buy and hold no matter what?

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buy and hold no matter what?

Postby bankmaggot » Tue Jul 16, 2013 11:30 am

If the market shot up 20% in 3 months would it make sense to take some profit off the table?

I've been investing for about 7 years and was never concerned much during the last recession because my net worth wasn't that much. Fast forward to now, wife n I are roughly 40% way to retirement goal. Saving roughly 70k per year. Want to semi retire in 10 years in mid 40s.

Just seems like its a no brainer to sell if the market shot up that fast in such a time period, that it will come down, eventually. In hindsight it seems like I could make a killing. :sharebeer


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Re: buy and hold no matter what?

Postby hicabob » Tue Jul 16, 2013 11:37 am

20/20 hindsight makes it look easy ... but the problem becomes when do you get back in? If you market time you have to make buy/sell decisions frequently and it appears that very few are able to do that consistently although many have tried.
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Re: buy and hold no matter what?

Postby tadamsmar » Tue Jul 16, 2013 11:43 am

Sounds like you are not satisfied with your rebalancing policy and/or your asset allocation.

Perhaps you should consider a more conservative asset allocation this point.

Do you have a rebalancing policy? Some have rebalancing policies that would typically have them moving some money out of stocks when stocks went up 20% in 3 months while some of the other assets in their asset allocation lagged below that rate.

it's not a no brainer that stocks will fall after a 3 month 20% rise.

In hindsight it seems like I could make a killing.


It's a no brainer that hindsight profits are imaginary profits.
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Re: buy and hold no matter what?

Postby Call_Me_Op » Tue Jul 16, 2013 11:49 am

bankmaggot wrote:If the market shot up 20% in 3 months would it make sense to take some profit off the table?


If your IPS tells you do so, then yes. Otherwise, no.
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Re: buy and hold no matter what?

Postby gkaplan » Tue Jul 16, 2013 12:02 pm

It's not buy and hold. It's buy, hold, and re-balance.
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Re: buy and hold no matter what?

Postby bankmaggot » Tue Jul 16, 2013 12:08 pm

hicabob wrote:20/20 hindsight makes it look easy ... but the problem becomes when do you get back in? If you market time you have to make buy/sell decisions frequently and it appears that very few are able to do that consistently although many have tried.


i completely understand your point, as i see it when I'm putting in big orders. I'm referring to making a one time sell/buy decision in a one year period. Unlike stock trading. For example, if my investment goal is 20% appreciation per year and I hit that mark in 3 months I feel like there's no need to put my investment in further risk. I'm sure the market could go up another 5-10% who knows. But i doubt it would go up much further without some kind if retraction. I understand no one really knows what the market will do.
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Re: buy and hold no matter what?

Postby YDNAL » Tue Jul 16, 2013 12:10 pm

bankmaggot wrote:If the market shot up 20% in 3 months would it make sense to take some profit off the table?

It makes sense to adjust your risk level to where it should be.

For discussion in 50/50 AA, a 20% rise in Equities and no change in Bonds is equivalent to [edit] less than 5% change in allocation. Not sufficient to even rebalance using 5% absolute bands.
Code: Select all
           Equity        Fixed
Original   $100           $100
Market     +20%             0%
New        $120 (54.5%)   $100 (45.5%)

The more Equities in the original split, the MORE the impact.
Last edited by YDNAL on Tue Jul 16, 2013 12:14 pm, edited 2 times in total.
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Re: buy and hold no matter what?

Postby Ted Valentine » Tue Jul 16, 2013 12:11 pm

Impressive savings rate. Great job.

Why not write into your investing plan: "If the market shoots up 20% or more over a 3 month period, I will take 50% of the gains to cash."

I'm not sure if that's the best thing, only you know that. I'm sure you know there is no correct objective answer because nobody knows the future. Your question makes me think your asset allocation is making you nervous. Do you have a plan to adjust your asset allocation as you age and/or your assets grow? Maybe that is what you need to look at. Fall back to what your ultimate goal is, and if you stick with that you will know the answer to what is making you ask this question.
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Re: buy and hold no matter what?

Postby hicabob » Tue Jul 16, 2013 12:12 pm

bankmaggot wrote:
hicabob wrote:20/20 hindsight makes it look easy ... but the problem becomes when do you get back in? If you market time you have to make buy/sell decisions frequently and it appears that very few are able to do that consistently although many have tried.


i completely understand your point, as i see it when I'm putting in big orders. I'm referring to making a one time sell/buy decision in a one year period. Unlike stock trading. For example, if my investment goal is 20% appreciation per year and I hit that mark in 3 months I feel like there's no need to put my investment in further risk. I'm sure the market could go up another 5-10% who knows. But i doubt it would go up much further without some kind if retraction. I understand no one really knows what the market will do.



Let's use our hindsight and assume you bought the s+p500 in 1990 and sold after a 20% profit - then when would you have re-entered?
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Re: buy and hold no matter what?

Postby chaz » Tue Jul 16, 2013 12:13 pm

I avoid market timing.
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Re: buy and hold no matter what?

Postby Chan_va » Tue Jul 16, 2013 12:14 pm

bankmaggot wrote:For example, if my investment goal is 20% appreciation per year and I hit that mark in 3 months I feel like there's no need to put my investment in further risk. I'm sure the market could go up another 5-10% who knows. But i doubt it would go up much further without some kind if retraction. I understand no one really knows what the market will do.


If your investment goal is 20% per year, you are in for a shock. Long term equities returns have averaged close to 10% a year depending on the time frame. But, there is a huge standard deviation of returns from year to year. If you pull out at a 20% gain in a year, miss a further 30% run up, and then in the following years hit -10, -5, and -6% returns, how are you going to catch up?

The point being is that you need the years of exceptional returns to make up for the inevitable years of negative returns.
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Re: buy and hold no matter what?

Postby nisiprius » Tue Jul 16, 2013 12:15 pm

bankmaggot wrote:If the market shot up 20% in 3 months would it make sense to take some profit off the table?...Just seems like its a no brainer to sell if the market shot up that fast in such a time period, that it will come down, eventually. In hindsight it seems like I could make a killing.
Well, when the market did shoot up over 26% in the 3 months from 2/28/2009 to 5/31/2009, did you take some profit off the table?

Did you make a killing?

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I know it seems like a no-brainer, but it isn't. And don't kid yourself, we sort of see 2009-2013 as a steady rise now, but it wasn't that steady, and all along the way people were saying things like "it's a dead cat bounce," "nah, it's a bear trap," etc. etc. And today, of course, some people think we're on our way to Dow 36,000 at last, and others think it's 1936 all over again (the second crash that followed 1929).

I honestly don't know whether there are people capable of recognizing undervalued stocks; I think there probably are, but I'm sure I'm not one of them. I honestly don't know whether there are people capable of out-psyching the faddish week, month, year-length emotional swings of the market; I think there probably aren't, but, hey, if I'm wrong it doesn't matter because I'm definitely not one of them. Someone like me, who doesn't know about stuff until it shows up in Morningstar articles and mutual-fund company think-pieces is absolutely certain to be late to every party.

What I do is to keep my stock allocation low enough so that I can "buy and hold no matter what." I don't know how to beat the market. But I do know a way to get within a few basis points of the long-term return of the market, and that way is to buy and hold a total market index fund. I can do that. It works. If the long-term return of the market is good enough for you, you can get it. If you're greedy and want more than that, an awful lot of people try for more and an awful lot of them end up getting less.

P.S. "Oh," you're going to say, "when I said 20% in three months, of course I didn't mean that 20% in that three months. Right. That gets to what I call the "endless regress of rule revisionism." So tell me, if you didn't mean that 20% in that three months, then what really is your criterion? I guess it isn't 20% in three months, after all. It's some kind of complicated rule like "I before E, except after C, or when sounded like a as in neighbor or weigh, except seize, inveigle, either, weird, leisure, neither." It sort of gets to be a brainer, doesn't it? And then when you finally get it perfected and stake some real money on it, the financiers' efficient science deity will hit you with a seismic deficiency and reimburse you with a counterfeit sovereign.
Last edited by nisiprius on Tue Jul 16, 2013 12:33 pm, edited 5 times in total.
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Re: buy and hold no matter what?

Postby barnaclebob » Tue Jul 16, 2013 12:15 pm

If stocks shooting up say 20% in one year got your portfolio closer to your number then it could mean its time to change your AA to more conservative investments because you have less need to take risk.

In your IPS you could say that at X% of "the number" my AA should be XX%/YY% stocks/bonds. Do this for various %'s of the number. It could be similar to a target retirement fund but instead of having the glide slope based on age yours could be based on your number and age...

Taking money off the table is something different and implies that at some point you will be putting it back on the table. If markets go up 20% and then continue to go up slowly you will always be in fear of putting the money back in before a crash. In the mean time you could have missed out on another 10% or so...
Last edited by barnaclebob on Tue Jul 16, 2013 12:19 pm, edited 1 time in total.
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Re: buy and hold no matter what?

Postby DaveG » Tue Jul 16, 2013 12:16 pm

Imagine you made your 20% profit in the first 3 months of the year. That's wonderful! You met your annual goal in just 3 months.

You then get out of the market until the start of the next year.

Day 1 of the new year has arrived. What is your goal for the new year? Another 20% return? Do you go all-in on Day 1 of the new year? Does it depend on what the market has done over the last 9 months?

It's easy to take money off the table after a fast and significant run-up in asset values. It's less easy to re-enter the market once you've done so.

Of course, if the 20% gain means you've "met your number" and have "won the game", then that's a different story.
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Re: buy and hold no matter what?

Postby hollowcave2 » Tue Jul 16, 2013 12:26 pm

You could rebalance if it's consistent with your investor profile. That's not the same as just taking the money out.

But it also seems you are listening to short term trends. How do you know the market won't go further? The market always fluctuates, and often, large drops are recovered very quickly.

I also seem to remember some prominent market gurus urging people to get out after the run up to Dow 6000.
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Re: buy and hold no matter what?

Postby entyrii » Tue Jul 16, 2013 1:48 pm

bankmaggot wrote:If the market shot up 20% in 3 months would it make sense to take some profit off the table?

I've been investing for about 7 years and was never concerned much during the last recession because my net worth wasn't that much. Fast forward to now, wife n I are roughly 40% way to retirement goal. Saving roughly 70k per year. Want to semi retire in 10 years in mid 40s.

Just seems like its a no brainer to sell if the market shot up that fast in such a time period, that it will come down, eventually. In hindsight it seems like I could make a killing. :sharebeer


Allocation is 60% stock index, 30% REIT, 10% cash/savings.


Is this not what re-balancing is for? Perhaps you should revise your IPS to give you tighter re-balancing limits. Beyond that, "taking some profit off the table" based on market performance is shameless market timing.
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Re: buy and hold no matter what?

Postby tadamsmar » Tue Jul 16, 2013 1:53 pm

bankmaggot wrote:I'm sure the market could go up another 5-10% who knows. But i doubt it would go up much further without some kind if retraction. I understand no one really knows what the market will do.


You seem to be contradicting yourself from sentence to sentence. You doubt it will do this or that, but you understand that you don't really know. Bogleheads give up all this thinking in circles. They commit to an asset allocation and a rebalancing strategy. If you do this and the market goes up sharply, then you tend to end up moving money into the safer assets in your asset allocation.

Some Bogleheads simply rebalance on their birthdays and ignore the market otherwise. They would typically not notice that the market went up 20% in 3 months. They don't even know about it, much less go in circles thinking about what they should do about it.
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Re: buy and hold no matter what?

Postby Tom_T » Tue Jul 16, 2013 2:55 pm

nisiprius wrote:P.S. "Oh," you're going to say, "when I said 20% in three months, of course I didn't mean that 20% in that three months. Right. That gets to what I call the "endless regress of rule revisionism." So tell me, if you didn't mean that 20% in that three months, then what really is your criterion? I guess it isn't 20% in three months, after all. It's some kind of complicated rule like "I before E, except after C, or when sounded like a as in neighbor or weigh, except seize, inveigle, either, weird, leisure, neither." It sort of gets to be a brainer, doesn't it? And then when you finally get it perfected and stake some real money on it, the financiers' efficient science deity will hit you with a seismic deficiency and reimburse you with a counterfeit sovereign.

Oh, you make it sound so hard. Obviously, I should have dumped all my stocks in early 2009 (not in the fall of 2008, because clearly those thousand-point Dow declines during Financial Armageddon were only the beginning), and then bought back in in mid-2009 (when everyone was convinced that Dow 3000 was coming.) And obviously I should have taken profits on bonds last year when the 10-year rate dropped under 1.8% (not the first time or the second time, but the third time -- that was the right time. If you don't count two months ago.)
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Re: buy and hold no matter what?

Postby JW Nearly Retired » Tue Jul 16, 2013 2:59 pm

bankmaggot wrote: If the market shot up 20% in 3 months would it make sense to take some profit off the table?

Just seems like its a no brainer to sell if the market shot up that fast in such a time period, that it will come down, eventually. In hindsight it seems like I could make a killing.

Allocation is 60% stock index, 30% REIT, 10% cash/savings.

Yeah, seemed like a good idea when I did exactly what you are thinking in early 1996. There had been a large run-up in stocks over the previous 12 months, so a "no-brainer" for me to take a big chunk of our 401k stock money off the table. :oops: Just in time to dodge most of the 90's bull market. :oops:

Fortunately, I didn't take all stocks off the table. Only went to AA = 50/50. If you must do this intuitive market timing adventure then at least keep it to a fairly small AA shift.
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Re: buy and hold no matter what?

Postby Meg77 » Tue Jul 16, 2013 3:00 pm

I agree with what others are saying. It sounds like you don't have a rebalancing policy or habit. The answer is YES it makes sense to take some money "off the table" (i.e. out of stocks) when the stock market goes up 20%. The difference is that it isn't an impulsive spontaneous sell decision: it's called rebalancing. When stocks get out of whack to your target asset allcoation because they have gone way up, then you sell stocks and buy bonds/cash. When the stock market drops on the other hand, you sell bonds/cash and buy stocks. The difference isn't just semantics. Rebalancing implies - demands, actually - a concrete strategy. You need to set up a policy, whether formal or just in your head, that you rebalance either on a certain day each year/quarter or, alternately, whenever your asset allocation gets out of whack by X number of percentage points (it would likely need to be many fewer than 20 percentage points).

Personally I dont' have such a policy because my total investible assets are still low enough that that I can control my asset allocation by shifting my new contributions from one asset category to another. I never sell; I just buy different investments each year based on the previous year's performance to keep my AA in line. Actually now that you mention it I'm probably to the stage where I should be doing that independent of new contributions...might be time to create my own investment policy statement.
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Re: buy and hold no matter what?

Postby leonard » Tue Jul 16, 2013 5:25 pm

Yes..
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Re: buy and hold no matter what?

Postby livesoft » Tue Jul 16, 2013 6:07 pm

And if the market dropped 10% in one month, does that mean buy more equities? Dropped 20% in 3 months? ....
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: buy and hold no matter what?

Postby Kalo » Tue Jul 16, 2013 8:12 pm

bankmaggot wrote:If the market shot up 20% in 3 months would it make sense to take some profit off the table?

I've been investing for about 7 years and was never concerned much during the last recession because my net worth wasn't that much. Fast forward to now, wife n I are roughly 40% way to retirement goal. Saving roughly 70k per year. Want to semi retire in 10 years in mid 40s.

Just seems like its a no brainer to sell if the market shot up that fast in such a time period, that it will come down, eventually. In hindsight it seems like I could make a killing. :sharebeer


Allocation is 60% stock index, 30% REIT, 10% cash/savings.


Off topic, but not really off topic, and I don't think anyone else has mentioned it. When I consider your age, your AA seems somewhat reasonable if a little aggressive. But if you are wanting to semi-retire in 10 years, and since you're worried about a downturn in the market, you might want to consider at least a slightly less aggressive AA. REIT's are basically the same as stocks. Does your cash position include your emergency fund? If so you might really be closer to 100% stocks without realizing it.

Just some food for thought.

Good luck. I know how you feel, and I've been working hard at accepting a more conservative AA and also accepting the fact that I can't predict the future. It's a process. These Boglehead members really know a lot and reading these forums is helping me tremendously.

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Re: buy and hold no matter what?

Postby InvestorNewb » Tue Jul 16, 2013 8:20 pm

It's funny how when I bring up my asset allocation, people on the forums constantly tell me that holding 20% REITs is a bad idea.

Yet here the OP is 30% REIT, and not one person has brought this up as a major "flaw" in the portfolio like they do for me. :oops:
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Re: buy and hold no matter what?

Postby hicabob » Tue Jul 16, 2013 8:40 pm

InvestorNewb wrote:It's funny how when I bring up my asset allocation, people on the forums constantly tell me that holding 20% REITs is a bad idea.

Yet here the OP is 30% REIT, and not one person has brought this up as a major "flaw" in the portfolio like they do for me. :oops:



My reit, RQI, has done amazingly since I bought it but it certainly bounces - if I was a market timer I should be selling it! - it's about 4% of my NW.
rqi is leveraged too. Horrors! I know.
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Re: buy and hold no matter what?

Postby LAlearning » Tue Jul 16, 2013 8:50 pm

InvestorNewb wrote:It's funny how when I bring up my asset allocation, people on the forums constantly tell me that holding 20% REITs is a bad idea.

Yet here the OP is 30% REIT, and not one person has brought this up as a major "flaw" in the portfolio like they do for me. :oops:



Umm cause you don't do well with (minimal) volatility...http://www.bogleheads.org/forum/viewtopic.php?t=116760

As for the OP....market timing, just say no.
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Re: buy and hold no matter what?

Postby pascalwager » Thu Jul 18, 2013 3:12 am

Allocation is 60% stock index, 30% REIT, 10% cash/savings.


Your REIT is 1/3 of equities. Rick Ferri, W. Bernstein, and others recommend no more than 1/10 of equities.
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