When Does The Stock Selloff End (or, should I invest in SS Rolex models?)

Donn Chambers · May 11, 2022

bradurani
Honest question, not being flippant: Isn't that selling low and buying high? You're intentionally giving up 9% there. If you're withdrawing money to cover expenses, I can see why you'd want to be out, because if it dips say 20%, selling shares to cover expenses would be painful. Maybe just sell off part of your portfolio, to cover 18 months of expenses, but keep the rest invested, since you believe it will recover eventually?
What worries me about this strategy, is it's we're more likely to see a 6% dip and recovery than a 20% dip and recovery, and that's worse case scenario for this strategy since you give up 9% and don't get any benefit.

my interpretation was that when it drops below 6% he stops buying until it moves back up. But I had the exact same thought — this isn’t a good strategy for long-term investment if the stocks that are dropping in price are likely to be around for a long time and gain future value. Would make more sense to keep buying quality stocks as they drop.

again, why I buy every month with a fixed amount regardless of the market. I buy some at low values, some at high, but on average you’ll make more than you’ll lose.

gbesq · May 11, 2022

If this is a system that works and has been proven for 100 years, then why isn’t it used across the board by professional fund managers, many of whom rack up substantial losses in bear markets just like the rest of us?

TheGreekPhysique · May 11, 2022

johnireland
You need a discipline for when to buy and when to sell, and it should be testable for accuracy for the last 100 years. And then you must stick with that discipline or there is no point in having it. I use that when the S&P 500 is goes 6% below its 200 day moving average, I am totally out of all stocks. And when it get to 3% above its 200 day moving average, I ladder back in at 30-60 day intervals...sometimes in two 50% big steps, other times in 3 or 4 smaller but equal steps. The back in steps depends on overall conditions but I stick with the discipline. There are only two instances in the last 80 years when this did not work optimally...and still losses were minimal compared to buying and holding. This formula is for retired people, or those close to retirement (ten years?) who don't have ten or more years to hopefully regain lost wealth. The goal of this program is to have your money last as long as you do. It requires a serious analysis of your needs, goals, and assets to accomplish your end game. It does not use stocking picking or market timing or cyclical rotation of stock segments that are in or out. It uses the S&P 500 as a broad measurement of the economy's health. If you are 25, you have time to try and get lucky. If you are fifty, something more cautious and structured may serve you better. And if you are already retired, you no long can afford to play games, you need a level of growth designed specifically for your needs, and you need protection of principal.

So basically, if I got the gist of your whole strategy and understand you correctly, I should buy a lot of steel sports Rolex and I'll make money. Got it.

bradurani · May 11, 2022

Donn Chambers
my interpretation was that when it drops below 6% he stops buying until it moves back up. But I had the exact same thought — this isn’t a good strategy for long-term investment if the stocks that are dropping in price are likely to be around for a long time and gain future value. Would make more sense to keep buying quality stocks as they drop.

again, why I buy every month with a fixed amount regardless of the market. I buy some at low values, some at high, but on average you’ll make more than you’ll lose.

He's retired. That means he has to withdraw some funds every month to live off of (he's not adding like you). The risk then is in a deep downturn, when we could be 20-40% below highs he'd have to sell to cover his expenses.

johnireland · May 11, 2022

Donn Chambers
my interpretation was that when it drops below 6% he stops buying until it moves back up. But I had the exact same thought — this isn’t a good strategy for long-term investment if the stocks that are dropping in price are likely to be around for a long time and gain future value. Would make more sense to keep buying quality stocks as they drop.

again, why I buy every month with a fixed amount regardless of the market. I buy some at low values, some at high, but on average you’ll make more than you’ll lose.

Actually...when it drops 6% BELOW ITS 200 DAY MOVING AVERAGE (the important qualifier) I am totally out...all cash. And the only when it is 3% ABOVE its 200 day moving average do I buy back in. And the moving average value can change dramatically from that at which I sold and that at which I buy.

The approach of buying a fixed amount every month...sometimes at low and sometimes at high values...is an excellent way to invest. I believe it is especially effective when buying indexes...though it could sometimes also work with an individual stock. And a very smart strategy for being in the pre-50 age group. It is the method I used to buy gold years ago, and it worked out very nicely. However at a certain point in life, protection of principal can take precedent over growth. It would just depend on your financial profile at that point in your life. Warren Buffet has no need for my investment formula.

johnireland · May 11, 2022

TheGreekPhysique
So basically, if I got the gist of your whole strategy and understand you correctly, I should buy a lot of steel sports Rolex and I'll make money. Got it.

I think you'll hedge your bet better if you make it 18k Rolexes.

gbesq · May 11, 2022

Why worry about retirement? There’s always one of those foolproof systems for always winning at blackjack that are available for free on the internet. It’s just like having a private ATM. 🙄

johnireland · May 11, 2022

gbesq
If this is a system that works and has been proven for 100 years, then why isn’t it used across the board by professional fund managers, many of whom rack up substantial losses in bear markets just like the rest of us?

I can't answer for all the fund managers out there. And there are all sorts of approaches to the market. Some people (like George Soros) make all their money off one big play. Others like Buffet are very clear about how they chose investments for long term value. And there are the folks who like to play high risk in commodities, and there are those who believe in cycles, and those who do high speed trading. And there are successes and failures across the board. By a loss in a bear market, I assume you might be referring to folks who never sell and ride it all the way down and then all the way up. Sometimes a recovery can happen very quickly, and other times it can even take decades. My approach is very cautious...my prime objective is preservation of capital...and then growth that beats inflation. Over the years I have seen one thing, that a lot of people in the market who serve clients, they get paid no matter what happen to the client's money. But if you are out of the market, they don't make anything. It is all about having a plan with defined goals and then having a proven discipline that will get you to those goals.

vintage hab · May 11, 2022

johnireland
...it uses the S&P 500 which is a much broader and inclusive index with a wider variety of stocks that reflect a bigger picture.

Actually, the 10 biggest stocks make up about 30% of the S&P500 index's market value, so it's not that broad. The capped S&P500 is a broader index.

Donn Chambers · May 11, 2022

bradurani
He's retired. That means he has to withdraw some funds every month to live off of (he's not adding like you). The risk then is in a deep downturn, when we could be 20-40% below highs he'd have to sell to cover his expenses.

Got it. Missed that point. In that case, the strategy makes more sense — although I’m probably not going to be buying/selling more volatile stocks when I’m retired, but investing in more stable (but low gain) assets.

The Father · May 11, 2022

gbesq
Why worry about retirement? There’s always one of those foolproof systems for always winning at blackjack that are available for free on the internet. It’s just like having a private ATM. 🙄

Don’t forget about the lottery!
Can’t win if you don’t play!

johnireland · May 11, 2022

bradurani
He's retired. That means he has to withdraw some funds every month to live off of (he's not adding like you). The risk then is in a deep downturn, when we could be 20-40% below highs he'd have to sell to cover his expenses.

Actually (so far) I don't have to withdraw anything every month to live off of. At some point down the road I will start using my principal because that was always part of the long term plan. My goal is to enjoy my life at its current quality and quantity, and to do it all the way to the end.

Walrus · May 13, 2022

johnireland · May 13, 2022

Hard to tell if that is Buffet or Bernie...they are both so much alike. I will be that neither of them get wiped out...so I take this all with a grain
of salt. That is what my strategy is designed for.

johnireland · May 13, 2022

Some examples of other voices...excerpted from a financial letter I get. And as someone else once said, "the market can remain irrational much longer than you can remain financially solvent."

"Bob Farrell a legend on wall street who has lived through every bear market since the 60's put together a list he calls the 10 rules for investing. Rule #8 Says: "Bear markets have three stages – sharp down, reflexive rebound, and a drawn-out fundamental downtrend." It appears we have been through the first two stages already. According to Bob Ferrell the bear market he foresees is going to be one of the worst he's seen in his career.
Jeremy Grantham another legend of wall street who's been calling market bubbles such as Y2K & the bubble seen in 2007 just before the crash that followed in 2008. Jeremy is predicting the S&P could go down another 35% from here.
We are calling this bubble the "Government Infusion Bubble". We believe the bubble we are in now was created due to governments around the world perpetually pumping money into their respective economies thus, pumping up the balloon, eventually leading to the inflation we see today."

Walrus · May 13, 2022

Walrus

Actually kind of a click bait headline but it’s pieces put together from a few of his investors meetings where he went into depth about “stock picking” and used the top 20 stocks thirty years ago to show just how hard it can be. It was one of the more fascinating talks I’ve heard him give. This video seems to use pieces of that and a more recent meeting put together.

Tony C. · May 14, 2022

The Father · May 14, 2022

Lotta good companies dragged down by the last few weeks of sell off.

Trolling the stock list to rebalance some lesser dividend stocks for the dividend paying blue chippers hitting lows.

Omegafanman · Jun 7, 2022

So this week Amazon did a 19:1 stock split, so you end up with 20 shares at a reduced price for each one you own.
Makes sense as even after the current sell off they were over $2k each….so a lower price per share makes sense.
Anyway I logged into my trading account in the UK am yesterday and did a backflip. My qty matched the stock split, but the price had not changed. I took a screen shoot / life was looking good…….. sadly once the US markets opened the price reset down to match the new qty :0(

johnireland · Jun 7, 2022

Everything depends on your personal financial horizon. Where are you in accomplishing the accumulation of wealth to finance your retirement? Are you investing for current income, long term appreciation of assets, speculative risk taking, creating equity for your heirs...each plan is meaningless without specific goals and a strategy to achieve them. Measure twice, and cut once.