Going cash?

Soriak_sl · Dec 28, 2012

It's probably reasonable to sell if you're risk averse and can't sleep because you're afraid of what will happen to the value of your portfolio if we do fall off the fiscal cliff.

As for the efficient market hypothesis - that all risks are priced in - well, it might be that the "market" perceives a low risk of no agreement. So if the "no agreement" event is realized, stocks could drop significantly. Moreover, if a lot of people panic, then stocks are going to drop no matter what the real impact on the economy will be.

That said, I don't plan on selling anything myself, but if there is a drop, I will move some of my liquid savings into stocks. All things considered, there's nothing stopping Congress from changing the taxes for the 2012 year after the fiscal cliff deadline... we know that nothing motivates Congress to action like a quick drop in the stock market. (Remember the bailout?)

Shonuff · Dec 28, 2012

Soriak_sl said:
It's probably reasonable to sell if you're risk averse and can't sleep because you're afraid of what will happen to the value of your portfolio if we do fall off the fiscal cliff.

I disagree. As Warren Buffett says, it's the weak hands that lose.

Soriak_sl · Dec 28, 2012

Lyrical_sl said:
I disagree. As Warren Buffett says, it's the weak hands that lose.

Not worth maximizing your financial returns if it means you can't sleep anymore and end up sacrificing your health.

Shonuff · Dec 28, 2012

Soriak_sl said:
Not worth maximizing your financial returns if it means you can't sleep anymore and end up sacrificing your health.

If people are that nervous that their health is waning, they shouldn't be in equities. More risk = more return. It's that simple. If you can't handle the risk, you won't get a max return. I learned a long time ago, you have to take a "I could give two shits attitude." Especially when you might be talking about retirement funds, that you won't be tapping for 30 years. The younger you are, the more risk you can take.

The OP should understand this before he sells willy nilly, and at least comprehend that if he follows this strategy over a lifetime, it could cost him millions. Most people don't understand that there is a tradeoff, they just spend their lives avoiding any risk whatsoever and not realizing they are kneecapping their returns.

terapin_sl · Dec 28, 2012

aychamo_aycono_sl said:
Hi all,
Is anyone else a bit paranoid about what may happen over the next couple of weeks with their investments? I've been thinking of going "all cash" (just sell out to a money market account) this week. I don't mind if I miss a small rally, but I'd rather not see another 2008/2009. Thoughts?

I still feel quality mutual funds are the best form of investment for long term. I did move a portion of my retirement to a money market account just to satisfy my conservative side. 30bucks a month interest not great but its worry free.

splorge · Dec 28, 2012

Lyrical_sl said:
More risk = more return. It's that simple.

This isn't true. I would say more return requires more risk, but more risk definitely does not "equal" more return. There is even a term for this - uncompensated risk.

Shonuff · Dec 28, 2012

splorge_sl said:
This isn't true. I would say more return requires more risk, but more risk definitely does not "equal" more return. There is even a term for this - uncompensated risk.

I think it's pretty much implied that I was talking about good risk. I'm not suggesting you take your life savings and bet it all on green at a Roulette table.

BrutulTM · Dec 29, 2012

Hasn't it been shown that pretty much nothing beats index funds over the long term?

Soriak_sl · Dec 30, 2012

BrutulTM_sl said:
Hasn't it been shown that pretty much nothing beats index funds over the long term?

Within their asset class, yes. But there are tons of index funds, and even if you get 100% equities, at the very least you still have to decide how much to invest in the US vs. abroad. Although, I suppose, there's a global stock index, too, if you want that.

My point is really that maximizing return is a good strategy only if you can handle the inevitable downswings. If you start selling the moment you hear of bad news, or start having sleep/relationship problems the moment the stock market drops, then you're better off changing your strategy and picking less volatile investments (or at least don't put everything into equities).

Most people aren't completely detached from the daily or monthly swings of their portfolio - even if they SHOULD be.

AladainAF · Jan 2, 2013

I check my portfolio every single day, hell multiple times a day. My choice to sell out 90k was actually just because I needed to have the funds for my down payment of the house lol. But, with that said people SHOULD NOT be detached from the daily/monthly swings in my opinion -- people should know whats happening to their money all the time -- but they should not overreact due to the swings. See: people who panic sold in late 2008 and went into cash through 2009. If they just kept their money where it was, they all would have recovered.

You need to know what's going on. But you need to make sure you don't panic sell (or hype buy.. or whatever that term would be called lol)

Tuco · Jan 2, 2013

AladainAF_sl said:
I sold out a lot of positioned and transferred about $90,000 just yesterday.

=)

sorry, couldn't resist

Shonuff · Jan 2, 2013

Tuco_sl said:
sorry, couldn't resist

LOL. And that's why you don't market time. I have a ton of training in Finance, and yet I don't consider myself able to market time. It's best to show some humility when investing, or you get owned. This is not as simple as plunging your toilet.

Eomer · Jan 2, 2013

AladainAF_sl said:
I check my portfolio every single day, hell multiple times a day. My choice to sell out 90k was actually just because I needed to have the funds for my down payment of the house lol. But, with that said people SHOULD NOT be detached from the daily/monthly swings in my opinion -- people should know whats happening to their money all the time -- but they should not overreact due to the swings. See: people who panic sold in late 2008 and went into cash through 2009. If they just kept their money where it was, they all would have recovered.

You need to know what's going on. But you need to make sure you don't panic sell (or hype buy.. or whatever that term would be called lol)

The problem is, 95% of people can't do what you say they should do. It's been shown again and again that the more involved someone is with their investments on a daily basis, the worse their returns. Do I check my investments on a daily basis? Yes, absolutely. But thankfully I'm able to resist the temptation to tinker with shit or deviate from my overall portfolio goals/targets. Perhaps you can too. That's great. But the reality is, most people can't and won't.

Shonuff · Jan 2, 2013

Eomer_sl said:
The problem is, 95% of people can't do what you say they should do. It's been shown again and again that the more involved someone is with their investments on a daily basis, the worse their returns. Do I check my investments on a daily basis? Yes, absolutely. But thankfully I'm able to resist the temptation to tinker with shit or deviate from my overall portfolio goals/targets. Perhaps you can too. That's great. But the reality is, most people can't and won't.

Look at that chart.

Blazin · Jan 2, 2013

Buy an hold baby! In twelve years you too can break even with this strategy.

yes I'm leaving out 1980 to 2000 but it makes the point that when the market is on a Macro trend even the sound investment advice of buy and index fund and go away does not mean it will work out for you. Maybe it will and maybe it won't. I don't think it hurts to buy and sell macro trends it's timing the market in the short term which is a crap shoot. I do think an investor can sell highs and buy lows by changing weighting of stocks to bonds not completely in and out of positions over long term trends. I personally sold out prior to 2008 crash and am glad as shit that I did and bought back in some awesome bargains. But buying this week to sell next week is an idiots game. If you are going to day trade then really day trade by holding no position over night.

Shonuff · Jan 2, 2013

Blazin_sl said:
Buy an hold baby! In twelve years you too can break even with this strategy.

yes I'm leaving out 1980 to 2000 but it makes the point that when the market is on a Macro trend even the sound investment advice of buy and index fund and go away does not mean it will work out for you. Maybe it will and maybe it won't. I don't think it hurts to buy and sell macro trends it's timing the market in the short term which is a crap shoot. I do think an investor can sell highs and buy lows by changing weighting of stocks to bonds not completely in and out of positions over long term trends. I personally sold out prior to 2008 crash and am glad as shit that I did and bought back in some awesome bargains. But buying this week to sell next week is an idiots game. If you are going to day trade then really day trade by holding no position over night.

And I'd love to see the stats on how the good managed funds did over that time period. I know they all took a hit with the SLC crisis and the gas problems with Jimmy Carter, and that skewed results downward.

Elerion · Jan 3, 2013

Blazin_sl said:
Buy an hold baby! In twelve years you too can break even with this strategy.

yes I'm leaving out 1980 to 2000 but it makes the point that when the market is on a Macro trend even the sound investment advice of buy and index fund and go away does not mean it will work out for you. Maybe it will and maybe it won't. I don't think it hurts to buy and sell macro trends it's timing the market in the short term which is a crap shoot. I do think an investor can sell highs and buy lows by changing weighting of stocks to bonds not completely in and out of positions over long term trends. I personally sold out prior to 2008 crash and am glad as shit that I did and bought back in some awesome bargains. But buying this week to sell next week is an idiots game. If you are going to day trade then really day trade by holding no position over night.

1. What Lyrical said.
2. You're cherry picking periods. I could do that too. Look, 352% return (16.3% annually) ex dividends from 24/3/1990 to 24/3/2000!
3. You're ignoring dividends. People make that mistake all the time when trying to argue for the "death of equities" or the superiority of active management. Here's S&P 500 with dividend reinvested (red line). The second graph shows a (slightly smoothed) timeline of 10 year dividend reinvested returns on S&P500. There's only 4 short periods where it was significantly negative, while most periods have offered significantly positive returns. There's two takeaways from this: First, you'll probably get good returns with a buy and hold index strategy over time. Second, market timing is dangerous. There are few "big macro trends" visible here, but tons of short term movements that will skew your returns heavily if you make major timing investments.

Elerion · Jan 3, 2013

Soriak_sl said:
As for the efficient market hypothesis - that all risks are priced in - well, it might be that the "market" perceives a low risk of no agreement. So if the "no agreement" event is realized, stocks could drop significantly. Moreover, if a lot of people panic, then stocks are going to drop no matter what the real impact on the economy will be.

I'm not saying the markets are efficient. There is quite a bit of inefficiency. However, they incorporate a level of information that is far above your Average Joe. Unless you know something most people don't, don't try to time your trades. "I don't think the assholes in DC can agree" is not information worth trading on unless you have superior knowledge of the situation.

Soygen · Jan 3, 2013

This link has good historical data on the S&P, showing 25 year returns from each year. Buy and hold is one of the best strategies, assuming you're investing in index funds.

http://financeandinvestments.blogspo...for-s-500.html

Eomer · Jan 3, 2013

Yeah, even on 10 year periods it's only been negative four times. 1938, 1939, 2008 and 2009. Go figure.

Going cash?

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