For those that "buy" during stock market downturns...

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Broken Man 1999
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Re: For those that "buy" during stock market downturns...

Post by Broken Man 1999 » Tue Jun 28, 2016 3:05 pm

Don't forget the other component that goes with share appreciation: dividends.

When share prices are lower, you are able to purchase more shares. Dividends are paid on a per share basis, with no regard to what you have paid for the shares.

On items I want to have, including shares of stocks, bonds, etc., I prefer more than less, so price does matter. And, more shares means more are working for me.

Though, the declines we saw on Friday and Monday weren't much to shout about. Of course listening to the talking heads, you would have thought the end was nigh. Well, truthfully there were some that weren't hysterical, but most were worked up pretty badly.

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livesoft
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Re: RBD is rebalancing

Post by livesoft » Tue Jun 28, 2016 3:16 pm

Doc wrote:Regarding Livesoft's RBD approach:
Had to sell some things today that I bought yesterday because of the 3% gains. I hit my rebalancing band on the up side. It's basically like a portion of my bond allocation made almost 3% in less than 24 hours.
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Dandy
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Re: For those that "buy" during stock market downturns...

Post by Dandy » Tue Jun 28, 2016 3:51 pm

I'm in retirement about 1.5 years from collecting full SS. I have and will always have some allocation to cash. Cash is savings, money market and maybe a CD that is maturing soon. Many retirees have a few years of drawdown in cash as an "emergency'" type fund so they don't have to mess with their investments over the short term. A savings account that pays 1% is like having a bond that doesn't go down when interest rates go up. I don't consider myself not fully "invested" because I have products that aren't labeled stocks or bonds.

I have an equity allocation of 40%-45% and in my TIRA my brokerage CD ladder pays those dividends to VG Prime (now it will be Fed Money Market). In my taxable account I have my equity investment dividends and capital gains sent to Prime - either to fund retiree expenses, gifts to kids/charity or to be reinvested. So there are several sources of funds to invest when the equity market plunges. I don't consider any of these sources of cash related to market timing. They are there to serve my needs/wants.

I view rebalancing a bit different than most. I feel I am, for the most part, trying to keep my allocation within the 40% to 45% range. I don't panic or automatically buy or sell if the allocation crosses those pretty artificially obtained lines - I treat it as an alert that I need to adjust allocations relatively soon. But as long as I am within those bands I can take any action. So when the market has a really bad day or two I may buy some equities. e.g. 1/5 S&P down 1.5% sold short term bonds and bought equities in TIRA, 1/6 S&P down 1.3% sold short term bonds in TIRA and added to Balanced Index Fund. Brexit Friday - did nothing. Brexit Monday - sold short term bond fund and bought equities in TIRA.

Why short term bond funds. 1. they have appreciated 2. Goal is "safe" product assets enough to fund retirement needs until age 90. Was in excess of this goal. All these buy on dips actions left my equity allocations within my target range. The total of buy on dips amounted to 1.5% of portfolio. I don't see these buy on dips as killer moves just a bit of icing on the cake.

If you are a long term investor and believe that over the long term equities will outperform you should consider buying on equity dips. Most times the markets over react and you have a chance to buy at a lower price. No guarantees not big buys on my part.

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jeffyscott
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Re: For those that "buy" during stock market downturns...

Post by jeffyscott » Tue Jun 28, 2016 3:56 pm

Another method I use is owning some balanced funds.

Anyone using the simplest of all asset allocation methods, owning a target retirement or life strategy fund, is buying and selling stocks on a daily basis to counter market moves.
press on, regardless - John C. Bogle

Dandy
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Re: For those that "buy" during stock market downturns...

Post by Dandy » Tue Jun 28, 2016 4:07 pm

Another method I use is owning some balanced funds.
How true. Recently, I made sure all my TIRA equities were in Balanced Index or Wellesley Income Funds. When I wanted to buy on the recent Brexit dip I had to decide start a separate equity fund or add to Balanced Index. So I used my wife's Roth IRA which had a stand alone equity fund. Future buy on dips may be confined to taxable account.

It's ok for balanced funds to buy on dips but if you do it on your own many feel that is a no, no.

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ray.james
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Re: For those that "buy" during stock market downturns...

Post by ray.james » Tue Jun 28, 2016 4:11 pm

I change my allocation based on valuations. So usually a 15%+ drop is needed to make a change.
Bonds floor :20%(Glide with age -20)
stocks floor:40%- 25% US+ 15% international(same as above)
So that's 60%. Other 40% will vary based on valuation.

BTW, I didn't buy any different with this brexit as not a single indicator showed up. However I made emerging 50% of international in Feb from 25 when they reached under 12 P/E.
I am at 30% bonds now and have been increasing for an year slowly with new money. As per my AA it should be 30% bonds, 35% US, 35% international at these valuations. I am actually up this year thanks to EM which are up 10% since Early Feb. Whether this is successful or not is yet to be seen.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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VirtualCuriosity
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Re: For those that "buy" during stock market downturns...

Post by VirtualCuriosity » Tue Jun 28, 2016 4:50 pm

livesoft wrote:As for the holding cash waiting for these opportunities, I will note that bond funds went up about 1% in the past two days. See if your cash ever does that.
My favorite quote of the week so far....

malabargold
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Re: For those that "buy" during stock market downturns...

Post by malabargold » Tue Jun 28, 2016 5:03 pm

Preface by saying this, so far, hasn't been much of a downturn.

I buy more stocks at least twice a weekly, when I grab a few minutes.

Biggest key to successful investing is to live WAY, WAY, WAY
below your means, that way new cash to invest is always pouring in.

BW1985
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Re: For those that "buy" during stock market downturns...

Post by BW1985 » Tue Jun 28, 2016 5:55 pm

VirtualCuriosity wrote:
livesoft wrote:As for the holding cash waiting for these opportunities, I will note that bond funds went up about 1% in the past two days. See if your cash ever does that.
My favorite quote of the week so far....
But they also go down, no?
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

livesoft
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Re: For those that "buy" during stock market downturns...

Post by livesoft » Tue Jun 28, 2016 6:02 pm

BW1985 wrote:
VirtualCuriosity wrote:
livesoft wrote:As for the holding cash waiting for these opportunities, I will note that bond funds went up about 1% in the past two days. See if your cash ever does that.
My favorite quote of the week so far....
But they also go down, no?
Sure they go down and they will go down as soon as Brexit blows over, but that's just another reason to rebalance out of them yesterday. And one can buy those bond funds back with the money from selling equities when those become overweighted due to all their gains.
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Compound
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Re: For those that "buy" during stock market downturns...

Post by Compound » Tue Jun 28, 2016 8:53 pm

OP here.

Thanks to all for the lively discussion and interesting perspectives. I'm following along with great interest.

Mainlandjones
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Re: For those that "buy" during stock market downturns...

Post by Mainlandjones » Tue Jun 28, 2016 9:34 pm

i set up my 401k (t and mega backdoor Roth) and Ira contibutions at the beginning of the year, and spread over 52 weeks, to meet my annual goal. When the market has a down period, such as February, I dip into my cash emergency fund to make earlier contributions. This is especially easy with the iras. Then I readjust the regular contributions for the remainder of the year and restock the emergency fund over time.
I have seen studies that show, on average, lump sum investing at the beginning of the year beats dca. makes sense if the market is more often up than down. I figure dca with increased contributions during dips gets me a little closer to lump sum investing while maintaining decent cash flow.

Tamales
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Re: For those that "buy" during stock market downturns...

Post by Tamales » Tue Jun 28, 2016 9:50 pm

VirtualCuriosity wrote:
livesoft wrote:As for the holding cash waiting for these opportunities, I will note that bond funds went up about 1% in the past two days. See if your cash ever does that.
My favorite quote of the week so far....
The flip side was also true. Cash also doesn't do that.

Jags4186
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Re: For those that "buy" during stock market downturns...

Post by Jags4186 » Tue Jun 28, 2016 10:03 pm

Buying dips is a fools errand. Everyone is talking about buying on the Brexit dip. Why didn't you buy on the February/March dip when the S&P 500 was at 1800? If you did buy on that dip, how do you have substantial cash now? If you didn't buy then what makes you so smart that you know it's time to buy now, today?

I have an 80/20 portfolio and this dip didn't even trigger a rebalance opportunity.

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arthurdawg
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Re: For those that "buy" during stock market downturns...

Post by arthurdawg » Tue Jun 28, 2016 10:58 pm

Jags4186 wrote:Buying dips is a fools errand. Everyone is talking about buying on the Brexit dip. Why didn't you buy on the February/March dip when the S&P 500 was at 1800? If you did buy on that dip, how do you have substantial cash now? If you didn't buy then what makes you so smart that you know it's time to buy now, today?

I have an 80/20 portfolio and this dip didn't even trigger a rebalance opportunity.

Funny thing is... I did buy on this dip. On the best day to so so.

You know my secret? It's called "Dumb Luck." I went in and put in my trade at Vanguard to disperse money into my AA and just happened to hit this day. Noticed it a few days later when it went through and I saw a story about it.

With Brexit... it was more that I just happened to think I needed to check and see if cash was waiting to be invested, saw that the market was down a bit and bought. Haven't the slightest what it is doing currently. Don't really care.


No magic here... I just let cash build up and try to remember to buy my AA every quarter or so. I've bought at some peaks too by the way... but I don't notice the drops so much because I don't check.
TSM / SCV / FTSE Big World / FTSE Small World / REIT / TBM / Int Term Tax Exempt

magneto
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Re: For those that "buy" during stock market downturns...

Post by magneto » Wed Jun 29, 2016 4:34 am

Rodc wrote:One of the things that is striking is that no one has ever produced a study or a plausible set of data that supports buying on the dips, much less that this is an important bit of strategy.

Would be interesting if someone did have such a study.

My guess is that if one tried hard enough they could find the right funds and the right period to show some benefit, but more valuable would be a broad study that showed (1) this provided a benefit rather more often than not and (2) the benefit was greater than the general background noise.

It is difficult if not impossible to conduct such a study.

The problem is that account must be taken of the performance of Asset(s) that are not currently employed in a particular position.
The possiblities are endless!

What we can measure is how a particular position is faring in terms of current value and book cost.
Over extended periods, by reducing high and adding low, book cost can be reduced, sometimes to less than zero.
And as I am inclined to mention, my hero Buzz Lightyear might say, the capital gain is then beyond infinity!

So the mathematicians and statisticians must continue to remain disappointed.
Some things in life are unknowable, esp in advance!
'There is a tide in the affairs of men ...', Brutus (Market Timer)

Dandy
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Re: For those that "buy" during stock market downturns...

Post by Dandy » Wed Jun 29, 2016 5:34 am

Buying dips is a fools errand. Everyone is talking about buying on the Brexit dip. Why didn't you buy on the February/March dip when the S&P 500 was at 1800? If you did buy on that dip, how do you have substantial cash now? If you didn't buy then what makes you so smart that you know it's time to buy now, today?
If you don't want to buy on dips that's ok. I bought on the dip earlier in the year and on this Monday. No big deal. You don't need "cash" but if you have a decent portfolio the dividends which I sometimes direct to money market are often available. I used some of my short term bond funds which have been appreciating to fund modest buys on dips. Isn't that what people who aren't on fools errands do when the rebalance? isn't that what is done with balanced funds, TD and Life Strategy Funds?

So when you think about it, it is just a form of rebalancing but not done by a prearranged, and somewhat arbitrary, fixed date or percentage variable. It may not work or it may. The real fool's errand is when the market dips and there is a lot of hype people panic and are looking to sell.

Finally, you never know when it is time to buy or sell whether it is normal rebalancing or buying on dips. What you do "know" is equities are lower than they were recently and if you are a long term investor who believes equities will do well over time maybe you want to buy some while the price is down a bit. So the only prediction of the future or being "smart" is that equities usually appreciate over time -- a generally accepted concept.

livesoft
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Re: For those that "buy" during stock market downturns...

Post by livesoft » Wed Jun 29, 2016 5:40 am

Jags4186 wrote:Buying dips is a fools errand. Everyone is talking about buying on the Brexit dip. Why didn't you buy on the February/March dip when the S&P 500 was at 1800? If you did buy on that dip, how do you have substantial cash now? If you didn't buy then what makes you so smart that you know it's time to buy now, today?

I have an 80/20 portfolio and this dip didn't even trigger a rebalance opportunity.
As has been mentioned many times before, one takes some of that "20" and uses it to buy more of the "80". One doesn't need cash because one gets "cash" from selling some of the "20". Besides that "20" may have become a "21" or a "22" anyways and the "80" was a "78" or somethign like that.

As for buying in February/March, many people did buy back then with their "20". And after prices went back up, many people sold and became ready to repeat.

The main argument I can agree with is that one cannot predict the future, so that one does not know if a "drop" keeps dropping and one loses more money … or if the drop turns into a "dip" where prices recover and one makes money. That's a chance one takes.

I try to keep track of some current rebalancing opportunities by posting before and after charts in this other thread: viewtopic.php?t=118815

The current question is "Who is now selling since they've made 5% after buying on Monday?" At the end of today, international fund values (with reinvested dividends) will be above where they were on June 14th, just a couple weeks ago.
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Jags4186
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Re: For those that "buy" during stock market downturns...

Post by Jags4186 » Wed Jun 29, 2016 6:47 am

livesoft wrote:
Jags4186 wrote:Buying dips is a fools errand. Everyone is talking about buying on the Brexit dip. Why didn't you buy on the February/March dip when the S&P 500 was at 1800? If you did buy on that dip, how do you have substantial cash now? If you didn't buy then what makes you so smart that you know it's time to buy now, today?

I have an 80/20 portfolio and this dip didn't even trigger a rebalance opportunity.
As has been mentioned many times before, one takes some of that "20" and uses it to buy more of the "80". One doesn't need cash because one gets "cash" from selling some of the "20". Besides that "20" may have become a "21" or a "22" anyways and the "80" was a "78" or somethign like that.

As for buying in February/March, many people did buy back then with their "20". And after prices went back up, many people sold and became ready to repeat.

The main argument I can agree with is that one cannot predict the future, so that one does not know if a "drop" keeps dropping and one loses more money … or if the drop turns into a "dip" where prices recover and one makes money. That's a chance one takes.

I try to keep track of some current rebalancing opportunities by posting before and after charts in this other thread: viewtopic.php?t=118815

The current question is "Who is now selling since they've made 5% after buying on Monday?" At the end of today, international fund values (with reinvested dividends) will be above where they were on June 14th, just a couple weeks ago.
So are you rebalancing now that the market moved up yesterday? Do you rebalance every day that there is a 2% change? Just doesn't seem that big of a move to warrant a huge AA shift. And if it is a big enough move to warrant it, then your rebalancing bands are too tight.

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Re: For those that "buy" during stock market downturns...

Post by livesoft » Wed Jun 29, 2016 7:53 am

Jags4186 wrote:So are you rebalancing now that the market moved up yesterday?
Yes.
Do you rebalance every day that there is a 2% change?
Definitely not. There was a 10% change from close of market Thursday to close of market Monday. 10% is 5 times 2%.
Just doesn't seem that big of a move to warrant a huge AA shift. And if it is a big enough move to warrant it, then your rebalancing bands are too tight.
My rebalancing bands may be too tight for you, but some of my bond fund money will make 3% to 5% in a few days and I am very comfortable with that.
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BW1985
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Re: For those that "buy" during stock market downturns...

Post by BW1985 » Wed Jun 29, 2016 8:21 am

livesoft wrote:
Jags4186 wrote:So are you rebalancing now that the market moved up yesterday?
Yes.
Do you rebalance every day that there is a 2% change?
Definitely not. There was a 10% change from close of market Thursday to close of market Monday. 10% is 5 times 2%.
Just doesn't seem that big of a move to warrant a huge AA shift. And if it is a big enough move to warrant it, then your rebalancing bands are too tight.
My rebalancing bands may be too tight for you, but some of my bond fund money will make 3% to 5% in a few days and I am very comfortable with that.
After you move out of a fund isn't there a rule where you can't buy back into that fund for 30 or 60 days? Something like that.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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Re: For those that "buy" during stock market downturns...

Post by livesoft » Wed Jun 29, 2016 8:36 am

BW1985 wrote:After you move out of a fund isn't there a rule where you can't buy back into that fund for 30 or 60 days? Something like that.
That's only for Flagship investors. For Dinghy investors like me, I can use another account. Here are two examples:

Monday: In Spouse's IRA sell AGG and buy VEA.
Tuesday: In my 401(k) sell VEA and buy AGG.

Monday: In Spouse's IRA exchange VBTLX into VSIAX.
Wednesday: In my 401(k) sell VBR and buy BND.

All no commission. All no taxes.

One doesn't even have to wait for trades to "settle."
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Jags4186
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Re: For those that "buy" during stock market downturns...

Post by Jags4186 » Wed Jun 29, 2016 8:42 am

livesoft wrote:
Jags4186 wrote:So are you rebalancing now that the market moved up yesterday?
Yes.
Do you rebalance every day that there is a 2% change?
Definitely not. There was a 10% change from close of market Thursday to close of market Monday. 10% is 5 times 2%.
Just doesn't seem that big of a move to warrant a huge AA shift. And if it is a big enough move to warrant it, then your rebalancing bands are too tight.
My rebalancing bands may be too tight for you, but some of my bond fund money will make 3% to 5% in a few days and I am very comfortable with that.
S&P 500 closes for the past 5 days

Jun 28, 2016 2,036.09
Jun 27, 2016 2,000.54
Jun 24, 2016 2,037.41
Jun 23, 2016 2,113.32
Jun 22, 2016 2,085.45

In 5 days the market moved 2.5% down. If you are able to consistently cherry pick the bottom day I commend you. Somehow I feel like for every time you do this correctly, you do it wrong. It's gamblers psychology. Everyone talks about their wins, nobody mentions their losses.

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Re: For those that "buy" during stock market downturns...

Post by livesoft » Wed Jun 29, 2016 8:44 am

I made no trades in any S&P500 funds.

I just posted a chart of my losses Tuesday morning here: viewtopic.php?p=2956892#p2956892
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Re: For those that "buy" during stock market downturns...

Post by jeffyscott » Wed Jun 29, 2016 9:15 am

ray.james wrote:I change my allocation based on valuations. So usually a 15%+ drop is needed to make a change.
Bonds floor :20%(Glide with age -20)
stocks floor:40%- 25% US+ 15% international(same as above)
So that's 60%. Other 40% will vary based on valuation.
I do something similar, stocks floor a bit lower at 35%.

We are moving into retirement right now and I have a cash (or cash-like) floor of about 15%, currently, but it is actually based on the amount "needed" to meet expected maximum spending in the next ~10 years. Then a cash+bond floor is based on the total amount needed to meet a minimal desired spending level (about 80% of what I use for the 10 year calculation) throughout retirement. So our floors are based on dollar amounts, not percentages.

Currently by these calculations I could go as high as 70% stocks, but there would need to be maybe a 50%+ drop in prices (for US stocks) for me to even consider that. Were stocks to drop by, say, 55%, we'd lose ~20% of our portfolio value. The 30% floor for fixed income would then become about 30/80, so closer to 40%. Thus we actually have an effective max of more like 60% stocks.
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Re: For those that "buy" during stock market downturns...

Post by Dandy » Wed Jun 29, 2016 9:19 am

Somehow I feel like for every time you do this correctly, you do it wrong.
That is certainly a possibility that when you buy on a dip the market may go lower. Of course that is the same for "normal" rebalancing based on a date or exceeding a predetermined allocation band. In my experience, which is not scientific, there are many more times when the equity market plunges and there is a lot of hype there is an overreaction and the market tends to recover soon. Brexit was a classic example - a surprise to even professional money managers and very vague, uncertain as to the extent of the impact of the vote. Add to that the 24/7 media hype and you could almost taste the over reaction.

I did nothing on the first day but after a weekend of hype and uncertainty and further drops in equities I moved about 1/3 of a percent of my portfolio from appreciated short term bonds funds to an equity fund. If the equity market went down further I might have moved another small portion of fixed income into equities. I think there are more "head fakes" of major declines than actual major declines. I don't often make such moves -- usually stay the course unless some unusual opportunity presents itself. I don't feel I'm smarter or can predict the future - just believe that over time it is better to buy equities when they drop a lot since I believe over time they will outperform.

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Re: For those that "buy" during stock market downturns...

Post by Rodc » Wed Jun 29, 2016 9:21 am

magneto wrote:
Rodc wrote:One of the things that is striking is that no one has ever produced a study or a plausible set of data that supports buying on the dips, much less that this is an important bit of strategy.

Would be interesting if someone did have such a study.

My guess is that if one tried hard enough they could find the right funds and the right period to show some benefit, but more valuable would be a broad study that showed (1) this provided a benefit rather more often than not and (2) the benefit was greater than the general background noise.

It is difficult if not impossible to conduct such a study.

The problem is that account must be taken of the performance of Asset(s) that are not currently employed in a particular position.
The possiblities are endless!

What we can measure is how a particular position is faring in terms of current value and book cost.
Over extended periods, by reducing high and adding low, book cost can be reduced, sometimes to less than zero.
And as I am inclined to mention, my hero Buzz Lightyear might say, the capital gain is then beyond infinity!

So the mathematicians and statisticians must continue to remain disappointed.
Some things in life are unknowable, esp in advance!
At least one study has been done and while not perfect it did not show a benefit to RBD rebalancing.

Now I am sure if one wants to look at all possible datasets and time periods one will find some combinations that show a benefit. But then one would need to look at how often one finds a benefit vs not.

This really is not rocket science if one only wants a good study not a perfect study.

It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: For those that "buy" during stock market downturns...

Post by magneto » Wed Jun 29, 2016 9:30 am

Rodc wrote:
At least one study has been done and while not perfect it did not show a benefit to RBD rebalancing.

Now I am sure if one wants to look at all possible datasets and time periods one will find some combinations that show a benefit. But then one would need to look at how often one finds a benefit vs not.

This really is not rocket science if one only wants a good study not a perfect study.

It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.

How have such studies have addressed the major pitfall ?

"The problem is that account must be taken of the performance of Asset(s) that are not currently employed in a particular position.
The possiblities are endless!"
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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Re: For those that "buy" during stock market downturns...

Post by Rodc » Wed Jun 29, 2016 9:45 am

magneto wrote:
Rodc wrote:
At least one study has been done and while not perfect it did not show a benefit to RBD rebalancing.

Now I am sure if one wants to look at all possible datasets and time periods one will find some combinations that show a benefit. But then one would need to look at how often one finds a benefit vs not.

This really is not rocket science if one only wants a good study not a perfect study.

It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.

How have such studies have addressed the major pitfall ?

"The problem is that account must be taken of the performance of Asset(s) that are not currently employed in a particular position.
The possiblities are endless!"
I do not see that as a major pit fall at all.

I have a portfolio. It has certain assets. The question of how I should rebalance does not hinge at all on the fact I might hold some different funds. This issue is how do I rebalance the funds I have. I can do it once a year, for example. I could use bands. I could use RBD. Or some combination.

Whether I should hold an entirely different porfolio is entirely a different question from how I should manage the portfolio I do have.
Last edited by Rodc on Wed Jun 29, 2016 9:46 am, edited 1 time in total.
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Re: For those that "buy" during stock market downturns...

Post by sls239 » Wed Jun 29, 2016 9:46 am

I've only done it twice - 2002 and 2009 and it was mainly the second one both times. But another option is that you've saved money intending to do something else with it, and decide to invest it in the market instead.

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Re: For those that "buy" during stock market downturns...

Post by livesoft » Wed Jun 29, 2016 9:53 am

Rodc wrote:At least one study has been done and while not perfect it did not show a benefit to RBD rebalancing.
If one shifts 5% of one's portfolio into equities after a 3% drop and then realizes the profit after a 3% (or so) gain that puts markets back to where they were before the 3% drop, then by definition, the portfolio gets a boost of 5% x 3% or 0.15%.

Bond funds where the money came from to move 5% into equities could also go up (Total Bond Index in the form of BND and AGG continued to go up the past 2 days, but not as much as equities), so that has to be taken into account and would reduce the 0.15% benefit.

Now I don't think anyone would really notice a 0.15% overall portfolio benefit as it is in the noise of the daily market movements, but everyone would switch from Investor share class to Admiral share class if they could.

OTOH, this latest Brexit thing, the dip was 10% in international funds and they have already increased by 5%. When would the absolute dollar amount of a 5% gain be noticeable to someone? 5% of $100? 5% of $10,000? 5% of $50,000? 5% of $100,000?
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Re: For those that "buy" during stock market downturns...

Post by rbaldini » Wed Jun 29, 2016 10:29 am

livesoft wrote:
Rodc wrote:At least one study has been done and while not perfect it did not show a benefit to RBD rebalancing.
If one shifts 5% of one's portfolio into equities after a 3% drop and then realizes the profit after a 3% (or so) gain that puts markets back to where they were before the 3% drop, then by definition, the portfolio gets a boost of 5% x 3% or 0.15%.
Suppose it doesn't go back on to the track it was on prior to the drop, but is now on a whole new track?

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Re: For those that "buy" during stock market downturns...

Post by magneto » Wed Jun 29, 2016 11:05 am

Rodc wrote:
magneto wrote:
Rodc wrote:
At least one study has been done and while not perfect it did not show a benefit to RBD rebalancing.

Now I am sure if one wants to look at all possible datasets and time periods one will find some combinations that show a benefit. But then one would need to look at how often one finds a benefit vs not.

This really is not rocket science if one only wants a good study not a perfect study.

It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.

How have such studies have addressed the major pitfall ?

"The problem is that account must be taken of the performance of Asset(s) that are not currently employed in a particular position.
The possiblities are endless!"
I do not see that as a major pit fall at all.

I have a portfolio. It has certain assets. The question of how I should rebalance does not hinge at all on the fact I might hold some different funds. This issue is how do I rebalance the funds I have. I can do it once a year, for example. I could use bands. I could use RBD. Or some combination.

Whether I should hold an entirely different porfolio is entirely a different question from how I should manage the portfolio I do have.
Let us assume the investor holds ten (10) long term positions.

Position 8 is having a really bad day.
Position 6 is having a really good day.
Ah Ha! notes the investor, "an opportunity to rebalance".
And does so.

Now at some point in the future an opportunity arises to add back in to Position 6.
But what has happened in the meantime to Position 8?
Or for that matter any other of her positions?
Where is the money to come from?
Are there any positions at all, that are open to top-slicing?

This may not be the best example, but what is going on in the rest of the portfolio will determine the RELATIVE success or otherwise of the original rebalance.

The investor might, or might not, be at an advantage with such a rebalance.
We cannot foresee quite how things may work out.
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Re: For those that "buy" during stock market downturns...

Post by Dandy » Wed Jun 29, 2016 11:23 am

It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.
Why would rebalancing on RBDs have an average outcome much different than "normal" rebalancing?

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Re: For those that "buy" during stock market downturns...

Post by dmcmahon » Wed Jun 29, 2016 11:23 am

I have a significant portion of my taxable bond allocation in cash. The difference between an intermediate-term bond and a savings account isn't that great right now, so I get away with this. This money stands ready to buy a large downdraft. Such a move would constitute an AA shift, but a modest one because with stocks down, the bond portion would, as a percentage, naturally rise. The monies would gradually be replenished with new savings and dividends. I chose not to buy this particular dip with those monies because frankly it just wasn't bad enough.

I also had this year's 401k monies in cash. I tend to let it accumulate so that I can buy ETFs in round lots. If a RBD should come along while I'm in this situation, I pull the trigger (and did so this time!). This doesn't constitute an AA change because the funds would have gone to equities anyway.

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Re: For those that "buy" during stock market downturns...

Post by rbaldini » Wed Jun 29, 2016 11:35 am

Dandy wrote:
It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.
Why would rebalancing on RBDs have an average outcome much different than "normal" rebalancing?
Indeed.

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Re: For those that "buy" during stock market downturns...

Post by Dandy » Wed Jun 29, 2016 11:36 am

Buying some equities on Monday has turned out to be a pretty good deal since today looks like the 3rd day in a row of outsized gains. So for hard core don't ever do it fans - maybe you could consider and concede that once in awhile you can take advantage of a market overreaction by buying on a big, overhyped dip. Will it work every time - of course not. Worse case you bought something on sale and it drops more so you could have bought it cheaper. Hardly a major risk especially if you stay within your rebalancing bands.

Of course staying the course will do fine but don't rule out some other approaches used sparingly may work more than they don't.

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Re: For those that "buy" during stock market downturns...

Post by rbaldini » Wed Jun 29, 2016 11:40 am

Dandy wrote:Buying some equities on Monday has turned out to be a pretty good deal since today looks like the 3rd day in a row of outsized gains. So for hard core don't ever do it fans - maybe you could consider and concede that once in awhile you can take advantage of a market overreaction by buying on a big, overhyped dip. Will it work every time - of course not. Worse case you bought something on sale and it drops more so you could have bought it cheaper. Hardly a major risk especially if you stay within your rebalancing bands.

Of course staying the course will do fine but don't rule out some other approaches used sparingly may work more than they don't.
I'm all for not being dogmatic. But the data I've seen suggests that buying after a drop is no better (or worse) than buying after a rise, etc. Now I've only looked at monthly and quarterly drops, not daily drops, so I'll admit could be wrong.

If that's true, then one should simply rebalance to one's preferred AA whenever it happens to get sufficiently far off. Waiting to do this until after a drop, or *diverging* from one's AA after a drop, would presumably be suboptimal.

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Re: For those that "buy" during stock market downturns...

Post by patrick013 » Wed Jun 29, 2016 12:24 pm

I still think a market correction is in the future.

A quote today from FactSet :

For the current fiscal year, 122 companies in the S&P 500 have
issued negative EPS guidance and 135 companies in the index
have issued positive EPS guidance.
age in bonds, buy-and-hold, 10 year business cycle

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Re: For those that "buy" during stock market downturns...

Post by Rodc » Wed Jun 29, 2016 12:52 pm

magneto wrote:
Rodc wrote:
magneto wrote:
Rodc wrote:
At least one study has been done and while not perfect it did not show a benefit to RBD rebalancing.

Now I am sure if one wants to look at all possible datasets and time periods one will find some combinations that show a benefit. But then one would need to look at how often one finds a benefit vs not.

This really is not rocket science if one only wants a good study not a perfect study.

It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.

How have such studies have addressed the major pitfall ?

"The problem is that account must be taken of the performance of Asset(s) that are not currently employed in a particular position.
The possiblities are endless!"
I do not see that as a major pit fall at all.

I have a portfolio. It has certain assets. The question of how I should rebalance does not hinge at all on the fact I might hold some different funds. This issue is how do I rebalance the funds I have. I can do it once a year, for example. I could use bands. I could use RBD. Or some combination.

Whether I should hold an entirely different porfolio is entirely a different question from how I should manage the portfolio I do have.
Let us assume the investor holds ten (10) long term positions.

Position 8 is having a really bad day.
Position 6 is having a really good day.
Ah Ha! notes the investor, "an opportunity to rebalance".
And does so.

Now at some point in the future an opportunity arises to add back in to Position 6.
But what has happened in the meantime to Position 8?
Or for that matter any other of her positions?
Where is the money to come from?
Are there any positions at all, that are open to top-slicing?

This may not be the best example, but what is going on in the rest of the portfolio will determine the RELATIVE success or otherwise of the original rebalance.

The investor might, or might not, be at an advantage with such a rebalance.
We cannot foresee quite how things may work out.

All you have to do is formulate a rebalancing scheme you want to look at. Then get the past history and give it whirl. Also pick a baseline - say bands or rebalance on your birthday or whatever your default might be. Give that a whirl. See which wins. If your new scheme is better by enough to matter you have learned something. If not you have learned something. If one's thoughts are not coherent enough to write down and give them a whirl there is not much more to say.

Now, one should really look at multiple datasets and periods, perform confidence tests and such. But if a scheme fails right away, then there is not much else that needs to be done.

You cannot know how the future will unfold, but if it has not worked in the past that is pretty good evidence that the new scheme is not worth very much.

If all you want is some evidence one way or the other you don't really have to look at very complicated portfolios - a simple portfolio can tell you a lot.

If one demands perfection they will not find it. But short of that, I maintain this is not rocket science. We cannot know everything but we can know a lot.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: For those that "buy" during stock market downturns...

Post by Rodc » Wed Jun 29, 2016 12:59 pm

rbaldini wrote:
Dandy wrote:
It is also not rocket science why one should not on average have an expectation that this will work to any particular benefit as has been pointed out repeatedly.
Why would rebalancing on RBDs have an average outcome much different than "normal" rebalancing?
Indeed.
Right.

If one has funds to put into stocks, and is willing to put them into stocks, more often than not they will lose by waiting for a RBD. As someone else has noted if markets go up 10% before dropping 5%, waiting is a losing strategy. One should simply put the funds to work when available.

If one rebalances early due to a RBD, often they would have done better to continue waiting a while longer as the RBD often occur in markets trending downward - momentum often beats return to the mean over the time frames of rebalancing. This has been shown in numerous studies, though unfortunately I have not kept handy a list to provide.

Of course if one ignores and never even checks for either of these cases and focuses on three day periods they will never understand how these things work.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: For those that "buy" during stock market downturns...

Post by livesoft » Wed Jun 29, 2016 1:03 pm

rbaldini wrote:Suppose it doesn't go back on to the track it was on prior to the drop, but is now on a whole new track?
Suppose it does. It would be wishful thinking to believe that there is reward without risk, that there is a free lunch, and that one can predict the future.
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Re: For those that "buy" during stock market downturns...

Post by rbaldini » Wed Jun 29, 2016 1:07 pm

livesoft wrote:
rbaldini wrote:Suppose it doesn't go back on to the track it was on prior to the drop, but is now on a whole new track?
Suppose it does. It would be wishful thinking to believe that there is reward without risk, that there is a free lunch, and that one can predict the future.
Right. I just mean to say that one does not automatically get a "rebound bonus" by investing after a market dip. Your return might be just the same as it would have been had the dip not occurred - in fact, that's what the data looks like.

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Re: For those that "buy" during stock market downturns...

Post by Da5id » Wed Jun 29, 2016 1:09 pm

Dandy wrote:Buying some equities on Monday has turned out to be a pretty good deal since today looks like the 3rd day in a row of outsized gains. So for hard core don't ever do it fans - maybe you could consider and concede that once in awhile you can take advantage of a market overreaction by buying on a big, overhyped dip. Will it work every time - of course not. Worse case you bought something on sale and it drops more so you could have bought it cheaper. Hardly a major risk especially if you stay within your rebalancing bands.

Of course staying the course will do fine but don't rule out some other approaches used sparingly may work more than they don't.
Do you have any data for this? I don't think there is much history of people consistently judging overhyped, or accurately predicting the near (or even medium) term course of the stock market. If you rebalance a set policy, you will in fact often buy during downturns. Not during short term ones or small ones, but bigger ones should trigger stock purchases. But doing it not by your policy bases purchases on largely emotional judgments I'm personally not excited about making, and don't think I or most can do usefully. But each to their own.

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Re: For those that "buy" during stock market downturns...

Post by JonnyDVM » Wed Jun 29, 2016 1:15 pm

If buying on a market dip doesn't matter at all, which intuitively doesn't feel right, why do we so often throw around the axiom that young investors should pray for a prolonged bear market?

Isn't that in essence buying during a prolonged dip?

I just feel like some of you guys go out of your way to be buzz kills. Markets down, was able to buy at a dip this week! "Well actually.." (Pushes thick glasses up onto nose) "There's no mathematical proof that buying low is beneficial..."
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Re: For those that "buy" during stock market downturns...

Post by livesoft » Wed Jun 29, 2016 1:17 pm

Dandy wrote:Buying some equities on Monday has turned out to be a pretty good deal since today looks like the 3rd day in a row of outsized gains.
Wow! I missed a day somewhere. Can I get it back?
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Re: For those that "buy" during stock market downturns...

Post by rbaldini » Wed Jun 29, 2016 1:21 pm

JonnyDVM wrote:If buying on a market dip doesn't matter at all, which intuitively doesn't feel right, why do we so often throw around the axiom that young investors should pray for a prolonged bear market?
Perhaps the axiom is wrong. It's like saying that young investors should hope for a run of tails in the short run, so that more heads will happen later!

Also, coin-flipping analogies aside, the data I've seen just don't support it.

Honestly, though, why should anyone pray for their funds, in which they might have invested a large portion of the net worth, to decrease? Who enjoys a decrease in net worth? It's madness. I personally pray that the price will simply increase every day... that's better than dropping in the short term and then rising in the long term, obviously.

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Re: For those that "buy" during stock market downturns...

Post by Da5id » Wed Jun 29, 2016 1:21 pm

JonnyDVM wrote:If buying on a market dip doesn't matter at all, which intuitively doesn't feel right, why do we so often throw around the axiom that young investors should pray for a prolonged bear market?

Isn't that in essence buying during a prolonged dip?

I just feel like some of you guys go out of your way to be buzz kills. Markets down, was able to buy at a dip this week! "Well actually.." (Pushes thick glasses up onto nose) "There's no mathematical proof that buying low is beneficial..."
Let's put that differently. There is no evidence that holding out cash to invest waiting for a dip is beneficial. For example, say you want to be at 60% stocks and are currently below that value. You have some cash, but are waiting for a "dip" to buy. The market may go up 20% before it dips 5%. If you actually buy on a dip, it may fall even further. Is that the scenario you are contemplating? Or that you are already at your target allocation, but choose to exceed your target for stocks because they are cheaper?

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Re: For those that "buy" during stock market downturns...

Post by rbaldini » Wed Jun 29, 2016 1:23 pm

Da5id wrote:Or that you are already at your target allocation, but choose to exceed your target for stocks because they are cheaper?
In my experience, this is also not supported by the data. The expected *future* return after a drop is not greater than after a rise, and so on. If your optimal AA last week was 50/50, it's almost certainly 50/50 this week, regardless of how "cheap" VTSMX got in the meantime.

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Re: For those that "buy" during stock market downturns...

Post by JonnyDVM » Wed Jun 29, 2016 1:33 pm

Da5id wrote:
JonnyDVM wrote:If buying on a market dip doesn't matter at all, which intuitively doesn't feel right, why do we so often throw around the axiom that young investors should pray for a prolonged bear market?

Isn't that in essence buying during a prolonged dip?

I just feel like some of you guys go out of your way to be buzz kills. Markets down, was able to buy at a dip this week! "Well actually.." (Pushes thick glasses up onto nose) "There's no mathematical proof that buying low is beneficial..."
Let's put that differently. There is no evidence that holding out cash to invest waiting for a dip is beneficial. For example, say you want to be at 60% stocks and are currently below that value. You have some cash, but are waiting for a "dip" to buy. The market may go up 20% before it dips 5%. If you actually buy on a dip, it may fall even further. Is that the scenario you are contemplating? Or that you are already at your target allocation, but choose to exceed your target for stocks because they are cheaper?
No holding significant extra cash waiting for downturn would be pure market timing. Rebalancing, and maybe squeezing a little more than I normally would into the market, such as raiding a bit from the emergency fund, is more of what I'm talking about. I'm simply pointing out buying something for 90 cents today when it was $1 last week is obviously better. If it dips further well at least I paid less than dollar for it. I don't think anyone is talking about sitting on a mountain of cash for months waiting for the perfect opportunity to strike.
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