Expecting a crash...but staying the course

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simplesauce
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Joined: Tue Jan 17, 2017 8:22 am

Expecting a crash...but staying the course

Post by simplesauce » Mon Feb 12, 2018 11:12 pm

If you look at the stock charts, it has been a straight line up for a very long time.

I sometimes have urges to pull out of the market and wait for prices to get slashed.

But I always go back to these words from Charlie Ellis. He explains (summarized and paraphrased):

The historical statistics shows what happens to long-term compounded returns when the best days are removed from the record. Taking 10 best days - less than one-quarter of 1 % of long period examined - cuts the average rate of return by 17 %( from 18% to 5%). Taking the next 10 days away cuts returns by another 3 %. Removing a total of 30 days - just half of 1% of the total period - cuts return almost by 40% (from 18% to 11%).

Using S&P 500 average returns, the story is told quickly and clearly; all the total returns on the stocks in the last 75 years were achieved in the best 60 months - less than 7% of the 800 months of those long decades. If you missed those few and fabulous 60 months, you would have missed all the total returns accumulated over three generations. Removing five best days out of 72 years of investing would reduce cumulative compound returns - without dividend investments- by nearly 50%.

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k66
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Joined: Sat Oct 27, 2012 1:36 pm

Re: Expecting a crash...but staying the course

Post by k66 » Mon Feb 12, 2018 11:48 pm

simplesauce wrote:
Mon Feb 12, 2018 11:12 pm
If you look at the stock charts, it has been a straight line up for a very long time.

I sometimes have urges to pull out of the market and wait for prices to get slashed.

But I always go back to these words from Charlie Ellis. He explains (summarized and paraphrased):

The historical statistics shows what happens to long-term compounded returns when the best days are removed from the record. Taking 10 best days - less than one-quarter of 1 % of long period examined - cuts the average rate of return by 17 %( from 18% to 5%). Taking the next 10 days away cuts returns by another 3 %. Removing a total of 30 days - just half of 1% of the total period - cuts return almost by 40% (from 18% to 11%).

Using S&P 500 average returns, the story is told quickly and clearly; all the total returns on the stocks in the last 75 years were achieved in the best 60 months - less than 7% of the 800 months of those long decades. If you missed those few and fabulous 60 months, you would have missed all the total returns accumulated over three generations. Removing five best days out of 72 years of investing would reduce cumulative compound returns - without dividend investments- by nearly 50%.
Ah, but what if you could exclude the worst 60 months (from the last 75 years) instead? How golden would you be then?

And there, I believe, lies the glittery lure of market timing!
LOSER of the Boglehead Contest 2015 | lang may yer lum reek

Ron Scott
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Joined: Tue Apr 05, 2016 5:38 am

Re: Expecting a crash...but staying the course

Post by Ron Scott » Tue Feb 13, 2018 12:22 am

Better yet if you can treat your stocks like a business you don't need to sell to live, and tell yourself that business is going to grow in 2 ways. First, through normal appreciation and dividend growth. Second through purchases of additional stock whenever there's a correction of 20% or more.

"Buy low and hold."

Of course you need to live by the premise to make this work...

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Expecting a crash...but staying the course

Post by MotoTrojan » Tue Feb 13, 2018 1:11 am

k66 wrote:
Mon Feb 12, 2018 11:48 pm
simplesauce wrote:
Mon Feb 12, 2018 11:12 pm
If you look at the stock charts, it has been a straight line up for a very long time.

I sometimes have urges to pull out of the market and wait for prices to get slashed.

But I always go back to these words from Charlie Ellis. He explains (summarized and paraphrased):

The historical statistics shows what happens to long-term compounded returns when the best days are removed from the record. Taking 10 best days - less than one-quarter of 1 % of long period examined - cuts the average rate of return by 17 %( from 18% to 5%). Taking the next 10 days away cuts returns by another 3 %. Removing a total of 30 days - just half of 1% of the total period - cuts return almost by 40% (from 18% to 11%).

Using S&P 500 average returns, the story is told quickly and clearly; all the total returns on the stocks in the last 75 years were achieved in the best 60 months - less than 7% of the 800 months of those long decades. If you missed those few and fabulous 60 months, you would have missed all the total returns accumulated over three generations. Removing five best days out of 72 years of investing would reduce cumulative compound returns - without dividend investments- by nearly 50%.
Ah, but what if you could exclude the worst 60 months (from the last 75 years) instead? How golden would you be then?

And there, I believe, lies the glittery lure of market timing!
Per my book More Than You Know by Mauboussin, S&P 500 from 1/3/79 to 3/30/07, excluding dividends the return was 9.5%. Had you been able to avoid the worst 50 days, return would have been 18.2%. If you missed the best 50 days, return would've been 0.6%.

WanderingDoc
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Joined: Sat Aug 05, 2017 8:21 pm

Re: Expecting a crash...but staying the course

Post by WanderingDoc » Tue Feb 13, 2018 3:04 am

When they say you stayed in the best days etc., they just mean to be invested in the market right? Not necessarily that you were DCA'ing during that time.
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

david1082b
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Re: Expecting a crash...but staying the course

Post by david1082b » Tue Feb 13, 2018 5:00 am

Removing five best days out of 72 years of investing would reduce cumulative compound returns - without dividend investments- by nearly 50%.
Ignoring dividends makes no sense really. Dividends have made up a huge amount of total returns historically.
If you missed those few and fabulous 60 months, you would have missed all the total returns accumulated over three generations.
Total return by definition includes dividends. But the statement makes it clear that dividends are not included? This is a bizarre way of calculating long-term returns. All the talk about "best days" and "worst days" is just noise imo.

RRAAYY3
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Joined: Thu Jan 17, 2013 12:32 pm

Re: Expecting a crash...but staying the course

Post by RRAAYY3 » Tue Feb 13, 2018 8:15 am

This “bulletproof bull market” nonsense needs to stop.

It has had corrections ... including one literally happening at the moment. the hysteria is laughable

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Toons
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Location: Hills of Tennessee

Re: Expecting a crash...but staying the course

Post by Toons » Tue Feb 13, 2018 8:21 am

Bring on the "Crash"=Opportunity :sharebeer :sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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midareff
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Location: Biscayne Bay, South Florida

Re: Expecting a crash...but staying the course

Post by midareff » Tue Feb 13, 2018 8:28 am

My wife thinks she can read the market in her Tarot cards. I try to humor her but she doesn't get to hold the keys to the kingdom..

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