"Stay course" conflicts: Help me understand.

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get_g0ing
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"Stay course" conflicts: Help me understand.

Post by get_g0ing » Wed Jun 05, 2019 11:24 am

Hello,

I like the writing of Rick Ferri, but I was confused over one aspect. He states that there are three main aspects of investing:
Philosophy, Strategy, Discipline.
To follow your strategy with discipline, i.e. stay the course, over a very long period of time like 20-30 years.

Now this last part "appears" to conflict with "decision making" material that I've come across. The first two parts are the same, i.e. decision making advice also tells you to establish a goal/decision, and then develop a plan/strategy to implement. But the last part is "don't protect, correct". Meaning, if the outcome is not good, don’t protect or stick with your strategy (due to ego), but correct it (tweak it). This is also called being adaptable and flexible and not rigid.

This, in isolation makes sense to me. But also "stay the course" makes sense to me. Had I not read about staying the course (as part of BH philosophy) and tried to apply the above method to investing, I would tweak the strategy every year to adjust or adapt based on the returns of the strategy. But since I've read BH/Rick, I know that would not be a sensible approach.

Has anyone in their learning history thought like this, or about this? How to reconcile both things? Is it that one approach applies to some situations, and the other applies elsewhere?
I hope this is not a bad question.

Thank you.
Last edited by get_g0ing on Wed Jun 05, 2019 12:51 pm, edited 1 time in total.

azanon
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Re: "Stay course" conflicts: Help me understand.

Post by azanon » Wed Jun 05, 2019 11:35 am

I think Rick (and Bogle) would say that Philosophy, strategy, and Discipline don't have to ever change. There aren't going to be any new discoveries so great, as to obsolete what is known already.

Perhaps you reevaluate because your life circumstances changed, but that's mutually exclusive from your portfolio philosophy, strategy, and discipline.

bryanm
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Re: "Stay course" conflicts: Help me understand.

Post by bryanm » Wed Jun 05, 2019 11:38 am

get_g0ing wrote:
Wed Jun 05, 2019 11:24 am
Had I not read about staying the course (as part of BH philosophy) and tried to apply the above method to investing, I would tweak the strategy every year to adjust or adapt based on the returns of the strategy. But since I've read BH, I know that would not be a sensible approach.
This is a signal vs noise question. You should alter course when sufficient evidence ("signal") exists indicating that a change in course would be beneficial. In investing, returns are often more noise than signal. Thus, adjusting based on returns is not recommended.

(Some things are signal. Costs and taxes are an "easy" ones. Risk is another, but a bit harder. Then you get into a wide variety of things that some very smart people think are signals, but that there is significant disagreement on--things like tilting.)

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Dialectical Investor
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Re: "Stay course" conflicts: Help me understand.

Post by Dialectical Investor » Wed Jun 05, 2019 11:43 am

"Stay the course" is not useful advice by itself. It has no meaning without reference to the course in question. If you are on the wrong course, you'd better make a change. But what is a good course? New information is available to you on a constant basis. Some of this information may be useful. The key is to decipher useful information from useless information. You can't do this if you ignore all information. You also can't do this effectively if you respond to every new thing you read, see, or hear. If you just do what someone tells you without evaluating the merits of the advice on your own, how do you know if you're on the right course? You don't. You get better at this process as you go along.

Related, and in light of the above, I'd be suspicious of advice received from anyone who espoused "stay the course" as a guiding principle without reference to what course they are referring to, and a cogent defense of that course.

Beehave
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Re: "Stay course" conflicts: Help me understand.

Post by Beehave » Wed Jun 05, 2019 12:06 pm

I believe that if you read or listen to Rick Ferri, Larry Swedloe, Michael Kitces, or Wade Pfau the basic message will be that discipline means sticking to a plan where the plan includes allocation targets and rebalancing bounds to trigger rebalancing activities to stay within those allocation targets. I do not think that for the average investor they would recommend trying to observe the market and change allocation percentages and rebalancing strategy and tactics based on observation of market behavior under any likely circumstances.

The repeated mantra will be about people who made changes, invariably driven by fear, who sold near a market low and either never got back in, or got back in at a market high only to sell again when things cratered again. The consistent message I've seen is to set the strategy and stay the course.

To be more specific, the recommendtions above apply to index investing, not to stock picking. I long ago learned to focus on index investing rather than stock picking because emotion much more easily comes into play in each phase of buying, holding, and selling of individual stocks. So with individual stocks you need to be attentive and ready to change direction in a way that is different from holding index funds. The farther one strays from index investing, the greater the need to pay heed to trends and the greater the likelihood that emotions will become overpowering and cause mistakes.

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Artful Dodger
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Re: "Stay course" conflicts: Help me understand.

Post by Artful Dodger » Wed Jun 05, 2019 12:07 pm

So, here is what the Wiki says...

This is perhaps the most challenging part of Boglehead investing, but is essential to its success. Bogleheads adopt a reasonable investment plan and then stay the course. When index funds were dramatically outperforming all the alternatives in the 1990's, this advice was easy to follow. But with the crash of 2008, many investors panicked, or at least wavered in their commitment to buy, hold, and rebalance investing. Bogleheads realize that in exchange for the high returns that stocks produce over time, the equity markets are enormously volatile. After big drops, it can be very difficult to continue to follow your pre-set plan. Even during normal markets there are always distractions, such as attractive new asset classes that have recently outperformed, or fancy alternative investment vehicles, such as hedge funds.

Bogleheads strive not to be distracted, and strive not to waver.

Create an asset allocation that includes bonds to reduce the volatility caused by the stock part of your portfolio, then rebalance when needed. This balanced approach will help you to stay the course. Once you set up a Boglehead portfolio, the only real course correction needed is to rebalance once per year to bring the stock/bond allocations back to pre-set levels. (Investors generally want to increase bond holdings slightly every year, such as by setting the percentage of bonds "to your age in bonds".) Although making only that one change every year takes discipline, it is also an enormous relief to be able to tune out the endless chatter of when and what to buy and sell.


The emphasis here is to make a plan, follow it, and not be distracted by market volitility, attractive new asset classes or investments.

This is what I follow, and it works for me. As noted, they expect you to review your asset allocation in light of your age and risk tolerance, so it will likely change over time. You definitely should make contributions and adjustments taking favorable tax strategies into account; ie. maxing 401k and/or IRAs for maximizing tax savings, employer match, as well as having some funds in taxable or ROTH for minimizing tax in the future when withdrawing funds.

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Re: "Stay course" conflicts: Help me understand.

Post by Fallible » Wed Jun 05, 2019 12:15 pm

get_g0ing wrote:
Wed Jun 05, 2019 11:24 am
Hello,

I like the writing of Rick Ferri, but I was confused over one aspect. He states that there are three main aspects of investing:
Philosophy, Strategy, Discipline.
To follow your strategy with discipline, i.e. stay the course, over a very long period of time like 20-30 years.

Now this last part "appears" to conflict with "decision making" material that I've come across. The first two parts are the same, i.e. decision making advice also tells you to establish a goal/decision, and then develop a plan/strategy to implement. But the last part is "don't protect, correct". Meaning, if the outcome is not good, don’t protect or stick with your strategy (due to ego), but correct it (tweak it). This is also called being adaptable and flexible and not rigid.

This, in isolation makes sense to me. But also "stay the course" makes sense to me. Had I not read about staying the course (as part of BH philosophy) and tried to apply the above method to investing, I would tweak the strategy every year to adjust or adapt based on the returns of the strategy. But since I've read BH, I know that would not be a sensible approach. ...
Rick Ferri can best answer your question. But if I understand what you're saying, there is no conflict or contradiction here. Staying the course means staying the RIGHT course for you. In his excellent book, All About Asset Allocation, 2nd ed., Rick writes in Chapter 14 about " When to Change Your Asset Allocation," and that includes life changes, too much risk for your tolerance level, and estate planning needs.

So, you should not "tweak your strategy every year to adjust or adapt based on the returns of the strategy."
"John Bogle has changed a basic industry in the optimal direction. Of very few can this be said." ~Paul A. Samuelson

Topic Author
get_g0ing
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Re: "Stay course" conflicts: Help me understand.

Post by get_g0ing » Wed Jun 05, 2019 5:23 pm

bryanm wrote:
Wed Jun 05, 2019 11:38 am
get_g0ing wrote:
Wed Jun 05, 2019 11:24 am
Had I not read about staying the course (as part of BH philosophy) and tried to apply the above method to investing, I would tweak the strategy every year to adjust or adapt based on the returns of the strategy. But since I've read BH, I know that would not be a sensible approach.
This is a signal vs noise question. You should alter course when sufficient evidence ("signal") exists indicating that a change in course would be beneficial. In investing, returns are often more noise than signal. Thus, adjusting based on returns is not recommended.

(Some things are signal. Costs and taxes are an "easy" ones. Risk is another, but a bit harder. Then you get into a wide variety of things that some very smart people think are signals, but that there is significant disagreement on--things like tilting.)
Dialectical Investor wrote:
Wed Jun 05, 2019 11:43 am
"Stay the course" is not useful advice by itself. It has no meaning without reference to the course in question. If you are on the wrong course, you'd better make a change. But what is a good course? New information is available to you on a constant basis. Some of this information may be useful. The key is to decipher useful information from useless information. You can't do this if you ignore all information. You also can't do this effectively if you respond to every new thing you read, see, or hear. If you just do what someone tells you without evaluating the merits of the advice on your own, how do you know if you're on the right course? You don't. You get better at this process as you go along.

Related, and in light of the above, I'd be suspicious of advice received from anyone who espoused "stay the course" as a guiding principle without reference to what course they are referring to, and a cogent defense of that course.
I like how you put it. Very useful thoughts.

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David Jay
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Re: "Stay course" conflicts: Help me understand.

Post by David Jay » Wed Jun 05, 2019 6:09 pm

get_g0ing wrote:
Wed Jun 05, 2019 11:24 am
I would tweak the strategy every year to adjust or adapt based on the returns of the strategy.
No. An investment strategy that has any equity (stock) position can’t possibly be judged by a one-year evaluation.

As bryanm might put it, one year in the equity markets is pure noise.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Dandy
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Re: "Stay course" conflicts: Help me understand.

Post by Dandy » Thu Jun 06, 2019 6:38 am

Stay the course is a very good general advice. When you invest you know that there will be equity corrections of 50% or more and possibly equity gains of 50% or more. So understand that and don't panic or get greedy rebalance and move on. Easy to say sometimes a lot harder to stick to. Many, when there is a big equity decline get a truer picture of their risk tolerance -- especially if their assets are large - so the paper loss is also.

Like most good advice it doesn't always apply in all circumstances. Usually, your personal situation can be a reason to change course. e.g. health, loss of a job, divorce. But, not often mentioned, Mr. Bogle changed course around 2000 when markets were extremely high (and he was in ill health). He said when markets are extremely overvalued you should adjust. It is rare for markets to be extremely overvalued. I believe he reduced his equity exposure by something like 25% e.g. from 75 to 50 something like that magnitude.

I guess that the bottom line is you are the captain of your portfolio and you have to decide when/if there is a reason not to stay the course. You have to remember that it is normal for large equity plunges to occur now and then. You have to keep an eye on your investment goal and assess whether the risk you are taking is sufficient or excessive. Age, amount of human capital, health, debt, income, expenses, job security, etc. all can play a role in that decision. It is "easy" to rely on stay the course since doing otherwise is complex and fraught with risks. But only you know your detailed personal situation and sometimes a good investment guideline like stay the course may not apply. So, stay the course but remember you are the captain.

goblue100
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Re: "Stay course" conflicts: Help me understand.

Post by goblue100 » Thu Jun 06, 2019 8:00 am

I pretty much have invested according to Bogleheads principles long before I ever heard of Bogleheads. I don't remember where I first read it, sometime in the early 90's I guess, but I recall always thinking that more money is lost by people moving money in and out of the market then just leaving it in place. Not to say I didn't have a lot of regrets in the .com crash. Now there are many threads on this forum by people who are moving money around when the breeze changes directions. Maybe they'll do better, but I figure in the long run they will do worse. They'll miss dividends, or zig when they should have zagged and miss a big move up. Stay the course has worked for me. I'm contemplating retirement at 58, but will probably stay until 60 just to give me some extra wiggle room.
If someone is investing in limited sector funds or some strange derivatives I would probably advise them to not stay that course. If you are investing in broadly diversified equity funds according to Boglehead principles, I suggest you stay that course.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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