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throw0101a

Investing at the peaks isn't that disastrous as long as you don't bail out:

> Meet Bob.

> Bob is the world’s worst market timer.

> What follows is Bob’s tale of terrible timing of his stock purchases.

* https://awealthofcommonsense.com/2014/02/worlds-worst-market...

Better yet, just put away a little every month and get on with life:

> Logically, it seems like Buy the Dip can’t lose. If you know when you are at a bottom, you can always buy at the cheapest price relative to the all-time highs in that period. However, if you actually run this strategy you will see that Buy the Dip underperforms DCA over 70% of the time. This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat dollar-cost averaging.

* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

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Meet Juergen, actually the world's worst market timer. He invested in the German Stock exchange in 1914. In 2014 he finally broke even.

Over the last 100 years, the US has had a great run and stock market returns have reflected that. By only looking at American returns you're cherry-picking the best results so your model is flawed.

Juergen had a bad time because his country was at the center of two world wars and lost both of them. Which there is reason to believe won't happen again because of MAD.

Moreover, if that sort of thing ever does happen again, your biggest problem is not that your stock portfolio is doing poorly, it's that you're in Nazi Germany in the midst of an all out war.

There are certain scenarios where all bets are off, no clever investing strategy will help. I do wonder if climate change might become one of those events.

Climate change is kind of a wildcard. You look at something like beachfront property in Miami and you can basically expect investors there to lose their money. On the other hand, we all know that already, so shouldn't it already be priced in?

The key factor is that if people are pricing in the expectation that we'll do the work to solve the problem before that happens, that expectation is only valid if we actually do.

They're anticipating being able to socialize the losses. We shouldn't let them.

From an investment perspective, it probably makes sense to assume the losses will be socialized, because politically it's very bad optics to do nothing after 100,000s of coastal residents have their homes flooded.

Right, and even though today's beachfront property owners aren't the most sympathetic group, they can certainly sell to people better able to monetize our collective sympathy.

>lost both of them

Everyone lost, it's just a question of how badly.

given that it lasted 100 years, how much more data does one need in order to be convinced? That is as comprehensive of a data set as one can be expected to find when it comes to market analysis. All the evidence such as economic data, corporate profits, demographics, etc. suggests no reason for America's dominance to lessen. America's superior economic and stock market performance can probably be attributed to an economic climate exceptionally conducive to capitalism, combined with geopolitical stability, good demographics, and the private sector having a lot of autonomy from the public one.

The history of the world is not ergodic.

But everyone is mortal.

America did not dominate for all the 100 years, Japan represented a much larger share of the world economy in the 80s.

America's GDP was still significantly larger than Japan's even during the 1980s:

https://www.visualcapitalist.com/2000-years-economic-history...

From about 1900 to 2015 America was totally dominant. It's only in the last few years that China has overtaken us.

but the share of world's stock market was not, the Tokyo SE total capitalization was higher than NYSE.

EDIT: I see my original comment was misleading, I was thinking of the weight of the US on the world market as that was the context of the thread, not of the whole economy.

There are a bunch of demographic reasons why we should expect America's dominance to end. If all citizens were equally productive, we'd expect the U.S. to be no more than 5% of the global economy, and China and India to be roughly 4x as large. Plus the population pyramid in the U.S. is about to invert, with more dependent seniors than productive wage-earners.

Corporate profits, economic data, geopolitical stability can all flip quite quickly (just look at Germany in 1914, per grandparent poster) - demographics is the one factor that is relatively stable.

Someone who invested in the US stock market at peak in 1929 wouldn’t have broken even until 1960 or so. And that’s assuming they went for some kind of broad index rather than companies that could have went belly up.

I didn't believe you, so I looked at a chart and found you are right: https://www.macrotrends.net/1319/dow-jones-100-year-historic...

And the same is basically true if you bought in 1966. What this tells me is that the Dow Jones (or stock market in general?) is not a good indicator (or even proxy) of wealth. Because GDP obviously grew immensely in both 30 years periods.

DJIA is a pretty bad index. S&P 500 or an even broader market index performs much better.

"Although it is one of the most commonly followed equity indices, since it only includes 30 companies and is not weighted by market capitalization and is not a weighted arithmetic mean,[citation needed] many consider the Dow to not be a good representation of the U.S. stock market and consider the S&P 500 Index, which also includes the 30 components of the Dow, to be a better representation of the U.S. stock market." - https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average

Vanguard no longer offers their S&P500 fund in their own employee's retirement accounts, but rather a Total Market index:

* https://www.inquirer.com/philly/business/vanguard-sp-500-ret...

* https://www.marketwatch.com/story/vanguard-employees-wont-ha...

There was a lot of anti-market sentiment after the depression that lasted a couple of generations. There are also other ways to make money than speculating in the market, actually, I would say it isn’t even the main way GDP is generated.

The chart shown at macrotrends does not show total return (dividends included and reinvested). The investor would have broken even much earlier. January 1929 to January 1960 shows ~25% real return without dividends reinvested and ~499% real return with dividends reinvested.

https://dqydj.com/dow-jones-return-calculator/

Exactly this. You can't ignore dividends.

Based on this [1] calculator, you'd break event by 1940.

[1]https://dqydj.com/dow-jones-return-calculator/

Yes, but on the other hand, traditionally the point of dividends is that you don't reinvest them. You should still include them in returns though. But it seems unrealistic for anyone without perfect knowledge of the future to have reinvested every penny over 30 years including the depression, WWII, and the earliest, most paranoid part of the cold war and nuclear age.

The Dow is a pretty bad index -- It's just one of the older ones.

It's literally adding up the prices of 30 stocks and dividing by a divisor that's been adjusted over time as stocks are added and removed from the index. It was easy to calculate early on, and it's continued because it's famous.

Wouldn't the exiting and entering of companies have a negative effect on the index holder over time (as they are selling the exiting companies when they are valued low and buying the entering companies when they are valued high)?

Most people have to "only" worry about 40 years of accumulating wealth (say, ages 25-65), and then 20 years of decumulation after retirement (65-85, on average).

And the DAX has generally given decent results since 1955:

* https://topforeignstocks.com/2014/01/09/dax-index-returns-by...

Meta: interesting paper called "The Rate of Return on Everything, 1870–2015":

* https://economics.harvard.edu/files/economics/files/ms28533....

OTOH, most of the very serious drawdowns in the past 200 years have been due to major wars or revolution. Both have been steadily decreasing for millennia.

It's extremely unlikely that the next 100 years will be anywhere near as turbulent as the past 100 years. In particular nuclear weapons increase the variance to the point that it's no longer relevant for stock portfolios. We're not going to have another Great War or WW2. Either we'll have peace between the great powers, or you won't care about your stock portfolio because you'll be vaporized.

Don't jinx the rest of us with a Kelvin prediction.

https://en.wikipedia.org/wiki/William_Thomson,_1st_Baron_Kel...

http://rinkworks.com/said/predictions.shtml

The same blog has a post that tries to tackle that issue. You are right, looking at the US isn't a complete picture. This post examines that issue from IMO a more holistic standpoint that DCA isn't just a strategy, it's closer to everyone's "real" experience.

https://ofdollarsanddata.com/realistic-investment-results/

I think what I took from it is there's a level at which I sort of don't take the criticism I guess seriously (more like harsly?) of DCA, because like, after much gnashing and grinding of teeth, life looks a lot like dollar cost averaging for most folks.

So okay, then we can talk about diversification, which is important, and this and that and blah. But like, unless you hit it big and sell your business or something and suddenly have to figure out what to do with 7-8 figures, you don't quite experience the same problem.

It just feels like as tempting as the standard deviation on potential performance looks like, and as convincing as the anecdotes feel, how real is any of this? There's more important factors that are definitely in your control, vs things that questionably or I suppose reasonably aren't.

It could be worst, he could have invested in Russian loans like Louis, his French counterpart, and not recoup anything past 1917.

https://www.cadtm.org/Russian-bonds-never-die

(basically, the Russian Empire borrowed a lot of money (several billions of Gold Francs), specially in France, and the Soviets, when they came to power, defaulted on these debts).

When Emptying the house of my late grand-mother after she died we actually found a few of these bonds.

I got one and, now, it's in a frame as part of my home decoration (I didn't feal like asking Mr. Putin for my ancestors' money back).

Imagine if Jurgen held cash through the Weimar republic.

The thing is, most people don't invest by making one large lump-sum payment, and then sitting on their ass for thirty years.

Most people (who do invest) invest by cutting off a slice of every paycheck. This strategy will happily let you weather crashes.

Combined with a guaranteed-payment pension (Social security, employer pension, government pension, etc), it's a pretty good way of securing your retirement (Even if you have to take a haircut on the payout of the guaranteed-payment pension.)

This assumes that the world will continue on a “growth at all cost” model. Despite growing social inequality, and climate change, which seem to be at odds with a greed is good ethos that expands corporate profits at the cost of the environment and social stability.

This isn’t even mentioning the current market manipulation that central banks are engaging in around the globe to artificially inflate the value of stocks. What happens when we can no longer prop up equities? The consequences may be far worst as we’ve been effectively kicking the can down the road. Eventually the tab arrives and the people left with it will be those who hardly benefited from this historic run-up.

Also “past performance does not indicate future performance”

I don't see a reason why it should stop. If environmental problems cause issues making tons of stuff, costs for those items will increase, dropping demand for them and increasing demand for more sustainable things. That's the way the economy goes, and it's bad for business to have a lot of unemployed people.

I see no reason to be bearish on equities long term, but I do know that certain industries will run into serious problems, I just don't know which ones that will be necessarily. I buy broad index funds because I'm bullish on the market in general, but not on any particular sector.

I was curious how much of the $1.1M was just inflation, since $184k is a total of amounts invested over fifty years. I get $322k in 2019 dollars.

I've always heard this in the phrase: time in the market beats timing the market.

Forget sage phrases, just look at the SPY graph. Doesn't matter where you enter, the market always goes up over all.

If you buy today and the economy crashes tomorrow, it's only going to be a problem for you if you sell. Wait 2 years and you are back where you were today, wait another 2 years and you've made money. Recessions only really affect people about to retire or on the chopping block for layoffs.

How are you so sure this is "the peak"? Australia had 25 years without a recession.

There is not way to be sure, which is why (per the second link) it's best to invest a little every regardless of what the news headlines say.

Not true. DCA beats holding onto cash and waiting for “the bottom,” but if you have a lump sum to invest, investing it all immediately beats DCA about 2/3 of the time. Hence the saying “time in the market beats timing the market.”

See this study by Vanguard: https://personal.vanguard.com/pdf/ISGDCA.pdf

I'm aware.

It should be noted that "DCA" is often used as a colloquial synonym for "continuous, automatic investing":

> But most individual investors, especially in the context of retirement investing, never face a choice between lump sum investing and DCA investing with a significant amount of money. The disservice arises when these investors take the criticisms of DCA to mean that timing the market is better than continuously and automatically investing a portion of their income as they earn it.

* https://en.wikipedia.org/wiki/Dollar_cost_averaging#Confusio...

whats DCA?

https://en.wikipedia.org/wiki/Dollar_cost_averaging

I think "dollar cost averaging". https://en.wikipedia.org/wiki/Dollar_cost_averaging

It seems to refer to periodically re-balancing the distribution of one's holdings based on target proportions of total dollar value.

Not "re-balancing" per se - but investing a fixed amount at regular intervals (either from a lump sum, or as you earn it.)

What are the odds if you invest it all imeddiately after 10 years of a bull market run?

DCA still wins 60% of the time over all rolling 12 month periods going back to 1926.

https://awealthofcommonsense.com/2018/05/the-lump-sum-vs-dol...

Only if you are dollar cost averaging over long periods of time. People use market timing as a strawman.

IMO, you invest strategically. Build cash positions over time as you ride the business cycle. Don't get greedy -- pigs get slaughtered, if you're investing in high-flying times, you should take profits and have some cash. I was just getting started in the 90s, and rode stocks like Amazon and Red Hat up to stratospheric heights. But when like 90% of Amazon's value vaporized, I had cashed out enough of my position that I was able to hold on and invest in other areas.

The same strategy served me well in 2008. I was able to get onboard high-quality investments at ridiculously cheap prices, which would not have happened if I was 100% invested.

The cost of this type of strategy is that you lose compounding. From my POV, I value having access to liquidity and the abilty to take advantage of market opportunities.

> Only if you are dollar cost averaging over long periods of time.

The primary reason most people save/invest is for retirement. So if you start saving at the age of 25, after schooling, that's forty years until the 'traditional' retirement age of 65.

> IMO, you invest strategically. Build cash positions over time as you ride the business cycle.

The odds are stacked against you when buying the dip:

> Why is this true? Because buying the dip only works when you know that a severe decline is coming and you can time it perfectly. Since dips, especially big ones, haven’t happened too often in U.S. market history (i.e. 1930s, 1970s, 2000s), this strategy rarely beats DCA. And the times where it does beat DCA require impeccable timing. Missing the bottom by just 2 months lowers the chance of outperforming DCA from 30% to 3%.

* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

There are other reasons to invest besides piling cash for retirement. I specifically mentioned that liquidity was important for my objectives.

Your example doesn't fit as perfect timing isn’t required, I just realize gains and invest a proportion of them when opportunity presents itself.

I’m not selling investment advice, just sharing my experience. This portion of my portfolio performs better than the more bogle-ish 401k fund from circa 1996 through 6/2019.

> Your example doesn't fit as perfect timing isn’t required, I just realize gains and invest a proportion of them when opportunity presents itself.

If someone's equity-fixed portfolio allocation (given a individual's risk/volatility tolerance) becomes unbalanced, then liquidating one asset class to purchase another is standard practice:

* https://www.investopedia.com/terms/r/rebalancing.asp

Though, per Vanguard/Bogle, it does not have to be done too often: either once a year, or even every few years once the allocations get more that ±5% out seems to be sufficient.

He mentioned the business cycle, did he? Valuation matters.

The worst 40-year period in that chart starts in the late seventies and at that time valuation was the cheapest since the depression. That was around the bottom, no need to wait 10 years.

When did 90% of Amazon's value vaporize?

https://www.google.com/search?client=firefox-b-1-d&biw=1536&...

Oh, yeah, when it went from 100 to about 7 in 1999-2001. It's currently about 1700.

That Buy-the-dip vs DCA article you posted is a lot more equivocal about the comparison than the excerpt you quoted. It shows that the winning strategy actually depends a huge amount on the size and timing of the dips. If you did in fact know when big dips were coming, you would absolutely trounce dollar cost averaging.

> If you did in fact know when big dips were coming, you would absolutely trounce dollar cost averaging.

If. /Sparta

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