Down goes the Dow

Don’t visit this thread wrote:

PRD wrote:

I'm a millennial. This is what's driving the surge. I was involved in the bitcoin bubble of 2017 also, and recent market behavior is mimicking that so much it's scary. Young, inexperienced traders are rushing in to buy the dip to try to make a quick buck, and investing is easier than ever before in history due to the variety of apps out there. Because the market essentially only went up between December 2018 and February 2020, making money was idiot-proof, so the layman is convinced the trend will continue without actually doing any research. It has all the hallmarks of a bubble. I expect the market to drop at least 10% but probably not more than 30% from here. My guess is around 2500 by sometime this summer, but who knows.

I am someone who rushed in to buy the dip, but I bought individual stocks of companies that were down huge (more than 50%) who I thought had a low probability of going bankrupt as well as some ETFs that were also down huge that came with significant dividend yields. I did not buy any S&P500 index funds on the way up, nor have I bought much of anything since the S&P500 hit 2800 since I think that is overvalued. I even sold 30% of my S&P500 index fund a couple days ago at about 2880 because I felt strongly the market had a much higher probability of dropping 10+ percent than rising another 5% in the near-ish term. I pretty much never touch that fund, but it just seemed too probable. I'm planning on slowly buying back in if the market drops 10% from it's most recent highs, and right now, all my extra money (about $3,000/month) is going to be held as cash until the market falls to ~2600. Fundamentals will kick in eventually, and when they do, we will see a drop.

I think you’re trying to predict or assess what’s happening way too much. How are you so sure that April’s performance was driven by bunch of millennials or new investors rushing back in? It’s just too hard to predict.

Who cares if there’s more probability of falling 10% than rising 5% in short term if you’re long term investor? Even if you’re right, what does that prediction matter if you’re long term investor?

You should just keep the money in and don’t think too much of it. Just remember to rebalance your portfolio annually.

As you’ve been witnessing the volatility, what may happen is that you sell, and you are right the market drops, and it may drop a lot. But it could quickly surge back up where you may end up buying back higher than what you sold for. Or you don’t time it right and you just end up buying back not much cheaper than what you sold it for.

Or, you may get it right and buy back at the absolute bottom. Problem with that is you’ll continue to time the market and over the long run, you’ll find out that you would have made a lot more money by just not messing with it. Just leaving the money parked except for annual reallocation is all you need to do.

PRD but on a different computer wrote:

Don’t visit this thread wrote:

I think you’re trying to predict or assess what’s happening way too much. How are you so sure that April’s performance was driven by bunch of millennials or new investors rushing back in? It’s just too hard to predict.

Who cares if there’s more probability of falling 10% than rising 5% in short term if you’re long term investor? Even if you’re right, what does that prediction matter if you’re long term investor?

You should just keep the money in and don’t think too much of it. Just remember to rebalance your portfolio annually.

As you’ve been witnessing the volatility, what may happen is that you sell, and you are right the market drops, and it may drop a lot. But it could quickly surge back up where you may end up buying back higher than what you sold for. Or you don’t time it right and you just end up buying back not much cheaper than what you sold it for.

Or, you may get it right and buy back at the absolute bottom. Problem with that is you’ll continue to time the market and over the long run, you’ll find out that you would have made a lot more money by just not messing with it. Just leaving the money parked except for annual reallocation is all you need to do.

I understand all that. I am a buy and hold investor 95% of the time. I sold about 30% of my index fund when the market rose to 2880 because from everything I can tell, at that level it is EXTREMELY overbought. Everything I can find supports that idea as well. I would not have sold anything had it been lower than that. The fact the market is dropping now supports that idea also, though I expect it to be a step-wise drop back down to 2600 or lower. I have no illusions about being able to perfectly time the bottom and dumping all my money in on exactly the right day, but when the ratio of price to value of something is the highest ever in history (including all the other bubbles and bear markets), you can be confident that ratio will return to the mean some.

I agree buy and hold is the best strategy under more normal conditions. For most people, I would suggest it's what they do 100% of the time. I have reasons to believe I am more capable than the average investor, however. Not a lot better, but better enough under the current circumstances to warrant my actions. Of course I could be wrong. I'll let you know where I'm at 3 years from now. ;)

Don’t visit this thread. same person wrote:

PRD but on a different computer wrote:

I understand all that. I am a buy and hold investor 95% of the time. I sold about 30% of my index fund when the market rose to 2880 because from everything I can tell, at that level it is EXTREMELY overbought. Everything I can find supports that idea as well. I would not have sold anything had it been lower than that. The fact the market is dropping now supports that idea also, though I expect it to be a step-wise drop back down to 2600 or lower. I have no illusions about being able to perfectly time the bottom and dumping all my money in on exactly the right day, but when the ratio of price to value of something is the highest ever in history (including all the other bubbles and bear markets), you can be confident that ratio will return to the mean some.

I agree buy and hold is the best strategy under more normal conditions. For most people, I would suggest it's what they do 100% of the time. I have reasons to believe I am more capable than the average investor, however. Not a lot better, but better enough under the current circumstances to warrant my actions. Of course I could be wrong. I'll let you know where I'm at 3 years from now. ;)

Where was everything that supports your data when S&P500 was over 3300?

I think it’s a very dangerous game you’re playing when you have 20+ years before you access this money.

I’m not buy and hold. I’m buy and rebalance. I think what’s most important is asset allocation. I hate the asset allocation depending on risk tolerance. Everyone thinks they’re more risk tolerant until market starts tanking like it did in March. You never want to be in a situation to sell when it dips like it did in March. Best to have good amount of bond allocation to ensure you’re always in the market.

Not sure it’s smart for you to be jumping in and out of market at your age and saying something about everything is saying that the market is overbought. It might be, but who knows how the market reacts.