How to stay the course when you “think” you can outsmart the market

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crockpotinvesting
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How to stay the course when you “think” you can outsmart the market

Post by crockpotinvesting » Thu Sep 13, 2018 10:35 am

I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.

Texanbybirth
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Re: How to stay the course when you “think” you can outsmart the market

Post by Texanbybirth » Thu Sep 13, 2018 10:39 am

I lost $500 in cryptocurrencies last December. That satisfied my desire to try to outsmart the "market", which is really other people who have a lot more information and are a lot smarter than me.

(I do wish I'd bought AMZN two years ago when I had the itch, but it was only a guess.)

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Re: How to stay the course when you “think” you can outsmart the market

Post by AlohaJoe » Thu Sep 13, 2018 10:39 am

Despite what you say, you don't actually think investing is the best way.

Print out all your losing trades and tape it next to your computer.

Change your brokerage password to "lost 5% on Generac"

Give your wife control over your money and tell you can't be trusted with it anymore.

Start a Traders Anonymous group and call your sponsor when you're thinking about trading.

Get more hobbies. Idle hands are the devil's playground.

Vanguard Fan 1367
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Re: How to stay the course when you “think” you can outsmart the market

Post by Vanguard Fan 1367 » Thu Sep 13, 2018 10:56 am

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I have heard that it is ok with the Master, John Bogle, to invest 5 percent of your money in hunches like Generac. When I was buying individual stocks I had a hunch on OXY and it became a 10 bagger. The other 9 plus hunches weren't as good although overall I did ok, just not as good as if I had gone with Vanguard's 500 fund or Total Stock Market Fund.

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Re: How to stay the course when you “think” you can outsmart the market

Post by KlangFool » Thu Sep 13, 2018 11:01 am

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I lost 50% of my whole life savings by doing that about 10+ years ago. You could learn from my mistake or repeat them.

KlangFool

KlangFool
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Re: How to stay the course when you “think” you can outsmart the market

Post by KlangFool » Thu Sep 13, 2018 11:03 am

Vanguard Fan 1367 wrote:
Thu Sep 13, 2018 10:56 am
crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I have heard that it is ok with the Master, John Bogle, to invest 5 percent of your money in hunches like Generac. When I was buying individual stocks I had a hunch on OXY and it became a 10 bagger. The other 9 plus hunches weren't as good although overall I did ok, just not as good as if I had gone with Vanguard's 500 fund or Total Stock Market Fund.
The problem is most people like me do not have the discipline to keep it at 5%. Then, it creeps up to a large number. Before you know it, I had lost 50% of my portfolio. It was a very expensive lesson.

KlangFool

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mrspock
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Re: How to stay the course when you “think” you can outsmart the market

Post by mrspock » Thu Sep 13, 2018 11:06 am

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
Try to think of all those times you *didn't* let those ideas get the best of you are you were *right*. If you avoided crypto, or were tempted to sell everything in 2015, or were itching to buy a worthless tech company at the height of the dot com boom but resisted.... focus on all the times you were disciplined and it paid off...big time. Now with a track record like that, why bet against yourself?

Other considerations:

1. How much gain is needed to beat the S&P 500 *after taxes* (@ your marginal tax rate), for me that means I'd need a return of something like 12-13% annually...that's *really* hard to do. Why 12-13%? For individual stocks I'm going to need to sell and recognize the gain (and pay the tax man as a result), for VTI or VOO, there's no requirement (barring modest sales for rebalancing or withdrawal in retirement), I get to borrow the governments money forever (or even cancel the loan out from time to time with harvesting). I need to be compensated accordingly for this additional "cost".
2. At the scale of many portfolios, it takes very large bets to make any real money or "move the needle". Am I willing to bet 100k+ ? 500k? Short of Warren Buffet himself comes to my door and giving me a hot stock tip....this isn't going to happen.
3. Timing the sale: My index funds will be held till I die...I just don't need to ponder when to "sell".... if it goes down, I have high confidence it's going to recover to where it was before (it's just a matter of time). For individual stocks you have no such comfort of "waiting them out" ....you could own the next GE, or Enron... if you wind up down 40% it's going to be difficult to know have the conviction to "wait it out" as you might do with VOO or VTI.

and finally...

4. Do I actually *need* to take the risk to achieve my FI plan/goals? If I can achieve it in N years at 7 or 8% .... it just doesn't make sense to deviate from a lower risk Boglehead strategy. There's just no incentive for me to take more risk, so why bother? Same idea as choosing how much you should have for bonds in your portfolio...if you can coast comfortably to FI at 50/50 ... why do 80/20? Same idea here.
Last edited by mrspock on Thu Sep 13, 2018 11:15 am, edited 1 time in total.

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Re: How to stay the course when you “think” you can outsmart the market

Post by Darth Xanadu » Thu Sep 13, 2018 11:07 am

KlangFool wrote:
Thu Sep 13, 2018 11:03 am
Vanguard Fan 1367 wrote:
Thu Sep 13, 2018 10:56 am
crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I have heard that it is ok with the Master, John Bogle, to invest 5 percent of your money in hunches like Generac. When I was buying individual stocks I had a hunch on OXY and it became a 10 bagger. The other 9 plus hunches weren't as good although overall I did ok, just not as good as if I had gone with Vanguard's 500 fund or Total Stock Market Fund.
The problem is most people like me do not have the discipline to keep it at 5%. Then, it creeps up to a large number. Before you know it, I had lost 50% of my portfolio. It was a very expensive lesson.

KlangFool
This is a very true statement. I have individual stocks and I told myself last year I would only put new money into index funds (the individual stocks as a % of total portfolio would decline over time). Next month I expect to have new money to invest. I've already been looking at a couple of ideas that are not index funds. I hear myself saying "well this will be the last time".
"A courageous teacher, failure is."

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Re: How to stay the course when you “think” you can outsmart the market

Post by JBTX » Thu Sep 13, 2018 11:14 am

- while I've really never acted on them, occasionally I'll have these hunches, and over the years typically they don't play out like one would have thought.
- In terms of modest speculative changes in asset allocation, my success has been mixed. Some good calls, some not so good. I can't say I am better off for them vs a fixed index based asset allocation, although I don't think I am much worse off either
- active mutual fund managers don't seem to be able to consistently capitalize on these ideas vs the market
- conceptually I actually believe that my hunches aren't any better than the market

I guess my advice is to write your hunches down, and keep track of them and see how they did. I suspect you will find they will have mixed success, at best.

lostdog
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Re: How to stay the course when you “think” you can outsmart the market

Post by lostdog » Thu Sep 13, 2018 11:17 am

AlohaJoe wrote:
Thu Sep 13, 2018 10:39 am
Despite what you say, you don't actually think investing is the best way.

Print out all your losing trades and tape it next to your computer.

Change your brokerage password to "lost 5% on Generac"

Give your wife control over your money and tell you can't be trusted with it anymore.

Start a Traders Anonymous group and call your sponsor when you're thinking about trading.

Get more hobbies. Idle hands are the devil's playground.
+1 well said. Trading can be an addiction just like anything else.
Hear the clock ticking? That’s your life flying by while you listen to market pundits and watch stock prices fluctuate. -Humble Dollar

chevca
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Re: How to stay the course when you “think” you can outsmart the market

Post by chevca » Thu Sep 13, 2018 11:20 am

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
For me, it might be more that I'm not smart enough to know what Generac is, read up on it, or know that it's down 5%. :happy

If you really do truly believe indexing is the best way to invest, why are you looking at individual stocks? Serious question, because it sounds like you don't truly believe what you say you do.

PVW
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Re: How to stay the course when you “think” you can outsmart the market

Post by PVW » Thu Sep 13, 2018 11:40 am

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
What is the evidence that Generac should go up in value during a hurricane, why doesn't anyone else know about this?

Do the work to figure this out and then you can call yourself a stock picker. Otherwise you're just a gambler.

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Re: How to stay the course when you “think” you can outsmart the market

Post by Fallible » Thu Sep 13, 2018 11:50 am

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course..
I don't trade short term because I would be an amateur in a pro's world. For me, it's really that simple. I do know the temptation, but I know the odds. I'm also fortunate to have other interests.

Here's an article on a well-known study on stock picking by amateurs, described by Nobelist Daniel Kahneman, who sums up: "It is clear that for the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to mind."

https://www.businessinsider.com/terry-o ... ng-2012-12
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bottlecap
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Re: How to stay the course when you “think” you can outsmart the market

Post by bottlecap » Thu Sep 13, 2018 11:51 am

What if before news of the hurricane, this stock would have gone done 10%? If it would of, your trade isn't a good bet.

If you can't shake the desire to trade, then you haven't educated yourself enough. Keep studying.

Good luck,

JT

JoeRetire
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Re: How to stay the course when you “think” you can outsmart the market

Post by JoeRetire » Thu Sep 13, 2018 12:04 pm

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I don't trade short term.

If you want to discipline yourself, just go with your "smart move" a few times. Maybe you'll be the one who can outsmart the market. Or maybe you'll learn that you can't.

Sometimes discipline comes from experience.

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Re: How to stay the course when you “think” you can outsmart the market

Post by HappyWorkerBee » Thu Sep 13, 2018 1:13 pm

For the particular type of market outsmarting that OP is talking about I came to the following solution:

I can buy any individual stock I want but I must listen to the last 4 quarterly conference calls before I buy and must commit to listening to every quarterly conference call for the entire time I own the stock.

This is not a high bar. In fact, it's a very low bar. But the bar is high enough that when I consider buying an individual stock, and I think of spending all of those hours listening to conference calls, suddenly my interest in owning the stock evaporates. I remember why I buy index funds. In particular I remember that I don't want to spend my time keeping up to date on how individual companies are performing or worrying about whether the managers talking on those conference calls will succeed or fail in their ambitions. And I remember that buying individual stocks is little more than gambling. I don't feel like I can afford to gamble with my savings, they're all I've got.

OP, if you have not tried listening to a public company's conference call, you might give it a try, they're free and easy to find online. Hearing the managers talk, you hear that these are ordinary people, people facing real challenges, people who make mistakes and missteps. Do you trust these people with your retirement savings? That's what you're doing when you buy their stock.

livesoft
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Re: How to stay the course when you “think” you can outsmart the market

Post by livesoft » Thu Sep 13, 2018 1:20 pm

Are you betting that all the people who bought a Generac during hurricane Matthew which pretty much affected the same people are going to buy a 2nd one?

What about the people who buy a portable generator and keep it boxed in order to return it when the power stays on at their house?
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Re: How to stay the course when you “think” you can outsmart the market

Post by Earl Lemongrab » Thu Sep 13, 2018 1:57 pm

As we say over and over, everything you know about Generac is known by everyone else. The big boys with the fancy computer programs and knowledge acted on anything actionable way before you could move. They probably heard about the hurricane directly from the NWS before it even went public.

Any juice in the turnip was squeezed before you got there.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: How to stay the course when you “think” you can outsmart the market

Post by KlangFool » Thu Sep 13, 2018 2:04 pm

OP,

The reason why the casino always wins is that the gamblers could not stop gambling. So, the question to you is can you put a hard stop on your habit? For example, limit your trading/gambling to $5,000. You are not allowed to add to this pool. When you lose it all, you will stop.

I lost 50% of my whole life savings in Telecom bust. My family member that worked in the Wall Street for 20+ years lost 10 million. He knew that he should sell some of his holdings but he could not. It was gaining a few hundred thousand every few days. Then, he lost the whole 10 million.

No, this has nothing to do with the intelligence. Some people have it and most don't. Hence, the casino keeps on winning.

KlangFool

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Re: How to stay the course when you “think” you can outsmart the market

Post by Thesaints » Thu Sep 13, 2018 2:14 pm

I think it all depends on expected return.
Trying to outsmart the market in search of much higher returns, although on average will actually tend to net lower returns, might make sense, depending on personal situatuin.
Instead, trying to outsmart the market with an expectation of similar returns is really a loser game under all points of view.

A lottery ticket is the best (and only!) investment if you want to make 10 millions, although its expected return is negative.
In other words, buying volatility by paying in terms of expected return, while contrary to EMH rules, is not necessarily wrong.
Last edited by Thesaints on Thu Sep 13, 2018 2:42 pm, edited 1 time in total.

2015
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Re: How to stay the course when you “think” you can outsmart the market

Post by 2015 » Thu Sep 13, 2018 2:37 pm

KlangFool wrote:
Thu Sep 13, 2018 11:01 am
crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I lost 50% of my whole life savings by doing that about 10+ years ago. You could learn from my mistake or repeat them.

KlangFool
Yup. Every day there's a new patsy comes striding up to the poker table. This is exactly how the more seasoned players win by not losing. Patsies, who play the losers game but think they're playing the winners game, fail themselves by losing more hands than they win.

Oh look, here comes another overconfident Bogleheads patsy now. Have a seat, my friend. The rest of us need to make some money off of you.

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Re: How to stay the course when you “think” you can outsmart the market

Post by barnaclebob » Thu Sep 13, 2018 2:51 pm

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
This is super simplistic thinking. You'll never make money trying to buy stocks based on natural disasters, crop failures, etc after they happen.

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David Jay
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Re: How to stay the course when you “think” you can outsmart the market

Post by David Jay » Thu Sep 13, 2018 4:01 pm

Good decisions come from experience.

Experience comes from bad decisions.

It looks like you don’t yet have enough experience...
Last edited by David Jay on Thu Sep 13, 2018 4:02 pm, edited 1 time in total.
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Thesaints
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Re: How to stay the course when you “think” you can outsmart the market

Post by Thesaints » Thu Sep 13, 2018 4:02 pm

Doesn't have to be your own experience, though...

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David Jay
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Re: How to stay the course when you “think” you can outsmart the market

Post by David Jay » Thu Sep 13, 2018 4:04 pm

Thesaints wrote:
Thu Sep 13, 2018 4:02 pm
Doesn't have to be your own experience, though...
True. I like the quote: “Personal experience is the best teacher. Someone else’s experience is the fastest teacher.”

[edit] and one lifetime isn’t enough to make every mistake personally. Not that I haven’t been working on it...
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: How to stay the course when you “think” you can outsmart the market

Post by KlangFool » Thu Sep 13, 2018 4:11 pm

OP,

It is very simple.

Put $5,000 into a pool that you trade and gamble from. Promise yourself that you would not increase the amount. Take money out when the pool reaches above $10,000. Sell half whenever it triples.

Explicitly write this down and tape this in front of your computer. Waste the $5,000 to learn this lesson. Then, you know exactly whether you can outsmart the market.

KlangFool

FoolMeOnce
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Re: How to stay the course when you “think” you can outsmart the market

Post by FoolMeOnce » Thu Sep 13, 2018 4:11 pm

Hurricane season is not surprising. Assuming this is a generator manufacturer, from other's posts, I'm sure their expected revenue takes into account annual hurricane-related demand.

Gamble with a small amount on hunches if you want, but don't think you can outsmart the market.

tesuzuki2002
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Re: How to stay the course when you “think” you can outsmart the market

Post by tesuzuki2002 » Thu Sep 13, 2018 4:35 pm

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I play with about 5% ... because I find gambling fun.... and I do have some level of education on the trades..

You specific trade on Generac it seems you missed the run up.. Should have bought it before the news broke. It's up 5% since the 10th.

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Re: How to stay the course when you “think” you can outsmart the market

Post by Taylor Larimore » Thu Sep 13, 2018 5:29 pm

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
crackpotinvesting:

The next time you get "ideas" about buying individual stocks read What Experts Say:
Alpha Architect: "Between 1983 and 2006, around 73% of firms had a drawdown larger than 50% (the S&P 500’s maximum drawdown during this period was around 44%). Holding one individual stock can be very risky!"

Barber and Odean Study: "Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earned an annual return of 11.4 percent, while the market returned 17.9 percent."

Michael Batnick, CFA: "Ordinary investors would be well served if they thought for a second about who they were transacting with. Over 90% of today’s volume is done by institutions, so chances are that your counter-party has done their homework."

Brett Arends, Wall Street Journal columnist: "Buy individual stocks only as a gamble."

Benjamin Graham: "I have little confidence, even in the ability of analysts, let alone untrained investors, to select common stocks what will give better than average results."

Bill Bernstein, author of The Four Pillars of Investing: "Picking individual stocks is like volleying with the Williams sisters."

Jack Bogle: "Attempting to build an investment program around a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

Adam Bold, author, adviser: "Mutual funds don't have the pizzazz of the hot stocks of the moment. If you're looking for entertainment, go gambling in Las Vegas. But if you want to accumulate real money for your retirement and other goals, mutual funds are the safer bet."

James Dahle, MD, financial advisor, and author of The White-Coat Investor: “Think you know how to pick stocks? Then guess again. Every time you buy or sell the person on the other side of the trade likely has an IQ of 160, spends 70 hours per week analyzing his industry, and has access to computing power and databases you can only dream of.”

Dalbar Research Report (July 15, 2003): "The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually for the last 19 years."

Charles Ellis author of Winning the Loser's Game: "If you, like Walter Mitty, still fantasize that you can and will beat the pros, you'll need both luck and prayer."

Kenneth French: Former President of the American Finance Association: "The market is smarter than we are and no matter how smart we get, the market will always be smarter than we are."

Sy Harding, Forbes contributor: "My advice – avoid individual stocks! Even experienced full-time professional money managers, with staffs of trained people performing research, with access to data, software, and corporate contacts that most part-time investors could not come close to duplicating, struggle to match the market’s performance by buying, holding, or selling individual stocks."

Danial Kahneman, Nobel Laureate: "There is general agreement among researchers that nearly all stock pickers, whether they know it or not-and few of them do-are playing a game of chance."

Kiplinger Personal Finance “Eight Stocks to Buy Now” in the January, 2015 forecast issue under-performed its “Five Stocks to Sell” twelve months later.

Michael Lewis, former bond broker and financial journalist: "A vast industry of stockbrokers, financial planners, and investment advisers skims a fortune for themselves off the top in exchange for passing their clients' money on to people who, as a whole, cannot possibly outperform the market."

Mathwizard: The vast majority of trades you would make are between you and a professional investor. Both of you are assigning a value to the stock, and one of you thnks the price is high and another thinks it is low. Who do you suppose is more likely to be right.

Standard & Poor's: When the S&P 500 index was officially formed in 1957 to its 50th anniversary in 2007, only 86 of the original 500 companies still remained.

Larry Swedroe, author of many financial books: "Owning individual stocks and sector funds is more akin to speculating, not investing."

David Swensen, Chief Investment Officer of Yale University: "There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks."

Eric Tyson, author of Mutual Funds for Dummies: The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time, experienced money managers is, how should I say, ludicrous and absurd."
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Taylor
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Re: How to stay the course when you “think” you can outsmart the market

Post by BogleMelon » Thu Sep 13, 2018 5:58 pm

crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
For example with the hurricane approaching I thought it would be a smart move to buy Generac
Huge amount of investors thought the same, and went to buy Generac once they heared about the hurricane. Some of them use high speed machines to execute buying orders very fast once the news is published. Those investors and their demand caused the share price to increase in 5 days by about 4.5%! In brief, your idea(s) aren't that unique as you may think, and those factors you are thinking about, are already priced in the shares you may think to buy.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: How to stay the course when you “think” you can outsmart the market

Post by Vanguard Fan 1367 » Sun Sep 16, 2018 9:15 am

Taylor Larimore wrote:
Thu Sep 13, 2018 5:29 pm
crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
crackpotinvesting:

The next time you get "ideas" about buying individual stocks read What Experts Say:
Alpha Architect: "Between 1983 and 2006, around 73% of firms had a drawdown larger than 50% (the S&P 500’s maximum drawdown during this period was around 44%). Holding one individual stock can be very risky!"

Barber and Odean Study: "Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earned an annual return of 11.4 percent, while the market returned 17.9 percent."

Michael Batnick, CFA: "Ordinary investors would be well served if they thought for a second about who they were transacting with. Over 90% of today’s volume is done by institutions, so chances are that your counter-party has done their homework."

Brett Arends, Wall Street Journal columnist: "Buy individual stocks only as a gamble."

Benjamin Graham: "I have little confidence, even in the ability of analysts, let alone untrained investors, to select common stocks what will give better than average results."

Bill Bernstein, author of The Four Pillars of Investing: "Picking individual stocks is like volleying with the Williams sisters."

Jack Bogle: "Attempting to build an investment program around a handful of individual securities is, for all but the most exceptional investors, a fool's errand."

Adam Bold, author, adviser: "Mutual funds don't have the pizzazz of the hot stocks of the moment. If you're looking for entertainment, go gambling in Las Vegas. But if you want to accumulate real money for your retirement and other goals, mutual funds are the safer bet."

James Dahle, MD, financial advisor, and author of The White-Coat Investor: “Think you know how to pick stocks? Then guess again. Every time you buy or sell the person on the other side of the trade likely has an IQ of 160, spends 70 hours per week analyzing his industry, and has access to computing power and databases you can only dream of.”

Dalbar Research Report (July 15, 2003): "The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually for the last 19 years."

Charles Ellis author of Winning the Loser's Game: "If you, like Walter Mitty, still fantasize that you can and will beat the pros, you'll need both luck and prayer."

Kenneth French: Former President of the American Finance Association: "The market is smarter than we are and no matter how smart we get, the market will always be smarter than we are."

Sy Harding, Forbes contributor: "My advice – avoid individual stocks! Even experienced full-time professional money managers, with staffs of trained people performing research, with access to data, software, and corporate contacts that most part-time investors could not come close to duplicating, struggle to match the market’s performance by buying, holding, or selling individual stocks."

Danial Kahneman, Nobel Laureate: "There is general agreement among researchers that nearly all stock pickers, whether they know it or not-and few of them do-are playing a game of chance."

Kiplinger Personal Finance “Eight Stocks to Buy Now” in the January, 2015 forecast issue under-performed its “Five Stocks to Sell” twelve months later.

Michael Lewis, former bond broker and financial journalist: "A vast industry of stockbrokers, financial planners, and investment advisers skims a fortune for themselves off the top in exchange for passing their clients' money on to people who, as a whole, cannot possibly outperform the market."

Mathwizard: The vast majority of trades you would make are between you and a professional investor. Both of you are assigning a value to the stock, and one of you thnks the price is high and another thinks it is low. Who do you suppose is more likely to be right.

Standard & Poor's: When the S&P 500 index was officially formed in 1957 to its 50th anniversary in 2007, only 86 of the original 500 companies still remained.

Larry Swedroe, author of many financial books: "Owning individual stocks and sector funds is more akin to speculating, not investing."

David Swensen, Chief Investment Officer of Yale University: "There's no way that spending a few hours a week looking at individual securities is going to equip an investor to compete with the incredibly talented, highly qualified, extremely educated individuals who spend their entire professional careers trying to pick stocks."

Eric Tyson, author of Mutual Funds for Dummies: The notion that most average people and non-investment professionals can, with minimal effort, beat the best full-time, experienced money managers is, how should I say, ludicrous and absurd."
What Experts Say About Various Topics

Best wishes.
Taylor
dquote]

Great quotes!

danaht
Posts: 506
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Re: How to stay the course when you “think” you can outsmart the market

Post by danaht » Sun Sep 16, 2018 10:13 am

Just setup an automatic contribution to one or more broad based index mutual fund that takes most of your free income (the new Fidelity zero fee index funds might be good for this). If you do this - you won't have any extra money to gamble on cryptocurrencies or individual speculative stocks.

note: I don't like mutual funds in a taxable account because they are difficult/impossible to transfer with out selling. So - in my case I might set one up with Vanguard instead. I'll do this so that I can convert the Vanguard mutual fund(s) tax free to the ETF equivalent - if I ever want to transfer it to get the huge transfer bonuses. Vanguard is the only place where you can convert some of it's mutual funds to the ETF equivalent without having to "sell" it to do the conversion. You want to avoid selling it in the future because of the large taxes on capital gains that have built up over the years.

BrooklynInvest
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Re: How to stay the course when you “think” you can outsmart the market

Post by BrooklynInvest » Sun Sep 16, 2018 10:46 am

I simply remember my own mistakes -

By the late 90s I'd paid off a few school loans and had - for me at the time - a decent amount to invest. Made a ton on specific tech stocks on the way up (relatively speaking) and lost all of that gain and a whole lot more on the way down. On the plus side, 'cause I do eventually learn from my mistakes, that few thousand I lost 20 years ago was a great and cost effective lesson.

I can't analyze a stock's future performance with a greater degree of accuracy than someone that's perhaps done it for 20-odd years and does nothing else.

Nowizard
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Re: How to stay the course when you “think” you can outsmart the market

Post by Nowizard » Sun Sep 16, 2018 10:59 am

It gets more difficult if you have had some success (Blind luck?) early on. Personally, I do not think I can outsmart the market but do believe that there are situations where a particular stock or fund may be a good choice due to circumstances, but it, frankly, does not matter whether that is accurate or not at this point. The fact is that most folks trade to a far greater degree. This is one place where I follow the belief that the enemy of a good plan is the search for a perfect one. The result is the belief, supported by outcome, that scratching the itch with a small amount of one's portfolio is almost like bond protection from making poor decisions that potentially have a significantly greater negative impact. Others may have greater discipline, but I have maintained discipline, too, just by devoting a small amount of our portfolio to "Outsmarting the market" efforts.

Tim

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unclescrooge
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Re: How to stay the course when you “think” you can outsmart the market

Post by unclescrooge » Sun Sep 16, 2018 11:06 am

KlangFool wrote:
Thu Sep 13, 2018 11:01 am
crockpotinvesting wrote:
Thu Sep 13, 2018 10:35 am
I truly believe indexing is the best way to invest but sometimes “ideas” get the best of me. For example with the hurricane approaching I thought it would be a smart move to buy Generac, already down 5%. I was curious how often other boggleheads trade short term and how the smart ones have the discipline stay the course.
I lost 50% of my whole life savings by doing that about 10+ years ago. You could learn from my mistake or repeat them.

KlangFool
I lost 100%. Luckily it was nearly 20 years ago when my net worth wasn't much. But my net worth would be 10% higher if that hadn't happened.

tibbitts
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Re: How to stay the course when you “think” you can outsmart the market

Post by tibbitts » Sun Sep 16, 2018 11:32 am

The problem early mistakes is that while we can say "they were only a few thousand dollars", they compound forever - not just for your life, but if you leave an estate... on and on. It's pretty depressing to think about. Sometimes there is no substitute for doing things correctly from the start.

livesoft
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Re: How to stay the course when you “think” you can outsmart the market

Post by livesoft » Sun Sep 16, 2018 11:53 am

tesuzuki2002 wrote:
Thu Sep 13, 2018 4:35 pm
It's up 5% since the 10th.
So what? What else is up 5% since the 10th?
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