Stock Market (Page 2)

Staying in.....and when it hits 10% loss I'm buying in more. 

Don't do it....  

I've been out for a good month or so.  I have been busy with work so much that I don't need the distraction, so it's not really related to what I think the market is going to do or not do.

On that note though, I can guarantee you that the market will go up and down this year.  ;-)

I think that's right.....but I think in the end it'll still be the best investment.....maybe 6-8% gain.

Always the harbinger of doom and gloom.

lol, the sky is falling the sky is falling.  

Taking a step back, you do have to look at the fundamentals of what's driving the market.  For example in 2000 the market was exploding because of grossly inflated company valuations from dot com's and billions of dollars of Venture Capital money being flooded into the economy.  The inflated valuations went poof, the VC money went poof and the market went down hard.
Leading up to 2008 the market was grossly inflated due to the massive $ that was being flooded into the market through mortgage refinances and the housing boom.  That went poof, the lending went poof, and the market went down hard.

Today you have to look at the same things, what is driving the market up so unnaturally?  Many experts and I'll throw myself into the camp say the market has been on a run primarily due to the fed pumping and drop in interest rates.
According to Michael Cembalest (Chairman of Market and Investment Strategy for J.P. Morgan Asset Management) "More than 100% of equity market gains since January 2009 have taken place during the weeks the Fed purchased Treasury bonds and mortgages. And conversely, during the weeks when the Fed did NOT buy Treasuries or mortgage backed bonds, the stock market declined."

So, I ask you to consider this question when you do your investing.  What is holding the market up and more importantly what is going to make it continue to go up?  IMHO the market was propped up by the Fed and now that the Fed has started to decrease the buyback and soon to start increasing interest rates do you honestly think the market is going to continue to go up?  What is going to be driving the increase?  It's certainly not going to go up based on corporate profits.

I'm not a doom and gloomer that is predicting everything crashing in 2014, but I do take a step back and look at the trends.  I will say that the market is set up for a big crash because a lot of the money in the market is money that would typically be in bonds/savings/CD's/etc.  If the market starts going down and interest rates go up there will be a lot of money being pulled out and put back into safer bonds/CD's which will snowball the market downwards.  Then you would have to have another driver pushing big bucks into the economy to drive it back up.  What's that driver?

Take a look at this little graph and tell me that the market isn't being propped up.  Everyone agrees that 2008 was a bubble and the economy was falsely propped up.  Yet, look at our corporate profits now compared to 2008???

Here's another good chart that's indicative of the bubble we're in:

It's the ratio of capital to consumer goods production. Since savings rates have not increased, the rise in this ratio largely reflects bubble effects.

So, is the market going to crash in 2014?  Who knows.  Is it going to correct itself some, I'd say most certainly it is.  The big question is how much and for how long.   Then you throw in the potential for an unknown "trigger" such as what happened in 2008 and all bets are off.  If something big happens, then the market is really set up for a HUGE crash. I'd say even bigger than 2008 because of how high it's propped up with no fundamentals to fall back on.

Either way, we all get to make our decisions on where we put our money.  Some of us will be right and some of us will be wrong.

Personally I would never consider buy and hold in this market.  It's way too risky.  I will go long and I will go short, but none of my investments are for longer than a week and I purely invest on the swings with a general bias towards the downside.  I've done real well the past couple years and hope to continue in the future no matter what the market does.  

I always liked this quote form John Hussman:
“The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top, and most of the signals that have been most historically useful for that purpose have been blazing red since late-2011.”

Good luck everyone and don't put all your eggs in one basket.  

I have "bought and held" since 1986.....I couldn't be happier with my return, which beats the hell out of my contemporaries who diversified their plans over the last 28 years.  I'll be happy if it loses 10% or so before the election year, because I'll buy more in and make good money, watch and see. 

You guys worry too much.

I like to feel I just have a little more experience losing money.  

10% down is one thing, but buying another 10% into a correcting market and then watch it turn into another 50% loss which compounds into a 70% loss overall with the additional purchase really sucks.  Been there done that, got the T-shirt.  (Thank you GWB crash of 2008)

I have a very close friend who lost over $4M back in the dot com crash doing the same thing.  He never did recover.  

It's impossible to predict the tops and the market could absolutely keep soaring for years to come or it could crash like 1921 next week.  I personally feel it's a rigged game now where guys like you and me will always come out on the short end with any big moves.  So, I like to stay very short term and just swing trade with the trend.  It can go up or down and I don't really care because I make money on the trend.  

Buy and hold = fail long term now.  From the 1980's or even halfway through the 1990's you're right, but I've been working to the point where I could have invested from about 1999.  Take a look at the S&P 500 and tell me how much I'd be making with the buy and hold strategy if I bought SPY (S&P tracking ETF) or pretty much any diversified portfolio in 1999.  Over the last 15 years there are basically two places where I'd barely be breaking even or up slightly (during two bubbles).  We're heading to another downturn at some point in the next year or so which would likely make my "buy and hold" investment negative for yet another 5-10 years.

Even if we ignore any potential downturn on the horizon, the average inflation from 1999 through 2013 was 2.41%.  So any money I bought and held in 1999 is worth 36% less than it was in 1999.  Well SPY was at $123.56 at it's low point in 1999 and at it's peak last month it was at $175.38.  So assuming I bought at the lowest low and sold at the highest high I'd be up 30% which would work out to 2% per year (30% / 15 years).  Then you throw in inflation of 2.41% per year or 36% total I'm actually down 6% since 1999 with another downturn likely coming.  

Hate to break it to you, but based on the past 15+ years buy and hold is deader than a door nail as far as I'm concerned.

If you've been in a position to invest since 1999, you shouldn't just be looking at returns from 1999 to today.  Haven't you been investing consistently since you started earning a salary?

You should be looking at (1999-today) + (2000-today) + (2001-today) + (2002-today) + (2003-today) + ... + (2013 - today).

Sure, your investment from Feb 4, 1999 hasn't gone up too much... but anything you bought on Feb 4, 2009 has doubled.   Anything you bought on Feb 4, 2003 has also doubled.  

I agree that it's impossible to pick the tops and bottoms.  I'd also argue that it's impossible to pick the "trends".  Decades of research have demonstrated clearly -- nobody can consistently beat the market -- so I'm pretty happy equalling the market.  

Dollar cost averaging can give some benefit in some situations but it can also make things worse in others.  Don't forget, you get the benefits of the "doubles", but you also get the benefits of the "halves" when the market goes down.  Ultimately it averages out so you pretty much get the same result plus or minus a few points.

There are several dollar cost averaging calculators out there that you can do various tests with.  Here's one with SPY (S&P tracking ETF) putting in $1000/mo. from Jan 1999 until Jan 2014.  It takes a total of $180k invested and ends with just over $311k with SPY being at an all time high.  That percentage works out to 57.9% total gain over 15 years or 3.86% per year which is just slightly higher than inflation.  Granted in this specific case comparing to my buy and hold example earlier it's a little better, but not much.  I'm sure I could cherry pick some other start/finish dates and it would be worse.
http://www.buyupside.com/calculators/dollarcostaveinclude.php?symbol=SPY&amountinitial=1000&amount=1000&interval=1&start_month=00&start_year=1999&end_month=00&end_year=2014&submit=Calculate+Results

If you did the same thing and stopped the date at Jan 2013 you'd be at $245k which is a 31.6% gain over 14 years or 2.25% annual gain.  If the market goes down 10% from today's value in 2014 you'd have another $12k invested to take your total inflow to 192k and your net would be around $285k or 32.6% over 16 years (2% per year).  So a slight correction takes you quickly back into losing money territory if you account inflation.  If there's another 2000 or 2008 correction then you're way negative after 15+ years and waiting another 5+ years to get back to almost even.

Here's an article from a couple years ago that explains how dollar cost averaging doesn't work either.
The fallacy of dollar-cost averaging

And.....if I would have listened to you 14 months ago I wouldn't have just put back over $100,000 that I had no intention of making in last years market.....yeah, I pulled out a bit of what I made in 2013 becuse it was such a good run, so why not?  I stuck it in some very safe investments, bu8t I'll shove it right back in the market if it goes a bit lower.

You guys have been predicting a crash for the last 5 or 6 years of a decidedly BULL market.  I plan to retire and not work in about 6 years.....maybe I'll rethink this after this year or the next......but the naysayers haven't been right yet.  Yeah, eventually you will be, but I can predict earthquakes the same way.

lol, yeah there's one thing for certain and that's that you, me, gr33n and anyone else will never be able to predict the peak or the bottom.  All we can do is make a "best guess" based on what's out there.  Fundamentally the markets should not be this high, but fundamentally Lance Armstrong should not have won all his TDF's.  It's amazing what PED's do in the cycling world and they do the same in the financial world.  Sooner or later the market will correct to where it should be and it's just a matter of when and as you mentioned who knows.

Getting closer to retirement I would recommend shifting your assets towards a less volatile portfolio even if you do feel the market is still bullish.  Stocks will go up and down and it would suck donkey toes for your retirement planning in 5 years to be hit with a recession/crash that drops your nest egg by 50%.

I said I was going to retire.....I didn't say I was going to dip into my "nest egg".  

Can I ask you why?  It was almost a no brainer, IMO, with the Fed bond buying program.  How much easier do they have to make it?

I'm 54 this year......so yeah, I get that.  I'm a bit lucky there since my wife has a really good paying job (apparently she played with the right legos as a kid lmao) and is 6 years younger than me so we can easily live on her salary, especially once the kids are gone.  So in that regard, I can still afford to be less conservative than I would otherwise.

I don't think you're doing your rate of return math right.  You didn't invest $180K in 1999 and let it grow for 15 years -- you invested $12K in 1999 which grew for 15 years -- and $12K in 2000 which grew for 14 years -- and $12K in 2001 which grew for 13 years -- etc. -- and $12K last year which grew for one year.  This is significantly understating your annual return.  

(as an aside, you can't just divide a total rate of return by 15 -- this doesn't account for compounding.  so you've overstated the annual return a bit here)

When I plug these numbers into Excel -- use the IRR function (invest 12K each year for 15 years, then get a 311K payout) -- I get a 6.6% annual rate of return.  Not overwhelming, mind you, but much better than inflation.

You're also neglecting the years where you lost money on what you invested that year and all previous years money.  You don't just put money in and watch it go up.  You're simply buying shares of a mutual fund or an ETF and it does what it does.  You can tweak the calculator here and there and put lump sums in every year or spread it out over 12 months (what I did) and the results will certainly go up and down based on the market.  For example if in 1999 the market gained 20% through the year then you would certainly be better off putting 12k in on Jan 1 vs. $1k/mo. for 12 months because the latter amounts wouldn't get the full growth benefit of the year.

I used the dollar cost averaging calculator (linked above) which buys the ETF at the exact value of the ETF with $1k each month for 15 years because that's typically how people do retirement accounts.  The calculator shows you exactly how much money you put in and many shares you would have purchased and their current value.  That's how it works so the money put in vs. the current value is easy to calculate as is the total growth rate.  The rise and fall of all the shares you own, or compounding, is fully reflected in these numbers because the total value is based on the number of shares owned times the current value of the shares.  There's certainly some debate on how to apply inflation to it, but there's no question inflation is real and a dollar today is worth less than it was 15 years ago.  So even the 6% you mentioned above is with the market at an all time high right now and when you throw inflation in the mix it's barely a 3% annual gain.

Couple of points:  

• The calculator you linked to didn't produce a rate of return (that I saw) -- all it produced was the portfolio value at the end of the 15 years ($311K).  The $311K was correct -- the rate of return you included was not.
• A rate of return calculation only depends on the current value of the asset, and the amount you paid.  It doesn't matter what happens in between.  It could grow steadily, or it could lose 50% one day and then triple the next.  So yes, I'm "neglecting the years where you lost money", because that's how you calculate a rate of return.  
• If the rate of return is 6.6% nominal, and inflation is just over 2% a year (as you posted above), that's over 4% real rate of return.
• I'm not claiming that a 4% rate of return is phenomenal.  But it sure as heck isn't worse than inflation.  

I think we're just squabbling (if you can call it that) over how we're defining a return.  Sure I can feel good about a 20% "rate of return" this year, but does it really matter if I had negative rates of returns the previous years and am dead even with what I originally put in.  (hypothetically speaking)

Rate of return really doesn't matter in the long run because how much I put in and how much it's worth at retirement is the ultimate measure IMHO.  For example you can put in $1000 and have it turn into $2000 a year later which would be a 100% rate of return.  However, if the following year that $2000 turns back into $1000 you only have a -50% rate of return.  So are you still up 50%?  Of course not, but the rate of returns can make things look weird.  
Same thing on the flip side.  Invest $1000 and get a -50% rate of return over a year and now you're at $500.  But if you get a 50% rate of return the next year you're only back to $750.  You have to get a 100% rate of return positive to offset a 50% rate of return negative.

I guess a good running analogy would be running a marathon.  I can walk parts of it at a 16 minute mile pace and I can sprint parts of it at a 5 minute mile pace, but it really doesn't matter how fast I went for each mile because the finish time is what counts.

As I mentioned before I just don't think the way the market's are set up right now that there will be much for long term gains beyond inflation with a buy and hold strategy.  As always I could be wrong.