If you were to begin again what would you do different?

[Ves]

The great majority of people who adopt a buy and hold approach do so either via an index fund or by taking a representative group of popular 'mum and dad' shares. They are the people who are still well and truly down in their Super accounts because they didn't consider the possibility of selling when they could hold on to most of their profits.

Here the emphasis is on the poor implementation of the investment philosophy (and lack of understanding of these "mum and dad" investors) rather than the actual strategy itself.

The two are often easy to confuse, but there is a subtle difference. The skill is not so much in being able to "buy and hold" but being able to "buy and hold the right shares."

Put it this way: if I was a technical analyst and got whipsawed constantly, missed every high and did not sell at every low - is it the fault of that method, or is it the implementation of that method?

Did you know that there are lots of good companies that are trading higher than they were before the GFC and you had plenty of dividend income with which to re-invest back into them at their lows? It's not all doom and gloom out there, you know!

Do you not agree that a 9% annual return on the ASX accumulation index for the last ten years is something that should not be scoffed at so quickly?

If you'd sold $1M worth of shares reasonably close to the peak, I doubt an amount you're keeping in 'liquidity' is going to be equivalent in terms of purchasing power.

The longer period of time over which you invest, and the more that you invest incrementally over that period of time, the more annual liquidity you will be able to draw on. What starts small acorn can grow into a very big tree within an investing career. There are most likely people who now earn an annual income greater than the original sum that they started with.

 

[craft]

Hi Julia

The reason I was/am reluctant is because everybody personalises things. My intention is just to talk on a general basis about the power of dollar cost averaging over a life time.

I believe the points I made in relation to supporting the strategy are correct in a general sense.

I was responding to you but I was not talking about you. You may be an exception to the general rule – I really wouldn’t know.

And I am certainly aware of some people’s desires/needs to get out of the market near retirement – Market volatility over even the medium term is very real. Bills point is well made.

The two points of views don’t have to be mutually exclusive.


Now to pick up on your statement.

I know the fundamental fans love to say that buy and hold beats any other strategy.

Fundamental is a very broad school. I attack stock selection from a fundamental perspective but I suspect I am actually a lot closer aligned to your approach then to buy and hold. You hold whilst market prices trend positively in an attempt to outperform the market. I hold whilst underlying business performance trends positively in an attempt to outperform the market. Whilst I ignore market timing – I achieve stock timing to some degree by default by attempting to buy undervalued and sell overvalued.

So whilst it is not exactly what I do, I am supporting the strategy of dollar cost averaging over an entire life as a very powerful approach for anybody that would rather get on with things in life other than do what it takes to win in a very competitive less than zero sum game of chasing stock market outperformance.

Trying and losing as the majority must do according to the laws of maths is big waste of both time and money. Some who are in the majority probably don't even realise it because they fail to keep accurate records of comparison against the passive alternative and then the brain does what the brain does.

Happy investing - my queue to return back to my box has arrived.

 

[Julia]

Here the emphasis is on the poor implementation of the investment philosophy (and lack of understanding of these "mum and dad" investors) rather than the actual strategy itself.

The two are often easy to confuse, but there is a subtle difference. The skill is not so much in being able to "buy and hold" but being able to "buy and hold the right shares."

OK, fine. But I doubt that the vast majority of people who hold shares via their Super have any interest in determining what are 'the right shares'. I've personally had more than 30 years' experience in investing, whether in real estate or shares, and have no interest in micro analysis of any company when I can achieve a decent result much more simply. I do understand, however, that for some of you, there's a very real satisfaction in crunching numbers etc. Fine. I have no quarrel with that at all. Just get a bit irritated when you all so aggressively dismiss any alternative approach, especially when it's unlikely you've ever actually tried it in practice.

Put it this way: if I was a technical analyst and got whipsawed constantly, missed every high and did not sell at every low

Um, "did not sell at every low"????? That's the last point at which you should be selling!! That's when you should be buying.

Do you not agree that a 9% annual return on the ASX accumulation index for the last ten years is something that should not be scoffed at so quickly?

I don't believe I've scoffed at anything. Individuals will seek a return which meets their needs and circumstances at any given time, hopefully weighing up preservation and growth of capital in the process. I have no interest in entering into any sort of p****ing contest as to who can achieve the best return.
Neither do I have any interest in being drawn into commenting on whether 9% is an adequate return.

Hi Julia

The reason I was/am reluctant is because everybody personalises things.

On the contrary, craft. I was simply attempting to offer the OP an alternative to the chorus of value investing being the only approach.
I think we should be mindful of the people who join this forum every day and put up posts along the lines of "I want to get into the stock market but have no idea where to begin".
If we genuinely want to be helpful, then I think it's more useful to offer a selection of approaches and to avoid the apparently inevitable aggressive squabble about why "my way is better than your way". No such thing, imo. Different approaches will suit different personalities and circumstances at different life stages.

I've been a member of ASF for about eight years and am absolutely over all the squabbling about FA v TA and everything in between. It adds little of use for newcomers and little of quality to the forum.

So whilst it is not exactly what I do, I am supporting the strategy of dollar cost averaging over an entire life as a very powerful approach for anybody that would rather get on with things in life other than do what it takes to win in a very competitive less than zero sum game of chasing stock market outperformance.

Again, you are over-complicating the simplicity of a trend following approach.
If you are happy to apply a given strategy over a whole lifetime and it works for you, then that's fine.

One of the reasons I put forward the trend following approach was in response to the number of posts I've read quite recently where people have said they lost amounts like $30,000 etc, or had never made a profit over several years. This just astonishes me. If you started to lose real money, why wouldn't you stop what you were doing before it got to be a loss of $30K? And if over several years, you'd yet to make decent profits, wouldn't you go back to paper trading or in some other way re-evaluate what you were doing?

 

[Ves]

Fine. I have no quarrel with that at all. Just get a bit irritated when you all so aggressively dismiss any alternative approach

Perhaps we are reading things differently - but no where in this thread has anyone done such a thing.

Dismissing as opposed to discussing some of the risks or traps of a certain strategy are two completely different things. It seems fine for you to blantantly say that you could do better than "buy and hold" by doing this and that, but apparently any alternative is not welcome. Honestly about all I got from this exchange was that you wanted to accuse me of doing things that I haven't done (and for some reason quoting other forum posters that you know I get along with - and claiming that I am calling them a liar) without bothering to even ask me to clarify if that was the intention of my comment.

If divergent strategies did not work then there would be no market in the first place. I thought that this much was obvious - so I never mentioned it. Perhaps I need to disclaim all of my posts better in future before being accused of being aggressive and irritating and trying to engage people in pissing contests.

 

[Julia]

It seems fine for you to blantantly say that you could do better than "buy and hold" by doing this and that, but apparently any alternative is not welcome.

Sigh. I just offered the idea that more money could be made by an alternative strategy. Craft subsequently acknowledged that that was true.

Honestly about all I got from this exchange was that you wanted to accuse me of doing things that I haven't done (and for some reason quoting other forum posters that you know I get along with - and claiming that I am calling them a liar)

1. I have no idea which posters you 'get along with' or otherwise.
2. McLovin's post was put up as an example of what I was talking about. BillM had already made the same point.
3. I did not claim that you called anyone a liar. I did, however, resent your implication that anyone, obviously myself included, who suggested selling to preserve profits etc, was describing something that had not actually been done and which was only obvious in hindsight. That was just rather rude imo. I've not at any stage suggested you are similarly making claims that I doubt.
You did, however, apologise for any such inference and I should have acknowledged that apology earlier.
I do so now and thank you for it.

Let's just move on. I have neither the inclination nor the energy to feel obliged to defend a position that I simply put up in an attempt to broaden the input for the OP. Craft, you are correct in suggesting these discussions are a form of punishment.

 

[nulla nulla]

I know there are alot of old expereinced heads here who have been around the block a few times in relation to all things regarding investing and saving.

So as a young would be investor who is just starting out with investing here is my question.
Given all the years experience you have what is the ONE thing you would do different?

Sounds like a few posters have gotten off track from the original posters question.

The one thing I would do differently, "as a young investor starting out", is appreciate that when a bear market commences, such as this one which started in November 2007 (caused by the impact of the collapse of a major bank and the subsequent international credit squeeze as banks stop trusting & lending to each other) is sell all those "buy & hold" investments and sit on cash until the market bottoms.

They key premise behind my "one thing I would change" perspective is that a young investors starting out has time to ride out corrections and would be able to come back into the market in a better cashed up position than if they elected to continue to hold rather than sell.

 

[So_Cynical]

The longer period of time over which you invest, and the more that you invest incrementally over that period of time, the more annual liquidity you will be able to draw on. What starts small acorn can grow into a very big tree within an investing career. There are most likely people who now earn an annual income greater than the original sum that they started with.

True: My acorn has more than doubled in size (approx 130%) in the 5+ years i have been in the market, started in July 2007...before the peak and held.

The one thing I would do differently, "as a young investor starting out", is appreciate that when a bear market commences, such as this one which started in November 2007 (caused by the impact of the collapse of a major bank and the subsequent international credit squeeze as banks stop trusting & lending to each other) is sell all those "buy & hold" investments and sit on cash until the market bottoms.

And if i had done that, my acorn would probably be triple the size it is now - 200% larger or more.

--

Investment success comes with just getting a couple or 3 big picture investment decisions right and repeating, and a conservative, indisciplined capital strategy.

 

[stewiejp]

1. As has been said before - get in the market early. Put an amount of $ into a share trading account each payday and when it hits a certain amout - buy shares with it, and don't touch it.

I'll adjust/clarify what I advised earlier, since there are obvious benefits to buying low and selling high etc. Bearing in mind this is advice aimed at someone younger (get in early) with possibly not a lot of experience/knowledge in the stock market. At that early stage in the stock trading experience the best strategy IMO is to "buy and hold" at least until you have a few stocks you are comfortable with, and at decent values. Continually trading at $500 parcels - the brokerage will kill you quickly.

By "don't touch it" - what I was getting at was don't be tempted to sell the shares to buy that new iphone/car/set of speakers you may be tempted to get because it's "on sale". Whatever money you put into the stock market - leave it in the stock market. It's a strategy I've used since day one, and recommend to anyone - whatever funds I earmark for share trading stay that way. Either as cash in a higher interest account, or shares - it never goes back into my everyday shopping/expenses account.

 

[john12]

1, make all your in-out decisions on price only, never opinions, use opinions only to identify which instruments interest you, but always wait first for a price signal
2, start investing as early as possible, i was 40 when i began, but first thought of it when still in my teens, sadly i felt it was more "cool" to be a capitalist-hating bohemian at that time, ah the joys of youth
3, dont waste your money, grow it from a variety of sources and slow-feed your trading accounts from them

 

[Julia]

sadly i felt it was more "cool" to be a capitalist-hating bohemian at that time, ah the joys of youth

 

[sinner]

For anyone who has actually tested it and traded it, you will know some things about trend following versus buy and hold.

Trend following the index: will underperform in a bull market it will never outperform simply due to the nature of the trading mechanism. Over a long timeframe (10+y) you will see returns are similar, if not identical for buy and hold versus trend following the index. The difference is in the volatility of returns, where volatility in trend following returns is significantly lower. So you give up 1-2% a year of returns in exchange for a 30-50% reduction in volatility.

Everyone uses XAO or XJO as the example, why don't we try a buy and hold approach on the Nikkei 225 or Greek Bank Index and see how it performs versus trend following? Heck, how are all the buy and holders of the NASDAQ-100 from 1999 doing?

That is the second point. Recency bias of the last 30-50 years has convinced everyone that stocks, property and bonds are always a buy over the long term. Over the really long term you can see the last 30-50 years has been an outlier of growth, where we would need to return to high EREOI energy, another demographic the size of women joining the workforce, another technological innovation like the internet, etc just to see a repeat of the last 30 years not even an improvement.

Trend following and buy and hold are completely irrelevant compared to asset selection.

If you have good asset selection then you theoretically can discard trend following as redundant and costly. In practice it's a little different, often trend following can inform you of whether your asset selection is "good or not".

But the core idea remains the same: the alpha does not come from "dollar cost averaging" or "trend following" or "market cap weighting". The alpha in returns on an investment timescale comes from asset class selection, stocks in this case, which have benefit from a 30 year bull market. But this doesn't apply across the board, again just take a look at Japan or Spain or Greece to see how their stock and bond markets are doing while the SP500 and US10Y make new highs.

and that is all there is to it.

 

[odds-on]

Trying and losing as the majority must do according to the laws of maths is big waste of both time and money. Some who are in the majority probably don't even realise it because they fail to keep accurate records of comparison against the passive alternative and then the brain does what the brain does.

Craft,

Some people do understand the odds of investment success and instead get busy with the hardcore saving!

http://www.mrmoneymustache.com/2011...-much-more-powerful-than-masterful-investing/

Cheers

odds-on

 

[gav]

Sinner, do you have a theory about the long-term success and out-performance achieved by many trend followers? Do you have any evidence that trend following doesn't work?

 

[sinner]

Sinner, do you have a theory about the long-term success and out-performance achieved by many trend followers? Do you have any evidence that trend following doesn't work?

I didn't say it doesn't work. What I said was that trend following the index can never outperform the index in a bull market.

 

[Julia]

Trend following and buy and hold are completely irrelevant compared to asset selection.

Sinner, I'd have thought that was a given.

 

[gav]

I didn't say it doesn't work. What I said was that trend following the index can never outperform the index in a bull market.

Sorry, I must have misread your post.

 

[burglar]

Don't know about that
I got mine in bold type.
It's well documented here and on
" The Chartist "

hi tech/a,

I finally get what you tried to tell me here.

We all get a telegram (yours in bold type)
when our lift reaches the top floor.

Just some of us can't read TA patterns.

Not as dismissive as some, I try to pick up a little at a time.

Recently an outage with accompanying power surge kinghit my TV
I went to the library and borrowed Louise Bedford's "Candlestick Charting".

Ok So this stuff started out as Japanese rice markets trading.
The patterns were named 200 year ago with Japanese 'warrior terms'.
Doji, Harami etc.
I tried to visualise these patterns, rather than learning the names.
Some of the patterns are bearish reversals.
They tell you that the share price is due for a tumble.

So when a talking duck says he knows your
investment is reaching the top floor, you'd better believe it!

 

[Bort]

Instead of playing Wolfenstein, Duke Nukem and chatting on ICQ I would have started a stock forum and made money from advertising!

Or figured out how to trade myself 10 times faster.

Water you touch in a river is the last of that which has passed and the first of that which is coming. Thus it is with time. ~ da Vinci

 

[Wysiwyg]

Given all the years experience you have what is the ONE thing you would do different?

Set up real estate first. That is buy first home in early-mid twenties, build equity, buy investment property, build more equity. Learn value investing in share market and buy stocks for dividend income stream. As the great Warren said -

People make money by staying invested for the long-term and without doing much "dancing in and dancing out" i.e. changing portfolios frequently.