Buy and Hold

[Bullitt]

I'd like to see a little more panicky action from them.

They all seem to walk the buy and hold walk when times are good but when markets turn, it's a different story. It was the same in 2008.

The core members stick to their financial plan but most of the posts the past few weeks are from people asking what to do now that their account is down big.

I'd bet most of it was just account balancing (selling bonds to buy stocks) and not "cash on the sidelines".

 

[FireWeatherMet]

Vanguard’s investors are living up their reputations for buying and holding.

Through the extreme volatility the past fortnight, Vanguard’s S&P 500 ETF has seen net inflows on every single trading day, according to new flow data from ETF.com.


Even on Monday 9 March, when global markets fell 8%, Vanguard’s S&P 500 ETF saw net inflows.

https://www.etfstream.com/news/10722_vanguards-etf-investors-are-buying-the-dip/

Seems that since no mass layoffs (yet) peoples "auto-pilot" bi-weekly contributions continue.
Dumb money still buying...so we're not near a bottom yet.

 

[tsptalk]

Dumb money still buying...so we're not near a bottom yet.

The Dumb Money is getting pretty worried...

Chart provided courtesy of www.sentimentrader.com

 

[shitepoke]

Tom...how up to date is this chart...is that smart money similar to the NAAIM that Coolhand follows?

 

[FireWeatherMet]

The Dumb Money is getting pretty worried...

Chart provided courtesy of www.sentimentrader.com

Oh no doubt...but thats a sentiment, done via survey, correct? Or something else.

A quick check of our tracker still shows nearly 60% of us still has half or more of their investments in stocks.

 

[Bullitt]

Dumb money still buying...so we're not near a bottom yet.

Quite the statement. What do you think a pension fund does when something like occurs? Sells 100% and goes to cash?

Bottoms are a process, they don't just stop here and go up. In hindsight it all looks so easy. It paid enormously to buy in chunks as the market went lower in 2008 even if you didn't go 'all in' at the bottom. (nobody did that).

Right now the risk/reward is very positive for incremental buying at these levels.

is that smart money similar to the NAAIM that Coolhand follows?

Not even close. The dumb money trades in the first half hour, smart money in the last half hour.

NAAIM website says: "It is important to recognize that the NAAIM Exposure Index is not predictive in nature and is of little value in attempting to determine what the stock market will do in the future."

However, right now the median exposure in NAAIM is 10% long. Minimum is 200% short. These are extremes and the only time sentiment matters. When hedge funds and active management funds are median 10% long, there is a good deal of FOMO when things start going higher.

 

[tsptalk]

Oh no doubt...but thats a sentiment, done via survey, correct? Or something else.

That is actually a compilation of sentimentraders various sentiment indicators (put/ call ratios, surveys, Rydex fund allocations, etc.)

 

[tsptalk]

Tom...how up to date is this chart...is that smart money similar to the NAAIM that Coolhand follows?

That one was from COB 3/16.

 

[Bullitt]

Smart Money Indicator, Everything You should Know

the Smart Money Index states that savvy investors and traders should bet on the stock market's direction towards the end of the day since that is what the "smart money" is doing, and bet against the stock market's direction at the start of the day since that is what the "dumb money" is doing.

https://sentimentrader.com/blog/smart-money-index-everything-you-should-know/

I subscribed to Jason on and off over the years but I feel the past year his data has been all over the place. The amount of information he puts out can be overwhelming. A few weeks ago he sent out that 50 page sentiment report. For every signal that told me to buy, there was one that said sell. Every one that said sell, it said buy. Great service, but just gave me sensory overload.

The following is for those who take a long term view to their 401k and don't try to catch a one day dead cat bounce WITH THEIR RETIREMENT MONEY. If you're going to do that, use small amounts you can afford to lose in a real trading account.

As far as long term buying and holding right here, to all those thinking we're going 20, 30, 40% lower, a bell or siren doesn't go off at the bottom. "I"ll buy when it looks safe," sounds about as confident as, "I'll get out when it looks bad." Many of my co-workers were saying, "Yeah it's going up, but I'll just get out as soon as it looks bad." Some of them bailed after being down 20-30%. Not a confident plan.

The point of the game is not to get the absolute bottom or top. It's impossible and nobody on this planet has done it with consistency though so many always claim they did. Backtested studies don't count either. Everyone's backtested study is perfect, that's why they're using it. If it didn't beat the market in hindsight they wouldn't bother with it now.

The point is to have a long term financial plan in place. Make purchases incrementally and ramp up your purchases at times like this.

Everybody is watching this virus despite the other problems taking place right now (see prior posts). All it will take is a spark - whether that spark is a vaccine, something that fights the virus, or even an indication the deaths are flattening out or going down. 100 million people are not going to die from this.

 

[FireWeatherMet]

Quite the statement. What do you think a pension fund does when something like occurs? Sells 100% and goes to cash?

Bottoms are a process, they don't just stop here and go up. In hindsight it all looks so easy. It paid enormously to buy in chunks as the market went lower in 2008 even if you didn't go 'all in' at the bottom. (nobody did that).

Right now the risk/reward is very positive for incremental buying at these levels.

Bullitt, I was simply referring to the regular people who have individual accounts, and the ability to easily move their own money, namely all 1000+ of us on the Tracker. For many years I was considering myself in the "Dumb Money" category.

I certainly hope you're not using regular market techniques in this once in a lifetime event. Everything is shutting down faster than in 2008.
The drops in 2008 and 2000-2002 were down over 60% from their highs. This is likely to be worse...we're only 30-40% down off highs. We might only be half way there.

I hope you weren't in "Buy&Hold" mode on this one. The motto of our site says it all.

 

[Bullitt]

FireWeatherMet, thanks for your concern. Dumb money / smart money isn't really a good name for that indicator and I think they need to think of new terms such as algorithm trading and non-algorithm trading. I don't particularly care for the word 'dumb'.

They've said it's different every single crisis. Every single one. Every time it's worse, it's different, it's the end. Tech bubble was a once in a lifetime. 9/11 was once in a lifetime. Financial crisis was once in a lifetime. This is once in a lifetime. If this happened 10 years ago it wouldn't have the traction it does because social media wasn't used by everyone to include grandma and grandpa. Fear is the pandemic right now.

How about the statement buy when there is blood in the street. What does that mean? Wait until the market gives the all clear? Anyone who's looked at the market seriously knows there is never an all clear signal.

In 2008's swoon, purchases at October 2008 lows panned out very positively over the next 10 years. Of course, waiting until March 2009 would have been better, but the point is, the long term goals are all that matter. With stocks stretched below their 200 DMA's, the odds are good that a reversion to the mean is in the future. Someone who needs this money in the next 2 years should not be playing it the same as someone who needs it in 5, 10, 20 years - and all those time frames should be playing it according to their goals as well.

Judging by a slew of panic indicators to include the amount of posts at bogleheads.org of people asking either, "should I sell", "should I move to bonds", "is it safe to be in the market", "will I be okay", tells me that even some of the hardest 'buy and holders' are capitulating right now.

 

[flalaw97]

How about the statement buy when there is blood in the street. What does that mean? Wait until the market gives the all clear? Anyone who's looked at the market seriously knows there is never an all clear signal.

In 2008's swoon, purchases at October 2008 lows panned out very positively over the next 10 years. Of course, waiting until March 2009 would have been better, but the point is, the long term goals are all that matter. With stocks stretched below their 200 DMA's, the odds are good that a reversion to the mean is in the future. Someone who needs this money in the next 2 years should not be playing it the same as someone who needs it in 5, 10, 20 years - and all those time frames should be playing it according to their goals as well.

So it appears that everyone agrees that we will eventually get back to previous highs. The question, as always, is when should you get "back in" to maximize your gain? I think that Bullitt is saying no one has the system to truly "maximize" so, based on your timeframe, get back in, perhaps in pieces, so you will get some gain. FireWeatherMet appears to me to be saying his expectation is that we may not be even halfway to the bottom so optimizing means waiting preserving your cash now to buy in closer to his expected bottom.

My question is, in the spirit of FOMO, what is the shortest timeframe anyone believes the market will return or approach its previous highs. As Bullitt points out, most people would have been hapy buying back in October 2008, even if they missed the gains had they waited and bought back in March 2009. If I can't predict when it will hit the absolute bottom, how much time can I watch it go back up before I know I need to get back in or miss the elevator?

 

[tsptalk]

If you're not a market timer, making a couple of transactions per month, then sticking your toe in the water on major declines makes sense. If you're not sure if this is the low, you can make a partial buy, and do the same in a week or more, buying on the way down, or up. Dollar cost averaging.

 

[FireWeatherMet]

So it appears that everyone agrees that we will eventually get back to previous highs....FireWeatherMet appears to me to be saying his expectation is that we may not be even halfway to the bottom so optimizing means waiting preserving your cash now to buy in closer to his expected bottom.

My question is, in the spirit of FOMO, what is the shortest timeframe anyone believes the market will return or approach its previous highs?

One thing I want to make clear. I never "cement" an opinion in a fluid situation like this. Any quicker "flattening" of the curve, and more suppressive heat and sun effect on virus's spread in the spring-summer, as well as quick find of an effective treatment, that could knock the mortality rate down closer to the regular flu, will all be reasons to buy all in quicker.

On the other hand, a slowing but "plateauing at a moderately high level" of new cases thru the spring, would likely lead to a longer term downtrend,

In the meantime, brief "Euphoria" uptrends in stocks, like today's based on one day of slowing NY cases needs to be monitored. If NY cases quickly fall off, it might be a good idea for a short term buy in...these rallies can recoup more than half the losses (IE 15-20% uptick) is one not worth missing.

However the ultimate question is, if the virus threat diminishes, but is not gone (no vaccine), will air travel, hotel stays, restaurant and movie attendance, ball game and concert attendance come back to "normal levels"?
If they only come back 50-70%, then much of our service based economy will be 30-50% lower than normal, thus keeping our GDP much lower than last year, keeping us in at least a moderate if not deep Recession. And that definitely does NOT translate into return to peak early February stock prices. So the "Euphoria Rally" would likely transition back into another downtrend over the next few months.

And a bit further out...with no vaccine, what happens if the virus roars back in October and continues thru the next 5 month flu season? Thats what happened in the outbreaks of 1918 and H1N1 in 2009. That would be a huge "2nd Shoe to fall".

Until then, I would monitor the US curve and new cases very carefully, as well as that of other countries. And with the volatility, if I were to jump in, I would probably do so on a bad down day.

Just my own opinion, after spending several days doing analysis and thinking it over.

 

[flalaw97]

Thank you for the detailed post! That is exactly what I was looking for - I guess I am trying to find signs of any upcoming rally with the ability to recoup 50% of losses and not missing that. I agree that absent some significant breakthrough we are likely in a longer term downtrend. This whole thing scares and excites me at the same time. I jumped all in on Friday and all out today, so I am done for April but at least it looks like I will have added to cash available for May?

 

[Bullitt]

I jumped all in on Friday and all out today, so I am done for April but at least it looks like I will have added to cash available for May?

What happens next time when you go all in and it goes down 5%? What's the plan for that scenario?

What happens if markets don't retest the lows? EVERY technical analyst seems to think that will happen soon, just like December 2018. It didn't happen in 2018 and they were forced to chase it higher. What if it retests lows and breaks, what's the plan for that?

By time the curve flattens, we'll already have climbed a wall of worry. Price will tell us when this thing has abated, not these whacky algorithms that have become political footballs.

 

[flalaw97]

You are pretty far over my head. I really don't know what it means to not retest the lows or if it retests and breaks. Everyone around me is saying "Don't look at your TSP account. The market always comes back up and as long as you have a portfolio that matches your risk (i.e. mostly cash when you are about to start withdrawing from it) you should just let it ride until then." I don't like just leaving it there when all signs are saying it is going down so I parked it in G and waited for a while. I put it back in when I thought it had gone down a good chunk and, if I just left it there and didn't look back, I would be better off than when I parked it. That is my plan if I jump in and the market keeps going down. I am going to leave it there until it comes back up. It will eat at me perhaps but all the experts say buy and hold is the safe bet for long term investing. But I feel like in a market that is bouncig this eratically and down this far, it is worth a try to time it if possible and make some money. If I guess wrong - I will follow the sheep and hold. I don't know, just sounds like it might work to me.

 

[Bullitt]

flalaw97,

Start reading some books on the market today, then come back after you've read 3 or 4.

Everybody here has different goals and time frames. Blindly following what someone else is doing (or says they are doing) is not a good long term plan.

A vast majority don't have any goals beyond "making the maximum return". They figure if they can squeak out an extra 5% a year they'll be more than ahead and live even happier in retirement. They never thought to answer the question I asked you, "What happens when you go in one day and it goes down 5%"?

 

[flalaw97]

Any recommendations for books? I do not trade in individual stocks and I am unlikely to in the near future so the TSP is my only focus.

 

[tsptalk]

Here's one: OK, I'm a little biased. Revshark has a premium service here, if you didn't know...

Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital Made a Fortune Investing in the Stock Market

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https://www.amazon.com/Invest-Like-...ild=1&keywords=revshark&qid=1586277469&sr=8-1