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Thoughts for windfall

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  • Avatar Jack_Sparrow 
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    alpha investing

    Id say go for it in timing the market. I’m an avid trader in my taxable account and I’m moving into cash. The markets been going up for 10 years., I think its over due for a major correction. Even if its only a minor 10-15% correction.

    You just have to take a disciplined approach. Set a goal. IE i’m going to set a trade trigger to buy the S&P 500 when it drops 10% from today and let it ride. Even being conservative set it to buy at 7% drop if you don’t want to wait years.

    No risk, no reward.

    To me it seems like the risk  of holding for market timing is missing out on returns in the next year while you sit on the sideline. Where as investing now the risk is the market corrects down 30%.

     

     

     

     

     

     

    #213197 Reply
    CordMcNally CordMcNally 
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    The markets been going up for 10 years., I think its over due for a major correction. Even if its only a minor 10-15% correction.

    Click to expand…

    Wut? Do you have a legitimate reason for a major correction or just because it has gone consistently up for 10 years your reason?

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #213200 Reply
    Lordosis Lordosis 
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    Just because it has been a good 10 years does not mean we are “due for” anything.  I hope you can guess right but I plan to ride the ups and downs.  If I had a small 7 figure windfall I would pay off my mortgage and put the rest into my normal AA.  The mortgage payoff would give me a little more security and I could expand my lifestyle by spending what I had been paying.  Or not and just save it too.  Or some compromise.

    “Never let your sense of morals prevent you from doing what is right.”

    #213205 Reply
    Liked by Tim, CordMcNally
    IntensiveCareBear IntensiveCareBear 
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    Joined: 12/22/2018

    Last couple days are a fine dip to buy. If dropping a couple percent “feels hot” to you, I’m not sure what to tell ya.

    The best option is usually just to put it all in and start getting dividends (and selling covered calls or other index options if you want). If the whole index struggles or goes sideways, oh well… the call and dividend money makes you win regardless. If you told me S&P will be 2900 today and 2900 at year end, I’d say I can make around 8% in that span (1.5% from dividends and also roughly 1% monthly with covered calls).

    If you sit and wait with that money on the sidelines, you might be waiting awhile. You never know. Nobody knows anything.

    I will set limit orders for 1-5% under market price when I’m buying indexes, since they hardly have any real momentum and there are no QE or significant dividend dates to bear in mind. However, that limit buying never made sense to me on single stocks or ETFs (which I tend to buy at or very near market price, esp after a downward plunge or huge drop from QE announce). When you buy with limit orders, you may save a bit, but it also means you’re buying things with negative momentum. With stocks (esp volatile ones), that is often not ideal… indexes, it doesn’t really matter.

    If you don’t want to buy now, that’s your choice. It could be correct, but assuming growth is your goal, you sure don’t notice many large and successful funds sitting with much cash on the sidelines. They are usually 100% invested or very close… so that they can collect dividends and sell options all along. They just change AA or even short the market through options or inverses when they feel that’s the best move. If your only available move is to go long on stocks/indexes with buy and hold strategy, then THAT is your problem, not good or bad market timing or lump sum versus DCA. It is good for everyone to understand some bearish strategies and some places to park dry powder, even if they never use them. GL

    "Hmm, that sounds risky." - motto of the middle class

    #213212 Reply
    Avatar Financial Naive MD 
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    Status: Physician
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    This is the result from google search “dollar cost averaging vs lump sum”

    Research from Vanguard shows that, most of the time, investors would do best by investing a lump sum. … The lump sum beat dollar cost averaging about two-thirds of the time. On average, the lump sum beat the dollar costaveraging strategy by an average of 1.5 percent to 2.4 percent, depending on the country.

    If you can tolerate the fact that stocks may drop 30% over the next year and can wait for 5-10 years for recovery.  I would just put lump sum in stock indexes (80% US, 20% inter) and don’t look at it too often.

     

    #213219 Reply
    Liked by childay
    childay childay 
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    Having never had such a large windfall, not sure how I would feel.  But pretty sure I would lump sum it.

    #213243 Reply
    Avatar Jack_Sparrow 
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    Status: Physician
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    Splash Refinancing Bonus

    The markets been going up for 10 years., I think its over due for a major correction. Even if its only a minor 10-15% correction.

    Click to expand…

    Wut? Do you have a legitimate reason for a major correction or just because it has gone consistently up for 10 years your reason?

    Click to expand…

    A bunch of reason, Here’s a few of the things I think will/can cause a 10-15% correction in the next 1-2 years which Is my time horizon for sitting back in cash.

    1) Auto Loan Defaults (Similar to housing market crash but less extreme).

    2) Slowing Global Growth will finally finds its way into the market.  Don’t see the US continuing to grow at 3-4% like it has been.

    3) P/E ratios are high, stocks are overvalued, I think they will pull back soon enough when earnings can’t keep pace with growth or numerous other instances get the momentum rolling downward.

    4) Algorithmic trading – Panic selling. I think the market will over react to something (maybe a tweet) and then it will sell off in a flash crash. Maybe for a few days maybe for a few hours.

    5) Trade War with China – If this doesn’t get resolved, I’m betting it won’t.. markets will correct.

    6) Bond Markets – Lot of corporate debt out there. Lot of tech companies borrowing a lot of money in hopes of the next big thing which I don’t see coming. Wouldn’t be surprised if companies like Tesla, Netflix, Amazon to some extent all take a major slide backwards.

    7) Potential War/Conflict – Russia, China, North Korea, Iran, Venezuela, Turkey, Middle East, etc.

    8) Feds adjusting rates – I don’t have a high opinion of the Feds after raising rates in October last year.

    9) Politics – Lot of stupid things that can happen to potentially rattle markets. Expecting 2020 to be an ugly one.

    10)  Unemployment is low, wages will start to slowly rise, decreasing profits.

    11) Baby Boomers start to retire, taking more money out of the market then being replenished by younger generation.

     

     

    #213252 Reply
    CordMcNally CordMcNally 
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    A bunch of reason, Here’s a few of the things

    That is a very thought out response but, in short, I disagree. Half of the things on your list could literally be on somebody’s “Top Reasons Why The Stock Market Could Collapse This Year” list every single year. Will the market have a large correction in the next few years? Maybe. Will it go up another 10-20% before it does? Maybe. I do know one thing and that’s that market timers aren’t able to accurately predict the ups and downs of the market. Staying in the market has proven to be the better scenario for basically everybody not named Warren Buffett.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #213266 Reply
    Avatar Tim 
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    Joined: 09/18/2018

    @jack Sparrow,
    What did you do 12/18? I think you hit your sell off trigger that you went back in doesn’t it? Does Mr. Market get a restart on the clock? That means we are 4.5 months in to the “recovery”.

    10-15% isn’t a viable rule. I have no problem with a firm like 10.98.

    From your narrative trading strategy I would think you would be fully invested. But, with all the “wall of worry” things that could send “Mr Market” into a panic (or into a buying frenzy” I can’t tell if your recommending raising cash, sitting tight or a clear “confirmation signal”.
    What’s the strategy when 15% becomes 25%?
    When do you buy and when do you sell and when do you buy again? Not saying it won’t work, just want to back test the algorithms. Fair?
    Thanks in advance. I hope it works.

    #213278 Reply
    Avatar Jack_Sparrow 
    Participant
    Status: Physician
    Posts: 54
    Joined: 01/09/2019

    @jack Sparrow,
    What did you do 12/18? I think you hit your sell off trigger that you went back in doesn’t it? Does Mr. Market get a restart on the clock? That means we are 4.5 months in to the “recovery”.

    10-15% isn’t a viable rule. I have no problem with a firm like 10.98.

    From your narrative trading strategy I would think you would be fully invested. But, with all the “wall of worry” things that could send “Mr Market” into a panic (or into a buying frenzy” I can’t tell if your recommending raising cash, sitting tight or a clear “confirmation signal”.
    What’s the strategy when 15% becomes 25%?
    When do you buy and when do you sell and when do you buy again? Not saying it won’t work, just want to back test the algorithms. Fair?
    Thanks in advance. I hope it works.

    Click to expand…

    Here in general is how I’ve timed (or not timed the market) over the years. My taxable account which I do trading in has beaten the S&P 500, 8 out of the last 8 years. Full disclosure I’m only playing with $150,000 or so. I’m a resident as well, so if I lose it all, I’m not exactly losing sleep at night and taxes aren’t killing me. Here are some of my bigger success stories.

    1) Brexit – Sold half before the election, bought it all back few days later.

    2) Sold 35% in Oct 2018, Bought back in Dec 28 2018. (Also bought alot of China funds back in October 2018). When the feds cut rates, I thought it was dumb plus I figure the politics would cause some shifting in stocks.

    3) Lot of success buying great stocks after an earnings bust and collecting profits on them (FB, AMD, NVIDIA, CNX, SVXY). (Id say i trade at most 3-5 stocks/indexes a month, on average maybe 1 a month. I set trade trigger alot of times, which catches the stock when it falls really low for a few minutes. I also never buy a stock I wouldn’t plan on holding for atleast a year. IE I’ll buy facebook after a 20% drop but if it doesn’t go up 10-15% in the next 3 months, I’ll just keep holding onto it for a year.

    4) Sold off 30% to go in cash last Friday(5/3/19), Reasoning was markets hit highs, every one seemed to think things were going great, so I sold. (Fearful when others are not, and ambitious when others are fearful). I didn’t see trade with China working out anytime soon. Just got lucky that it was before the Tweet.

    Sure I’ve also failed a few times.

    1) Sold 40% on Feb 10, 2016 (Day the S&P 500 bottomed out).. bought back in in April.

    2) Bought about 15% of SVXY which crashed 81% in a day… never recovered.

    3) I’ve missed big on a few stocks, usually i sit on them for a while and sell that at a loss when it comes time for the next big cash rash, etc. In general though in a bull market you are going to win more than you lose.

    Right now I’m 30% in cash.

     

    #213371 Reply
    Avatar antheus 
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    Status: Resident, Physician
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    Joined: 04/18/2017

    I think people tend to oversimplify this a bit. Scale makes a difference. It’s easy for me to maintain my investment strategy right now even if I feel the market is overvalued because if I’m wrong, I’m only a bit wrong. I think it is always uncomfortable to throw a windfall at the market. As an aside, 3 years ago I had a conversation with a colleague about investing. He told me that he thought things were overvalued and pulled his money out. I said you know I feel the same way and it feels a bit uncomfortable but I stayed the course. I have felt the same way a couple of times over the last 3 years and every time things surprise me.

    I think there are some good points in this thread. My questions would be:

    1) Where are you at right now and what is your timeline? If you are young I would just lump sum invest at your current asset allocation and call it a day. Even if there are losses, you’ll make them back and then some over time.

    2) How does the lump sum change your goals? For instance, maybe you are now going to reach your “number” earlier than expected. If that’s the case perhaps a revision in your asset allocation is in order to account for the windfall.

    3) If you were to wait, what would you do if the market went up? Now you have the opposite problem. If you can’t go in today because you think the market is too hot, what do you do if the rally continues for another 2 years? What do you do with your other non-windfall contributions?

    If you have debt to pay down that may be a good option psychologically, but this is really just the equivalent of shifting your asset allocation.

    #213377 Reply
    Liked by Lordosis
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1300
    Joined: 02/11/2019

    @jack Sparrow,
    What did you do 12/18? I think you hit your sell off trigger that you went back in doesn’t it? Does Mr. Market get a restart on the clock? That means we are 4.5 months in to the “recovery”.

    10-15% isn’t a viable rule. I have no problem with a firm like 10.98.

    From your narrative trading strategy I would think you would be fully invested. But, with all the “wall of worry” things that could send “Mr Market” into a panic (or into a buying frenzy” I can’t tell if your recommending raising cash, sitting tight or a clear “confirmation signal”.
    What’s the strategy when 15% becomes 25%?
    When do you buy and when do you sell and when do you buy again? Not saying it won’t work, just want to back test the algorithms. Fair?
    Thanks in advance. I hope it works.

    Click to expand…

    Here in general is how I’ve timed (or not timed the market) over the years. My taxable account which I do trading in has beaten the S&P 500, 8 out of the last 8 years. Full disclosure I’m only playing with $150,000 or so. I’m a resident as well, so if I lose it all, I’m not exactly losing sleep at night and taxes aren’t killing me. Here are some of my bigger success stories.

    1) Brexit – Sold half before the election, bought it all back few days later.

    2) Sold 35% in Oct 2018, Bought back in Dec 28 2018. (Also bought alot of China funds back in October 2018). When the feds cut rates, I thought it was dumb plus I figure the politics would cause some shifting in stocks.

    3) Lot of success buying great stocks after an earnings bust and collecting profits on them (FB, AMD, NVIDIA, CNX, SVXY). (Id say i trade at most 3-5 stocks/indexes a month, on average maybe 1 a month. I set trade trigger alot of times, which catches the stock when it falls really low for a few minutes. I also never buy a stock I wouldn’t plan on holding for atleast a year. IE I’ll buy facebook after a 20% drop but if it doesn’t go up 10-15% in the next 3 months, I’ll just keep holding onto it for a year.

    4) Sold off 30% to go in cash last Friday(5/3/19), Reasoning was markets hit highs, every one seemed to think things were going great, so I sold. (Fearful when others are not, and ambitious when others are fearful). I didn’t see trade with China working out anytime soon. Just got lucky that it was before the Tweet.

    Sure I’ve also failed a few times.

    1) Sold 40% on Feb 10, 2016 (Day the S&P 500 bottomed out).. bought back in in April.

    2) Bought about 15% of SVXY which crashed 81% in a day… never recovered.

    3) I’ve missed big on a few stocks, usually i sit on them for a while and sell that at a loss when it comes time for the next big cash rash, etc. In general though in a bull market you are going to win more than you lose.

    Right now I’m 30% in cash.

     

    Click to expand…

    I knew a guy who used to bet on horses.  He would tell me about the thousands he made.  Never told me about the tens of thousands he lost.  Found out about it when he lost his house.

    I am in no way calling you a liar and do not want to cause any offence.  Just make sure you are honest with yourself with how well you are actually doing.  It is more complicated in the market then with gambling losses.  that 30% sitting in cash is a loss if the market rises.  It is hard to account for these things fully.  You may be hurting yourself more then you realize.  Being a resident with 150K of play money means this game is won already barring catastrophe.  Why take all the risk when you can just invest in a diversified portfolio and end up very comfortable?

    You are just a stranger on the internet so you can do what you will.  Sometimes we have to learn lessons the hard way.  I guess I learned not to time the market by others mistakes.  Best of luck and I wish you success.

    “Never let your sense of morals prevent you from doing what is right.”

    #213386 Reply
    Avatar Tim 
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    Status: Accountant
    Posts: 2627
    Joined: 09/18/2018
    In general though in a bull market you are going to win more than you lose. Right now I’m 30% in cash.

    Click to expand…

    Congratulations on your successes! Event driven trading strategies, news driven strategies, and tactical allocation strategies abound ( https://mebfaber.com/wp-content/uploads/2016/05/SSRN-id962461.pdf  ). Highly educated sophisticated investors and firms really try to “beat the market” too. It works until it doesn’t. If you want to “play the market”, your approach is typical. Your “investment goal” is to win more than you lose “in a bull or bear market”.

    “Educated guesses” is not a sustainable strategy or tactic. A repeatable process is your goal. What, how much, and a time frame are the key variables. No one has figured it out yet. Plenty of examples of successes or failures though. My question is why 30% cash? Is it your allocation based on the market or is it based on your risk tolerance and risk capacity? I would suggest the latter for an investment strategy.

    Fear sells. What is your trading plan if Brexit, China trade agreement and the Noko thing all are solved next month? Oh crap, Argentina and the Mexican border shutting down really might screw things up. Keep your sandbox to try out ideas, it may work fantastic. But when it comes to investing for wealth, set your AA and your plan. Thirty years from now you will be glad you did.

    #213393 Reply
    Liked by Lordosis
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2504
    Joined: 01/03/2017
    I knew a guy who used to bet on horses. He would tell me about the thousands he made. Never told me about the tens of thousands he lost. Found out about it when he lost his house.

    Click to expand…

    Welcome to the world of gamblers and their stories.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #213437 Reply
    Liked by Hank, Lordosis
    Avatar Jack_Sparrow 
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    Status: Physician
    Posts: 54
    Joined: 01/09/2019

    The 30% in cash was just a round up of the latest stocks I sold IGM (tech ETF), ODVIX (china fund), UNH (united health), and GOOG (all reaped 10%+ gains since i bought them less than 6 months ago),  Also sold Boeing, SQ, and RTN, all for a loss between 7%-10%. There is not a lot of strategy in a robotic sense. I’ve got a few rules I stick to too try and keep my emotions from getting the better of me, For example, if its up more than 15% in 3 months I sell it.

    I hear what the investors above are saying, statistically the sound strategy is throw it all into a safe AA, low fees and you’ll win out in 30 years. I won’t disagree that this is the most tried and true recipe for success. This is my approach to my 401k/retirement funds….

    But I like to play with fire a little bit. I also invest/chase the market as a hobby, I’m part of an investment club, etc. I’m sure right now, I’m a product of survivor bias and easy to talk big when the markets are at an all time high. I could be a few bad trade away from going under but its the stock market, everything is a gamble on some level. I don’t plan on timing the market for 30 years, nor do I recommend it.

    But I don’t think its totally out of the question for a guy who just got a $1,000,000 windfall to sit on the money for a year and try and buy a nice dip given the current climate. (Longest Bull Market in history, Federal Debt, Pensions/SS underfunded, extreme politics, majority of investors see problems ahead). Id give a different answer if the investor asked this question January 1, 2019 and maybe a different answer in 3 months.

     

     

     

     

     

    #213464 Reply

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