Do prices matter for a long term investor?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
aspiring_boglehead
Posts: 15
Joined: Wed May 06, 2020 5:46 pm

Do prices matter for a long term investor?

Post by aspiring_boglehead » Mon May 18, 2020 8:08 pm

Relatively speaking it can look like stocks/bonds are priced "high" or "low" at certain times. Does it even matter though? Is there ever a case to not just blindly buy stocks/bonds in accordance to one's allocation?

retired@50
Posts: 2994
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Do prices matter for a long term investor?

Post by retired@50 » Mon May 18, 2020 8:13 pm

aspiring_boglehead wrote:
Mon May 18, 2020 8:08 pm
Relatively speaking it can look like stocks/bonds are priced "high" or "low" at certain times. Does it even matter though? Is there ever a case to not just blindly buy stocks/bonds in accordance to one's allocation?
If you're buying an index fund, the timing is probably less important than if you're buying an individual stock or a sector fund. The time horizon before the money is needed can play a role as well. For worker bees, who live in cubicles, or at least used to live in cubicles, buying with every paycheck is sound, practical advice over the long term, since every purchase is a tiny, tiny fraction of your overall net worth.

Regards,
This is one person's opinion. Nothing more.

Topic Author
aspiring_boglehead
Posts: 15
Joined: Wed May 06, 2020 5:46 pm

Re: Do prices matter for a long term investor?

Post by aspiring_boglehead » Mon May 18, 2020 8:41 pm

retired@50 wrote:
Mon May 18, 2020 8:13 pm

If you're buying an index fund, the timing is probably less important than if you're buying an individual stock or a sector fund. The time horizon before the money is needed can play a role as well. For worker bees, who live in cubicles, or at least used to live in cubicles, buying with every paycheck is sound, practical advice over the long term, since every purchase is a tiny, tiny fraction of your overall net worth.

Regards,
My question is with the underlying assumption that the investor is following the Boglehead philosophy - low cost index funds and age-based asset allocation. What I am trying to get at is if I look at something like BND and its historically quite high should I care? As someone who needs more bonds for a balanced portfolio should I even care about the price? Just buy whenever? Any thought into when to buy sounds like timing the market to me.

magicrat
Posts: 1000
Joined: Sat Nov 29, 2014 7:04 pm

Re: Do prices matter for a long term investor?

Post by magicrat » Mon May 18, 2020 9:31 pm

No, you should not care

User avatar
JoMoney
Posts: 9330
Joined: Tue Jul 23, 2013 5:31 am

Re: Do prices matter for a long term investor?

Post by JoMoney » Mon May 18, 2020 9:45 pm

It's not that prices don't matter, it's that (for most of us) our opinions on the price relative to what the future price will be, or even relative to the future of some other comparable security, are not any better than those taking an opposing position. We don't get any advantage from flipping a coin, just increased risk, and increased transactional expenses. In some cases, the other side of any trade I make could have better information than I do, putting me at a distinct disadvantage.
But If you average your purchases over time, through dollar-cost-averaging or periodic rebalancing, your purchase and eventual sale "price" will be closer to whatever the "average" price available was over your investing horizon. Rather than trying to get your returns by guessing the price, you rely on the intrinsic growth in the businesses fundamentals.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

retired@50
Posts: 2994
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Do prices matter for a long term investor?

Post by retired@50 » Mon May 18, 2020 11:30 pm

aspiring_boglehead wrote:
Mon May 18, 2020 8:41 pm

My question is with the underlying assumption that the investor is following the Boglehead philosophy - low cost index funds and age-based asset allocation. What I am trying to get at is if I look at something like BND and its historically quite high should I care? As someone who needs more bonds for a balanced portfolio should I even care about the price? Just buy whenever? Any thought into when to buy sounds like timing the market to me.
Since you didn't provide much information in your original post, it's hard to answer with any sort of specifics (there is no universal definition of "long term investor"). If you're buying BND and hoping it will be worth more in 1 year, it's hard to say, but could easily be worth a bit less than you paid. If you are buying BND for your retirement in 30 years, then the price per share won't matter much at all because you'll have received so much interest on the holding by then, the interest earnings will dwarf the price per share you paid.

You can typically say the same about stock index funds. As a short term prospect, you could easily lose money. However, if you give it long enough, you'll almost certainly come out ahead. This is why I mentioned the time horizon can play a role.

Regards,
This is one person's opinion. Nothing more.

DonIce
Posts: 1117
Joined: Thu Feb 21, 2019 6:44 pm

Re: Do prices matter for a long term investor?

Post by DonIce » Tue May 19, 2020 2:52 am

aspiring_boglehead wrote:
Mon May 18, 2020 8:08 pm
Relatively speaking it can look like stocks/bonds are priced "high" or "low" at certain times. Does it even matter though? Is there ever a case to not just blindly buy stocks/bonds in accordance to one's allocation?
Some purists here will tell you that markets are "efficient", and that therefore the present price is always the correct price given all known information. Therefore markets are never cheaper or more expensive than at other times, as they are always worth exactly what they should be.

Others will admit that at times markets are mispriced, either too expensive or too cheap, but will argue that it is impossible to know when, and advise you not to time the market.

Personally though, I would argue that when stocks are at an obvious discount is a good time to buy more than you normally would, and when stocks are at record high valuations its a good time to dial things back a bit.

Yes, the price at which you buy matters.

Topic Author
aspiring_boglehead
Posts: 15
Joined: Wed May 06, 2020 5:46 pm

Re: Do prices matter for a long term investor?

Post by aspiring_boglehead » Tue May 19, 2020 7:29 am

retired@50 wrote:
Mon May 18, 2020 11:30 pm

Since you didn't provide much information in your original post, it's hard to answer with any sort of specifics (there is no universal definition of "long term investor"). If you're buying BND and hoping it will be worth more in 1 year, it's hard to say, but could easily be worth a bit less than you paid. If you are buying BND for your retirement in 30 years, then the price per share won't matter much at all because you'll have received so much interest on the holding by then, the interest earnings will dwarf the price per share you paid.

You can typically say the same about stock index funds. As a short term prospect, you could easily lose money. However, if you give it long enough, you'll almost certainly come out ahead. This is why I mentioned the time horizon can play a role.

Regards,
That makes sense.

Topic Author
aspiring_boglehead
Posts: 15
Joined: Wed May 06, 2020 5:46 pm

Re: Do prices matter for a long term investor?

Post by aspiring_boglehead » Tue May 19, 2020 7:33 am

DonIce wrote:
Tue May 19, 2020 2:52 am

Some purists here will tell you that markets are "efficient", and that therefore the present price is always the correct price given all known information. Therefore markets are never cheaper or more expensive than at other times, as they are always worth exactly what they should be.

Others will admit that at times markets are mispriced, either too expensive or too cheap, but will argue that it is impossible to know when, and advise you not to time the market.

Personally though, I would argue that when stocks are at an obvious discount is a good time to buy more than you normally would, and when stocks are at record high valuations its a good time to dial things back a bit.

Yes, the price at which you buy matters.
I think that makes sense as well. Generally speaking the purist approach probably works just fine. Obviously events like the recent crash challenge that. So there probably isn't any theory that will get it 100% right.

whereskyle
Posts: 832
Joined: Wed Jan 29, 2020 10:29 am

Re: Do prices matter for a long term investor?

Post by whereskyle » Tue May 19, 2020 7:49 am

aspiring_boglehead wrote:
Tue May 19, 2020 7:33 am
DonIce wrote:
Tue May 19, 2020 2:52 am

Some purists here will tell you that markets are "efficient", and that therefore the present price is always the correct price given all known information. Therefore markets are never cheaper or more expensive than at other times, as they are always worth exactly what they should be.

Others will admit that at times markets are mispriced, either too expensive or too cheap, but will argue that it is impossible to know when, and advise you not to time the market.

Personally though, I would argue that when stocks are at an obvious discount is a good time to buy more than you normally would, and when stocks are at record high valuations its a good time to dial things back a bit.

Yes, the price at which you buy matters.
I think that makes sense as well. Generally speaking the purist approach probably works just fine. Obviously events like the recent crash challenge that. So there probably isn't any theory that will get it 100% right.
What I do:

1. Setup minimum automatic contributions that are deducted once a week in amounts that I have determined would ultimately enable me to achieve my long-term goals.
2. Buy more when I feel like it. Covid crash has been such a time for me. I've been buying almost everyday. But I'm 100% stocks.

* If you're up for it, buying small amounts everyday is a surefire way to get the maximum benefit of dollar cost averaging and to contribute as much as you possibly can. I'm comfortable with this approach because I get paid every two weeks so more $ is always just around the corner. And yes I do tend to buy more on days when the market goes down more. One could say I mix automatic purchases with impulse buying, the goal being to buy as much as possible all the time, and to buy even more if possible when whichever broadly diversified fund is cheaper than it was before.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

MathIsMyWayr
Posts: 1740
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Do prices matter for a long term investor?

Post by MathIsMyWayr » Tue May 19, 2020 8:45 am

aspiring_boglehead wrote:
Mon May 18, 2020 8:08 pm
Relatively speaking it can look like stocks/bonds are priced "high" or "low" at certain times. Does it even matter though? Is there ever a case to not just blindly buy stocks/bonds in accordance to one's allocation?
Long term or short term, price is everything in investing. If you pay 10% more, your investment will be 10% less forever. That being said, since we do not know whether today's price is lower than tomorrow's or anytime in the near future, the only viable option is to invest asap to ride on the general long term upward trend.

Topic Author
aspiring_boglehead
Posts: 15
Joined: Wed May 06, 2020 5:46 pm

Re: Do prices matter for a long term investor?

Post by aspiring_boglehead » Tue May 19, 2020 9:24 am

MathIsMyWayr wrote:
Tue May 19, 2020 8:45 am
aspiring_boglehead wrote:
Mon May 18, 2020 8:08 pm
Relatively speaking it can look like stocks/bonds are priced "high" or "low" at certain times. Does it even matter though? Is there ever a case to not just blindly buy stocks/bonds in accordance to one's allocation?
Long term or short term, price is everything in investing. If you pay 10% more, your investment will be 10% less forever. That being said, since we do not know whether today's price is lower than tomorrow's or anytime in the near future, the only viable option is to invest asap to ride on the general long term upward trend.
This is what I was getting at - more on the pragmatic side for long-term investing. Not that price is meaningless but more of just invest the money and not think about it.

User avatar
ruralavalon
Posts: 18479
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Do prices matter for a long term investor?

Post by ruralavalon » Tue May 19, 2020 12:51 pm

aspiring_boglehead wrote:
Mon May 18, 2020 8:08 pm
Relatively speaking it can look like stocks/bonds are priced "high" or "low" at certain times. Does it even matter though? Is there ever a case to not just blindly buy stocks/bonds in accordance to one's allocation?
For the long-term investing using low cost index funds what matters most is automatically investing every pay period.

Bob – the World’s Worst Market Timer.

I always invested automatically every pay period, and also anytime I had any extra money available to invest.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

deltaneutral83
Posts: 1626
Joined: Tue Mar 07, 2017 4:25 pm

Re: Do prices matter for a long term investor?

Post by deltaneutral83 » Tue May 19, 2020 12:57 pm

One might want to be aware but also note that for 99.9% of us, it isn't actionable.

Post Reply