Hacker News Reader

Comment by mordymoop | Hacker News Reader

The problem is that I have been seeing some version of the “crash imminent, sell everything” thesis for my entire life. Almost nobody who “saw the crash coming” in the case of the dotcom bubble, or covid, or the subprime crisis made any money, because almost nobody gets the timing or magnitude of the crash right. You can find YouTube channels that have been warning people that a crash is imminent for the last two years. If you had been out of the market for the last two years you would have missed historical gains, and for what? The magnitude of the crash you’re protecting yourself from would now have to be impractically huge for you to come out ahead.

Much better to just stay in the market, knowing that there will be crashes and you will have days where the numbers look awful, because they’ll look great again in a few years.

View on HN

Agreed this sort of advice is standard - but many people don’t follow it because it’s boring.

One way to make this sort of advice “not boring” is to apply the advice to 90% of your net worth (or cash flow), but then give yourself permission to “gamble” with the other 10%.

For me, that has fulfilled my personal interest in playing around in the markets for fun while still building/growing a traditional “safe” portfolio at the same time.

This is the way. Boring is, well, boring. Slice off some small percentage to do high risk investments with to sate your FOMO. Buy GME, sell it for Doge, and short TSLA with that pool after inhaling too much r/WSB because you want to think you're a genius.

Why do I need to get my ya-yas off gambling any part of my retirement? There is zero coherent nor compelling reason to tie your enjoyment of gambling to the size of your portfolio.

To be clear I’m not opposed to gambling. I enjoy occasionally going to the local poker room and have an established bankroll. I have plenty of fun at $1/$2 tables even though the buyin is a fraction of a fraction of my net worth. I am mildly profitable in the long run, but nobody sane would suggest I’d be better off at the $100/$200 tables even though my Vanguard balance could easily support it.

All of this advice to keep it at 10% also ignores what happens when you lose most of that. Do you restart with a new 10%? Ideally no, but that’s really unsatisfying to somebody who’s enjoying their new day trading hobby.

Honestly just save yourself the headache. Put your nest egg into index funds and find some other way to make your life exciting. Gamble with pocket change from your entertainment budget. Or maybe even just don’t.

For those who need it, it is a way to manage impulse control. Not everyone needs it, but some people do.

GLP-1s may regulate it (via anti addiction mechanisms observed), more data to come in that regard.

For those who “need” it, you are really playing with fire. It’s not like chasing after losses to turn things around is a particularly rare response.

We’re in a thread under an article revealing how more and more people are falling victim to gambling addiction through the stock market. I’m not convinced that “you should just gamble some of your life savings” is the best suggestion for most people.

In a just and sane world, we would have pensions, locking up retirement savings away from human impulses and bad decisions. But here we are, doing our best to get through the shit show, surprised when humans do humans things.

I get that there are some people who do need that outlet. I’m just saying we don’t need to make “set aside 90% to gamble with!” the first recommendation, but maybe the last.

I remember at one point a couple years ago, I saw a thread on the Bogleheads forum where people could basically call their shot on market crashes; they would post and timestamp when they exited the market and when they re-entered, so that people could go and calculate if the timing was correct or if they lost money by missing out on market growth.

I might not have the dates correct, but I remember the general strokes of one guy who decided in like 2017 or something that the market had topped out, the crash was coming any moment now, and he sold everything and called his shot. He missed out on three years of incredible gains, and then the market absolutely _crashed_ in early 2020. He got it right, by a very small amount; he had gotten more selling his positions than he would have gotten selling in march 2020. He buys back in at what ended up being the absolute nadir of the market in like april 2020 or something. The rare success story of timing the market, you love to see it.

And then a few days later, he decides that actually, no, the market still has more to drop, and he sells again. Oh well.

> He buys back in at what ended up being the absolute nadir of the market in like april 2020 or something. The rare success story of timing the market, you love to see it.

The stock market usually goes down faster than it goes up, which makes it slightly easier (well, less difficult anyway) to time the bottoms than to time the tops.

    > The stock market usually goes down faster than it goes up, which makes it slightly easier (well, less difficult anyway) to time the bottoms than to time the tops.

As the saying goes: "Elevator down; escalator up."

Yes, the problem with market timing is it requires two decisions that for the marginal investor are inconsistent. That's why people who sell at a high fail to reenter at a low, and also why people who stay invested at the high remain fully invested long after prices revert to a much lower level.

This suggests the answer is... fundamental analysis, which neither camp is doing.....

This is the reason dollar-cost-averaging works. You buy less (shares) when the market is high, and more when it is low, without thinking about it and without trying to "time" your transactions (which almost always fails unless you have inside info).

It works in a sense of not timing the market. Lump sum beats dollar-cost averaging - because you have more time in market.

Sure, if you have a lump sum to start with.

But dollar-cost-averaging beats saving up a lump sum and then investing.

I think the phrase you're looking for is "automatic investing" or something, not DCA. DCA is usually framed explicitly as a counterpart to lump sum of an existing pile of money

DCA in my understanding is automatically investing a fixed amount at fixed intervals. E.g. $100/month, or whatever. The amount and interval aren't all that critical. The point is to do it automatically and not try to time the market.

Yes I also have heard the advice to dollar cost average a lump sum, not so much in the scenario of a rollover of an existing investment, but when a large amount of cash has become available for some reason. I guess the theory there is you won't risk putting it all in at a market high point. If you average it in over a year in a declining market, you're better off. If you average it in to a rising market you're worse off than if you had invested it all up front. Trying to guess which of these scenarios is going to happen is trying to time the market. I'm sure people have done the research -- intuitively, if you're investing for the long term, better to put it all in at once. But there are probably risk tolerance considerations.

A year is pretty extreme. If you cut a lump sum into a series of transactions over a couple weeks or even days it is just about the least expensive way to exchange earning potential for reduced volatility. You miss out on like 2 weeks of earnings in exchange for a huge reduction in the chance that you buy in and are immediately down 2% or something.

You can do both. You can invest the entire amount, but make it short/medium bond heavy on Day 1. As you go thru the year, you rotate more and more of your fixed income allocation towards equity until you reach your target equity %. This is relevant if, for example, you downsized your home or received a retirement payout.

There's just as much probability that you miss out on a big swing up as there is that you miss a big a drop.

It's not the big swings you're trying to avoid, you're just trying to average together a bunch of interday minor ups and downs so your starting price is not as volatile.

Depending on the definition of “beating”. On average investing right away is better but the variance of outcomes is higher.

On average across all investors. Not so much if you invested at the peak of dot.com (would have taken decades to break even) or even the covid bubble.

Dollar cost averaging does not work and has never worked. Because most assets have unlimited upside and unlimited downside. A stock or asset can go ballistic for decades like Apple or Bitcoin, or it can fall to zero value.

There are no mathematical ways of winning investing. If it was that easy, everybody would do it. You can only follow your heart and do your due diligence.

> Because most assets have unlimited upside and unlimited downside. A stock or asset can go ballistic for decades like Apple or Bitcoin, or it can fall to zero value

Spot equities and crypto have limited downside. You put in x, most you can lose is x as you observed. Unlimited downside is not a thing outside certain exotic derivatives.

I didn't mean the upside/downside on your investment, but on the asset. Most investment assets except for bullion can fall to 0. They can also increase without an upper limit, like for example Apple stock. The market being "high" or "low" is not remedied by dollar cost averaging.

You’re misusing the term “unlimited downside” which is why you were corrected. Shorting stock is an example of unlimited downside.

What dollar cost averaging does is reduce short time price risk. The result is the long term.

Even if zero is the bottom, an asset can have unlimited downside. It can go from $0.1 per share to $0.0001 per share and so on without end. Or, with the rational perspective, after 0 the downside does not matter anymore. An asset cannot go below zero, at least the assets I know of. An investment can go below zero and beyond, when you use leverage. But that's a derivative and not an asset, as you've pointed out.

What I mean is that dollar cost averaging is a myth and cargo culting in the world of investment. Let me explain:

Let's say you're "dollar cost averaging" by purchasing an asset during a few years, which fluctuates between $90 and $110. So after some time you have averaged around $100 per share. Now if the asset goes to $5000 next year, what has your dollar cost averaging accomplished? Or if it goes to $3, what has your dollar cost averaging accomplished. Nothing in both cases.

One of the hardest myths about investment, that seems to be impossible to beat out of people's heads even with a sledge hammer, is that there is a proper historical price for an asset and that prices only fluctuate around that price. So you buy when it's under that price and sell when it's over that price. Smart, right? No, it's dumb and the reason why most people trying to invest lose their money. An asset can go down and stay down on a new price level. Or it can go up and stay up on a new price level.

>> Even if zero is the bottom, an asset can have unlimited downside. It can go from $0.1 per share to $0.0001 per share and so on without end. Or, with the rational perspective, after 0 the downside does not matter anymore. An asset cannot go below zero, at least the assets I know of. An investment can go below zero and beyond, when you use leverage. But that's a derivative and not an asset, as you've pointed out.

This is drivel. Being able to tag on infinite 0s after the decimal doesn’t make an asset have unlimited downside, the limit is $0 as you yourself apparently know.

An asset has unlimited downside, in the same sense that you can't move anywhere. See, to move somewhere, you would first have to get halfway there, and to get halfway there, you first half to get a quarter of the way there, and so on, so therefore you can never move from where you are.

X to 0 is an interesting definition of unlimited.

Unlimited in ratio, I guess.

Even then, brokers just show a percent loss of -100%. Our buddy would never see the cool infinity symbol.

It’s too bad they aren’t a fan of dollar cost averaging into broad index funds, I think their older self would thank them.

My investments have always had fantastic results, far above what any index fund could render. I have been forced to involuntary "dollar cost averaging" by having to wait for the next salary in order to invest more. But "dollar cost averaging" is not an investment strategy, it's confusion on the highest level.

Dear Internet Stranger (who is also an amazing investor): Have you considered starting you own hedge fund? If not, are you willing to share some of your best investments in the last few years?

You wouldn't be interested in an answer from an internet stranger. But please tell me how "dollar cost averaging" would help any investor in a real world scenario?

It actually grieves me that your average person is completely unwilling to just take a few days of their life to understand investing and what it is and how they can sensibly do it. Instead they decide to treat it like a casino and chase hocus-pocus like "dollar cost averaging" or "technical analysis" or "day trading".

Every person usually has some area of expertise or interest, or even a hunch. Take that and invest accordingly, long term. There are tools available to make any investment very conservative or very risky, according to taste.

So what you're saying is you avoid timing the market (which doesn't work) by timing when you buy shares? What?

You buy at a regular cadence, and sometimes it's low and others it's high, but on average you do OK.

No. You invest the same amount of money at a regular cadence throughout the year. The end result is that you obtain less shares when the price is high, and more shares when the price is low. It's explicitly not timing the market.

It's implicitly timing the market. If you have all the money available at the beginning of the year a better strategy is to just invest everything asap.

If you get the money monthly (e.g. from salary) then that's just normal investing and you don't have a choice anyway.

If you think that is some clever strategy then honestly you probably should get professional advice because you have some fundamental misunderstandings of the stock market.

Heh, I totally agree with you.

I don't know hoe many times I've explained people the given strategy is not what researchers mean when they compare lump sum investing (LSI, a.k.a. converting all cash you have available for investing into equities) and dollar-cost averaging (DCA, a.k.a. splitting the available cash into equal parts and slowly converting the cash into equities at a regular pace.)

What that strategy is is just a regular (e.g. monthly) series of lump sum investments every time cash comes available (e.g. when salary comes in), that people tend to confuse with a DCA strategy.

Having said that: one LSI investment every month is a great strategy that historically does better than any DCA strategy.

ETA:

Relevant research:

- Vanguard Research's Dollar-cost Averaging is Just Taking Risk Later: https://www.passiveinvestingaustralia.com/wp-content/uploads... - PWL Capital / Ben Felix's Dollar Cost Averaging v.s. Lump Sum Investing: https://pwlcapital.com/wp-content/uploads/2024/08/Dollar-Cos...

Please everyone note that there is a long-standing and somewhat pointless argument over whether or not DCA means “regular monthly contributions” versus “taking a lump sum contribution and dividing it up into contributions over time”.

Strictly speaking time in the market beats timing in the market. If you have a lump sum, the theoretically best option is to put it into an index fund today.

Most people in most situations don’t have one lump sum to invest, so recurrent monthly contributions to retirement accounts is the way to go (and what OP here is advocating).

If dollar-cost-averaging is so great, why don't professional asset managers use this strategy? (Hint: They don't.) I think dollar-cost-averaging is an idea promoted to non-professional investors to help them manage the psychological burden of (initial) paper losses after making an investment. Assuming that very short term stock market performance is essentially random (long term: it is not), then the day after you make an investment is roughly 50/50: Am I up or down? Recall: The human brain wants to avoid losses much more than gains.

The risk of a crash is why you stay out of single stock concentration and why you avoid day trading. Its not an argument to stay out of the market.

    > The problem is that I have been seeing some version of the “crash imminent, sell everything” thesis for my entire life.

What do you think is the root cause for this kind of thinking? It is hard-wired from childhood, or borne of (difficult) experiences?

    > Much better to just stay in the market, knowing that there will be crashes and you will have days where the numbers look awful, because they’ll look great again in a few years.

This assumes that you are talking about the US stock market. Most other stock markets are far slower to recover from economic downturns and crises. Why? Their economies are less dynamic and their political leaders are more fearful of difficult (economic policy) changes.

    > The stock market is a mechanism for transferring wealth from the impatient to the patient - Warren Buffett

    > For 240 years it's been a terrible mistake to bet against America - Warren Buffett

Lastly: The Nikkei 225 (Japan's most important equity index) peaked in 1990, then took 30+ years to recover.

Also: Look at Mainland China since it was opened to (direct) foreign investment in the last 15 years. Overall: The Mainland China economy has grown a lot, but their stock market is a terrible place to invest.

`What do you think is the root cause for this kind of thinking?`

It's probably quite advantageous to have some individuals irrationally hedging against catastrophe--even though they are likely to be wrong, when one of them is very occasionally right the humans survive.

I assume PP means they are staying out of leveraged bets and risky individual stocks.

Generally the saw it coming crowd is just sticking it in diversified index and bond funds and doing other things.

I just always buy and never sell until the leadership and the board of the company appear to be going full retard. And not in a good way like Netflix pivoting to streaming in 2006 but like HP in 2006. Haha.

What was the last sell you did?

the last big one was BABA.

The market is people making bets on bubbles and crashes. That's how we get prices.

At any point or during any stretch of time, one of these sides will be correct.

Your point is that patience and discipline, not panic or overconfidence, are the real superpowers in investing

Reply on news.ycombinator.com