columbia wrote: ↑
Wed Jan 02, 2019 9:13 pm
Point 3 isn’t without merit.
Believing that you’re getting some great deal by buying the dips implies that you know
the market will soon rebound (and won’t plummet even further).
I agree that 3 is the one that's hardest to dismiss. 'Do nothing in a crash' isn't the same as 'rebalance your portfolio to the same % in stocks as prior to the crash'. Rebalancing to an arbitrary % means you're willing to take much more risk at some times than other times. The risk of a X% stock portfolio is higher when the VIX has gone to 40, 50, 70 or whatever than when it's at the normal level of high teens. You can quibble with the VIX as be all, end all, which I'm not saying it is. But when it increases enormously that's telling you there really is more risk of further big losses. Why take more risk some times than other times? 'Because it's generally worked out in the past' (over a number of decades in US stocks in a period of US dominance, at least). But just being 100% stocks has generally worked out best in the same past (people recommending 100% stocks also don't have to defend rebalancing
). It doesn't seem there is as robust an argument for fixed %, so buying stocks when there's a crash, as there is for some other elements of BH'ism*. Although in fairness fixed % and rebalance is not a core belief of BHism, just a convention.
I'm not actually sure points 1 and 2 are complete BS either in all cases and circumstances (again if based on more uniform constant *risk taking* as opposed to predicting near term market direction), but 3 in particular is challenging to entirely dismiss IMO.
*like for example not to time the market based on near term predictions by prognosticators. Even to the extent a given prognosticator gained a reputation as someone who could predict the market, his or her statements would be factored into prices already unless I was the very first one to hear them.