Should I sell my index funds?

It’s like deleting os files on a computer.

College professor here, and my dissertation was on the stock market and trading strategies vs buy/hold over 100 years of stock market data.

1. If you think your trading system can outperform a buy and hold strategy with whatever asset (Dow 30, S/P 500,Nasdaq, whatever) , you will not do it over the long run (assume a 30+ year investing career). You may make some timely calls on buying or selling, but over the long run you will incorrect calls. Buy/Hold beat many trading strategies over many time segments. So, once you decide on your asset to invest in, buy and hold it for at least 5 years, or get out if the fundamentals (if it is a stock ) change on you...

2. If you need the money within 5 years, get out of the market when you can and put it in a money market fund. So the person with the house down payment I advise to get out tomorrow, and enjoy the nice rally today.

3. When you invest in an asset , ask yourself, am I willing to lose 50 percent of this investment if I am wrong?? The key to investing is the amount you put at risk. Thus the house person must ask himself, am I will to have 25k in my balance for my house in 2020?? If so, well then leave it in. If not, get out tomorrow.

I put 13k in NFLX about 5 years ago at 65 a share, the following day it plummet $15 a share (I'm adjusting for splits)...but sold most of my position at 360 this summer after a mediocre earnings report....You must ride it out and over a 5 year period you will have a decision on your asset...

Also consider putting your money in a single stock or two, and the rest in money market. So if you have 100k to invest, think about putting 25-40k say in Apple/NFLX/AMZN , and the rest is safe. in money market Because if you hit a home run on the stock (10 bagger-20 bagger) you can have a lakefront summer home like I purchased at age 27, thanks to Apple.

Thank you Wayne!

It looks like today the market is taking another dive down. Big up and then big down.

What I have been doing for the last six months has been to use the teeter-totter stocks JNUG and JDST. They are gold futures which are inverse to each other. As JNUG goes up JDST goes down almost exactly to the hundredth of one percent. When JNUG goes up to where I think I should sell JDST is low enough to buy. Then when JDST is high enough to sell JNUG is low enough to buy. It has been a good way to make money as I don't have to wait for one stock to go up and down. I was doing the same thing with UGAZ and DGAZ (natural gas futures). My feeling too is that the market is going to decrease in value raising the price of gold which will see JNUG go from $8.00 a share to hopefully $16.00 a share in the next three months. One thing I think about is whether to buy and sell on daily dips and rises or just be patient and watch JNUG for the next three months. As you say no one can know the future but I think the market is going to decrease and the price of gold will increase. When the price of gold increases the price of JNUG increases. Thank you for the tip about Coach D. Hope your 16 X 400 m keep going well. I'm an unintentional streaker having run every day since September 19, 2011. I run 5 miles every morning and most days 5 miles again in the afternoon.

Thank you for your thoughts and help.

You are a college professor who wrote a dissertation on the stock market and are advocating putting one's money in a single stock or two. A lot of what you say is sage advice, but this one is terrible. There was a relatively well known study about 20 years ago that found one's portfolio performance is 95% about diversification of assets and 4% about stock-picking and market-timing. Putting all your eggs into one basket is crazy. You want to mimic the market. Over the long haul, having a diverse number of index funds will outperform actively managed funds almost 80% of the time. If you manage to beat the overall market, it is more happenstance or luck, rather than a sound strategy.

Read my sentence very carefully.

"Also consider putting your money in a single stock or two, and the rest in money market."

Did I say put your "entire" portfolio in a single stock or two? No, the key is putting the rest of your money in money market. I know what studies say, but I am just revealing something that has worked for me and makes a lot of sense if you think about it....as I write this email from my 600k summer home.

Let us say today two investors have 100k. Investor A listens to their advisors who will have them

diversify among stocks and/or mutual funds with the 100k. (Dont forget the advisors get their commissions through encouraging diversification) I follow my advice and put 40k into NFLX and 60k into money market.

Worse case scenario: market does terrible and /or crashes. Investor A has 50-60k. I have 20-30k loss in NFLX and still have 70k-80k in portfolio.

Best case scenario: Investor A doubles their portfolio in bull market over 5 years and has 200k. Good job.

My NFLX is a 6 bagger (for some people it has been a 10-30 bagger!) and I have $340k.

If NFLX is a 10 bagger, I have $480k.

This is using lack of diversification among assets along with money market to have a potential for huge gains. It also allows you to sleep at night knowing a lot of your money is 100 percent safe in money market as opposed to being diversified among risky assets with your entire portfolio.

My strategy will never get published in a paper because it goes against all financial research, but if you think about, it is way more effective than listening to financial advisors.

That 20-30k loss is still a huge, huge loss by having it in one stock . I don't consider that Risk Management to be satisfactory. The Money Marketing account is a good idea for the 60k portion, but the 40k portion should be diversified to cap your risk. You're basically taking that money and putting it on one bet, where as you can take that 40 k and put it across multiple bets to increase your chances of winning, and lessen your losses.

Take that 40k portion and put some in Equities, ETFs, Gold, and just a little bit of Crypto. If the market crashes , one or some of them are going to come out on top. It's called hedging, which is how hedge funds make their money. They invest in multiple financial instruments, using different techniques and strategies to make money regardless of the movement of the market.

Blowing nonsense, wrote:

I don't find that book listed anywhere, only a rambling article on the seekingalpha website.

Lots of people have MBA's, have written books, trade the market and go broke.

Type "Five ways to beat the market" into the search bar on Amazon and it is the 1st result.

Type it into the search bar on Barnesandnoble.com and it is the 1st result.

Type it into Google and it is the 3rd result after two Seeking Alpha articles.

Type it into Duck Duck Go and it is the 2nd result after Seeking Alpha.

You are correct - Lots of people have MBA's, have written books, trade the market and go broke.

I'm not one of them.

This sounds like the barbell strategy, recommended by Taleb?

First off, that is not "hedging". Look it up. You are wrong. You have described "diversification", which is a different strategy entirely.

Secondly, you have a lot of nerve advising anyone in his position to even consider crypto currency. It shows how useless your input is. In fact, it is worse than useless, it is harmful.

There is always a troll just to troll. Did you even think first before typing?

Investing in multiple financial instruments is a form of hedging, because the main principle of hedging is to lower your risk/exposure in the market.

TRADING TRADING STRATEGY

A Beginner's Guide to Hedging

BY INVESTOPEDIA Updated Jul 18, 2018

Although it sounds like something that is being practiced by your gardening-obsessed neighbor, hedging is a practice every investor should know about. There is no arguing that portfolio protection is often just as important as portfolio appreciation. Like your neighbor's obsession, however, hedging is talked about more than it is explained, making it seem as though it belongs only to the most esoteric financial realms. Well, even if you are a beginner, you can learn what hedging is, how it works and what techniques investors and companies use to protect themselves.

" What Is Hedging?

The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative event from happening, but if it does happen and you're properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it everyday. For example, if you buy homeowner's insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters.

Portfolio managers, individual investors and corporations use hedging techniques to REDUCE EXPOSURE TO VARIOUS risks. In financial markets, however, hedging becomes more complicated than simply paying an insurance company a fee every year. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements. In other words, investors hedge one investment by making another."

prof88 wrote:

College professor here, and my dissertation was on the stock market and trading strategies vs buy/hold over 100 years of stock market data.

1. If you think your trading system can outperform a buy and hold strategy with whatever asset (Dow 30, S/P 500,Nasdaq, whatever) , you will not do it over the long run (assume a 30+ year investing career). You may make some timely calls on buying or selling, but over the long run you will incorrect calls. Buy/Hold beat many trading strategies over many time segments. So, once you decide on your asset to invest in, buy and hold it for at least 5 years, or get out if the fundamentals (if it is a stock ) change on you...

I'm curious to know what trading strategies you put up against buy & hold because they don't sound like very good ones. If you put a good college basketball team up against a bunch of NBA practice squad players then I would expect the college team to win. But the story will be different if they play a bunch of NBA starters. Finding strategies that work is hard. Unless a successful trader gave you some then I'm not surprised by your dissertation's conclusion.

The strategies I use were backtested against S&P-500 data from 1960 thru 2009 ... 50 years. (I did this analysis in 2010, that is why the ending date is 2009). Here are the results versus buy & hold for the 2 simplest strategies:

Best 6 Months - Buy SPY or an S&P-500 Index fund at the market open on the 3rd-to-last trading day of October. Sell it at the market close on the 2nd trading day in May. Let your cash sit in an interest bearing account until October. Repeat this every year.

10 Month Simple Moving Average - create a simple moving average of the monthly close of the S&P-500. When it is up from the previous month then buy SPY (or whatever fund) at the next month's market open. When the 10 Month SMA turns down from the previous month then sell at the next month's market open and just let your cash earn interest until you get a buy signal.

Using buy & hold, $10,000 invested in an S&P-500 Index fund with reinvested dividends grew to $884,826 at the end of 2009. The worst drawdown was 55% during the 2008-2009 crash.

Using the Best 6 Months strategy with reinvested dividends the $10,000 grew to $1,067,035. The worst drawdown was 34% during the 2008-2009 crash.

Using the 10 Month SMA strategy with reinvested dividends the $10,000 grew to $1,558,631. The worst drawdown was 36% during the sudden 1987 crash.

These are 50 year returns. Not the short time periods that you say are irrelevant. Both strategies beat buy & hold handily. Using leveraged S&P ETFS (something that would be crazy to do with buy & hold) yield even more dramatic results.

You might want to revise your dissertation.

This sounds like an interesting idea for trading gold. I'm going to have to look into it. How do you decide when to switch from one to the other?

Blowing Rock Master wrote:

This sounds like an interesting idea for trading gold. I'm going to have to look into it. How do you decide when to switch from one to the other?

He looks at the calendar. If we are in a month that has traditionally done well in the past, well then, there you go.

DeBron Lames wrote:

Shouldn't all the smart MBA types who run these funds have known these huge market losses were coming, and move those funds into securities that were less volatile?

If they didn't what are we paying these schmucks for?

Ah, the folly of prediction. Listen up very carefully people. So called experts could not even predict a red vs blue election in 2016. Add in thousands more variables as per the stock market and you end up with monkeys throwing darts.

The scary part is that you still don't seem to understand the basic concept!

The majority of those investments do not have a negative correlation. Perhaps only Gold does, and that is debatable. Certainly, Crypto, ETFs, and equities do not have negative correlations. They all could decline or rise in unison. And in so doing, they are not "negatively correlated".

Hope you learned something. Take it easy on advising about things you're not suited to.

And by the way, when hedge funds do hedge, they do so with options, derivatives, future contracts, shorting, and and the like.

To the original poster, please weigh you options carefully. Gold and crypto are not for common (small) investors, at any rate.

I would say watch JNUG for the next three months. The market rebounded yesterday, but today it is down. Since the Fed's interest hike was only 0.25, spending will not decrease, but it will not increase either. So I think the market is going to be sideways for awhile, with gold being up one day and the market being down, and gold being down the next day with the market being up. That's too tricky of a market for me, since I a swing trade. So I will be in watch mode, and buying bargains here and there if those opportunities present themselves.

However, JNUG appears to never go below 6.00, so buying between 6.00-8.00 for future gains might not be a bad idea.

This strategy worked bc you picked NFLX.

If anyone picked NFLX from 5+ years ago, any type of strategy would look like a genius.

I can say, “I have a winning strategy, just pick unicorn stock and watch it 10x in 5 years. Then, use all of that profit to buy another unicorn stock and watch it grow 10x in the next 5 years. Essentially, you turn your initial investment of $100k and now it’s worth $10 million.”

hedging is simply hedging one investment with another investment. There are several ways to hedge through future, options, or even through equities. You're simply insuring your investment, and it can be done in many forms.

Example: Pepsi and Coke are in the same industry, and are rivals of each other. Since I invest in Pepsi, I hedged by investing in coke. That way one could go down while the other one is up to keep my losses low, or break even or continue to have some gains. Now both could drop big time, so there is no guarantee. But it is a form of insurance.

I have the same thing with Apple and Microsoft. Apple has been taking a beating even before the change in the market due to the chinese tariff situation and other reasons. However, Microsoft stayed steady and even increased while apple was diving.

People also hedge their bets in sporting betting. by doing the same practice.

Wayne what I do is track the opening price of JNUG which is reset each day and I track the price through the day over several days until I find a price range. Right now JNUG is a sell at $9.25 which means JDST will be at $51.00. Buy JDST at $51.00 and sell at $56.00 and JNUG will be at $8.55. Buy JNUG at $8.55 and repeat. The range does move over weeks but then I just reset my buy and sell prices. I'm really only interested in day trading as an amusement. I get a thrill out of making money on a daily basis. I don't need the money as I am debt free, own a house and car and have money coming in monthly. What I like to do is have fun day trading and then give the money away which is also fun. It's nice to be able to trade and not have to be concerned about making a living from it, growing it long term or losing it all if that were to happen. Had two good 5 mile runs today. Usually I feel my very best when I'm running. All the rest of the time is just waiting to run again.