

With that said, if anyone was guilty of #3 above, it’s certainly a good time to right that wrong.

 

[shallow]

DCA guidelines are after all just guideline. Some element of simple active management can save you some huge loss. If you see a disaster from a mile away, even if you take profit for half your equity growth, its 15% loss vs a 30% loss.

 

[culepico]

I felt otherwise because i sold all my stocks & ETFs about a month ago by ignoring such advice & i saved myself from losing >35% of my portfolio.
I am fully cash & ready to take advantage of this stock market crash.
I am lucky but also because i am willing to act swiftly and contrary to popular opinions here.

It is a wise decision. Even if you have timed your exit wrongly, you will still be better off than those who insisted on DCA blindly especially during downtrends like this.

 

[highsulphur]

Cutting losses? Are you sure?


I hope nobody follows your advice.

Oh yes... Pls cut