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Comment by jacquesm | Hacker News Reader

One of the best signs a crash is imminent (say within a couple of months) is when your family members start bragging about their stock holdings at parties. That's the time to get liquid if you haven't already done that by then. Of course that means you're indirectly still trying to time the market but at least you'll err on the safe side.

I've earned a fair bit of money trading and would never put it down to anything but dumb luck and having enough reserves to be able to sit out the worst. If you're trading with money that you need you're doing it wrong.

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That is the old adage "when the shoe shiner starts giving you stock tips get out"... but you cant time when it will crash or when it will correct and go back up. You might save yourself from the single event "the crash" but over a lifetime of trying to do this you actually will lose more money by not exiting and entering at the right time.

For example you convert to cash because you hear a family member talking about their stock. The market continues to go up another 20% before crashing 30%. You really only saved yourself 10%... now hopefully you rebuy before it goes back up... if you misread the entry point you might actually lose more than just staying in the market. Unless you have a crystal ball you will likely not time it correctly.

I prefer "time in the market beats timing the market"

You also need to couple this approach with a “target date” style strategy. If you’re 100% in stocks and getting ready to retire when a crash comes, you’re screwed. Have fun working at Walmart the rest of your life.

You need to rebalance between risky investments and “safe” ones, with the percentage of safe ones going up as you age. This does two things: 1) allows you to keep your gains safe in a crash, and 2) give you a reserve you can use to buy back into stock “cheap” after the crash.

Just a reminder here to everyone about the shoe-shiner story:

You are the shoe shiner, not Joe Kennedy.

https://en.wikipedia.org/wiki/Joseph_P._Kennedy_Sr.#1929_Wal...

With free trading and the tight spreads on most equities and no edge, random trading shouldn’t hurt you that much. Your volatility will be worse, though. Sorry for the plug, but here’s a blog post I wrote about it:

https://smabie.github.io/posts/2019/11/28/div.html (Diversification, Risk, and Leverage).

Or you can cut to the chase and check out this graph: https://smabie.github.io/assets/div.png

We run a Monte-Carlo and find the average return and vol for randomly generated portfolios for 2 stocks up to 50. The average return for all portfolios is the same while the vol decreases as you add stocks to the portfolio. While high vol will hurt a compounding portfolio’s return due to volatility drag, the arithmetic return will be the same.

So, in other words l, if you have zero skill trading today (essentially buying and selling randomly) you’re not, on average, going to underperform the market appreciably. As such, I don’t think it’s a problem for individuals to trade long equities with no leverage with money that they need (since it’s basically the same as the market). The problem is when people start trading forex derivatives or options or whatever. The volatility of these instruments can be staggeringly high which can lead to risk of ruin (St Petersburg paradox etc).

Does your model still work if people don't trade completely randomly?

I would expect the average small trader to behave similarly to many other small traders, and I would expect the trades they make to correlate with each other. I assume if you invest randomly you get more diversification than if you invest in companies that feel good to you.

It does not, but crowding in a few names would definitely affect it. The graph would look really different if 70% of the portfolios hold TSLA.

I agree. I think this signifies as the "biggest fool" flag. When we take a position that seems foolish from a fundamentals point of view, expecting to make our profit from a bigger fool.

And "smart investors" frequently in earlier, look for their exit in events like this. Made much more explicit in pump and dumps...

Buckle up, 'cause here we go!

And please understand this is not investment advice, you must exercise your own discretion :)

Stocks also typically go up in an election year, since the government tries to engineer the economy to make voters happy.

> If you're trading with money that you need you're doing it wrong.

This makes so much sense.

It makes sense partially. I would argue that anyone with retirement money in the market "needs that money".. dont trade with the rent money is probably a bit more accurate.

The timing of this post couldn't have been better: Japan closed -3,36 %, Europe is going to open around -2 %

This could be the big crash (that most traders have been expecting since years ago). Or not. :D

> indirectly

Oh no, it's directly.

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