Brett Arends: Here's a simple way to beat a bear market

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CULater
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Brett Arends: Here's a simple way to beat a bear market

Post by CULater »

Here's a crazy strategy. Get out of the overvalued stock market now, and then dollar-average back in over 3-month intervals. Any takers?
Panicking about the stock market’s sudden turmoil?

Here’s one solution that isn’t quite as crazy as it may sound.

Sell everything before the next big downturn. Then reinvest slowly — every three months.

We’re not saying the market is about to plunge into the abyss. Merely that it could. Nor are we saying that you should sell and then buy back in slowly at three monthly intervals: Only that, based on the last two crashes, that strategy would have helped even the least sophisticated investor avoid most of the worst disasters.

No one knows when bear markets are going to begin, how long they will last or how deep they will fall. Many people will argue you should just stay in stocks and hang on.

However, I am repeatedly struck by the gap between financial theory and financial practice. Even very sophisticated investors admit to getting out of stocks too early, or getting back in too early, or too late. Few got out ahead of the 2007-2009 crash in time.

And yes, it’s true that stocks have been great investments over the long term. But it’s also true that all sorts of signals which long track records have been flashing amber or even red for some time. Some very smart experts fear stocks are not a good investment at these levels, or that a major crash may be on the cards (or both).
https://www.marketwatch.com/story/a-sim ... 2018-10-30
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J295
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by J295 »

You said it ... "crazy."
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by staythecourse »

Agree completely IF one knows when the market will go south and stay south AND when it starts coming back up. His plan does not work if the market keeps going down when you are DCA.

Good luck.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by JoMoney »

Having a constant-mix portfolio allocation of stock/bonds with regular rebalancing has the same effect as dollar cost averaging.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by unclescrooge »

Unfortunately the strategy involves "selling before the next big downtown".

If I knew that I'd be able a gazillionare.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by InvestorNewb »

No thanks. The rebound is already underway. :D
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by 2015 »

Marketwatch. A miserable waste of reading time.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by Earl Lemongrab »

Yet many here will advocate using DCA for a new lump sum.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by greg24 »

CULater wrote: Thu Nov 01, 2018 7:16 pmSell everything before the next big downturn.
Investing genius.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by ResearchMed »

staythecourse wrote: Thu Nov 01, 2018 7:29 pm Agree completely IF one knows when the market will go south and stay south AND when it starts coming back up. His plan does not work if the market keeps going down when you are DCA.

Good luck.
Actually, IF one finds oneself in this situation, then even if one is DCA'ing while the market "keeps going down", one is still buying back in at *lower* cost than when one "got out", and at lower and yet lower costs.

The, uh, "trick" is getting out at some sort of local high, and avoiding getting out and watching the market continuing to climb, up, up, and away...

Oh, and the other part of the "trick" is putting all the money back in before the prices head back up and go over the selling price.

"That's all." :wink:

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Re: Brett Arends: Here's a simple way to beat a bear market

Post by Jack FFR1846 »

Forget all this DCA work. I've just returned from the future and have put in shorts on TSLA set to buy back when it hits 7 cents.

Sorry....I guess I said exactly what the premise of the OP was........know what the future holds and act on that knowledge. Anyone seen Doc Brown around?
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by nisiprius »

Better strategy: "sell down to your sleeping point" and stay there. If you have just discovered that your stock allocation is too high for your risk tolerance, then cut your stock allocation. But now that you know what your risk tolerance really is, don't go back to having more risk than you can tolerate.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by minimalistmarc »

staythecourse wrote: Thu Nov 01, 2018 7:29 pm Agree completely IF one knows when the market will go south and stay south AND when it starts coming back up. His plan does not work if the market keeps going down when you are DCA.

Good luck.
Actually it works well if market is going down while you are DCA
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by myisland »

Truly a terrible article in every way - so many illogical/contradictory statements in so short an excerpt!
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by rkhusky »

Here is an even simpler way to beat a bear market: pull all your money out of stocks and invest in CD's. Of course, you also lose out on the potential gains of the stock market, but you won't have to worry a bit about the next downturn. No way to beat the risk vs return relation.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by staythecourse »

minimalistmarc wrote: Fri Nov 02, 2018 1:04 pm
staythecourse wrote: Thu Nov 01, 2018 7:29 pm Agree completely IF one knows when the market will go south and stay south AND when it starts coming back up. His plan does not work if the market keeps going down when you are DCA.

Good luck.
Actually it works well if market is going down while you are DCA
No it doesn't. It only works if the market eventually goes UP. If it goes to zero how will it help by DCA?

Good luck.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by ResearchMed »

staythecourse wrote: Fri Nov 02, 2018 4:28 pm
minimalistmarc wrote: Fri Nov 02, 2018 1:04 pm
staythecourse wrote: Thu Nov 01, 2018 7:29 pm Agree completely IF one knows when the market will go south and stay south AND when it starts coming back up. His plan does not work if the market keeps going down when you are DCA.

Good luck.
Actually it works well if market is going down while you are DCA
No it doesn't. It only works if the market eventually goes UP. If it goes to zero how will it help by DCA?

Good luck.
If the market really goes to zero, we're all in trouble!

The point about DCA'ing when the market is heading lower assumes (as stated in the initial post about this above) that the DCA'ing begins *after* a nice market drop... but then it keeps going down for a while more.
Point is, one sold "high" and is DCA'ing back in "lower".

As I mentioned above, it's not easy to *plan* to do this (to put it mildly!).
However, IF one finds oneself in this situation (having sold "high", and then the market is dropping), then DCA'ing back in is certainly better than if one had "just stayed in at that higher level".
To repeat: The pesky little "problem" is, it isn't really feasible to be able to count on having this situation happen this way.

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Re: Brett Arends: Here's a simple way to beat a bear market

Post by TropikThunder »

ResearchMed wrote: Fri Nov 02, 2018 4:36 pm The point about DCA'ing when the market is heading lower assumes (as stated in the initial post about this above) that the DCA'ing begins *after* a nice market drop... but then it keeps going down for a while more.
Point is, one sold "high" and is DCA'ing back in "lower".
Sell at $100.
Buy back in one third at $75.
Buy back in one third at $50.
Buy back in one third at $25.
Catch the falling knife three times on the way down, average re-purchase price $50.
Easy peasy. :P
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by averagedude »

Im sure there were some people who did this after the Trump election. If someone had a million dollars in stocks and tried this strategy then, they would had easily lost 100k doing this. Plus if you assume an 8% return, the opportunity cost over 30 years of losing 100k would come up with a million dollar mistake.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by JustinR »

Here's a crazy strategy. Sell everything at the peak and then lump sum back in at the bottom. Lump sum wins again.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by ClosetIndexer »

Just for fun, here's a less crazy strategy. If you're fairly confident the market is on the way down, you could write covered calls on your index funds. It wouldn't protect you from losses, but it would cushion them a bit. And since realized volatility tends to exceed option implied volatility on average (as you'll read in Larry's Black Swans book), you can expect to come out ahead in the long run, by harvesting some of the volatility risk premium, even if your clairvoyance turns out to be less than perfect.

A more general strategy is to write short strangles on a broad market index to harvest the volatility premium. Basically you hold a portfolio of a mix of a broad index ETF and bonds, and then write slightly out of the money one month calls and puts on that index (a short strangle) each month. (The index covers the calls, and the bond portfolio acts as a 'cover' for the puts, although of course you can adjust the amounts to change the balance between market beta and volatility, as well as the amount of leverage used.) Because, again, realized volatility tends to be lower than option-implied volatility, you make money on average doing this. (At the expense of a fatter left tail and lack of right tail.)
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by minimalistmarc »

staythecourse wrote: Fri Nov 02, 2018 4:28 pm
minimalistmarc wrote: Fri Nov 02, 2018 1:04 pm
staythecourse wrote: Thu Nov 01, 2018 7:29 pm Agree completely IF one knows when the market will go south and stay south AND when it starts coming back up. His plan does not work if the market keeps going down when you are DCA.

Good luck.
Actually it works well if market is going down while you are DCA
No it doesn't. It only works if the market eventually goes UP. If it goes to zero how will it help by DCA?

Good luck.
Haha I’m not actually going to do it because I don’t time the market and am 100% equities, so will automatically be buying on the way up or down.

What do you mean if the market goes to zero?
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by minimalistmarc »

ClosetIndexer wrote: Sat Nov 03, 2018 5:00 am Just for fun, here's a less crazy strategy. If you're fairly confident the market is on the way down, you could write covered calls on your index funds. It wouldn't protect you from losses, but it would cushion them a bit. And since realized volatility tends to exceed option implied volatility on average (as you'll read in Larry's Black Swans book), you can expect to come out ahead in the long run, by harvesting some of the volatility risk premium, even if your clairvoyance turns out to be less than perfect.

A more general strategy is to write short strangles on a broad market index to harvest the volatility premium. Basically you hold a portfolio of a mix of a broad index ETF and bonds, and then write slightly out of the money one month calls and puts on that index (a short strangle) each month. (The index covers the calls, and the bond portfolio acts as a 'cover' for the puts, although of course you can adjust the amounts to change the balance between market beta and volatility, as well as the amount of leverage used.) Because, again, realized volatility tends to be lower than option-implied volatility, you make money on average doing this. (At the expense of a fatter left tail and lack of right tail.)
How about just continuing to buy equities as they drop in value and profiting when they rise again
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by randomguy »

minimalistmarc wrote: Sat Nov 03, 2018 5:13 am

Haha I’m not actually going to do it because I don’t time the market and am 100% equities, so will automatically be buying on the way up or down.

What do you mean if the market goes to zero?
You know your stocks going all going to zero. Tends to happen during revolutions and the like.

Japan took about 20 years to hit a low (1989-2009). There were a lot of rallies and falls along the way. The person that DCAed in at 17k (i.e. 50% off the peak) didn't avoid the bear when the market bottomed out around 7k.

The whole idea is stupid because nobody can tell you when the next big downturn is. When is a big down turn? Did the -16% in 2010, -19% 2011, -10 2012, -12 in 2015 or -11 in 2016 indicated the start of the next big decline? Which one of them should I have sold on and then DCA averaged back in? Pretty much every year there is a decline of 8-12%. Few of them turn into 25% declines.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by RadAudit »

nisiprius wrote: Fri Nov 02, 2018 12:52 pm Better strategy: "sell down to your sleeping point" and stay there. ... now that you know what your risk tolerance really is, don't go back to having more risk than you can tolerate.
I agree. Now, if my sleeping point wouldn't keep dropping, we'd have this problem solved.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by columbia »

Suppose he were right: he doesn’t seem to indicate how long this goes on...just re-invest every 3 months. At what percentage?
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by tadamsmar »

columbia wrote: Sat Nov 03, 2018 4:37 pm Suppose he were right: he doesn’t seem to indicate how long this goes on...just re-invest every 3 months. At what percentage?
Exactly, this "simple" is actually hard since it's unclear what the method is. Also, you can't test any of the claims made because it is too ill-defined. An article written by and for pudden-heads.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by am »

Buy, hold, and rebalance has worked well in the past. Why do you need to avoid the next bear? Just buy more.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by averagedude »

Jack Bogle quote on market timing.. "After nearly 50 years in the business, I do not know of anybody who has done it successfully and consistent. Actually i don't know anybody that knows somebody that has done it". Me personally, i respect Jack Bogle's opinion more than Brett Arend's.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by Earl Lemongrab »

To me, it seems like the actual quoted article doesn't match what the OP said. The article says no one knows when the next crash will be. It is not recommending people sell and DCA back in. It's more of a historical analysis.

Of course as noted in other posts it would be even better to sell all right before the crash and buy in a lump right before the recovery.

Just need that email that goes back in time.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by Tamalak »

CULater wrote: Thu Nov 01, 2018 7:16 pm Here's a crazy strategy. Get out of the overvalued stock market now, and then dollar-average back in over 3-month intervals.
Why would you want to buy something you know is overvalued at all, even with DCA? That IS crazy.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by UpperNwGuy »

Tamalak wrote: Sun Nov 04, 2018 9:32 am
CULater wrote: Thu Nov 01, 2018 7:16 pm Here's a crazy strategy. Get out of the overvalued stock market now, and then dollar-average back in over 3-month intervals.
Why would you want to buy something you know is overvalued at all, even with DCA? That IS crazy.
Why do you think stocks are overvalued?
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by Tamalak »

UpperNwGuy wrote: Sun Nov 04, 2018 9:39 am
Tamalak wrote: Sun Nov 04, 2018 9:32 am
CULater wrote: Thu Nov 01, 2018 7:16 pm Here's a crazy strategy. Get out of the overvalued stock market now, and then dollar-average back in over 3-month intervals.
Why would you want to buy something you know is overvalued at all, even with DCA? That IS crazy.
Why do you think stocks are overvalued?
I have no idea if they're overvalued or undervalued or fairly valued. To learn that would require me, in the words of Warren Buffett, to "read hundreds and hundreds of annual reports every year". Too much work :D

The OP, however, has somehow learned that the stock market is presently overvalued. I was only encouraging him to use this amazing knowledge to its fullest potential.
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by happyisland »

JustinR wrote: Sat Nov 03, 2018 4:38 am Here's a crazy strategy. Sell everything at the peak and then lump sum back in at the bottom. Lump sum wins again.
Makes sense! OP, have you considered this strategy?
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by stemikger »

nisiprius wrote: Fri Nov 02, 2018 12:52 pm Better strategy: "sell down to your sleeping point" and stay there. If you have just discovered that your stock allocation is too high for your risk tolerance, then cut your stock allocation. But now that you know what your risk tolerance really is, don't go back to having more risk than you can tolerate.
Now this is a real strategy!
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by UpperNwGuy »

Tamalak wrote: Sun Nov 04, 2018 9:41 am
UpperNwGuy wrote: Sun Nov 04, 2018 9:39 am
Tamalak wrote: Sun Nov 04, 2018 9:32 am
CULater wrote: Thu Nov 01, 2018 7:16 pm Here's a crazy strategy. Get out of the overvalued stock market now, and then dollar-average back in over 3-month intervals.
Why would you want to buy something you know is overvalued at all, even with DCA? That IS crazy.
Why do you think stocks are overvalued?
I have no idea if they're overvalued or undervalued or fairly valued. To learn that would require me, in the words of Warren Buffett, to "read hundreds and hundreds of annual reports every year". Too much work :D

The OP, however, has somehow learned that the stock market is presently overvalued. I was only encouraging him to use this amazing knowledge to its fullest potential.
You are correct. I should have addressed my question to the OP. CULater, if you're still following this thread, would you please tell us why you think stocks are overvalued?
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by ClosetIndexer »

minimalistmarc wrote: Sat Nov 03, 2018 5:16 am
ClosetIndexer wrote: Sat Nov 03, 2018 5:00 am Just for fun, here's a less crazy strategy. If you're fairly confident the market is on the way down, you could write covered calls on your index funds. It wouldn't protect you from losses, but it would cushion them a bit. And since realized volatility tends to exceed option implied volatility on average (as you'll read in Larry's Black Swans book), you can expect to come out ahead in the long run, by harvesting some of the volatility risk premium, even if your clairvoyance turns out to be less than perfect.

A more general strategy is to write short strangles on a broad market index to harvest the volatility premium. Basically you hold a portfolio of a mix of a broad index ETF and bonds, and then write slightly out of the money one month calls and puts on that index (a short strangle) each month. (The index covers the calls, and the bond portfolio acts as a 'cover' for the puts, although of course you can adjust the amounts to change the balance between market beta and volatility, as well as the amount of leverage used.) Because, again, realized volatility tends to be lower than option-implied volatility, you make money on average doing this. (At the expense of a fatter left tail and lack of right tail.)
How about just continuing to buy equities as they drop in value and profiting when they rise again
Well, yeah, that's what I do too. But we're talking crazy strategies here. At least this one is +EV!
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Re: Brett Arends: Here's a simple way to beat a bear market

Post by garlandwhizzer »

I have a simple rule. Anytime anyone tells you they have discovered a simple way to consistently beat the market, it's time to stop listening.

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Re: Brett Arends: Here's a simple way to beat a bear market

Post by 3funder »

JustinR wrote: Sat Nov 03, 2018 4:38 am Here's a crazy strategy. Sell everything at the peak and then lump sum back in at the bottom. Lump sum wins again.
Haha. Love it.
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