Comments on: Nervousness and the markets http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/ Personal finance, commentary, and spending less the easy way Sat, 21 Nov 2009 01:23:30 -0400 http://wordpress.org/?v=2.8.6 hourly 1 By: mbhunter http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/comment-page-1/#comment-89399 mbhunter Sat, 01 Sep 2007 05:33:04 +0000 http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/#comment-89399 Thanks for the comments everyone! MossySF: That's quite an analysis. I'll need to process it a little :) AM: At some point there's selling, though. Warren Buffett's optimal holding period is "forever" but at some point one needs to sell. That, and he's a genius. I'm not. Thanks for the comments everyone!

MossySF: That’s quite an analysis. I’ll need to process it a little :)

AM: At some point there’s selling, though. Warren Buffett’s optimal holding period is “forever” but at some point one needs to sell. That, and he’s a genius. I’m not.

]]> By: MossySF http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/comment-page-1/#comment-88072 MossySF Mon, 27 Aug 2007 16:19:03 +0000 http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/#comment-88072 You say you would have made more money selling in 2000? Let's start with the numbers. A simple portfolio advocated by Jack Bogle (50% TSM, 25% TISM, 25% TBM) would have returned about +25% over the 2000 peak. If you had correctly timed both the top and bottom, you would have made another 30%. Sounds good in theory. Let's actually look at what happened in fine detail. Dec 02 -3.3% Jan 03 -5.9% Feb 03 -2.8% Mar 03 +0.7% Apr 03 +10.0% So April 2003 was when the market rebounded. Would you have been able to recognize the rebound before it happend? No way -- negative/flat growth the previous 4 months -- what would have remotely pointed you to then decide to move all your money back into the market in March? At best, you would have moved your money back in *AFTER* this +10% rebound. Remove this +10% month and now your market timing profit is just a mere 16% greater than being in the market the entire time. Would you have had the guts to go in after just 1 month of gains? What's one month compared to 3 years of losses? There were plenty of big gaining months in 2000-2002: Mar 00 +7.6% Jan 01 +6.4% Apr 01 +5.8% Nov 01 +5.9% Sure +10% is larger than any of the top gaining months during 00-02 but there's nothing there that would mark it as any different from any of the fake rebounds. In 2001, there were 3 months of back-to-back-to-back gains before declining again. So perhaps you might have have a target of 5 months of gains before you went back in. The market went: Mar 03 +0.7% Apr 03 +10.0% May 03 +5.6% Jun 03 +0.5% Jul 03 +1.6% We ave a 5 month period with no losses! The market rebound is happening! Move your money in quick! Of course, missing out on this 4 month period now drops your market timing profit over being in the market to 7.5%. Now let's replay this story on the uptick. After how many months of losses in 2000 would you have finally decided the downturn is happening and it's time to move to cash? In 1998, there was this summer turmoil: May 98: -2.5% Jun 98: +2.7% Jul 98: -2.8% Aug 98: -14.9% Woah! Almost 15% loss in one month in 1998! And yet, 1998 still ended up +20%. Would you have correctly been able to determine the difference between the market fluctuations of 98 versus the true bear beginning of 2000? Let's say you have the same threshold of 5 months where 3-4 months are negative. Sep 00: -6.6% Oct 00: -1.6% Nov 00: -7.4% No need to even do the math here to make the point. If you only had a +7.5% market timing bonus, Nov 00 alone cancels that out. Finally, let's talk about investment schedule. After moving into cash, would you have kept your investment schedule in place? Remove the new money buying cheap shares 2000-2002 -- you're underperforming the oblivious buy-n-holder by a handsome amount. Psychologically, you probably think you did better. But if you actually compared account balances, you'd be shocked to see the difference. You say you would have made more money selling in 2000? Let’s start with the numbers. A simple portfolio advocated by Jack Bogle (50% TSM, 25% TISM, 25% TBM) would have returned about +25% over the 2000 peak. If you had correctly timed both the top and bottom, you would have made another 30%. Sounds good in theory. Let’s actually look at what happened in fine detail.

Dec 02 -3.3%
Jan 03 -5.9%
Feb 03 -2.8%
Mar 03 +0.7%
Apr 03 +10.0%

So April 2003 was when the market rebounded. Would you have been able to recognize the rebound before it happend? No way — negative/flat growth the previous 4 months — what would have remotely pointed you to then decide to move all your money back into the market in March? At best, you would have moved your money back in *AFTER* this +10% rebound. Remove this +10% month and now your market timing profit is just a mere 16% greater than being in the market the entire time.

Would you have had the guts to go in after just 1 month of gains? What’s one month compared to 3 years of losses? There were plenty of big gaining months in 2000-2002:

Mar 00 +7.6%
Jan 01 +6.4%
Apr 01 +5.8%
Nov 01 +5.9%

Sure +10% is larger than any of the top gaining months during 00-02 but there’s nothing there that would mark it as any different from any of the fake rebounds. In 2001, there were 3 months of back-to-back-to-back gains before declining again. So perhaps you might have have a target of 5 months of gains before you went back in. The market went:

Mar 03 +0.7%
Apr 03 +10.0%
May 03 +5.6%
Jun 03 +0.5%
Jul 03 +1.6%

We ave a 5 month period with no losses! The market rebound is happening! Move your money in quick! Of course, missing out on this 4 month period now drops your market timing profit over being in the market to 7.5%.

Now let’s replay this story on the uptick. After how many months of losses in 2000 would you have finally decided the downturn is happening and it’s time to move to cash? In 1998, there was this summer turmoil:

May 98: -2.5%
Jun 98: +2.7%
Jul 98: -2.8%
Aug 98: -14.9%

Woah! Almost 15% loss in one month in 1998! And yet, 1998 still ended up +20%. Would you have correctly been able to determine the difference between the market fluctuations of 98 versus the true bear beginning of 2000? Let’s say you have the same threshold of 5 months where 3-4 months are negative.

Sep 00: -6.6%
Oct 00: -1.6%
Nov 00: -7.4%

No need to even do the math here to make the point. If you only had a +7.5% market timing bonus, Nov 00 alone cancels that out.

Finally, let’s talk about investment schedule. After moving into cash, would you have kept your investment schedule in place? Remove the new money buying cheap shares 2000-2002 — you’re underperforming the oblivious buy-n-holder by a handsome amount. Psychologically, you probably think you did better. But if you actually compared account balances, you’d be shocked to see the difference.

]]> By: Patrick http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/comment-page-1/#comment-88026 Patrick Mon, 27 Aug 2007 10:48:52 +0000 http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/#comment-88026 MBH, I agree with your assessment here. I think both Trent and JLP have valid points. No one should invest in something that causes them a lot of stress, but selling at a low point is a horrible way to invest. I think the best thing the woman can do is educate herself more about her investments and how they are affected by situations such as the current market. While she is fretting about her investments losing value, others are looking at this as a buying opportunity. This should get her attention that there may be something she is missing. But, it's not for me to say who is right or wrong. I don't know the woman's full situation, and I am not qualified to give recommendations. MBH,

I agree with your assessment here. I think both Trent and JLP have valid points. No one should invest in something that causes them a lot of stress, but selling at a low point is a horrible way to invest. I think the best thing the woman can do is educate herself more about her investments and how they are affected by situations such as the current market. While she is fretting about her investments losing value, others are looking at this as a buying opportunity. This should get her attention that there may be something she is missing.

But, it’s not for me to say who is right or wrong. I don’t know the woman’s full situation, and I am not qualified to give recommendations.

]]> By: MONEY BLUE BOOK http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/comment-page-1/#comment-87887 MONEY BLUE BOOK Sun, 26 Aug 2007 20:15:03 +0000 http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/#comment-87887 The market has historically always trended upwards when viewed at its cumulative effects. Yes there will be occasional volatile dips and spikes...but it has always recovered. I think if your investment horizon is 10 years+, then you can afford risk...it would take a major world war or nuclear devastation before I'd get nervous or jittery about the market. Dips mean opportunity for me! I actually get excited when the market tanks...bargains! ~Raymond Money Blue Book The market has historically always trended upwards when viewed at its cumulative effects. Yes there will be occasional volatile dips and spikes…but it has always recovered. I think if your investment horizon is 10 years+, then you can afford risk…it would take a major world war or nuclear devastation before I’d get nervous or jittery about the market. Dips mean opportunity for me! I actually get excited when the market tanks…bargains!

~Raymond
Money Blue Book

]]> By: Accumulating Money http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/comment-page-1/#comment-87154 Accumulating Money Sat, 25 Aug 2007 14:55:08 +0000 http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/#comment-87154 I think the thing to consider is that when setting up your initial asset allocation, you should have done so with future bear markets in mind. They are bound to happen. They shouldn't affect your long term plans. The fact is that if the market was going up, you wouldn't be changing your asset allocation, and that means you are trying to time the market. You are certainly free to do so, but trying to time the market is generally accepted as the biggest trap regular investors fall into. It can kill your returns. I think the thing to consider is that when setting up your initial asset allocation, you should have done so with future bear markets in mind. They are bound to happen. They shouldn’t affect your long term plans.

The fact is that if the market was going up, you wouldn’t be changing your asset allocation, and that means you are trying to time the market. You are certainly free to do so, but trying to time the market is generally accepted as the biggest trap regular investors fall into. It can kill your returns.

]]> By: Cory http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/comment-page-1/#comment-87152 Cory Sat, 25 Aug 2007 14:50:29 +0000 http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/#comment-87152 If you're pull out of stocks when the market drops because you're feeling jittery, then you either 1 - Don't understand what a "long term" investment means 2 - Had a poor asset allocation for your risk tolerance to begin with 3 - Need to stop watching the daily market fluctuations so closely or ... just need to suck it up and wait it out. All i have to say is: lollerpants. If you’re pull out of stocks when the market drops because you’re feeling jittery, then you either

1 – Don’t understand what a “long term” investment means
2 – Had a poor asset allocation for your risk tolerance to begin with
3 – Need to stop watching the daily market fluctuations so closely
or … just need to suck it up and wait it out.

All i have to say is: lollerpants.

]]> By: plonkee http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/comment-page-1/#comment-87081 plonkee Sat, 25 Aug 2007 09:24:12 +0000 http://www.mightybargainhunter.com/2007/08/25/nervousness-and-the-markets/#comment-87081 For all the flak that Trent took in his comments (and elsewhere) he's getting an awful lot of link love. I think you need a healthy balance between confidence and nerves. If you are too nervous you'll probably pull out of a good investment at the wrong time. If you are too confident, you'll probably stay in a bad investment too long. If you're like me, you just having a really boring portfolio which at best (or worst) will produce average returns, ignore the market and keep going. Apart from reading other blogs, I had no really idea that there was a drop in the stock market, and I still don't know whether we've fared better or worse in the UK than in the US. For all the flak that Trent took in his comments (and elsewhere) he’s getting an awful lot of link love.

I think you need a healthy balance between confidence and nerves. If you are too nervous you’ll probably pull out of a good investment at the wrong time. If you are too confident, you’ll probably stay in a bad investment too long.

If you’re like me, you just having a really boring portfolio which at best (or worst) will produce average returns, ignore the market and keep going. Apart from reading other blogs, I had no really idea that there was a drop in the stock market, and I still don’t know whether we’ve fared better or worse in the UK than in the US.

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