The Buy and Hold Mindset
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There are income producing properties such as apartment buildings, duplexes, strip mall commercial real estate in average cities. These are similar to consumer staples stocks like P&G, Walmart, utilities, etc. The income is generated via rent from reliable consumer demand. They are priced for boring cashflow (with high cap rates and low PE) but should endure.
There are reliable growth properties in trendy cities that are legitimately and secularly growing where future increases in rents are derived from rising local salaries and demand. These are like FAANMG stocks. They are priced for growth (i.e. low cap rates - high PE) - such as Silicon Valley, Seattle, LA, Austin.
On the flip side of the spectrum, there is properties which are designed for speculation (and optionally money laundering) not based on any sort of rental income - almost like the physical manifestation of bitcoin. Think never unoccupied 3rd vacation homes in Miami and New York. These are like ARK ETFS or crypto coins - both do well in speculative times and see less growth when interest rates go up.
- You have to do a bunch of physical maintenance of the property and be on-call to unclog toilets
- You have to know landlord-tenant law inside and out, there are a lot of hidden gotchas that can get you sued for big money or even criminally prosecuted
- You have to see stuff that's wrong with the property and understand how much you'll need to fix it
- You have to know how to find all sorts of contractors who will do a good job and not rip you off
- You can't invest in say the $500-$5000 range to get your feet wet at small scale, every property with any sort of building on it at all is like $50,000+, and building a brand-new house is even more expensive
- Enormous leverage seems to be the norm, and in most states, the bank doesn't forgive debt that's not covered by sale of the collateral (house)
- Anyone with enough money can do it, it's a perfectly competitive market where it seems difficult to have any kind of edge over professional landlords or house flippers that have built a career in this area, have a lot of capital and a staff of full-time experts optimizing every aspect down to a science
- If I get on e.g. Zillow it says, "Such-and-such property in location A is worth $X and such-and-such property in location B is worth $Y where Y = 3X" and I say "Wait why is it that? Y = 2X or Y = 4X also seems equally reasonable, heck Y = X or Y = 5X don't seem unreasonable." I have no intuitive sense for what property value should be.
- Your investment's locked up for a long time, it takes weeks / months to sell real estate.
- In 2022, you'd be lucky if a computer from 2002 sells for maybe 5% - 10% of what it sold for in 2002. In 2022, you're telling me a house sells for.. enough more (in real terms) than what it sold for in 2002 that it would have been a worthwhile investment despite now being 20 years old(er)? That feels like some kind of violation of whatever is the financial equivalent of the laws of thermodynamics
- You can do all your landlording right and still get screwed by tenants from hell.
For me, a stock and an investment property both yielding 6.4% are in no way equivalent. Given all the downsides, the ROI on property would need to be like 5-10 times as high for stocks for me to even consider it.. and that gets into too-good-to-be-true returns.
I know there are people who are experts in this area and people who say real estate's a good investment. But I don't understand real estate anywhere near well enough to put in the sums of money that seem to be required.
So if you're already in the construction business, or a real-estate lawyer, or simply have lots of experience and spare time, it's a good choice. If you're a software engineer who can't tell drywall from masonry and simply wants to do a few mouse clicks to gain a passive income, it's definitely not for you.
It's also not the landlord doing that, it's the real-estate company.
A home acts as a way to store and grow cash (mostly) securely. They also, generally, have higher than (stock) market rates of returns for the cash that you stuff in them. For instance, do a $50k kitchen renovation and that may entice a future buyer to buy at $100k more. There's a lot of examples like this throughout the housing renovation industry. Some home renovations are going to net you nothing, but defer something negative. For instance, I had to install a Radon system in my home because radioactive gas was leaking out of the crust deep beneath my basement. I won't get that $3k back but I won't live in a radioactive container and future buyers won't be scared off (rightfully so).
If you're renting (since you mentioned landlords) the economics change a bit. You need the house to look nice but you either need it super-durable or inexpensive to repair. What usually happens is that a rented home gets a makeover that will put it squarely in the price the landlord wants per month. This is done as cheap as possible because a fair amount of tenants are radioactive and will destroy everything not nailed down.
If you're selling your home after five years you may have some nominal value increase coupled with equity. For me, that amounted to about $35k on a $215k home. To replicate that in the markets you'd have to get involved in a life insurance plan that acts as a tax-free market account, which is significantly more complicated to manage. I know because I almost did it when I moved to California!
If you plan to stay in a house less than 5-8 years, I just wouldn't buy. You'll be somewhat upside down depending on your market.
I'm not necessarily saying we shouldn't pay tax on properties we live in, but I will say it's pretty on the nose to continue giving investment properties huge tax breaks while people are struggling to finance homes they live in or pay rent. The price inflation of homes caused by easy money and negative-gearing made easier due to lopsided tax policy makes the property market entirely detached from the average Australian.
The other way of phrasing this is that landlords are as cheap as possible, resulting in tenants who are fed up of being fleeced for garbage.
Tenants being destructive is a known issue. My mother had a tenant that put four undocumented pitbulls in the house and one dug it's way through the flooring. She had another that refused to pay rent or move out and had to wait for months to get an eviction order. All of that is purely money lost if you're renting to people with no assets.
What I was talking about with landlords being cheap on renovations has to do with the economics of the situation. For instance, my mother won't put granite countertops in a house or use the most expensive paint or even moderately expensive carpet. In her state, every property that's had an animal in it requires new paint and new carpets every time there's a new tenant. If she was putting the nicest stuff in the tenants she rents to now would never be able to afford her rates.
Where landlords get unjustifiably cheap is when they make repairs on the cheap that cause more issues for the tenant.
> In 2022, you'd be lucky if a computer from 2002 sells for maybe 5% - 10% of what it sold for in 2002. In 2022, you're telling me a house sells for.. enough more (in real terms) than what it sold for in 2002 that it would have been a worthwhile investment despite now being 20 years old(er)? That feels like some kind of violation of whatever is the financial equivalent of the laws of thermodynamics
The secret ingredient is that it's essentially illegal to build new homes anywhere remotely desirable.
The issue is that people want to live near, you know, stuff.
There ade also tax benefits to real easte in some countries (most notably Australia). In short, the game is rigged and the market distorted to make real estate more attractive then it should be.
Leverage was the thing which made the numbers attractive. Example numbers in the UK for instance £50k deposit, £200k purchase price, £150k mortgage @ 2%, £12k per year rent = 18% gross yield (£9k return on your £50k cash in.). Before capital gains.
Imagine if you have £200k for 4 deposits then you could even be financially independent if your costs are low. It has been a very easy path to wealth.
With interest rates rising then the whole dynamic changes, but it has been an extraordinarily profitable and easy play for almost 20 years.
If you don't have a handy $300k sitting around doing nothing, buying the property makes more sense, because you're buying it with someone else's money!
The lender makes their profit off the interest they are charging you. You can offset that cost partially (and, over time, completely) with rental income. When you dispose of the unit, any profit comes straight to you.
There are very few other places where you can use someone elses money to make a profit.
Rarely does it not check out over time. Rents go up every year, more in those years that see an interest rate increase. Repayments track the interest only.
In the first two years, your rental (and costs of rental) won't match the mortgage.
After five years it's unlikely that your rental income doesn't match the mortgage, interests and costs.
Unless you live in an area with rent control or have a tenant who has payment issues and evictions are long and tedious.
And seeing as how you're essentially getting a return by investing someone else's money, go through the 3 month long eviction process and vet your renter more thoroughly.
Honestly, the way you say it, one would think that most landlords make a loss by renting out their properties.
Trust me, they aren't.
Most people overlook this in their calculations, as well as ignoring the 6% real estate commission on a sale.
I'm with you on "nope" to real estate investments.
Of course, the real question is why would you want to frequently liquidate property if it is generating cash and tax benefits? Owning real estate isn’t about gambling for short term gains, it’s a long term wealth building tool.
Houses lose in value slower. A 20 year old computer is worth basically nothing because of technological progress, the house I’m currently living in is 60 years old.
Then there’s the land the house stands on. Land is a limited resource that cannot be increased by production, especially in proximity to population centers. It follows completely different laws than mass-producible products.
That is far from guaranteed, and the first one hasn’t been true in a lot of areas for almost a decade.
The biggest advantage of real estate is that enables you to hedge your capital. My bank happily gave me a loan for 80% of the property value.
I would not be able to get a loan at these conditions without having the real estate as collateral.
So, while I do pay a small amount per month myself (which has gone down substantially recently due to 10% indexation), my tenant pays the biggest share of my loan.
As for rules and legislative obligations: I pay a professional organization to manage this for me. This does come at a cost, but it buys me a peace of mind. (It's all about risk vs reward, so no big surprise there.)
And finally: once the loan is finished, I can hedge that rental income to finance (multiple) new properties.
Update: one additional remark for those who might be triggered by this comment: I prefer to buy older buildings, so I have to make sure that l have "some" extra cash available for big ticket items coming my way: replacement of roofs, elevators and such. So I am betting on having to invest some extra cash over the course of one or more decades. However, if you do not want to do that, you can reduce the risk by going for newly-built, paying the extra premium upfront, have a reasonably steady cash flow from the start.
Also, as a rule of thumb, consider 10/12 of the yearly rent as a "regular" income. This should be more than enough to cover the "normal" expenses you might have.
That is different than leveraging capital for positive cash flow, and one that has historically burned folks bad during downturns.
But we’ll see how it goes!
knowing landlord-tenant laws inside and out: absolutely, yes, if you are doing it professionally. But this applies to everywhere you are doing business in.
properly evaluating properties, contractors that don't rip you off, etc.: absolutely an issue, yes. This is something you learn with experience however, and on the other hand it means that if you know this, you have an edge. See the blog entry by the mr money mustache guy who bought his house very cheaply from an older guy who didn't know that prices have went up in the decades he has owned the property [0]. So yes, this means that ideally you own multiple properties and have enough capital that you can afford one or two mistaken purchases or contractors, but you also need to have enough dedication and ability to learn. Also note that even with stocks you have this issue, there is a lot of advisors out there who are selling funds with high management fees, etc.
small scale property investment impossible: absolutely true, yes. Real estate investment is something for rich enough people, or at least people with good contacts, not for the average joe.
huge leverage is usual: yes, but on the other hand property investment is seen as a very secure way of investing, which is why such leverage is possible at all. Stocks on the other hand you never get that much leverage for them.
anyone with enough money can do it: this is in conflict to your other point about needing to know how to properly evaluate properties and finding good but not too expensive contractors.
investment being locked up: yes this is true. But moving around stocks too much is also generally a bad pattern.
tenants from hell: yes, this is a risk. Ideally you distribute the risk by owning multiple properties, e.g. an entire building instead of just one apartment, which brings us back to the "need to have money to own real estate" point. Also, you ideally don't own real estate where the rent is cheap but one where the rent is expensive. If it's expensive enough then only rich enough people can afford it, i.e. ideally DINK white collar workers. Those can still cause problems but you benefit from their higher job stability, lower incarceration rates, etc. The disadvantage is of course that it's harder to own multiple properties if the rent is expensive, as you need to invest more, and also if the tenant doesn't pay the rent for N months then a larger sum of money is lost. But on the other hand, if the tenant fucks up the sink and you need to replace it, then having 1500$ rent compared to 500$ rent means that your 3000$ sink pays off again with two rent payments for one tenant, and with 6 from the other (assuming you are mortgage free, the calculation is different if you add in mortgage).
I do agree with you however about your general point. Real estate investment is absolutely not for everyone, as (broad low fee index fund) stocks are for example. It is more complicated and higher maintenance. Still, if you have tons of money then putting a part of your portfolio into real estate seems like a good idea to me.
[0]: https://www.mrmoneymustache.com/2017/08/02/introducing-the-m...
That said, if you're very long it's hard to picture entering Google or Apple at 15-18x earnings and doing very poorly. Personally I am DCA'ing because i) it's how I invest and ii) I do think there is more pain to come. There are many reasons for that, rallies amongst meme stock names after dips is one indicator imo.
His analysis of Airbnb is interesting. Airbnb's trailing 12 month P/E ratio is 40x, not 15.5x. He is projecting forward Airbnb's recent monster quarter. This is a bit risky imo, though maybe he knows the business better than me. I'd still be more comfortable DCA'ing into Airbnb or travel as a sector, but 2 quarters ago their P/E was 150x, so at 40x it does look pretty attractive.
Shameless plug, since this is right in our wheelhouse, I am the creator of a DCA focused custom indexing investing product[1] and a simulator to backtest DCA investing[2].
That's because lump sum is better most of the time… if you already have a pile of money to invest:
* https://ofdollarsanddata.com/dollar-cost-averaging-vs-lump-s...
However, most of us don't have a pile of money just lying around, but rather we get a little money every two weeks or every month, in which case it's best to put away a little money every month:
But as your article points it, DCA is not about getting the absolute best return, it's about risk mitigation.
> The only times when DCA beats LS is when the market crashes (i.e. 1974, 2000, 2008, etc.). This is true because DCA buys into a falling market, and, thus, gets a lower average price than a lump sum investment would.
If you are fearful of a crash (like now, as we are in the midst of war, recession, energy shortages, coming out of a pandemic etc.) risk mitigation may be higher on your list of priorities. I also think it just lowers cognitive load for people who aren't investing for a living.
All that said, I 100% agree with DCA as the best approach for people investing out of income!
If I'm on game show, and I have to (e.g.) pick a door to win a prize, with one strategy winning 80% of the time, and another that wins 20% of the time, I know what I'm using.
And it's not like it's even close (51/49 or even 60/40). This is a substantial "most".
When people struggle to understand that I say DCA can be thought of as a sort of insurance. You pay a price to insure your home to protect against the unlikely event that your house burns down. But on average buying insurance will loose you money. But the cost is comparatively low, and for each individual likely worth it to protect from total loss, even if in aggregate it's clearly a loosing proposition.
DCA is similar, most people will end up with marginally lower returns, however a small percentage of individuals caught close to a rare negative market event will be less impacted by sudden large drops and experience overall much greater returns in the long run than if they had invested as a lump sum due to the nature of volatility decay.
And yes, averages are great for everyone but the outliers!
[0] don’t have a ref but I think it has been shown that if you have a lump sum of money, historically you would have made the most gains by investing everything immediately (in the S&P500, there are only a few periods were this wasn’t true (therefore there is a risk)
First, 25% of the time is a lot of the time. It may be possible to recognize an overheated market, by looking at historical earnings multiple averages for example. Second, they are using a "total market" index, even broader than the S&P 500. I don't know that many people who buy a total market index. Usually it's the S&P 500, or even a sector focus. The more specific you get, the more these results are likely to break down I would bet.
We focus on DCA for people who are working for a living and investing out of income, which is obviously a different cohort than Fred Wilson, the VC. So lump-sum investing doesn't really factor into it.
[1] https://www.northwesternmutual.com/life-and-money/is-dollar-...
However, whoever said the wise words about how Buy and Hold and been polluted by HODL was absolutely correct.
Stock indexes have a built in survivorship bias, as the failing or declining stocks eventually get diminished (especially if it is market cap weighted) or removed completely.
> If you decide to invest $100,000 into the stock market because you agree with my reasoning in this post, then it would make a lot more sense to invest $10,000 a month over the next ten months than invest all of the $100,000 this month. (Quote from article.)
That doesn't actually make a lot more sense, and that is not the argument for dollar-cost averaging.
Assuming you're investing in a single equity/portfolio, then at the end of that ten month period you will have an effective entry price for the entire lot either way. Either that price is the value it's at _now_, or that price is the weighted average of ten entry prices.
One thing we know, or at least which we're assuming when we choose to invest, is that over the long term prices go up. So unless you have outside knowledge or asymmetric insight suggesting prices will in fact go down, it makes no sense to DCA into the market. And if you do think prices will go down before they go up, then you should hold the entire amount back until you no longer believe the asset is likely to decline.
Dollar-cost averaging is not an argument to buy slowly when you already have money, it is a reassurance to keep investing when process go down and not to hold any money back when investing money you're receiving on a regular schedule (like a paycheque).
Ironically (and amusingly) DCA is also an entry method into a position when you're willing to accept lesser theoretical returns to avoid FOMO but are feeling timid, which is definitely on-brand for a VC.
DCA makes psychological sense if the concern is a FOMO on the best possible entry price. It takes the psychological pressure of finding the absolute best off the table and replaces it with a smoothed average entry price.
I think it's a more powerful psychological device (and I do tend to invest pretty much all at once when I reach a decision), but it's not entirely pointless mathematically.
Math citation needed - the noise function you're hypothesizing could just as easily drive the average up as down, unless you have a reason to think it should go down, in which case you're timing the market and there's a better future time to go 100%.
If you commit to the strategy (buy monthly for 10 months) then you're just choosing an unknown price over a known price.
And if you don't commit to the strategy, then you're actively trading and not DCA'ing.
Another thought: if the thesis is that the price will go up, then whatever sum you have and want to invest, should you invest it all now - given that the price is supposed to go up?
A financial hedge is, generally, something which reduces risk or improves on the risk:reward ratio in a mathematically demonstrable way. Generally this means bundling uncorrelated (or anticorrelated) assets. This concept won a Nobel for Econ in 1990(?), and is the foundation of modern portfolio theory.
Using "hedge" in a more colloquial way, it can mean "a way to protect yourself from an unexpected poor outcome". But by that definition this also fails, since you're just as vulnerable to outlier events, but the nature of those outlier events is different (and perhaps less intuitive).
The time-weighted average price was $37/share.
DCA is a way to force yourself to make purchases at a variety of prices and times. (How likely is it with a single-purchase strategy that you'd own 111 shares at $2.70/sh of a stock that charted $10->$100->$1? How would you feel when you saw your $300 investment go to $111 in value? DCA takes a lot of that psychological pressure off and is amenable to decide-once and automate.)
Yes, that exactly. It's a psychological trick (if you have all the money upfront) and not a financially sound one.
This is a reason I haven't made active use of DCA. But DCA doesn't give up much, either, so I'm fine with "passively" engaging in DCA-like behavior by haphazardly dumping spare money into index funds after min("significant" drop, time limit) instead of purely maximizing time in market.
Depending on the equity, you are essentially sampling from a skewnorm & summing over 10 variates. eg. if you invest in the broad market, ^GSPC (your s&p 500) has a skew of +0.4 and a variance of 2.8, so your five number summary works out to
summary(mapply(function(x){sum(rsn(10, dp = cp2dp(c(0,1.67,0.4), "SN"))[1:10])},1:10000))
[-18.3, -3.7, -0.2,3.4,18.8]. While the median scenario is net neutral, you do end up underpaying 3-4 times if you fall below the first quartile.
otoh, if you are feeling frisky and want to dump 100k into robinhood over the next 10 months, $hood has a skew of -0.88 & a variance of 26.3, so 10k realizations of this scenario -
summary(res<-mapply(function(x){sum(rsn(10, dp = cp2dp(c(0,5.1,-0.88), "SN"))[1:10])},1:10000))
yields [-70.8, -10.6, 0.7,11.4,47.5] - much more interesting set of circumstances!
I guess he's betting on prices generally headed down over the next 10 months, so he significantly underpays if things go per plan.
Yes, exactly that! And if one is betting on prices generally going down over the next 10 months one should just not enter the market at all.
A good example would be an upcoming test result report for a pharmaceutical - it's either going strongly and gradually up (long) or suddenly and significantly down (put), but not gradually down (in which case you'd be out on both puts and longs).
But yeah, at this point you're a super-sophisticated investor and all of this discussion is meaningless. :)
https://www.financialplanningassociation.org/article/journal...
Right, but what if the prices went down during that 10 month period, even if you were bullish? You invested at the top in one chunk, when you could have smoothed it out in increments instead.
That smoothing function is the entire point of DCA and takes the guesswork out of reading the market, like trying to find entry points.
The smoothing function of DCA will help mitigate FOMO and Buyer's Regret, but it won't (statistically) deliver higher returns.
Would you take a coin-flip where heads you double your net worth and tails you lose all your money and assets?
(Statistically) the expected outcome is zero, so it really shouldn't bother you either way, you could take the bet or not, it's the same if you go for it or if you don't.
In the real world, though, lowering your risk means reducing the chance of both winning the bet and losing it. For many people it's worth more to have less risk of randomly timing the market poorly, even though they have less chance of randomly timing it well.
Yes, over all investors the two decisions cancel out, but to the individual DCA can be worth lowering their risk.
The only risk it mitigates is the risk of a sudden bankruptcy, or some other massive exogenous event which disrupts your future plans.
However even accounting for those events the expected value of DCA is still lower.
So assume there's a normal distribution of price possibilities at each purchase point. You're going to end up with the _sum_ of those distributions, not the correlation or combination of them.
Presumably the deviations of those are growing more larger over time, but the are still the same underlying distribution curve as they sum up. The mean will trend steadily upwards.
The resulting price will be a normal distribution with a deviation of somewhere around the midpoint, and a mean of somewhere around the midpoint.
Now, with the mean increasing over time, your expected return will be decreasing the longer you wait. But what about the risk:return?
Unless you have outside knowledge about risk growing or lessening over time, it will remain constant over the DCA period, which means the risk factor of your investment (the standard deviation of the resulting DCA price) will be at exactly the midpoint of your purchase series.
So your expected return will be slightly lower, and your risk profile will be substantially larger, than just buying immediately.
DCA: math does not check out, not even close, _if you have all the money upfront_.
DCA versus lump sum has been debated for a long time and there is really not a clear answer or expert consensus on the subject.
DCA cannot save us from a crash, though it can reduce the fear of a crash to the point where we actually make an investment rather than sit on the sidelines.
Sure it does. Just like you say further down, people are "willing to accept lesser theoretical returns", except in this case it's to reduce e.g. tail risk. They could also buy up front and hedge, but that's already more technical than most people want to deal with.
If you're expecting a non-continuous return function, such as a pending drug testing result or a major governments deal, then you're actively trading and a DCA strategy is almost certainly suboptimal.
It's very hard to construct a situation which is both plausible and favorable for DCA _if you have all the funds upfront_.
DCAing is worse on average for simple objective functions, absolutely. Markets rise more consistently than they fall. But markets also fall faster than they rise. This may not matter to the hypothetical average person, but it matters to real people, and some of them make the perfectly rational decision, based on real-life economic factors that aren't captured by simple models, to trade returns for stability.
You can formulate this as e.g. an MINLP model and it isn't at all hard to construct situations that are favorable to DCA when lump-sum is an option. All it takes is adding constraints to reflect a real person's life circumstances. Other strategies are still better than DCA, but they're also more complicated to execute, and we aren't talking about sophisticated investors here.
If I think the stock will go up over the course of years but have really no idea what it's going to do over the course of hours/days/weeks, then approximating a buy-in at the average price over a longer period would seem to be a de-risking approach.
Your point that "If you think it will go down over several months, you shouldn't be buying in" is fine, but I'm not sure it's equivalent to "I don't know what it's going to do anytime soon I'm buying this for long-term prospects".
Imagine a stock with a sinusoidal price fluctuation at a frequency of just under a week, but which you expect to rise significantly over a 5 year period. Investing in that weekly over 5 weeks will net you a more locally average price than going all in today, particularly if you don't have good information about that sine pattern. Going all-in right now might net you a low price, but you may also be buying at a local maximum.
(Think of discrete waveform sampling)
I don't know what the conjecture is that would make it not de-risking that, or what a proof would be, maybe GP will clarify.
It should be noted that many analyses of DCA versus lump sum are around the S&P 500 overall. In the case of highly volatile growth stocks or just single stock investing like Fred is discussing in the article, market timing risk is more acute, since the drawdowns are more severe (it is quite rare for the S&P 500 to drop 70-80%).
Shameless plus, I am the owner of a DCA investing app + a simulator tool to backtest DCA with different stocks, over different time periods
Presumably you are choosing to invest in an asset because over the long term you believe it will go up. But you know nothing about what it will do in any defined timeframe.
Choosing to DCA with a fixed strategy is choosing x prices at which to enter, of which (x-1) are unknown. But they are fixed, and based on your above assumptions you know nothing about them except that they're generally trending upwards (and thus your entry price is averaging up by DCAing). Knowing nothing means knowing nothing, it's as likely to vary upwards as down.
You can express the above as a summation with a positive (but unknown) dv/dt and a canceling-out e if you think better in notation, but I can't figure out how to make that legible in a HN comment.
If you have any reason to believe that there is more downside risk than upside risk over the DCA period, then you should delay investing until that is no longer true, and go 100% at that time.
DCA is essentially the same intuitive leap as the Monty Hall problem, but backwards.
I have no reason to believe that over the relatively short period of DCA that there is specific upside or downside coming along immediately, but I know that there is noise in the pricing. The rising trend I’m betting on is further down the line and very slow.
You’re adding assumptions that support your view, rather than addressing the problem as stated.
The only thing we know is that we're choosing an asset which we believe will trend upwards.
Over the relatively short period of DCA, it will trend upwards.
If you're saying you know that the rising trend won't begin until a future date, then that's an assumption you're adding, and it probably indicates you should wait until the rising trend begins until increasing.
But this is an assumption!
> If you're saying you know that the rising trend won't begin until a future date, then that's an assumption you're adding
I'm saying I have no idea what's going to happen during the DCA period.
I think at this point its safe to say your view that DCA doesn't work to denoise a signal is predicated on assumptions about what the price trend is doing over the DCA timescale. If the stock is trending up over that period, then you're likely better off buying now regardless of local fluctuation. OK!
If you invest at a few different times, whether fixed interval or random, is this not increasing the probability of approach an average value over the period you're investing?
I'm not asserting it's a good idea, I'm not using it as a strategy myself (or in fact making investment choices myself at all really), I'm just interested from the technical perspective.
It does indeed increase the probability that you will approach the average value over that period.
But there's no reason to believe that average will be lower than the current value.
100%, not disagreeing. But it does reduce the risk that you're buying at an outlier price.
Buy a stock so that you keep holding it for 10 years is good advice, but not in the context of today's mania. It's advice that is supposed to mean 'buy safe things', not 'buy that thing with exponential growth that might be worth 1000x it's current value in 10 years.
I do think that blogs / advice like what this post does is overall a good idea and good advice. But I find it difficult to discuss in practice due to the HODL corruption.
The shares you buy through a broker-dealer are held in "street name" meaning they are registered with your broker-dealer. You enjoy beneficial ownership, meaning you enjoy the benefits of ownership even though the title to the shares are in your broker's name. You have IOU's, basically.
Because the shares aren't in your name, broker-dealers can lend them out to hedge funds shorting the company you're investing in. The shares can also vanish if the brokerage goes under.
DRSing your shares at the company's transfer agent ensures that the shares are registered under your name (and not the brokerage's), and prevents your shares from being lent out and being used against your investment.
This is part of how they absorb the fees inherent in trading. Or you can use a brokerage which pays you part of what is made for the loaning-out, and doesn't absorb the trading fees.
Or just don't worry about it, your chump-change investments being lent out doesn't matter.
> The shares can also vanish if the brokerage goes under.
https://www.investopedia.com/terms/s/sipc.asp
Your brokerage firm made you agree to a bunch of documents explaining their SIPC insurance, where the assets will be transferred if they go under, etc, etc. It's not their fault if you just clicked through and ignored them.
Stick with the various major brokers and expend your effort worrying about lightning strikes and sharknados.
Who is to say my investments are chump-change? What's with the derision? I'm under no obligation to help broker-dealers make money off of lending out my shares, especially if those shares are being used to short the companies I'm invested in.
If retail investors DRS'd more of their long-term holdings, it absolutely would matter and have an effect on shares available to hedge funds to short.
No, shares are covered by SIPC up to 500K. Brokers may have additional insurance above that but at the very least 500K is covered.
You know, the types who lose 60% on ARKK but they're sure that they're going to "make it back" over the next few years? Or the people who think that losing 60% on ARKK is similar to losing 15% in VTI / SPY? (For those who don't realize, starting with $100k, you end with ~$40k if you had ARKK, but $85k if you held onto VTI/SPY. Aka, those who held VTI/SPY have twice your money now relatively speaking).
Unrealized losses _are_ losses. People must recognize this. People are corrupting the buy-and-hold advice to mean "ignore the unrealized losses" or "if you don't sell its not a loss", which is bullshit.
Not really. Individual stocks are too risky for casual investors.
Buy and hold the entire market instead.
https://www.cnbc.com/amp/2020/09/18/stock-picking-has-a-terr...
Choosing Airbnb or Google or whatever because you think you know something about it or can predict the future is setting yourself up for failure.
Yahoo seemed like a great stock at one time. The market changed, the leadership was faulty etc.
>The top five stocks in 2000 were Microsoft, Cisco (CSCO), Exxon Mobil (XOM), GE (GE), and Intel (INTC); they represented 18% of the index. Five years later, Goldman pointed out, they represented just 12% of the index’s market capitalization. And 20 years later, they represent 8%.
It isn't ideal. It is 100% VTSAX. But I did it. All on my own. No need to worry about a target date or anything like that.
Buy a stock so that you keep holding it for 10 years even if they pivot from computer repairs (because you think computers are going to be a thing) to bitcoin, to burning piles of cash because you joined the cult led by the CEO is a terrible idea.
For example: BBBY when it was revealed that Ryan Cohen sold his shares. Instant drop.
And to his question that we don't know when the bottom is (totally true) but I suspect we still have a ways to go. FTX + Housing + global macro + Interest back into the market = downward pressure
This is not Fred Wilson's fault, and I don't target Fred for it - it is the fault of society in general, but I hate it that people "buy and build a fair bit of real estate on the side".
I'm assuming he means residential.
Rich people have no idea how it feels to be a renter when you want to own, but prices have been driven out of th bounds of possibility by people who can afford to "buy and build a fair bit of real estate on the side ".
It's awful that society has divided into landlords and renters.
And landlords/rich people really have no empathy - they're in their own lives and feeling good about how many houses they own.
Government and society in general has completely failed by allowed housing to become a financial instrument instead of a modest/normal capitalist market as it was in the 1970s.
In any such discussion you'll notice those who attack this line of thinking are ALWAYS house owners .... ALWAYS. These are the people who feel that any regulated fairness in housing is communism - that's because they are on the happy side of the housing equation.
https://en.wikipedia.org/wiki/Australian_Dream
"The Australian Dream or Great Australian Dream is, in its narrowest sense, a belief that in Australia, home ownership can lead to a better life and is an expression of success and security. The term is derived from the American Dream, which first described the same phenomenon in the United States, starting in the 1940s."
Owning a house used to be "the great Australian (American) dream". And now it's not. Now it's what rich people do many times over in a giant game of monopoly.
https://www.forbes.com/sites/forbesrealestatecouncil/2021/09...
https://www.nytimes.com/1988/09/11/realestate/in-the-nation-...
If rental properties should exist, who should own them? If renting of housing by private owners is banned, that's a small inconvenience for people who might be combining households (each partner lived apart initially and now want to move in together) or when otherwise taking a temporary assignment somewhere with the intention to return, but that's not the bulk of rental property pretty obviously.
I think the greater challenge is that prospective home buyers are competing against other prospective home buyers. All else being equal, people earning a 25th percentile income and having a 25th percentile savings are going to lose out in a competitive bidding situation to people with a 26th percentile income and savings.
I think governments should regulate to ensure housing markets are fair, with a primary goal of ensuring people who want to own a house can buy one.
I fundamentally believe that it should be within the means of anyone who wants to own a house to have one. That means firefighters, kindergarten teachers, garbage collection workers, receptionists, old and young people - all those people who frankly have zero chance right now.
Governments should use they tools they have to discourage monopoly style property hoarding.
Housing should not be used at hotel rooms - I disagree with the cored concept of AirBNB because residential housing should be for the ordinary lives of citizens,m not for investors to make money from travel holidays. Things like AirBNB distort the market.
I am against residential housing being sold to non citizens/permanent residents.
"More supply will solve insane pricing!" is what governments and property investors like to say. It sure sounds plausible - sounds like market economics doesn't it..... if there's so much of something on the market that supply outstrips demand then prices MUST go down, right?
Seems like a ridiculous idea to me that so many houses will be built that prices will crash down to the level that anyone can buy them.
In fact I think what happens when there is more supply is that investors buy more houses to put renters into.
It will never happen that so many houses will be built that they become so cheap that the pricing will crash.
Property developers love to say "more supply!" because it makes them more money, that's all - they know more supply will never drives prices down so much that anyone could afford a house.
There is an entire history of business where that exact thing happens (assuming anyone isn't literal). Watch the markets for energy (increased drilling causes prices to drop), metals (mines come online, prices drop), ag commodities... and real estate. There was a massive overbuild in the US during the late 90's and early 2000s, which resulted in a big drop in prices.
See here:
https://tradingeconomics.com/united-states/housing-starts#:~....
The US needed around 1-1.2 million houses to cover new household formation during that period. Massive overbuild. Now look at prices:
https://fred.stlouisfed.org/series/ASPUS
Notice the dip after there had been a build up of supply? Prices dropped about 30%. Then notice the shortage of building for several years... and a run up in prices shortly after? The old supply and demand...
Just using common sense - land is a gigantic part of the cost of a house. If zoning laws made it such that you can build more units on a given piece of land...how could prices do anything but go down?
The old "supply is the solution" is old because it has been true since the beginning of humans buying and selling things.
The "direct" solution is not always the best. This line of thinking always reminds me of the approach to medicine where they'd rather cut out your gallbladder than put you on an elimination diet and send you to an acupuncturist.
Solve that with more supply. Those people only have finite money. We can keep building inexpensive housing and selling it to them at insane prices for longer than they can keep buying them at insane prices.
The problem is that, once we break them, then we almost certainly overshoot. The price seriously craters, and everyone who bought a house in the last N years takes a huge bath.
Those who complain that there isn't enough housing are complaining that they are being priced out of popular areas. It's like complaining you can't afford a BMW and have to stick with an old Ford. Housing in the U.S. is still available and home ownership rates are relatively high.
The problem is that well-paid jobs are scarce, and getting scarcer, which puts a lot of pressure on housing in the handful of areas that have well-paid jobs. But that's not a problem with the national housing market, but the local markets in hot regions, which are captive to local zoning laws in those markets. Again, not something homebuilders can address easily.
I wish people would stop talk about housing problems and instead focus on the distribution-of-jobs problem. Housing is never going to be fast enough to catch up to a hot jobs market area, and it will always end up overshooting. Moreover, as a nation, we need well paid jobs to be much more geographically diverse if we are to survive as something other than pockets of wealth surrounded by vast regions of poverty.
But the usual counterweight is to move to areas with more liberal zoning -- e.g. zoning is locally controlled and if a city wants to stop growing, then there's not much that can be done to stop them - California is trying, but there is a lot of opposition to forcing cities to grow if they don't want to.
The solution is to not build a major corporate HQ in such a city, or to move the HQ to cities that embrace growth -- which is the majority. But if that doesn't happen, then good jobs only exist in areas with restrictive zoning, and that's what makes the zoning painful.
It's a bit of a chicken and egg though.
People do that to escape the high prices in California -- but by doing so, they cause prices to increase in the places they move to, because doing so creates a sudden influx of demand from buyers who have more spending power than the people who already lived there.
If the housing supply had been increased in California, fewer people would be flooding into Austin from California to buy houses.
Where would the investors create these new renters from?
Immigration and net-new household formation are two sources. (If rental properties are cheaper, people might move out of their parents house earlier, might take fewer [possibly zero] roommates, or might move to a location because the rent is cheap. All of those factors seem quite small compared to a contemplated large increase in housing supply. However, you can only make so many new households by driving the price of rent down. At some point, either new households stop being able to soak up the supply or investors aren't willing to keep pushing the price of rentals down.)
Turn the problem around. If we assume as a given that some people can't afford houses at the level of supply that currently exists, does not increasing the supply help those hopeful buyers at all?
How to say xenophobic without saying it.. Any tax payer should be treated equally..
I agree it's abhorrent xenophobic policy if meant to be ((non-citizens)/(permanent residents)), but I read it as naturally meaning the other.
If you don't have the right to live somewhere, why should you be competing in the housing market and pricing out the local population?
Particularly if the nature of your competition is to keep properties mostly empty while speculating on price (see, for example, a lot of the high-end apartment development in London).
It's not xenophobia, it's a fundamental disagreement in what housing is actually for.
It's certainly not clear that a preference for housing people over capital is 'xenophobic'.
>>Any tax payer should be treated equally..
Foreign buyers are not taxpayers in Australia/Canada/USA.
"The Prohibition on the Purchase of Residential Property by Non-Canadians Act (Act) comes into force on January 1, 2023. It prohibits the purchase of residential property in Canada by non-Canadians unless they are exempted by the Act or its regulations, or the purchase is made in certain circumstances specified in the regulations."
https://www.bennettjones.com/Blogs-Section/Canadas-Ban-on-Fo...
In Australia and Canada, Chinese money has flooded our real estate markets - much of that money is anecdotally said to be the gains of corrupt officials and people trying to exit the country due to the oppressive regime.
"Chinese investors flooding billions into the Australian real estate market prompt money laundering fears"
https://www.abc.net.au/news/2015-10-12/chinese-investors-flo...
This outflow of capital from China, pouring into Australia and Canada pushes up prices, meaning that people who are not citizens or permanent residents are buying local real estate and inflating prices. Every house owned by a non citizen/permanent resident means one more that cannot be bought by a citizen/permanent resident.
Why should people from other countries be entitled to own our residential real estate? If you believe the purpose of housing is to house the citizens and permanent residents then there's every reason to close out foreign buyers, as Canada has done:
https://www.immigration.ca/canada-foreign-buyer-ban-starting...
https://www.cwilson.com/not-for-sale-canada-closes-the-door-...
"Demand for U.S. homes from foreign investors is pushing up home prices, exacerbating concerns over housing affordability"
"Housing markets are preferred destinations for foreign investors looking for yields, vacation homes or safe havens, or for those dodging tax restraints and corruption crackdowns in their home countries. But demand for U.S. homes from foreign investors, especially Chinese, pushes up home prices, exacerbating concerns over housing affordability, according to new research from Wharton."
https://knowledge.wharton.upenn.edu/article/foreign-purchase...
My family in Australia (locals) complain about this all the time as well - chinese money flooding in and making it unaffordable for them.
They own 14 properties between the 5 of them.
Pointing to foreign investment is a strawman argument as the original poster called for banning non-citizens and permanent residents.. not non-residents.
If there's X number of people who need an overnight stay in the city and you want to accommodate them - what difference it makes if they stay in residential studios or hotel rooms?
Is there other data available that supports your view?
Just reading.
It's incredibly depressing to see comments like yours considered "wrong" and in the minority and even more so vociferously defended against in the name of "small-business owners" or the "capitalism IS fair" crowd. Despite those who succeeded being a survivorship bias group.
Housing is a right, and should not be an investment. To invest in housing alienates its purpose which is stability and shelter. It creates an antagonistic lens in which its ownership is held, not for those housed and protected by it, but those who wish to squeeze as much blood from the stone it has become.
If we accept that as true, then let the state build minimal housing for those who cannot afford shelter.
TBH, that still won't take away the buy-to-rent investors, because people will still want better housing than the state provides.
This will provide a floor for landlords to compete against and keep prices down.
The state/city could nationalize restaurants easily and and provide cheap or free food to those who want it
The state/city could nationalize Apple easily and and provide cheap or free iPhones to those who want it
Seems like we found the solution /s
This guy lives in a different planet.
Refreshing.
Unlike Sequoia or Kevin O'Leary about FTX and the crypto markets.
but the narrative then was “it’s headed to 2400-3200”
Reminder: Nobody can predict the future.
Good luck on your ROKU but I personally feel like that's dead money. They are basically another TIVO and they are a small player that will likely get bought, but not from a position of strength but from weakness. But different opinions are what makes a market, so good luck!
But Android TV is an absolute trainwreck. The level of lag is simply unnaceptable. And if there’s one thing that drives consumers nuts, it’s input lag. People will vote when they buy a TV.
Roku is feature-for-feature a superior platform, with better performance, higher device penetration [0] and at a lower price. The only reason Google has gotten as far as they have is due to existing monopoly forces.
[0] https://thedesk.net/2022/10/roku-amazon-market-share-domesti...