Dry powder strategy?

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Robot Monster
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Dry powder strategy?

Post by Robot Monster »

This goes out to all those who:

- have either sold out completely during the outbreak
- set aside some "dry powder"

I personally set aside some dry powder, have been watching in dismay the seemingly unstoppable stock market rally, and have been asking myself whatever shall I do with all this cash I so brilliantly set aside. If you're also in the "dry powder club" I thought it would be nice if we could all get together and commiserate a bit.

So, what is your dry powder strategy? What's stopping you from deploying, taking that brave dive back in (or at least tiptoeing slowly back in, dollar cost averaging style)?

***

Here's what's stopping me: Warren Buffett. Yes, Warren Buffett, and the mountain of cash he has Berkshire sitting on. “The cash position isn’t that huge when I look at the worst-case possibilities,” he said during Berkshire’s virtual shareholder meeting earlier this month. I ask myself, why shouldn't I keep my powder dry if he's basically doing the same.

And yet...

I also ask myself if I'm just grasping for reasons to double down on my own stupidity.

*Sigh*
"I think we may see a return to full employment next year." -- Janet Yellen, March 23rd 2021
livesoft
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Re: Dry powder strategy?

Post by livesoft »

My dry powder strategy is not to have dry powder. I have bond funds instead which one could call wet powder. I have an IPS that says that I MUST buy equities on a Really Bad Day. There have a been a few RBDs most certainly in March and April that were screaming at everyone to buy on those days. I exchanged from bond funds to equity funds on those days.

I may have to modify my IPS to add a big Monday drop that follows a big Friday drop to the "must buy" category, but I have to think more about that.

I personally believe that these buy signals arise from behavioral errors made by panicky investors.
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willthrill81
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Re: Dry powder strategy?

Post by willthrill81 »

A 'dry powder strategy' is market timing, plain and simple. For that reason, it's widely eschewed on the forum.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
milktoast
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Re: Dry powder strategy?

Post by milktoast »

I have a six month EF and an IPS that causes me to deploy half of that during a rapid market decline. Then it refills next time I get compensated (twice a year due to comp structure).

So yeah, I'm carrying that dry powder most of the time. But I've also used it to purchase car, purchase boat, pay for vacation, etc. So it's not strictly dry powder, and maybe it's not really an EF. It's just cash that I only use if I'm confident that I'll have employment and credit access until I can refill.

Creating dry powder during a crash and then deploying it during a rally isn't something I've tried.

My advice is to immediately deploy your powder into an AA that you would actually hold if this happens again. And who knows, it could easily happen again if we start schools up on labor day and then have to shut them down again before halloween.

[Edit: forgot to say, right now I have no dry powder. I put it into the market on 2/27, 3/9, and 3/16. That first one was too early. But I'm up over 10%. And yes, I'm a blatant market timer.]
LeslieSmiley
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Re: Dry powder strategy?

Post by LeslieSmiley »

"dry powder" is only useful if you can successfully execute the deployment of such powder to buy assets in a significant discount when the market is down. based on your post, it seems that you did not pull the trigger to buy.

warren buffet evidently deploys his "dry powder" when stocks are "cheap" when the market was/is down, so based on that factor, you should sit on your "dry powder" if you think you can deploy your "dry powder" in the future to reap the benefit of its purpose. but if you can't or will not or are not able to due to various reasons, then perhaps setting aside "dry powder" might not the right investment strategy or principle for you.

i am assuming that you want to maintain your original AA before you set aside the cash, if so, then you can either go right back in the market to get back to your AA and stomach the loss and learn a lesson (assuming that you now think it was not a right move) or you can DCA back in the market for psychological reason.

the other thing to consider is to change your AA to a more conservative one by investing your "dry powder" in fixed income instruments like CD, TIPS, i-bond or bond index funds and etc.

risk tolerance and degree of ROI is a very personal thing and only you can make the right decision for you...
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MNGopher
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Re: Dry powder strategy?

Post by MNGopher »

I haven't sold anything to create any dry powder money, but my bank account has gotten bigger the last 3 months, even after maxing all my retirement accounts, simply because there is nothing for me to spend money on lately due to the Covid-19 restrictions. So I've been deploying the extra cash into my taxable account on the opposite week that my biweekly employer sponsored plan gets invested, especially after RBD's. This has also allowed me to rebalance without selling anything.
Beehave
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Re: Dry powder strategy?

Post by Beehave »

I keep an allocation between 60/40 and 50/50. The non-stock portion includes money market funds. When the market goes down precipitously in a day, I deploy some of the "dry powder." So during the March downturn, there were several drops of 1000 points or so in the Dow, and I moved some cash into index funds on those days.

I fully expected to be deploying more cash, but when the market went up I stopped buying.

I know - - - many here dislike keeping a bunch of cash around (i.e., money market) and many probably do not like this "catch the falling knife" methodology of only buying on the downturn. However, it works for me. I do not panic at all when the market is sinking. It is simply a bargain shopping event for me. As the market goes back up, I sit back and enjoy that too. If the stock allocation rises too high, then RMDs can easily back that off.
260chrisb
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Re: Dry powder strategy?

Post by 260chrisb »

willthrill81 wrote: Thu May 28, 2020 2:32 pm A 'dry powder strategy' is market timing, plain and simple. For that reason, it's widely eschewed on the forum.
I could not agree more! I despise the term "dry powder" and the silly use of it. My money goes to my mortgage, my 401K, my HSA, my Roth, my emergency fund if need be, my checking account, and to my diversified taxable account. I've seldom if ever had any money sitting around waiting for anything unless I'm saving for a major purchase that is not market based.
index245
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Re: Dry powder strategy?

Post by index245 »

I think it depends what you are looking for, I would have (and have) deployed excess cash any time since February in a few areas.

Small Cap Value, Emerging Markets, Developed Markets....started cheap and ended up REALLY cheap. They are way up now, but still probably cheap. If this is a long term deployment, you could comfortably buy now (or any time in the previous few months). That's what I did.

In terms of the S&P500, I personally think it is really expensive (many metrics agree), but of course, I "know nuthin'" I'd probably still just deploy the cash and move on.

I auto invest as I receive my paycheck, then I don't worry about an expensive purchase (which I'm sure my Monday investment was). Over time, you won't remember the price paid anyways.
Last edited by index245 on Thu May 28, 2020 3:05 pm, edited 1 time in total.
illumination
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Re: Dry powder strategy?

Post by illumination »

One big problem with the dry powder strategy (in addition to all the studies that it loses to lump sum something like 70% of the time) is the same type of psychology for holding reserves for that situation almost always works against the person because they always think it will go lower. And if the market does start going back up, well that's a "sucker's rally" or a "dead cat bounce", etc and they should just continue to wait because it will dip down further. There's always an excuse to be made.

I don't really take any market timing direction from Warren Buffett, but if Berkshire holds over $137 billion in "cash", how much was deployed when everything was in a full blown panic? At the very least, he should have aggressively bought back his own stock. You would think someone that had been waiting that long with so much cash would have been aggressively buying, instead he found assets of his he didn't like and liquidated.
Broken Man 1999
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Re: Dry powder strategy?

Post by Broken Man 1999 »

OP, a question or two for you:

What do you have in common with Mr Buffett?
- Do you buy so much company stock that you can influence the management?
- Do you have a gazillion $$$ flowing in every month from insurance company premiums?
- Do you have trouble finding companies that you would like to invest in, as does Mr Buffett?
- Do you find satisfaction in trailing the S&P 500 index?

Honestly, I would wager you have very little in common with Mr Buffett. So then, why would you want to emulate him in the investment environment when you have so little in common?

Me, I have no dry powder. The last influx of $$$ into our retirement portfolio was in 2015, when I added my lump-sum pension to my TIRA. We only withdraw funds for expenses now, being in retirement. I try to remain 100% invested at all times.

Today I can (and do) make changes to my AA by exchanging one asset class to another asset class, according to my re-balancing guide. But, no dry powder.

Did you sell assets to obtain your dry powder?

How has your dry powder changed your AA?

Broken Man 1999
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whodidntante
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Re: Dry powder strategy?

Post by whodidntante »

My dry powder is leverage. My own money is invested. It's kind of like not bringing a gun to a battle. If you need one, there will plenty of them laying on the ground.
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Re: Dry powder strategy?

Post by whodidntante »

livesoft wrote: Thu May 28, 2020 2:16 pm I may have to modify my IPS to add a big Monday drop that follows a big Friday drop to the "must buy" category, but I have to think more about that.
Do whatever you want, just so long as it's ambiguous and we can speculate about it.
livesoft
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Re: Dry powder strategy?

Post by livesoft »

^But of course!
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Re: Dry powder strategy?

Post by ginrummy »

I’m like you, I have dry powder. Didn’t mean to but had a bond come due and sold some equity at the beginning of this. I agree with the emerging markets and small cap value comment but I can’t get myself to pull the trigger on these. I’m probably watching the Vix. When it gets back in the teens for a solid two week period I may buy UPRO/TMF and try to make up some losses. I’m only about 7-8% too heavy in cash. Other than that I’m sitting on my hands. For some reason the surgical mask thing still has me a bit uneasy.
renue74
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Re: Dry powder strategy?

Post by renue74 »

No dry powder. I have all my assets in bond or stock funds already. No EF, either. If I need money in an emergency, I can use a credit card and pay back with assets sold.

As I obtain more cash from either my W2 income or from my rental property income, I invest monthly (multiple times monthly) into the market.

I'm 45 and wife 50. In the really bad of March, our AA was still only down to 56/44 stock/bond. I think it's back up to 63/37 stock/bond now. Our ideal AA is 65/35.
barnaclebob
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Re: Dry powder strategy?

Post by barnaclebob »

Dry powder strategies are a behavioral trap. Do you track every dollar against what it would be worth had you invested it ASAP? If not you have no way of determining success. Change my mind.
H-Town
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Re: Dry powder strategy?

Post by H-Town »

Robot Monster wrote: Thu May 28, 2020 2:13 pm This goes out to all those who:

- have either sold out completely during the outbreak
- set aside some "dry powder"

I personally set aside some dry powder, have been watching in dismay the seemingly unstoppable stock market rally, and have been asking myself whatever shall I do with all this cash I so brilliantly set aside. If you're also in the "dry powder club" I thought it would be nice if we could all get together and commiserate a bit.

So, what is your dry powder strategy? What's stopping you from deploying, taking that brave dive back in (or at least tiptoeing slowly back in, dollar cost averaging style)?

***

Here's what's stopping me: Warren Buffett. Yes, Warren Buffett, and the mountain of cash he has Berkshire sitting on. “The cash position isn’t that huge when I look at the worst-case possibilities,” he said during Berkshire’s virtual shareholder meeting earlier this month. I ask myself, why shouldn't I keep my powder dry if he's basically doing the same.

And yet...

I also ask myself if I'm just grasping for reasons to double down on my own stupidity.

*Sigh*
See... I'm kind to myself and don't want to put myself between a rock and a hard place.

1) It's on auto pilot
2) On RBD: exchange bond funds into stock funds
3) TLH when such opportunities arise

I survived 2008 and 2020 (still ongoing but eh). Time is best spent elsewhere.
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firebirdparts
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Re: Dry powder strategy?

Post by firebirdparts »

I already posted in the "Dow 1800" thread.
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barnburner4444
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Re: Dry powder strategy?

Post by barnburner4444 »

We stumbled on some “dry powder” so to speak when we transferred $ to fidelity from wife’s old IRA and northwest mutual whole life insurance we aborted after learning about it here. Unfortunately they transferred close to the recent bottom. I thought I was smarter than the market and put it in MM and waited for the “real bottom”. I’ve watched it tick up pretty consistently since. While I’ve bought a double dips, I put the remaining $40k into total market today.

Wife is about 20 years away from retirement, figured I was sweating that for not a huge difference in the end...

So moral of the story is the market will lilely tank tomorrow :oops:
Carguy85
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Re: Dry powder strategy?

Post by Carguy85 »

Maybe market timing feels like gambling at the casino? I hate gambling. Other than some type of excitement one might get to choose correctly it’s a futile if not detrimental effort. What does it matter if you buy today or tomorro or a week from now Looking back 5-10 years from now? Everyone on this forum knows that. Unless if you just like to gamble put it all in now and clear your mind of it.
remomnyc
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Re: Dry powder strategy?

Post by remomnyc »

I consider my entire fixed income portfolio potential dry powder. Also, I have CDs and Treasuries that mature every 6 mos so I rebalance regularly as those mature. This week I increased my cash/savings from 1x to 2x expenses to avoid selling stocks over the next 2 years. I guess that could be considered dry powder as well.
UpperNwGuy
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Re: Dry powder strategy?

Post by UpperNwGuy »

I have never had dry powder. I don't need it. It's against my IPS. I only invest on the first of each month, and I always invest the exact same amount no matter what the market has been doing. I don't care about "really bad days" because, for me, such days are not actionable. Am I missing market timing opportunities? Probably. Do I care? Not a bit.
Mercurius
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Re: Dry powder strategy?

Post by Mercurius »

I'm sitting in 95% cash and won't be making any moves regardless of what happens until the Q2 earnings are in. I just don't trust this rally. There is too much risk in such a high valuation for so few companies. Too many are unemployed and I think that it can't help but trickle up.

Mom and Pop shops are closed and many are gone for good, but I don't think that it will be felt by the stock market as a whole until at least Q3. By the end of Q3, we will have opened up the country enough to see the damage that was done and I would hope the market would make more sense then. I'm sure that since this is an election year, the opportunity to buy low will be very limited given the immense pressure to make things look presentable for the voters. But, I'm betting that the Fed won't react quickly enough.

I've been considering investing my dry powder in treasuries but haven't had time to pull the trigger due to work. At these interest rates, it seems like keeping everything in a money market fund is as good.
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Re: Dry powder strategy?

Post by Yarlonkol12 »

If you have any debt, why not use it to pay it off? Even paying down a low rate mortgage is going to give you a much better rate of return than any safe fixed income option, especially when you factor in paying taxes on the unqualified dividends/interest of these products. You could keep a zero balance HELOC for "dry powder", it's not something I would be comfortable doing but I think it would be better than keeping cash for dry powder + mortgage debt.
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TechGuy365
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Re: Dry powder strategy?

Post by TechGuy365 »

Mercurius wrote: Thu May 28, 2020 6:12 pmBut, I'm betting that the Fed won't react quickly enough.
I would be careful with that assumption because the Fed and JPowell had reacted very quickly, overwhelmingly and effectively to everything that has happened since February. Planet Money did a whole series of Fed responses not long ago. We can argue about whether all these printing will lead to inflation in the future (recent precedents says not), but chances of a bigger and more immediate problem of depression may have been avoided.
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rob
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Re: Dry powder strategy?

Post by rob »

I absolutely have a "dry powder" strategy.... but I have to earn it in salary first and no employer has yet let me advance a few years of salary. :D

Like most here, if your looking at this then it's market timing under another name.
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Robot Monster
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Re: Dry powder strategy?

Post by Robot Monster »

Broken Man 1999 wrote: Thu May 28, 2020 3:19 pm Honestly, I would wager you have very little in common with Mr Buffett. So then, why would you want to emulate him in the investment environment when you have so little in common?

Did you sell assets to obtain your dry powder?

How has your dry powder changed your AA?
Regarding emulating Buffett: Buffett is essentially setting aside dry powder on behalf of Berkshire investors i.e. common folk like me. I see the arguable difference is that Buffett has the know-how for when to best deploy that dry powder, whereas I might not. After all, he's Warren Buffett, and I'm me.

I sold some stock after the market had moved higher, after having bought on the way down. It was not a monumental amount of money either way (just enough to be annoying). I have enough stock to achieve my financial goals. I've bought into the Bogelhead philosophy enough that I maintained my basic stock AA.
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Re: Dry powder strategy?

Post by Buddtholomew »

I don’t see much difference at current yields between a 60/40 stocks/bonds and 60/40 stocks/cash AA unless “dry powder” is additional funds held outside of the AA.

If I have 40% in cash am I holding “dry powder”?
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climber2020
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Re: Dry powder strategy?

Post by climber2020 »

Mercurius wrote: Thu May 28, 2020 6:12 pm I'm sitting in 95% cash and won't be making any moves regardless of what happens until the Q2 earnings are in. I just don't trust this rally.
I know this is an older thread, but what did you end up doing over the remainder of the year?
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Re: Dry powder strategy?

Post by Broken Man 1999 »

climber2020 wrote: Sat May 01, 2021 1:35 pm
Mercurius wrote: Thu May 28, 2020 6:12 pm I'm sitting in 95% cash and won't be making any moves regardless of what happens until the Q2 earnings are in. I just don't trust this rally.
I know this is an older thread, but what did you end up doing over the remainder of the year?
It appears you have quoted the last post of Mercurius, made May 28, 2020. None since.

Like Elvis, he/she is no longer in the house!

I do hope he/she is no longer 95% cash.

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TheDoctor91
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Re: Dry powder strategy?

Post by TheDoctor91 »

If you're allocating money towards cash instead of something else with a negative correlation to stocks, like bonds, especially long term treasuries, then you will do worse than someone fully invested.

Recently, anyways. There have been periods in US history where that wasn't the case and in 2018 we saw that as well, but most times you're better off holding bonds.
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Re: Dry powder strategy?

Post by TheDoctor91 »

If you're allocating money towards cash instead of something else with a negative correlation to stocks, like bonds, especially long term treasuries, then you will do worse than someone fully invested.

Recently, anyways. There have been periods in US history where that wasn't the case and in 2018 we saw that as well, but most times you're better off holding bonds.
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Robot Monster
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Re: Dry powder strategy?

Post by Robot Monster »

Rereading this topic I created a year ago is like looking at an old, embarrassing yearbook photo. Boy, was I foolish back then. Dry powder strategy? I might as well have asked about everyone's "shoot yourself in the foot" strategy.
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willthrill81
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Re: Dry powder strategy?

Post by willthrill81 »

Robot Monster wrote: Sat May 01, 2021 2:24 pm Rereading this topic I created a year ago is like looking at an old, embarrassing yearbook photo. Boy, was I foolish back then. Dry powder strategy? I might as well have asked about everyone's "shoot yourself in the foot" strategy.
I'm obviously not opposed to market timing since I'm one of the resident trend followers around here, but I much prefer rules-based timing strategies, and 'dry powder' strategies rarely seem to be used as such. Rather, it seems to be predicated on waiting for the market to fall before investing. But as you eluded to, unless you deployed this cash within a narrow time last year when it seemed like we might be in for Spanish Flu 2.0 and all of the economic fallout pertaining thereto, this strategy didn't work out well at all.

Did you ever deploy your dry powder last year?
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
goblue100
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Re: Dry powder strategy?

Post by goblue100 »

willthrill81 wrote: Thu May 28, 2020 2:32 pm A 'dry powder strategy' is market timing, plain and simple. For that reason, it's widely eschewed on the forum.
I know this is old, but I would modify the above to say it should be eschewed on the forum, but like market timing and other behavioral mistakes it lives on. I mean, if we don't make behavioral mistakes how can we under perform the index?
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willthrill81
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Re: Dry powder strategy?

Post by willthrill81 »

goblue100 wrote: Sat May 01, 2021 2:39 pm
willthrill81 wrote: Thu May 28, 2020 2:32 pm A 'dry powder strategy' is market timing, plain and simple. For that reason, it's widely eschewed on the forum.
I know this is old, but I would modify the above to say it should be eschewed on the forum, but like market timing and other behavioral mistakes it lives on. I mean, if we don't make behavioral mistakes how can we under perform the index?
https://www.thebalance.com/why-average- ... ns-2388519
For the 20 years ending December 31, 2019, the S&P 500 Index averaged 6.06% a year. The average equity fund investor earned a market return of only 4.25%.
The problem with the information you cite is that it came from the infamous Dalbar study, which was fatally flawed. They confused time-weighted returns with dollar-weighted returns and came to completely erroneous conclusions as a result. There are existing threads discussing this. In truth, the purported gap in average investor returns and those of the market seems to be far smaller, possibly non-existent.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Robot Monster
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Re: Dry powder strategy?

Post by Robot Monster »

willthrill81 wrote: Sat May 01, 2021 2:35 pm
Robot Monster wrote: Sat May 01, 2021 2:24 pm Rereading this topic I created a year ago is like looking at an old, embarrassing yearbook photo. Boy, was I foolish back then. Dry powder strategy? I might as well have asked about everyone's "shoot yourself in the foot" strategy.
I'm obviously not opposed to market timing since I'm one of the resident trend followers around here, but I much prefer rules-based timing strategies, and 'dry powder' strategies rarely seem to be used as such. Rather, it seems to be predicated on waiting for the market to fall before investing. But as you eluded to, unless you deployed this cash within a narrow time last year when it seemed like we might be in for Spanish Flu 2.0 and all of the economic fallout pertaining thereto, this strategy didn't work out well at all.

Did you ever deploy your dry powder last year?
Yes, my "dry powder strategy" was, sadly, "wait till the market falls" strategy. I had to check my Vanguard statement to see when I came to my senses and deployed the dry powder. I invested a bit of it on June 8th into the Vanguard Commodities fund. On August 6th and 7th I appear to have gone buck wild, deploying all the dry powder, and then some, into VEA, and again added on Oct 9th to VEA the equivalent of what I had in dry powder originally.
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willthrill81
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Re: Dry powder strategy?

Post by willthrill81 »

Robot Monster wrote: Sat May 01, 2021 3:04 pm
willthrill81 wrote: Sat May 01, 2021 2:35 pm
Robot Monster wrote: Sat May 01, 2021 2:24 pm Rereading this topic I created a year ago is like looking at an old, embarrassing yearbook photo. Boy, was I foolish back then. Dry powder strategy? I might as well have asked about everyone's "shoot yourself in the foot" strategy.
I'm obviously not opposed to market timing since I'm one of the resident trend followers around here, but I much prefer rules-based timing strategies, and 'dry powder' strategies rarely seem to be used as such. Rather, it seems to be predicated on waiting for the market to fall before investing. But as you eluded to, unless you deployed this cash within a narrow time last year when it seemed like we might be in for Spanish Flu 2.0 and all of the economic fallout pertaining thereto, this strategy didn't work out well at all.

Did you ever deploy your dry powder last year?
Yes, my "dry powder strategy" was, sadly, "wait till the market falls" strategy. I had to check my Vanguard statement to see when I came to my senses and deployed the dry powder. I invested a bit of it on June 8th into the Vanguard Commodities fund. On August 6th and 7th I appear to have gone buck wild, deploying all the dry powder, and then some, into VEA, and again added on Oct 9th to VEA the equivalent of what I had in dry powder originally.
So what is your plan going forward?
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Dry powder strategy?

Post by goblue100 »

willthrill81 wrote: Sat May 01, 2021 3:03 pm
The problem with the information you cite is that it came from the infamous Dalbar study, which was fatally flawed. They confused time-weighted returns with dollar-weighted returns and came to completely erroneous conclusions as a result. There are existing threads discussing this. In truth, the purported gap in average investor returns and those of the market seems to be far smaller, possibly non-existent.
Thanks for the information. I'm a sporadic consumer of this forum, and was not aware the study was discredited. I do believe that a lot of investors do under perform the funds they hold but will attempt no further proof.
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
Marseille07
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Re: Dry powder strategy?

Post by Marseille07 »

I'm just using a simple TA and deploying new monies accordingly. It's slow but eventually depletes my dry powder.
Hebell
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Re: Dry powder strategy?

Post by Hebell »

Mercurius wrote: Thu May 28, 2020 6:12 pm I'm sitting in 95% cash and won't be making any moves regardless of what happens until the Q2 earnings are in. I just don't trust this rally. There is too much risk in such a high valuation for so few companies. Too many are unemployed and I think that it can't help but trickle up.

Mom and Pop shops are closed and many are gone for good, but I don't think that it will be felt by the stock market as a whole until at least Q3. By the end of Q3, we will have opened up the country enough to see the damage that was done and I would hope the market would make more sense then. I'm sure that since this is an election year, the opportunity to buy low will be very limited given the immense pressure to make things look presentable for the voters. But, I'm betting that the Fed won't react quickly enough.

I've been considering investing my dry powder in treasuries but haven't had time to pull the trigger due to work. At these interest rates, it seems like keeping everything in a money market fund is as good.
I didn't need to write my post. I can just ditto yours (though a lot of my cash is stable value funds, MYGAs, I bonds, EEs, and a high yield credit union)
007Investor
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Joined: Mon Mar 08, 2021 1:34 am

Re: Dry powder strategy?

Post by 007Investor »

Robot Monster wrote: Thu May 28, 2020 2:13 pm This goes out to all those who:

- have either sold out completely during the outbreak
- set aside some "dry powder"

I personally set aside some dry powder, have been watching in dismay the seemingly unstoppable stock market rally, and have been asking myself whatever shall I do with all this cash I so brilliantly set aside. If you're also in the "dry powder club" I thought it would be nice if we could all get together and commiserate a bit.

So, what is your dry powder strategy? What's stopping you from deploying, taking that brave dive back in (or at least tiptoeing slowly back in, dollar cost averaging style)?

***

Here's what's stopping me: Warren Buffett. Yes, Warren Buffett, and the mountain of cash he has Berkshire sitting on. “The cash position isn’t that huge when I look at the worst-case possibilities,” he said during Berkshire’s virtual shareholder meeting earlier this month. I ask myself, why shouldn't I keep my powder dry if he's basically doing the same.

And yet...

I also ask myself if I'm just grasping for reasons to double down on my own stupidity.

*Sigh*

Can you update your thoughts based on what Buffett said today, anything noteworthy that either changes your opinion or reinforces your caution, thanks.

Update: I just realized your original post was from last year, nevertheless what are your thoughts based on what was said today, thanks.
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willthrill81
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Re: Dry powder strategy?

Post by willthrill81 »

goblue100 wrote: Sat May 01, 2021 5:08 pm
willthrill81 wrote: Sat May 01, 2021 3:03 pm
The problem with the information you cite is that it came from the infamous Dalbar study, which was fatally flawed. They confused time-weighted returns with dollar-weighted returns and came to completely erroneous conclusions as a result. There are existing threads discussing this. In truth, the purported gap in average investor returns and those of the market seems to be far smaller, possibly non-existent.
Thanks for the information. I'm a sporadic consumer of this forum, and was not aware the study was discredited. I do believe that a lot of investors do under perform the funds they hold but will attempt no further proof.
Certainly many do underperform, but many outperform too.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
manuvns
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Re: Dry powder strategy?

Post by manuvns »

if i have dry powder i sell options and generate some premium by selling monthly puts , generally try to generate 6-8% returns from premium anually . I use this strategy on ETF's i prefer to own long term .
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climber2020
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Re: Dry powder strategy?

Post by climber2020 »

Hebell wrote: Sat May 01, 2021 6:02 pm
Mercurius wrote: Thu May 28, 2020 6:12 pm I'm sitting in 95% cash and won't be making any moves regardless of what happens until the Q2 earnings are in. I just don't trust this rally. There is too much risk in such a high valuation for so few companies. Too many are unemployed and I think that it can't help but trickle up.

Mom and Pop shops are closed and many are gone for good, but I don't think that it will be felt by the stock market as a whole until at least Q3. By the end of Q3, we will have opened up the country enough to see the damage that was done and I would hope the market would make more sense then. I'm sure that since this is an election year, the opportunity to buy low will be very limited given the immense pressure to make things look presentable for the voters. But, I'm betting that the Fed won't react quickly enough.

I've been considering investing my dry powder in treasuries but haven't had time to pull the trigger due to work. At these interest rates, it seems like keeping everything in a money market fund is as good.
I didn't need to write my post. I can just ditto yours (though a lot of my cash is stable value funds, MYGAs, I bonds, EEs, and a high yield credit union)
I wanted to point out that the post you quoted from Mercurius was from a year ago. So far, the plan didn't work out so well.
UpperNwGuy
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Re: Dry powder strategy?

Post by UpperNwGuy »

UpperNwGuy wrote: Thu May 28, 2020 5:49 pm I have never had dry powder. I don't need it. It's against my IPS. I only invest on the first of each month, and I always invest the exact same amount no matter what the market has been doing. I don't care about "really bad days" because, for me, such days are not actionable. Am I missing market timing opportunities? Probably. Do I care? Not a bit.
I just read what I posted to this thread a year ago. My views have not changed.
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StevieG72
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Re: Dry powder strategy?

Post by StevieG72 »

Pro tip! Dry powder does a great job of getting sand off after a day at the beach.
Fools think their own way is right, but the wise listen to others.
averagedude
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Re: Dry powder strategy?

Post by averagedude »

Their is a good dry powder strategy and a bad dry powder strategy. A good dry powder strategy is when you sell several percent of your equities or rebalance to your preferred asset allocation. A bad dry powder strategy is when you go all out of equities, hoping for a day when you can get back in at lower prices. Don't play poker with your and your loved one's future by going all out or all in. Making sure that you are at the right amount of risk in your portfolio. Reducing or increasing your asset allocation in small bits is the proper way to play the dry powder game. Of course playing this game will more than likely not pay off, but setting guard rails in place will likely reduce the chance of disaster. A one time big move in your portfolio can turn a sound strategy into a failure of accomplishing your future goals.
txhill
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Re: Dry powder strategy?

Post by txhill »

I usually never consider keeping cash around because it seems like such a huge opportunity cost, but I might be changing my view on that soon. I know it's not really conventional advice and it comes with some risks, but it's pretty common now to get around 8-10% APY on cash deposits in a variety of crypto platforms, both through decentralized finance (Compound, Aave) and on centralized lending platforms (BlockFi). And these don't come with any lockup or liquidity issues, so you're not stuck sitting on a CD/bond for years or anything. It's kind of a ridiculously good option, and I'm starting to consider whether it's worth allocating more cash to these platforms because of the flexibility and still decent returns.

It's just hard for me to wrap my mind around it still. Bernie Madoff promised 12% which isn't all that far from what all these platforms offer, but at least the decentralized platforms are completely transparent in how they work. So it might be hard to resist for long.
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