What do you think of this advice?

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l1am
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What do you think of this advice?

Post by l1am » Wed Jan 02, 2019 8:15 pm

What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
  2. Learn how to hedge your portfolio.
  3. Do NOT start buying randomly during a crash, because you can easily lose 50–100% doing that. And keep in mind that even a 50% loss subsequently requires a 100% gain just to break even. If the crash comes in the context of a larger secular bull market, granted, the market will bail you out eventually (presuming you can afford to be underwater indefinitely and don’t need the money).

ventura
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Re: What do you think of this advice?

Post by ventura » Wed Jan 02, 2019 8:26 pm

It's ridiculous. I can't say why.

SoonerD
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Re: What do you think of this advice?

Post by SoonerD » Wed Jan 02, 2019 8:40 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
  2. Learn how to hedge your portfolio.
  3. Do NOT start buying randomly during a crash, because you can easily lose 50–100% doing that. And keep in mind that even a 50% loss subsequently requires a 100% gain just to break even. If the crash comes in the context of a larger secular bull market, granted, the market will bail you out eventually (presuming you can afford to be underwater indefinitely and don’t need the money).
OP, what do you think of the advice?

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bottlecap
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Re: What do you think of this advice?

Post by bottlecap » Wed Jan 02, 2019 8:49 pm

So dumb, I ain't even going to click on the link.

JT

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greg24
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Re: What do you think of this advice?

Post by greg24 » Wed Jan 02, 2019 8:52 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
  1. Learn how to perform at least basic technical analysis.
  2. Learn how to hedge your portfolio.
This is very poor advice.

ThrustVectoring
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Re: What do you think of this advice?

Post by ThrustVectoring » Wed Jan 02, 2019 8:59 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?
Nothing. Absolutely nothing. Statistically, this is the best way to manage your investments - put what you can afford to never see again into stock market index funds, and then do literally nothing with it.

There was a study I read of a while back which looked at the retail investors with the best results. They tended to be literally dead.
Current portfolio: 60% VTI / 40% VXUS

2015
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Re: What do you think of this advice?

Post by 2015 » Wed Jan 02, 2019 9:06 pm

First question to ask: What's he selling (through the front door or out the back)?

sambb
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Re: What do you think of this advice?

Post by sambb » Wed Jan 02, 2019 9:08 pm

best thing to do during crash is to make sure you keep your job when corporation downsizes due to budget issues. This is far more important than the investment nuances of your portfolio.

columbia
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Re: What do you think of this advice?

Post by columbia » 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).

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David Jay
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Re: What do you think of this advice?

Post by David Jay » Wed Jan 02, 2019 9:18 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
1. Learn how to perform at least basic technical analysis.
“Technical” market analysis is the modern day equivalent of the witch doctor examining chicken entrails to foretell the future. The guy who coined the term “technical analysis” for a pattern fitting exercise was a marketing genius.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Topic Author
l1am
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Re: What do you think of this advice?

Post by l1am » Wed Jan 02, 2019 9:25 pm

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, I have seen that logic on this forum before.

Honestly, I don't like the advice. But I am open minded on the possibility of some basic TA improving contribution timing (basic resistance levels on longer timeframes during a bear market). There is some psychology behind markets (fear/greed) e.g. following a 20% market dip from ATH, one could wait for confirmation of a trend reversal.

To play devil's advocate on my own comments, if one could predict the market movement via TA (up or down), one could just be a professional trader.

Overall though (given my current knowledge), my actions will just be to maintain AA and ignore market timing.

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Sandtrap
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Re: What do you think of this advice?

Post by Sandtrap » Wed Jan 02, 2019 10:02 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
  2. Learn how to hedge your portfolio.
  3. Do NOT start buying randomly during a crash, because you can easily lose 50–100% doing that. And keep in mind that even a 50% loss subsequently requires a 100% gain just to break even. If the crash comes in the context of a larger secular bull market, granted, the market will bail you out eventually (presuming you can afford to be underwater indefinitely and don’t need the money).
Article excerpt:
You need to become smarter than the average broker, even, because the average broker is born and bred to be a perma-bull. It’s part of their training, and many of them simply don’t know any better. Just remember that in the end, they are being trained into the business of getting you to BUY stocks, not convincing you to SELL stocks. The advice they give is virtually always biased (often unconsciously) to the buy side.

My work suggests that the next bear market we experience will probably still be a cyclical bear, so the advice you’re getting to “buy the dip” might work one more time. But I suspect that the bear which FOLLOWS that one (my preliminary time frame is 2025) will be a true secular bear.
Reinforces the importance of sticking to "Bogle Basics" and having an IPS with a high "sleep factor" (realistic risk tolerance).
And . . .
Ignore the noise . . .
Ignore the "experts" . . .
Listen to Prudence . . .
Wiki Bogleheads Wiki: Everything You Need to Know

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Doom&Gloom
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Re: What do you think of this advice?

Post by Doom&Gloom » Wed Jan 02, 2019 11:15 pm

It is probably worth less than what you paid for it. Probably much less.

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Re: What do you think of this advice?

Post by Grt2bOutdoors » Wed Jan 02, 2019 11:23 pm

It’s garbage. Technical analysis is another form of market timing. Most famous technical analyst I recall was Ralph Amancora (spelling) from Prudential Bache - used to get a lot of air time in early days of CNBC.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

garlandwhizzer
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Re: What do you think of this advice?

Post by garlandwhizzer » Thu Jan 03, 2019 1:05 pm

David Jay wrote:

“Technical” market analysis is the modern day equivalent of the witch doctor examining chicken entrails to foretell the future. The guy who coined the term “technical analysis” for a pattern fitting exercise was a marketing genius.
1+

Well put. Technical analysis can accurately define the exact pattern after it has happened. It's ability to predict the future is about the same as a coin flip IMO. It is an extremely clever invention of the financial industry which is very creative at generating fees with the appearance of foreknowledge. People like graphs and finding patterns in randomness. If it actually worked on a reliable basis, they wouldn't be sharing their insights with average-Joe-investor, but rather leveraging up on it themselves and keeping the profits.

Garland Whizzer

FinancialDave
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Re: What do you think of this advice?

Post by FinancialDave » Thu Jan 03, 2019 1:12 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Did not read the link because the correct answer is:

Go for a long walk 3 times a week --- that will be better for you than anything to do with "playing" with your investments.


Dave
I love simulated data. It turns the impossible into the possible!

Topic Author
l1am
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Re: What do you think of this advice?

Post by l1am » Thu Jan 03, 2019 1:17 pm

garlandwhizzer wrote:
Thu Jan 03, 2019 1:05 pm
David Jay wrote:

“Technical” market analysis is the modern day equivalent of the witch doctor examining chicken entrails to foretell the future. The guy who coined the term “technical analysis” for a pattern fitting exercise was a marketing genius.
1+

Well put. Technical analysis can accurately define the exact pattern after it has happened. It's ability to predict the future is about the same as a coin flip IMO. It is an extremely clever invention of the financial industry which is very creative at generating fees with the appearance of foreknowledge. People like graphs and finding patterns in randomness. If it actually worked on a reliable basis, they wouldn't be sharing their insights with average-Joe-investor, but rather leveraging up on it themselves and keeping the profits.

Garland Whizzer
A lot of professional traders make a living on TA, so I don't think that's entirely true.

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GerryL
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Re: What do you think of this advice?

Post by GerryL » Thu Jan 03, 2019 2:15 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
  2. Learn how to hedge your portfolio.
  3. Do NOT start buying randomly during a crash, because you can easily lose 50–100% doing that. And keep in mind that even a 50% loss subsequently requires a 100% gain just to break even. If the crash comes in the context of a larger secular bull market, granted, the market will bail you out eventually (presuming you can afford to be underwater indefinitely and don’t need the money).
Better question would have been "What should I do before a stock market crash?"
If you have your investments in order with an appropriate asset allocation for your stage in life and risk tolerance, then you shouldn't need to do anything during a stock market crash.

3funder
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Re: What do you think of this advice?

Post by 3funder » Thu Jan 03, 2019 2:17 pm

ThrustVectoring wrote:
Wed Jan 02, 2019 8:59 pm
l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?
Nothing. Absolutely nothing. Statistically, this is the best way to manage your investments - put what you can afford to never see again into stock market index funds, and then do literally nothing with it.

There was a study I read of a while back which looked at the retail investors with the best results. They tended to be literally dead.
+1

Topic Author
l1am
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Re: What do you think of this advice?

Post by l1am » Thu Jan 03, 2019 2:20 pm

ThrustVectoring wrote:
Wed Jan 02, 2019 8:59 pm
There was a study I read of a while back which looked at the retail investors with the best results. They tended to be literally dead.
:D

heyyou
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Re: What do you think of this advice?

Post by heyyou » Thu Jan 03, 2019 2:59 pm

There was a study I read of a while back which looked at the retail investors with the best results. They tended to be literally dead.
Last time that I posted that, someone claimed that it had been refuted as urban legend. I think that I attributed it to Fidelity fund company who would find it offensive since Fidelity was founded on active management, but followed the market participants into passive funds.

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Re: What do you think of this advice?

Post by Jack FFR1846 » Thu Jan 03, 2019 3:04 pm

heyyou wrote:
Thu Jan 03, 2019 2:59 pm
There was a study I read of a while back which looked at the retail investors with the best results. They tended to be literally dead.
Last time that I posted that, someone claimed that it had been refuted as urban legend. I think that I attributed it to Fidelity fund company who would find it offensive since Fidelity was founded on active management, but followed the market participants into passive funds.
That was a Fidelity study. I first heard a report of it on the radio and posted here. Someone responded to my post with the link to the Fidelity Study. JL Collins spoke of it last year at his talk at Google. Those who did best were dead. Second place were people who forgot they had an account.

It really drives home Jack Bogle's quote, which is one of my favorite......Don't do something, just stand there.
Bogle: Smart Beta is stupid

KJVanguard
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Re: What do you think of this advice?

Post by KJVanguard » Thu Jan 03, 2019 3:06 pm

Best thing to do is sell off all your stocks BEFORE a bear market. Tools needed for this: a fully functional crystal ball which sees the future. Not sure where you can get one of these, but I know for sure Amazon & Ebay don't carry them.

It would be real nifty to get out be before a bear, but nobody know when a bear market is coming. We could be in a secular bear market right now. As for the comment no body since 1982 has seen a secular bear, must not have been watching Japan which is now at 19,000 a full 29 years after peaking at 39,000 -- is Japan not an example of a secular bear?

KlangFool
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Re: What do you think of this advice?

Post by KlangFool » Thu Jan 03, 2019 4:14 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
  2. Learn how to hedge your portfolio.
  3. Do NOT start buying randomly during a crash, because you can easily lose 50–100% doing that. And keep in mind that even a 50% loss subsequently requires a 100% gain just to break even. If the crash comes in the context of a larger secular bull market, granted, the market will bail you out eventually (presuming you can afford to be underwater indefinitely and don’t need the money).
l1am,

1) How does that advice compare to someone with a fixed AA and practice simple buy, hold, and rebalancing? It is not anywhere better. So, why bother?

2) Or, even simpler. Just invest all your money in a target retirement fund and/or life strategy fund?

3) Simple is better.

KlangFool

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GoldStar
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Re: What do you think of this advice?

Post by GoldStar » Thu Jan 03, 2019 4:20 pm

sambb wrote:
Wed Jan 02, 2019 9:08 pm
best thing to do during crash is to make sure you keep your job when corporation downsizes due to budget issues. This is far more important than the investment nuances of your portfolio.
+1

During the 2 big market downturns in the last 2 decades I was either too busy at work due to other folks being laid off and me having to pick up their load; or too saddened by the folks I personally had to lay-off to even look at my portfolio. I kept auto-investing and eventually got around to doing a bit of re-balancing.
Job security was my primary concern. My portfolio took a back seat.
(Now that I'm older and in FIRE range not so sure it would be the same this time.)

cashmoney
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Re: What do you think of this advice?

Post by cashmoney » Thu Jan 03, 2019 4:26 pm

l1am wrote:
Thu Jan 03, 2019 1:17 pm
garlandwhizzer wrote:
Thu Jan 03, 2019 1:05 pm
David Jay wrote:

“Technical” market analysis is the modern day equivalent of the witch doctor examining chicken entrails to foretell the future. The guy who coined the term “technical analysis” for a pattern fitting exercise was a marketing genius.
1+

Well put. Technical analysis can accurately define the exact pattern after it has happened. It's ability to predict the future is about the same as a coin flip IMO. It is an extremely clever invention of the financial industry which is very creative at generating fees with the appearance of foreknowledge. People like graphs and finding patterns in randomness. If it actually worked on a reliable basis, they wouldn't be sharing their insights with average-Joe-investor, but rather leveraging up on it themselves and keeping the profits.

Garland Whizzer
A lot of professional traders make a living on TA, so I don't think that's entirely true.

true but a lot more of them lose money using TA (aka market timing)

JackoC
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Re: What do you think of this advice?

Post by JackoC » Thu Jan 03, 2019 4:47 pm

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 :happy ). 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.

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l1am
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Re: What do you think of this advice?

Post by l1am » Thu Jan 03, 2019 4:57 pm

JackoC wrote:
Thu Jan 03, 2019 4:47 pm
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.
That's actually a really fair point.

Rebalancing is actually taking action, i.e. buying stocks during a dip/bear. One could argue that it's a form of market timing, since you're taking a different action based on the state of the current market.

Of course rebalancing into stocks outperformed not re-balancing, but 100% stocks also outperformed both.

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Re: What do you think of this advice?

Post by Fallible » Thu Jan 03, 2019 5:15 pm

l1am wrote:
Thu Jan 03, 2019 4:57 pm
JackoC wrote:
Thu Jan 03, 2019 4:47 pm
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.
That's actually a really fair point.

Rebalancing is actually taking action, i.e. buying stocks during a dip/bear. One could argue that it's a form of market timing, since you're taking a different action based on the state of the current market. ...
If rebalancing is simply maintaining an original allocation (which it is), then how is that market timing, which is predicting what the market will do and then investing based on the prediction?
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

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Re: What do you think of this advice?

Post by DesertDiva » Thu Jan 03, 2019 6:23 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
Why would this be needed if using low-cost index funds?
[*]Learn how to hedge your portfolio.
Asset allocation is the way to reduce volatility in a portfolio.
[*]Do NOT start buying randomly during a crash, because you can easily lose 50–100% doing that. And keep in mind that even a 50% loss subsequently requires a 100% gain just to break even. If the crash comes in the context of a larger secular bull market, granted, the market will bail you out eventually (presuming you can afford to be underwater indefinitely and don’t need the money).
[/list]
The principles to follow are: "Invest early and often", "Never try to time the market", and "Stay the course"

Just reviewing the Bogleheads investment philosophy again :)

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l1am
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Re: What do you think of this advice?

Post by l1am » Thu Jan 03, 2019 6:50 pm

Fallible wrote:
Thu Jan 03, 2019 5:15 pm
If rebalancing is simply maintaining an original allocation (which it is), then how is that market timing, which is predicting what the market will do and then investing based on the prediction?
By that definition it isn't, no. But it is reacting to market changes, buying more stock because it dipped.

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Re: What do you think of this advice?

Post by danielc » Thu Jan 03, 2019 6:51 pm

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
  2. Learn how to hedge your portfolio.
  3. Do NOT start buying randomly during a crash, because you can easily lose 50–100% doing that. And keep in mind that even a 50% loss subsequently requires a 100% gain just to break even. If the crash comes in the context of a larger secular bull market, granted, the market will bail you out eventually (presuming you can afford to be underwater indefinitely and don’t need the money).
It's the worst advice you can give. Technical Analysis is about as useful as crystal healing.

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danielc
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Re: What do you think of this advice?

Post by danielc » Thu Jan 03, 2019 7:01 pm

l1am wrote:
Wed Jan 02, 2019 9:25 pm
Honestly, I don't like the advice. But I am open minded on the possibility of some basic TA improving contribution timing (basic resistance levels on longer timeframes during a bear market). There is some psychology behind markets (fear/greed) e.g. following a 20% market dip from ATH, one could wait for confirmation of a trend reversal.
Being open minded about TA is like being open minded about the Flat Earth theory. There is literally zero merit in it. The first problem with is is that humans have an incredible ability to seem patterns in random noise. Especially in hindsight. You can always convince yourself that you see some shape in the data. Especially given how noisy the data is and how imprecise the shapes are. Waving your hands and saying "fear and greed" does not imply that there is any psychology research behind drawing a badly shaped letter "M" on a stock chart.

I once heard a story of an investor who had a friend who was a huge proponent of TA. This investor used the random number generator from a spreadsheet to generate simulated stock prices and made a plot. He gave the plot to the TA friend and the friend exclaims "what company is this?! We have to buy this!".

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Re: What do you think of this advice?

Post by danielc » Thu Jan 03, 2019 7:04 pm

Sandtrap wrote:
Wed Jan 02, 2019 10:02 pm
Article excerpt:
You need to become smarter than the average broker, even, because the average broker is born and bred to be a perma-bull. It’s part of their training, and many of them simply don’t know any better. Just remember that in the end, they are being trained into the business of getting you to BUY stocks, not convincing you to SELL stocks. The advice they give is virtually always biased (often unconsciously) to the buy side.

My work suggests that the next bear market we experience will probably still be a cyclical bear, so the advice you’re getting to “buy the dip” might work one more time. But I suspect that the bear which FOLLOWS that one (my preliminary time frame is 2025) will be a true secular bear.
Reinforces the importance of sticking to "Bogle Basics" and having an IPS with a high "sleep factor" (realistic risk tolerance).
And . . .
Ignore the noise . . .
Ignore the "experts" . . .
Listen to Prudence . . .
I have no idea how you got those points out of that quote. What that quote says is "Listen to me! I can predict the future!"

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danielc
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Re: What do you think of this advice?

Post by danielc » Thu Jan 03, 2019 7:12 pm

l1am wrote:
Thu Jan 03, 2019 1:17 pm
A lot of professional traders make a living on TA, so I don't think that's entirely true.
A lot of talking heads on the Internet CLAIM to make a living on TA. Name one rich person who says that he or she got rich with TA.

minimalistmarc
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Re: What do you think of this advice?

Post by minimalistmarc » Thu Jan 03, 2019 7:25 pm

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 disagree. If your buying for the very long term then every dip is an opportunity. Doesn’t matter if it plummets further.

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Re: What do you think of this advice?

Post by minimalistmarc » Thu Jan 03, 2019 7:29 pm

l1am wrote:
Thu Jan 03, 2019 1:17 pm
garlandwhizzer wrote:
Thu Jan 03, 2019 1:05 pm
David Jay wrote:

“Technical” market analysis is the modern day equivalent of the witch doctor examining chicken entrails to foretell the future. The guy who coined the term “technical analysis” for a pattern fitting exercise was a marketing genius.
1+

Well put. Technical analysis can accurately define the exact pattern after it has happened. It's ability to predict the future is about the same as a coin flip IMO. It is an extremely clever invention of the financial industry which is very creative at generating fees with the appearance of foreknowledge. People like graphs and finding patterns in randomness. If it actually worked on a reliable basis, they wouldn't be sharing their insights with average-Joe-investor, but rather leveraging up on it themselves and keeping the profits.

Garland Whizzer
A lot of professional traders make a living on TA, so I don't think that's entirely true.
I read somewhere that 95% of traders lose money overall. Unable to verify

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Re: What do you think of this advice?

Post by bertilak » Thu Jan 03, 2019 7:31 pm

danielc wrote:
Thu Jan 03, 2019 7:12 pm
Name one rich person who says that he or she got rich with TA.
William J. O'Neil.

OK, he got rich selling other people on the idea.

He has a VERY sophisticated, multi-faceted marketing system, to the point of creating his own newspaper (International Business Daily), publishing books, producing a series of seminars with a tiered pricing scheme and software tools going up in price as you progress through his ever-more-expensive seminars..
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Re: What do you think of this advice?

Post by bluquark » Thu Jan 03, 2019 7:38 pm

l1am wrote:
Thu Jan 03, 2019 4:57 pm
Rebalancing is actually taking action, i.e. buying stocks during a dip/bear. One could argue that it's a form of market timing, since you're taking a different action based on the state of the current market.
Agreed, rebalancing and CAPE-based SWR are market timing. However, they're acceptable to Bogleheads because they're simple, systematic and mild in terms of magnitude. They are so mild in fact that the main debate is about them is whether they really change anything at all compared to sitting idle. That's very different from explicit market timing actions which tend to have extremely strong effect on portfolio returns.

Personally, I think the main reason to follow them is that "sitting idle" is actually not a realistic thing for non-dead investors. Individuals have money flowing into their investments during the accumulation phase, and money flowing out during retirement. It inevitably creates decisions about which asset class the money goes into or out of. We answer that question based on fixed allocation %, and once in the habit of targeting this %, rebalancing is a natural extension of that.

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Re: What do you think of this advice?

Post by Fallible » Thu Jan 03, 2019 7:48 pm

l1am wrote:
Thu Jan 03, 2019 6:50 pm
Fallible wrote:
Thu Jan 03, 2019 5:15 pm
If rebalancing is simply maintaining an original allocation (which it is), then how is that market timing, which is predicting what the market will do and then investing based on the prediction?
By that definition it isn't, no. But it is reacting to market changes, buying more stock because it dipped.
Or selling some stocks and buying bonds (if stocks did so well that the allocation changed from the original). Rebalancing is about maintaining that original; market timing is largely about predicting what the market will do.
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

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Re: What do you think of this advice?

Post by danielc » Thu Jan 03, 2019 8:14 pm

bertilak wrote:
Thu Jan 03, 2019 7:31 pm
danielc wrote:
Thu Jan 03, 2019 7:12 pm
Name one rich person who says that he or she got rich with TA.
William J. O'Neil.

OK, he got rich selling other people on the idea.

He has a VERY sophisticated, multi-faceted marketing system, to the point of creating his own newspaper (International Business Daily), publishing books, producing a series of seminars with a tiered pricing scheme and software tools going up in price as you progress through his ever-more-expensive seminars..
Getting rich by selling the idea of TA is not what I meant by "getting rich with TA". I know that many people can get rich by selling bad investment advice. Much of the finance industry seems to be built on that concept. So O'Neil got rich selling bad advice. Fine. But is there anyone that got rich with TA itself?

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Re: What do you think of this advice?

Post by danielc » Thu Jan 03, 2019 8:19 pm

bluquark wrote:
Thu Jan 03, 2019 7:38 pm
Agreed, rebalancing and CAPE-based SWR are market timing. However, they're acceptable to Bogleheads because they're simple, systematic and mild in terms of magnitude.
I don't agree. Rebalancing is something Bogleheads usually do once a year or less often. Bernstein recommends rebalancing no more often than once every 2-3 years. That rebalancing schedule can't possibly have anything to do with timing the market.
bluquark wrote:
Thu Jan 03, 2019 7:38 pm
Personally, I think the main reason to follow them is that "sitting idle" is actually not a realistic thing for non-dead investors. Individuals have money flowing into their investments during the accumulation phase, and money flowing out during retirement. It inevitably creates decisions about which asset class the money goes into or out of.
My wife's 401k is set to put in a fixed amount of money in a series of mutual funds. The money is taken automatically before each paycheck and we don't touch it.

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Re: What do you think of this advice?

Post by bertilak » Thu Jan 03, 2019 8:25 pm

danielc wrote:
Thu Jan 03, 2019 8:14 pm
bertilak wrote:
Thu Jan 03, 2019 7:31 pm
danielc wrote:
Thu Jan 03, 2019 7:12 pm
Name one rich person who says that he or she got rich with TA.
William J. O'Neil.

OK, he got rich selling other people on the idea.

He has a VERY sophisticated, multi-faceted marketing system, to the point of creating his own newspaper (International Business Daily), publishing books, producing a series of seminars with a tiered pricing scheme and software tools going up in price as you progress through his ever-more-expensive seminars..
Getting rich by selling the idea of TA is not what I meant by "getting rich with TA". I know that many people can get rich by selling bad investment advice. Much of the finance industry seems to be built on that concept. So O'Neil got rich selling bad advice. Fine. But is there anyone that got rich with TA itself?
I understand. That's why I made the distinction. :happy
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: What do you think of this advice?

Post by bluquark » Thu Jan 03, 2019 8:29 pm

danielc wrote:
Thu Jan 03, 2019 8:19 pm
bluquark wrote:
Thu Jan 03, 2019 7:38 pm
Agreed, rebalancing and CAPE-based SWR are market timing. However, they're acceptable to Bogleheads because they're simple, systematic and mild in terms of magnitude.
I don't agree. Rebalancing is something Bogleheads usually do once a year or less often. Bernstein recommends rebalancing no more often than once every 2-3 years. That rebalancing schedule can't possibly have anything to do with timing the market.
If someone had an IPS that said every 2 years on January 1, look at whether stocks have outperformed bonds over the last 2 years, and if they did then reallocate to 100% bonds, and if they didn't then reallocate to 100% stocks -- that would be clear market timing, and it's also quite similar to what happens in rebalancing (rebalancing merely reallocates ~2.5% based on the latest market behavior rather than 100%).

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Re: What do you think of this advice?

Post by Toons » Thu Jan 03, 2019 8:38 pm

Ignore
:happy
"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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Re: What do you think of this advice?

Post by David Jay » Thu Jan 03, 2019 8:50 pm

l1am wrote:
Thu Jan 03, 2019 1:17 pm
garlandwhizzer wrote:
Thu Jan 03, 2019 1:05 pm
David Jay wrote:

“Technical” market analysis is the modern day equivalent of the witch doctor examining chicken entrails to foretell the future. The guy who coined the term “technical analysis” for a pattern fitting exercise was a marketing genius.
1+

Well put. Technical analysis can accurately define the exact pattern after it has happened. It's ability to predict the future is about the same as a coin flip IMO. It is an extremely clever invention of the financial industry which is very creative at generating fees with the appearance of foreknowledge. People like graphs and finding patterns in randomness. If it actually worked on a reliable basis, they wouldn't be sharing their insights with average-Joe-investor, but rather leveraging up on it themselves and keeping the profits.

Garland Whizzer
A lot of professional traders make a living on TA, so I don't think that's entirely true.
A lot of professionals make a living as a NWM whole life salesman. Or as an EJ rep. Or as an hedge fund manager who can’t beat the SP500.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: What do you think of this advice?

Post by danielc » Thu Jan 03, 2019 8:58 pm

bluquark wrote:
Thu Jan 03, 2019 8:29 pm
If someone had an IPS that said every 2 years on January 1, look at whether stocks have outperformed bonds over the last 2 years, and if they did then reallocate to 100% bonds, and if they didn't then reallocate to 100% stocks -- that would be clear market timing, and it's also quite similar to what happens in rebalancing (rebalancing merely reallocates ~2.5% based on the latest market behavior rather than 100%).
What? That's not even remotely similar to rebalancing. For example, in your scenario you are actually choosing between two portfolios (either 100/0 or 0/100) based on market behaviour. When you rebalance, you are going back to the original portfolio that you had initially chosen.

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Re: What do you think of this advice?

Post by Sandtrap » Thu Jan 03, 2019 10:52 pm

danielc wrote:
Thu Jan 03, 2019 7:04 pm
Sandtrap wrote:
Wed Jan 02, 2019 10:02 pm
Article excerpt:
You need to become smarter than the average broker, even, because the average broker is born and bred to be a perma-bull. It’s part of their training, and many of them simply don’t know any better. Just remember that in the end, they are being trained into the business of getting you to BUY stocks, not convincing you to SELL stocks. The advice they give is virtually always biased (often unconsciously) to the buy side.

My work suggests that the next bear market we experience will probably still be a cyclical bear, so the advice you’re getting to “buy the dip” might work one more time. But I suspect that the bear which FOLLOWS that one (my preliminary time frame is 2025) will be a true secular bear.
Reinforces the importance of sticking to "Bogle Basics" and having an IPS with a high "sleep factor" (realistic risk tolerance).
And . . .
Ignore the noise . . .
Ignore the "experts" . . .
Listen to Prudence . . .
I have no idea how you got those points out of that quote. What that quote says is "Listen to me! I can predict the future!"
Yes. You are correct.
:happy
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Re: What do you think of this advice?

Post by JackoC » Thu Jan 03, 2019 11:27 pm

Fallible wrote:
Thu Jan 03, 2019 5:15 pm
l1am wrote:
Thu Jan 03, 2019 4:57 pm
JackoC wrote:
Thu Jan 03, 2019 4:47 pm
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.
That's actually a really fair point.

Rebalancing is actually taking action, i.e. buying stocks during a dip/bear. One could argue that it's a form of market timing, since you're taking a different action based on the state of the current market. ...
If rebalancing is simply maintaining an original allocation (which it is), then how is that market timing, which is predicting what the market will do and then investing based on the prediction?
The issue isn't what is 'market timing'. As I said originally, the conceptual problem with an arbitrary fixed % in stocks is that you're taking greatly different risk depending on market conditions. Why should you vary your risk like this? Even in general, but especially in case of saying you should automatically buy more stock, more shares of stock, when the market crashes and, almost invariably, risk is especially high.

Again, 'because it worked in the past' has some value as an answer but it's *that* strong an answer. Being 100% (or more) in stocks generally worked in the past too, but it can't be justified *just* by saying it worked out in a past data set. Nor is appeal to authority like 'Bernstein says...' a very strong argument. *Why* does Bernstein say it? Again, besides 'it's worked well in the past'.

As to 'BH's rebalance X often' I don't think you can say any rebalancing to a fixed % is a necessary component of Jack Bogle's philosophy. As was mentioned, it is simple, and it is doing something if you do believe you can't just literally do nothing and might do something less desirable if you try to do nothing. But again those are not really killer answers either.

So point 3 of the 'advice' I would still say is hard to entirely dismiss.

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Re: What do you think of this advice?

Post by oldcomputerguy » Fri Jan 04, 2019 12:11 am

l1am wrote:
Wed Jan 02, 2019 8:15 pm
What should I do during a stock market crash?

Quora link: https://qr.ae/TUnNcK

tldr on advice:
  1. Learn how to perform at least basic technical analysis.
I didn’t read the linked material. This one line is enough to tell me to ignore it.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

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