I'm one that believes that the only way to be successful is to be in it for the long term, 10+ years, and in a winning ETF or mutual fund.
Am I wrong?
Here is what I plan todo.
Have 80% is something that is very safe like 1 Year treasury bills that appreciate by like 5% per year.
The remaining 20% should be put in high-risk, high-return instruments like BTC (or other Coins you see potential in), Small Caps & Midcaps of companies and these tend to always appreciate way more than the index or large caps in a bull market.
- Be wear of financial euphoria i.e only buy in a bear market like this one and never buy in a bull market (you should be selli in bulk markets)
- Keep your quantity of shorting to Zero, statistically the market is biased to go up. The maximum you can make from shorting something like BTC is 100% profit, by going long how ever BTC or other stocks can easily grow by more than 100% like how BTC grew by 800%
I prefer this to index investing because the index can tank by 30% in one day and if your 100% in the index and the timing is unlucky i.e your getting ready for retirement, you may not be able to wait in the stock market to recover from these losses.
Being unable to wait for the recovery from losses is referred to as reaching an "uncle point"
The barbel-strategy I have described above of 80% T Bills & 20% high risk, high returns. Trys to eliminate these uncle points.
There are really only two solutions to risk management, either you reduce your, investment in risky assets or you invest 100% and buy insurance, otherwise your just a sitting duck for a financial meltdown.
To my knowledge Black Monday in 1982 was the biggest single day dip in the stock market, where the S&P 500 lost about 20%. See: https://en.m.wikipedia.org/wiki/List_of_largest_daily_change...
Also after these dips, did the market recover and how long did it take? Imo index funds are where you put your money away for decades. Over those years, what is the average gains per year?
There is nothing wrong with accounting for extreme events and that’s why all investment could be risky. But I am challenging your narrative.
But my message is that we should not be sitting ducks for these extreme risks. There is no known method to accurately know the exact maximum drawdown that a security can get in 1 day.
Days aside. The drawdowns can be worse than we can imagine over several years. For instance people that bought the the S&P during 1929 broke even at around 1955. No profit, just breaking even. A time span of about 26 years [0]
[0]: https://www.macrotrends.net/2324/sp-500-historical-chart-dat...
Overall, if you had just said to only put your money in lower risk stuff vs index funds that would make sense to me too depending on how risk averse you are. But to put 20% in something like bitcoin just seems like a weird mix of safety and gambling. I would like to see some strong numbers backing this up in the past 50 years or so where this would be more profitable AND less risky compared to the index funds.
Investing? Yes.
My time-frames for returns are 2-5 years, while a small portion goes into invest-and-forget assets.
There was a study done a while ago that found that nearly all funds fail to consistently beat a simple index fund. So I don't think you need to invest in a "winning" fund so much as you need to stick with the consistent returns of an index fund (which tend to give you a nicely diversified basket of stocks). And index funds also have some of the lowest possible management fees -- the one thing you can control.
The rule-of-thumb is to assume the S&P 500 grows by at least 7% a year -- so, your investment doubles every 10 years. That's a good rate of return. If you're investing for retirement, you can also factor in your tax savings when investing in an IRA. (Since you also get to keep the 10-20% of your investment that would otherwise have gone to the IRS.)
My advice would be to check into a low-fee S&P 500 fund for your IRA. It's had positive returns in 22 of the last 28 years.
https://www.investopedia.com/ask/answers/042415/what-average...
The average annualized return since adopting 500 stocks into the index in 1957 through Dec. 31, 2022, is 10.15%.
Also, we have seen that the FED will do their best to make sure the stock market does not fall apart for any long period of time. All of this adds to my confidence that it's really the only way to invest as long as you have a broad period for your investments. During the Covid-19 bear market they were thinking of buying stocks to help the market. I don't think they did but it was on the possibility list. That says a lot about how far they will go.
Lastly, Warren Buffet's view is that if the S&P falls apart it won't matter since it's likely that there are bigger issues to worry about so it won't really matter. He's got a good point.
But daytrading is just throwing your money at institutions and quant traders.
If it were really that easy, individual investors and professional fund managers wouldn't lose to hedge funds in the long run for all of the history of index funds. You'd also see at least some evidence of skilled stock pickers at, say, hedge funds, and you don't.
In gambling, a few people beat the house. That's a guarantee of probability. In aggregate, the house always wins.
2 of my favorites on this topic:
Warren Buffet's "The superinvestors of Graham-and-Doddsville" - https://www8.gsb.columbia.edu/sites/valueinvesting/files/fil...
Joel Greenblatt "Little book that beats the Market" - https://www.magicformulainvesting.com/Home/AboutTheBook
You can pick a good stock in the short (2-3 year) terms if you know their industry and their business well enough to really believe in their strategy. But it is difficult to have that level of knowledge on a broad enough base to build a stock portfolio out of it. It is better the just let the index funds be your base, and maybe dip your toes in those rare stocks where you do have deep knowledge and confidence.
I've made good money on the stock market but at the first sign of trouble I cashed out. I remember it as a pretty nervous affair, being up before the markets opened and reading constantly about the companies that I wanted to invest in or had a position in. And being able to absorb considerable losses really helped with the ability to keep moving, if you can't do that then you should simply stay out of the market entirely.
I made a few hundred K and called it a day, the stress was just too much.
The other way to do this is to invest a chunk of your money into an index fund and to keep it there. Buy in over time to reduce the risk.
And then you still have to be careful which fund you invest in, especially if it is in a currency different from the one that you earned your money in - and intend to spend it in.
Oh, and get out when the people around you that have no clue about any of this are getting in.
Out of the truly successful ones, the best example I can think of is: https://qullamaggie.com/about/
Besides the success in trading, what sets him apart is that everything he shares (twitch, blog, tweets etc) are all for free. He is also from Sweden where income tax is public information so you can verify for yourself.
In general, I do think most people should just put their money in an index fund, as ETFs can still be much riskier. But to answer your question literally, yes you are wrong.
The market is flat over the last 2 years, and if you go to 4 years it is up quite a bit.
The lesson I take away from this is: try to budget so you can invest over a longer period of time, in low-cost (fee) investments.
Fees will eat into your returns, so try to keep it low.
Last 2 years may prove to be a good time to have accumulated stocks.
Now, individual picks? You can make bets on things like consumer defensive stocks, or bank stocks, or whatever. But these are bets and you need to do research and try and make a smart bet.
I know people who have made a few good life-changing bets, but... I think it's still a bet.
running this now . FBL, which is a 1.5x leveraged version of facebook/meta, has done really well.
My advice to anyone looking to invest: the stock market is a great way to make money no matter how good or bad it may seem and you should let your money make money on itself... making your money work for you is like having someone else work a second full-time job and giving all the money back to you.
Also, its a great time to get in the stock market right now if you aren't in at all. Watch it for a couple of weeks. Note the high of your stock, the average, and the low for what it is trading at. Pick a low number and buy a good amount (5 or more to see some type of return). Buy it low. Hold on to it for a while. Then sell it when you feel it is high. When you sell it, you are always really just transferring your invest... whether to pay off debts, mortages, or improvement.
I started trading on the stock market at 25... I chose Ford and Intel at my first stocks with just $5,000 split between both, not understanding that I could've chosen some better ones at the time, though I made my money on those, before selling them and buying others including Adobe (at around $70), Netflix (at around $80), NVIDIA (around $35), Tesla (at around $80), Facebook (at around $60), and many more that paid well.
During the Trump era, which was a wild ride, especially during COVID-19... the market was being inflated.... which benefited those of us who bought our shares when they were low.... I had about $125,000 in the stock market which grew to $200,000. Although I'd missed the hype of GameStop, I grabbed around 2,000 AMC at $2 and held on to it until it reached about $40. I also grabbed some marijuana stocks too when they were under $10 and they grew to $15 - $30. I since sold those knowing unless they are federally legalized, they are mainly OTC trades and won't see much more profit on the market. Cash grabs if you own a dispensary though!
At the end of the Trump era and headed into the Biden era, unfortunately, the media did its best to try to put the Biden stock market in good light, and took forever to admit what was really going on and report on it, but inflation and gas prices always tell the story, no hiding what's going on... its either supply and demand or greed... but for those of us who are advanced/novice/expert traders knew the stock market had performed the worst under Biden.
Just backing the previous statement up with facts and showing this is - not my opinion -, as I'm not trying to get political here. "The average increase is about 14%. Under Republican presidents, the index typically rises 68% of the time, while under Democrats it increases 60% of the time. In terms of markets Biden's first half is the worst for any Democratic president since Jimmy Carter from 1977 to 1979, when stocks fell 13%." Read more: https://www.barrons.com/articles/president-biden-stock-marke...
I don't really think Biden cares about the stock market. Again, not making it about politics, but seriously, he's 80... I'm taking care of my 86 year old grandfather with dementia right now, and the only thing I pray for and hope he does everyday is not piss or sht himself. Like that is #goals for a man in his 80s. But I mean, truly, that is #goals for us all... can't tell you how many times I've been out and I have to emergency sh*t. But anyways, back to the main focus: the stock market.
Before I lost any more money, I decided to switch gears and as of 2022, although I contribute somewhere around 6% to 12% to a 401k, I am not actively making trades in the stock market anymore, and went into real estate which seems like its full-time, even though if you get good tenants, its just once a month, and then maybe some work to get another good tenant in there.
I pulled all my money out of the market and bought two sister studio condos across from each other in a major city on a busy road across the street from a hospital, which I rent out to doctors, medical students, and travel nurses. One of the condos is paid off while the other is about half paid off. I am currently making somewhere or will be making around $2k a month for renting out both condos.
Buying Amazon and Google when they were down to somewhere around $85 would've probably been a great call.. let your money sit in there for the next decade and you'll reap those rewards. However, you're going to have to take that roller coaster ride. You'll see it up and down, up and down, but it will never fail. Because Google and Amazon are too big to fail. Unless you believe Jeff Bezos stating that Amazon will fail. It'll be a while. But Amazon works for our instant gratification.
I do intend to get back into the stock market within to the next 5 years. My focus right now is actually paying off my mortgages. But if you're 50 and under... you can't go wrong with tossing some money into the stock market and just waiting for it to grow.