https://www.marketwatch.com/story/a-sim ... 2018-10-30Panicking 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).
Brett Arends: Here's a simple way to beat a bear market
Brett Arends: Here's a simple way to beat a bear market
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?
On the internet, nobody knows you're a dog.
Re: Brett Arends: Here's a simple way to beat a bear market
You said it ... "crazy."
-
- Posts: 6993
- Joined: Mon Jan 03, 2011 8:40 am
Re: Brett Arends: Here's a simple way to beat a bear market
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.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
Re: Brett Arends: Here's a simple way to beat a bear market
Having a constant-mix portfolio allocation of stock/bonds with regular rebalancing has the same effect as dollar cost averaging.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
- unclescrooge
- Posts: 6265
- Joined: Thu Jun 07, 2012 7:00 pm
Re: Brett Arends: Here's a simple way to beat a bear market
Unfortunately the strategy involves "selling before the next big downtown".
If I knew that I'd be able a gazillionare.
If I knew that I'd be able a gazillionare.
- InvestorNewb
- Posts: 1663
- Joined: Mon Sep 03, 2012 11:27 am
Re: Brett Arends: Here's a simple way to beat a bear market
No thanks. The rebound is already underway.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
Re: Brett Arends: Here's a simple way to beat a bear market
Marketwatch. A miserable waste of reading time.
- Earl Lemongrab
- Posts: 7270
- Joined: Tue Jun 10, 2014 1:14 am
Re: Brett Arends: Here's a simple way to beat a bear market
Yet many here will advocate using DCA for a new lump sum.
- ResearchMed
- Posts: 16795
- Joined: Fri Dec 26, 2008 10:25 pm
Re: Brett Arends: Here's a simple way to beat a bear market
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.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.
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."
RM
This signature is a placebo. You are in the control group.
-
- Posts: 18499
- Joined: Tue Dec 31, 2013 6:05 am
- Location: 26 miles, 385 yards west of Copley Square
Re: Brett Arends: Here's a simple way to beat a bear market
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?
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?
Bogle: Smart Beta is stupid
- nisiprius
- Advisory Board
- Posts: 52211
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: Brett Arends: Here's a simple way to beat a bear market
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.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
-
- Posts: 1636
- Joined: Fri Jul 24, 2015 4:38 pm
Re: Brett Arends: Here's a simple way to beat a bear market
Actually it works well if market is going down while you are DCAstaythecourse 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.
Re: Brett Arends: Here's a simple way to beat a bear market
Truly a terrible article in every way - so many illogical/contradictory statements in so short an excerpt!
Re: Brett Arends: Here's a simple way to beat a bear market
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.
-
- Posts: 6993
- Joined: Mon Jan 03, 2011 8:40 am
Re: Brett Arends: Here's a simple way to beat a bear market
No it doesn't. It only works if the market eventually goes UP. If it goes to zero how will it help by DCA?minimalistmarc wrote: ↑Fri Nov 02, 2018 1:04 pmActually it works well if market is going down while you are DCAstaythecourse 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.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
- ResearchMed
- Posts: 16795
- Joined: Fri Dec 26, 2008 10:25 pm
Re: Brett Arends: Here's a simple way to beat a bear market
If the market really goes to zero, we're all in trouble!staythecourse wrote: ↑Fri Nov 02, 2018 4:28 pmNo it doesn't. It only works if the market eventually goes UP. If it goes to zero how will it help by DCA?minimalistmarc wrote: ↑Fri Nov 02, 2018 1:04 pmActually it works well if market is going down while you are DCAstaythecourse 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.
Good luck.
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.
RM
This signature is a placebo. You are in the control group.
-
- Posts: 3918
- Joined: Sun Apr 03, 2016 5:41 pm
Re: Brett Arends: Here's a simple way to beat a bear market
Sell at $100.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".
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.
-
- Posts: 1772
- Joined: Sun May 13, 2018 3:41 pm
Re: Brett Arends: Here's a simple way to beat a bear market
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.
Re: Brett Arends: Here's a simple way to beat a bear market
Here's a crazy strategy. Sell everything at the peak and then lump sum back in at the bottom. Lump sum wins again.
- ClosetIndexer
- Posts: 288
- Joined: Mon Mar 19, 2012 11:00 pm
- Contact:
Re: Brett Arends: Here's a simple way to beat a bear market
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.)
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.)
-
- Posts: 1636
- Joined: Fri Jul 24, 2015 4:38 pm
Re: Brett Arends: Here's a simple way to beat a bear market
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.staythecourse wrote: ↑Fri Nov 02, 2018 4:28 pmNo it doesn't. It only works if the market eventually goes UP. If it goes to zero how will it help by DCA?minimalistmarc wrote: ↑Fri Nov 02, 2018 1:04 pmActually it works well if market is going down while you are DCAstaythecourse 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.
Good luck.
What do you mean if the market goes to zero?
-
- Posts: 1636
- Joined: Fri Jul 24, 2015 4:38 pm
Re: Brett Arends: Here's a simple way to beat a bear market
How about just continuing to buy equities as they drop in value and profiting when they rise againClosetIndexer 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.)
Re: Brett Arends: Here's a simple way to beat a bear market
You know your stocks going all going to zero. Tends to happen during revolutions and the like.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?
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.
-
- Posts: 4386
- Joined: Mon May 26, 2008 10:20 am
- Location: Second star on the right and straight on 'til morning
Re: Brett Arends: Here's a simple way to beat a bear market
I agree. Now, if my sleeping point wouldn't keep dropping, we'd have this problem solved.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
Re: Brett Arends: Here's a simple way to beat a bear market
Suppose he were right: he doesn’t seem to indicate how long this goes on...just re-invest every 3 months. At what percentage?
Re: Brett Arends: Here's a simple way to beat a bear market
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.
Re: Brett Arends: Here's a simple way to beat a bear market
Buy, hold, and rebalance has worked well in the past. Why do you need to avoid the next bear? Just buy more.
-
- Posts: 1772
- Joined: Sun May 13, 2018 3:41 pm
Re: Brett Arends: Here's a simple way to beat a bear market
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.
- Earl Lemongrab
- Posts: 7270
- Joined: Tue Jun 10, 2014 1:14 am
Re: Brett Arends: Here's a simple way to beat a bear market
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.
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.
-
- Posts: 9475
- Joined: Sun Oct 08, 2017 7:16 pm
Re: Brett Arends: Here's a simple way to beat a bear market
Re: Brett Arends: Here's a simple way to beat a bear market
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 workUpperNwGuy wrote: ↑Sun Nov 04, 2018 8:39 amWhy do you think stocks are overvalued?
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.
- happyisland
- Posts: 915
- Joined: Thu Oct 03, 2013 1:36 pm
- Location: nos baranca tan stima
Re: Brett Arends: Here's a simple way to beat a bear market
Now this is a real strategy!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.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
-
- Posts: 9475
- Joined: Sun Oct 08, 2017 7:16 pm
Re: Brett Arends: Here's a simple way to beat a bear market
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?Tamalak wrote: ↑Sun Nov 04, 2018 8:41 amI 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 workUpperNwGuy wrote: ↑Sun Nov 04, 2018 8:39 amWhy do you think stocks are overvalued?
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.
- ClosetIndexer
- Posts: 288
- Joined: Mon Mar 19, 2012 11:00 pm
- Contact:
Re: Brett Arends: Here's a simple way to beat a bear market
Well, yeah, that's what I do too. But we're talking crazy strategies here. At least this one is +EV!minimalistmarc wrote: ↑Sat Nov 03, 2018 5:16 amHow about just continuing to buy equities as they drop in value and profiting when they rise againClosetIndexer 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.)
-
- Posts: 3565
- Joined: Fri Aug 06, 2010 3:42 pm
Re: Brett Arends: Here's a simple way to beat a bear market
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.
Garland Whizzer
Garland Whizzer
Re: Brett Arends: Here's a simple way to beat a bear market
Haha. Love it.
Global stocks, US bonds, and time.