Stocks

[Ephraimh]

How's that?

You can/should play around with DCA.

If you know nothing about a stock you’re better off with simple DCA because without it you might be buying with a lumpier sum at historically high multiples at the end of a bull run.

If you do know a thing or two about the stock you can do the bulk of the purchase upfront if the stock is historically cheap or after a leg lower and then add on the rest as time progresses, or if the multiple is stretched and you’re well into a bull run, start out slow and if it takes a dip you buy with a bigger lump.

Don’t treat Dollar Cost Averaging as a rule, treat it as a concept.

[ExGingi]

Personally, if I have funds to invest, I feel most comfortable investing a lump sum in one shot -  somewhere between 30-80% of the total funds, and dollar cost averaging the rest. In a long term bull market I’d start with a lower lump sum and a larger amount during a bear market. I don’t remember reading this anywhere, but it’s what I’m comfortable with and it makes sense to me.

From the Mauldin article (emphasis added):

I’m not against buy-and-hold indexing. It deserves a place in some portfolios. My main problem with it is that very few people can hold on through the kind of drawdowns that happen every few years. They’ll say they can handle it, and sincerely mean it. You can give them suitability questionnaires, personality profiles, and any other kind of test. You can promise to hold their hand through tough times. But when half their life savings disappears within what seems like a matter of weeks, and they were counting on that money to reach their dreams, almost everyone gives up. They typically will regret it later because they probably sold near the bottom. But their reaction was natural and predictable. I don’t see the value of setting up yourself or your clients for that outcome.

This isn’t just conjecture. We have 25 years of Dalbar’s QAIB (Quantitative Analysis of Investor Behavior) studies. Dalbar looks at mutual fund inflows and outflows to measure actual investor results, given when they bought and sold. They have consistently found the average investor’s return sharply lags those long-term returns the funds advertise. In 2018, when the S&P 500 retreated -4.4%, the average investor lost more than twice as much, -9.4%. This is greed and fear at work.

Buy-and-hold strategies presume you can remove greed and fear from the equation. That is possibly true for a few highly educated, disciplined people. Not most, or anything close to most. Investors are human. They have emotions. Those emotions aren’t going anywhere, nor do we want them to, because they are important to other parts of life.

[Iz]

You can/should play around with DCA.

If you know nothing about a stock you’re better off with simple DCA because without it you might be buying with a lumpier sum at historically high multiples at the end of a bull run.

If you do know a thing or two about the stock you can do the bulk of the purchase upfront if the stock is historically cheap or after a leg lower and then add on the rest as time progresses, or if the multiple is stretched and you’re well into a bull run, start out slow and if it takes a dip you buy with a bigger lump.

Don’t treat Dollar Cost Averaging as a rule, treat it as a concept.

Well said. For the record, we're talking about investing in a broad based stock/bond index fund. So the questions you raise are as pertains to the general economy/market.

[Ephraimh]

From the Mauldin article (emphasis added):

Guess I’m part of the “very few people” then...

I started buying Apple in May or June of 2012, Apple peaked at $705 (pre split, or $100 post split) on Rosh Hashanah of that year which was on a Monday and a Tuesday in mid September, it went into a free fall over the next few months we’ll into 2013, before bottoming somewhere in the $300s—

I didn’t sell one share on the way down, I kept on buying, my average cost was/is (I still own 80% of it) $450ish (or mid $60s post split).

[ExGingi]

Guess I’m part of the “very few people” then...

I started buying Apple in May or June of 2012, Apple peaked at $705 (pre split, or $100 post split) on Rosh Hashanah of that year which was on a Monday and a Tuesday in mid September, it went into a free fall over the next few months we’ll into 2013, before bottoming somewhere in the $300s—

I didn’t sell one share on the way down, I kept on buying, my average cost was/is (I still own 80% of it) $450ish (or mid $60s post split).

You had strong conviction in the investment thesis for AAPL (you were not the only one). That is not the same as broader index investing.

You also have a long enough time horizon and can probably recover and live even if you lost everything you invested in it (I don’t think you would, but from the way you write it seems like you’re not the “poor man” in Richard Russell’s article - who “needs” his investment to work for him).

[Ephraimh]

Well said. For the record, we're talking about investing in a broad based stock/bond index fund. So the questions you raise are as pertains to the general economy/market.

You can apply the same logic to index funds etc. the SPY has an historic PE ratio to judge from

[Ephraimh]

You had strong conviction in the investment thesis for AAPL (you were not the only one). That is not the same as broader index investing.

You also have a long enough time horizon and can probably recover and live even if you lost everything you invested in it (I don’t think you would, but from the way you write it seems like you’re not the “poor man” in Richard Russell’s article - who “needs” his investment to work for him).

Maybe.

But everybody has a certain amount of money to which Richard Russell’s article should be irrelevant.

[good sam]

$1,500 price target is the bear case.

https://www.marketwatch.com/story/teslas-biggest-bull-stampedes-to-a-7000-price-target-2020-02-03?siteid=yhoof2&yptr=yahoo

[yuneeq]

Guess I’m part of the “very few people” then...

Same here. I'm not a major investor but I grew up and learned with the patience mindset.
I've held onto losses many times for years until they recovered. My problem has been selling too early (mostly at a modest gain) when I needed the money for my business. So many stocks I wanted to hold on to. AAPL, MSFT, WMT, among others.

[ExGingi]

Same here. I'm not a major investor but I grew up and learned with the patience mindset.
I've held onto losses many times for years until they recovered. My problem has been selling too early (mostly at a modest gain) when I needed the money for my business. So many stocks I wanted to hold on to. AAPL, MSFT, WMT, among others.

Hopefully investing the proceeds of the sale in your business generated more profits than holding on to the stocks would have.

[yuneeq]

Hopefully investing the proceeds of the sale in your business generated more profits than holding on to the stocks would have.

It did but picking winning stocks strokes my ego better

[ExGingi]

It did but picking winning stocks strokes my ego better

That doesn't sound right at all!!!

You picked a winning stock in your own business that did better than any of those publicly traded ones, you should be proud of that!

(BTW, this is emblematic of the Rich Man Poor Man contrast that Richard Russell points to. The rich man invests in his business knowing that he can control it and do better, while the poor man is just hoping someone else will generate profits for him. That doesn't mean that the rich man doesn't invest in other businesses that he doesn't run, such as publicly-traded ones, when he sees the value in them or for the sake of diversity).

[aygart]

It did but picking winning stocks strokes my ego better

Running a business that gives better returns doesn't?

[yuneeq]

That doesn't sound right at all!!!

You picked a winning stock in your own business that did better than any of those publicly traded ones, you should be proud of that!

(BTW, this is emblematic of the Rich Man Poor Man contrast that Richard Russell points to. The rich man invests in his business knowing that he can control it and do better, while the poor man is just hoping someone else will generate profits for him. That doesn't mean that the rich man doesn't invest in other businesses that he doesn't run, such as publicly-traded ones, when he sees the value in them or for the sake of diversity).

Well I'm not a fan of trying to satisfy my ego, so it's not right regardless of what I say.

Running a business that gives better returns doesn't?

I feel God's hand in my own business much more than I do in the stocks I choose.

[aygart]

Well I'm not a fan of trying to satisfy my ego, so it's not right regardless of what I say.

I feel God's hand in my own business much more than I do in the stocks I choose.

That is more a question of where you feel His hand than anything else!

[ExGingi]

I feel God's hand in my own business much more than I do in the stocks I choose.

INDEED!!!!!

It is priceless. Someone who hasn't been in business for themselves has no clue of how much one sees G-d's hand when in business for themselves.

It is worth all the trials and tribulations one might go through in business just to be able to see this in such an obvious manner!

[Mordyk]

ok seriously TSLA? how does a company becomes 3x more valuable in the span of 5 months?

[Ephraimh]

ok seriously TSLA? how does a company becomes 3x more valuable in the span of 5 months?

If the thought of buying this stock crossed your mind when the stock was in the dumps a few months ago, you cannot just sit and watch this run up without feeling some pain.

This is painful. Very very painful.

[Mordyk]

If the thought of buying this stock crossed your mind when the stock was in the dumps a few months ago, you cannot just sit and watch this run up without feeling some pain.

This is painful. Very very painful.

although im a fan of TSLA. this is a bit crazy. but I'm sure with this volatility it can drop just as fast. not sure to what levels though...

[Ephraimh]

I wrote this when the stock was at $450–

Shorting at these levels, is a rational thing to do.

The buyers at these levels are irrational.

Never fight irrationality with rationality.

it still holds today at $750 — Never fight irrationality with rationality — crazy.