Down goes the Dow

Modern Portfolio Theory is arranging asset classes to lower portfolio volatility in order to smooth out investment return.

“It is the destruction of capital during market declines that have the greatest impact on long-term portfolio performance.”

If done properly on a risk adjusted basis the outperformance and valuation of U.S. equities would make it a smaller portion of the stock bucket. So actually supporting a smaller portion to U.S.

In regards to passive funds most are over exposed to the largest companies so generating greater portfolio volatility not less. This fact would go against the purpose of MPT, and is an argument against passive index funds at this time.

“This creates a piling-on effect as funds buy more of these increasingly expensive stocks and less of the cheaper ones in their indices — the polar opposite of the adage “buy low, sell high”. Risks of a bubble rise when there is no regard for underlying fundamentals or price. It is reasonable to assume a sustained market correction would lead to stocks that were disproportionately bought because of ETFs and index funds being disproportionately sold.”

Ghost of Igloi wrote:

“It is the destruction of capital during market declines that have the greatest impact on long-term portfolio performance.”

I think you meant to write “short-term”. Market declines have little effect in the long-term.

Ghost of Igloi wrote:

In regards to passive funds most are over exposed to the largest companies so generating greater portfolio volatility not less. This fact would go against the purpose of MPT, and is an argument against passive index funds at this time.

It's true that the future of the US stock market is tied to around 10 companies. People think that they are diversified with an sp500 fund...ah no. Three stocks are 10% of the index. If one of them dive-bombs people will be very surprised by how much it impacts their portfolios.

I suppose that's one argument for hiring a financial advisor - he or she will likely keep you from being too exposed to single company risk.

all time highs for the SPX again

agip wrote:

all time highs for the SPX again

All Trump has to do is remove tariffs (aka fix the problem he created) and then we'll probably see some stupid gains going into next year which is coincidentally an election year. Huh, look at that.

Trump literally tweeted "it's gonna be a good day for the stock market today" just a few hours ago. I'm all for listening to bear theses and all, but when the president of the US is willing to pump the stock market (actually economy and income inequality be damned) through whatever means necessary, then don't fight the trend.

Racket wrote:

agip wrote:

all time highs for the SPX again

All Trump has to do is remove tariffs (aka fix the problem he created) and then we'll probably see some stupid gains going into next year which is coincidentally an election year. Huh, look at that.

Trump literally tweeted "it's gonna be a good day for the stock market today" just a few hours ago. I'm all for listening to bear theses and all, but when the president of the US is willing to pump the stock market (actually economy and income inequality be damned) through whatever means necessary, then don't fight the trend.

Also if Trump wins next year then I'll plan on selling everything in January of 2021 because that mofo is gonna 2008 us

OK so the Fed added 111 billion dollars in temporary liquidity to markets last night.

I have an alternative solution though!

Let's randomly select 111,000 people (must have reported, let's say, less than $500,000 on their last taxes) everyday for the next month and give them $1 million. This is America and Christmas season is almost upon us, so we know people would spend every last dollar on stupid sh!t (and then some). It'd definitely juice the economy and it'd be fun because you can sort of realistically see yourself getting selected!

??

Racket wrote:

OK so the Fed added 111 billion dollars in temporary liquidity to markets last night.

I have an alternative solution though!

Let's randomly select 111,000 people (must have reported, let's say, less than $500,000 on their last taxes) everyday for the next month and give them $1 million. This is America and Christmas season is almost upon us, so we know people would spend every last dollar on stupid sh!t (and then some). It'd definitely juice the economy and it'd be fun because you can sort of realistically see yourself getting selected!

Temporary B.S. It is return of QE, hence the market melt up.

Racket wrote:

OK so the Fed added 111 billion dollars in temporary liquidity to markets last night.

I have an alternative solution though!

Let's randomly select 111,000 people (must have reported, let's say, less than $500,000 on their last taxes) everyday for the next month and give them $1 million. This is America and Christmas season is almost upon us, so we know people would spend every last dollar on stupid sh!t (and then some). It'd definitely juice the economy and it'd be fun because you can sort of realistically see yourself getting selected!

better yet, hire people at $7.25/hr to go break windows in every small town in America.

Fixing them will stimulate the economy massively.

Ghost of Igloi wrote:

In regards to passive funds most are over exposed to the largest companies so generating greater portfolio volatility not less.

Of course, they also generate greater returns. That’s how this thing works.

All eight indexes on our world watch list posted gains through November 11, 2019. The top performer is France's CAC 40 with a gain of 25.68% and in second is our own S&P 500 with a gain of 22.99%. In third is Germany's DAXK with a gain of 20.87%. Coming in last is Hong Kong's Hang Seng with a gain of 7.15%.

https://www.advisorperspectives.com/dshort/updates/2019/11/11/world-markets-update?bt_ee=PN7IUD87eo5yTcY6nsDzs8ZluAda%2BMMvKRxmhB%2FZTtx9jAexw33UEtn97ZVye8ec&bt_ts=1573565366321

I got out of the market when the S and P 500 was at about 2990 a month-ish ago because all indicators suggested it wouldn't go any higher the rest of the year and very well could go much lower. Now the S and P 500 is at 3100 and keeps going up. I feel like a fool as I've normally done a very good job of just buying and holding, but I didn't stick to the plan this time, and it has bitten me. Now I'm wondering how/when to get back in when the market keeps hitting record highs almost every single day. This can't last, but it could potentially be a runaway that goes up another 4% or something before stagnating (or dropping?).

What am I to do?

Idiot move wrote:

I got out of the market when the S and P 500 was at about 2990 a month-ish ago because all indicators suggested it wouldn't go any higher the rest of the year and very well could go much lower. Now the S and P 500 is at 3100 and keeps going up. I feel like a fool as I've normally done a very good job of just buying and holding, but I didn't stick to the plan this time, and it has bitten me. Now I'm wondering how/when to get back in when the market keeps hitting record highs almost every single day. This can't last, but it could potentially be a runaway that goes up another 4% or something before stagnating (or dropping?).

What am I to do?

you get to exercise some basic investing logic. I'm always asking people with investments they don't love: "If you had all this money in cash instead of invested...would you own this investment or would you do soemthing different?"

Hey that's you. You have the cash, You can build a perfect portfolio.

and 2)

Sunk cost theory: Whatever you did yesterday doesn't matter. You sold and the market rose. Doesn't matter. You have to decide today if you should be invested. So ignore whatever happened yesterday and before and start over.

ok and 3) portfolio managers sometimes just sell everything and start over. It's hard and rare, but good to force a rethink of everything you think you know. You have that chance. Could work out for you in the long run.

Idiot move wrote:

I got out of the market when the S and P 500 was at about 2990 a month-ish ago because all indicators suggested it wouldn't go any higher the rest of the year and very well could go much lower. Now the S and P 500 is at 3100 and keeps going up. I feel like a fool as I've normally done a very good job of just buying and holding, but I didn't stick to the plan this time, and it has bitten me. Now I'm wondering how/when to get back in when the market keeps hitting record highs almost every single day. This can't last, but it could potentially be a runaway that goes up another 4% or something before stagnating (or dropping?).

What am I to do?

How old are you? People who try to time the market never match the returns of the overall market. If you are fairly young, just buy and hold. And I don't mean for 2 years. I mean for 40 years. Quit trying to time the market. The market will go through wild swings at time but the downswings are tremendous opportunities to add to your portfolio at great prices. YOU NEVER MATCH THE MARKET RETURN when you keep buying and selling stocks. You buy and hold. Not actively managed funds but passive index funds. Your only goal is to match the market returns. You will never beat it over the long haul.

Idiot move wrote:

I got out of the market when the S and P 500 was at about 2990 a month-ish ago because all indicators suggested it wouldn't go any higher the rest of the year and very well could go much lower. Now the S and P 500 is at 3100 and keeps going up. I feel like a fool as I've normally done a very good job of just buying and holding, but I didn't stick to the plan this time, and it has bitten me. Now I'm wondering how/when to get back in when the market keeps hitting record highs almost every single day. This can't last, but it could potentially be a runaway that goes up another 4% or something before stagnating (or dropping?).

What am I to do?

Market history shows that on average the market will rise about 14% in the year following a market high and 10%/year annualized for the 5 years following the record high.

Your returns may vary.

Idiot move wrote:

I got out of the market when the S and P 500 was at about 2990 a month-ish ago because all indicators suggested it wouldn't go any higher the rest of the year and very well could go much lower. Now the S and P 500 is at 3100 and keeps going up. I feel like a fool as I've normally done a very good job of just buying and holding, but I didn't stick to the plan this time, and it has bitten me. Now I'm wondering how/when to get back in when the market keeps hitting record highs almost every single day. This can't last, but it could potentially be a runaway that goes up another 4% or something before stagnating (or dropping?).

What am I to do?

Okay, brother, i face this dilemna all the time, and here's what i do.

I way everything. In your case, you have massive seller's regret. But a voice in the back of your head is saying, bro, you sold for a reason, and the reasoning is still pretty sound, only it hasn't played out the way you thought, at least not yet....

So I've got a reserved buy signal, so what i would do is buy back a portion. You aren't certain on this move, so only venture a percentage representative of how certain you are that your investment will pay off. For me, that means a small trade right away, say maybe only 5% of your cash position, and maybe double that tomorrow if things don't fall. When you feel comfortable with your level of exposure, hold.

* THat's "weigh" everything, not way ..... duh!