# Worst market timer in history. Who is also a millionaire.



## none (Jan 15, 2013)

I thought this was a pretty neat way to look at it. The amounts of money put in seem kind of arbitrary but whatever, I think it's a good message.

http://awealthofcommonsense.com/worlds-worst-market-timer/


----------



## BoringInvestor (Sep 12, 2013)

I enjoy this article - I hope it inspires others to consider their investment decisions.
These types of examples, plus academic and personality/emotional studies, are what convinced me to go for a long-term, passive, index-tracking, portfolio.


----------



## mf4361 (Apr 11, 2015)

Good story. That's why we must start saving whatever we can as soon as possible in our life.


----------



## Fraser19 (Aug 23, 2013)

Pretty cool story.
Goes with my investing plan. No need to sell for the most part. I make regular contributions and I feel that will be what makes the biggest difference. Buying in the highs and lows just keeping the compounding active at all times is what I seek to do.


----------



## atrp2biz (Sep 22, 2010)

This is the philosophy my wife and I live by. We have built our own fund of about 30 companies (and growing) of which we have no intention of selling any of them for a very long time.

Stock picking is like grocery shopping for us. We (she) checks out flyers, we do comparison shopping in the aisle and purchase. Done and not thought about again.


----------



## GreatLaker (Mar 23, 2014)

Yes, great story. It shows that time is on investors' side even if timing is not. I still hear people say how bad they got hurt in the 2008 crash and they have to work longer than they want because of it. I like the Wealth of Common Sense blog.

One interesting item to note is at the start of Bob's investing journey he had a long period of very poor returns. It took the market to the early 1980s to recover from the bear markets of the late 60s and mid 70s. Then from early 80s to 1999 a massive bull market, and then from 1999 to 2011 the market had 2 massive crashes, and took until 2011 to recover to its 99/2000 highs. 

Not sure I got the exact timing of the bull and bear markets right since I am doing it from memory, but the point is markets can get out of whack for a long time, 10 or even 15 years. It's not a place to park short term money that you really need.

Where are we now in the market cycle? The start of another big bull market as it unwinds from the tech crash and housing bubble, or half way through another sideways market like the 1970s?


----------



## Moneytoo (Mar 26, 2014)

GreatLaker said:


> ...the point is markets can get out of whack for a long time, *10 or even 15 years. It's not a place to park short term money that you really need.*
> 
> Where are we now in the market cycle? The start of another big bull market as it unwinds from the tech crash and housing bubble, or half way through another sideways market like the 1970s?


I'd say for some of us is not the question of really needing the money in 10-15 years, but rather trying to be more creative with our investing so we won't be needing to work, save & invest for 20 more years 

If you're happy with "average returns", have 20-30 years and believe that the markets always go up - it's a great strategy. I can easily see years of sideways and/or deflation in years ahead, so trying to combine active and passive approaches (and yes, timing the market - and learning to do it better ) If it doesn't work - oh well, we'll work some more (have 20 years till retirement age-wise) If it works - we won't have to


----------



## none (Jan 15, 2013)

Getting 'average' returns each and every year for 10-15 years is well above average.

I think that's the point a lot of market times fail to understand.

I don't do the buy index, hold, and rebalance because it's average or fun. On the contrary, it's extremely effective and boring. Indeed, I do it because it maximizes the probability of ending any time frame with the most amount of money. That's why I invest. I also like to play settlers of catan.


----------



## Moneytoo (Mar 26, 2014)

Some people love average. Average house, average wife, average kids, average jobs - but hey, they're better off than those without 

I hate average. I'd rather fail while aiming higher


----------



## none (Jan 15, 2013)

Moneytoo said:


> Some people love average. Average house, average wife, average kids, average jobs - but hey, they're better off than those without
> 
> I hate average. I'd rather fail while aiming higher


And that's what's probably going to happen. Nothing like setting yourself up for failure.

Like I said, getting average returns each and every year is well above average. That's the point.

ANyway, we've been down this road before. We can agree to disagree.


----------



## Moneytoo (Mar 26, 2014)

It took your hypothetical Bob, what, 30 years to become a millionaire? It took a couple in Garth's example (I quoted the example before since I know you read his blog) less than 3 years. So the average investor I guess is somewhere in the middle. But the point is - Garth keeps quoting 7% returns as average. Will you keep using your strategy if average returns go down to 2% for more than 10 years? (Not sharply down and then up, but the real sideways market - small uneventful ups and downs) Because you know that you can't do better than market, so you shouldn't even try?


----------



## BoringInvestor (Sep 12, 2013)

none said:


> On the contrary, it's extremely effective and *boring.*


Yup - it is boring, hence my name/money diaries thread.
Unless there's a pressing need to adjust my holdings (such as a significantly lower MER, or a ETF is closing), I'm never going to post a hot tip or a new trade outside of my core positions.

The most exotic I'll get is _maybe_ I may sell covered calls somewhere down the line. Maybe...


----------



## none (Jan 15, 2013)

That's exactly what you do. Because as I've said repeatedly, it the method that maximizes the probability of finishing with the most amount of money.

On average market timers make -2.5% less than index investors.

So to put your question in real context: would I rather make 2% per year for ten years instead of negative 0.5% per year for 10 years? Yes I would rather make the 2% per year.

http://www.morningstar.com/Cover/videocenter.aspx?id=650699


----------



## Moneytoo (Mar 26, 2014)

none said:


> That's exactly what you do. Because as I've said repeatedly, it the method that maximizes the probability of finishing with the most amount of money.


Well I said repeatedly (twice to be exact) how I doubled our downpayment money (by doing the opposite of what you say repeatedly - and against my advisor's advice not to do it ) But here's a less drastic example. So last year when TSX dropped unexpectedly, I asked my husband to buy 200 shares of ZCN (Canadian equities ETF) for $19 in his RRSP (because both my accounts were fully invested and I didn't have spare cash). We didn't need more ZCN, and we definitely didn't need it in his RRSP. Today I sold it (along with 2 more shares that it DRIPed) for $20.70 - to buy 400 more shares of DLR (for the Norbert's Gambit to buy more USD that we also don't yet need, but CAD went above 83 cents, so I wanted to average down - or rather up ) I was tempted to sell VTI yesterday (when it went above $110), but figured we'll have cash to buy more when it goes down. And if ZCN went down instead of up - or well, we would just keep it (sooner or later our asset allocation would catch up)

But of course what do I know (other than that loading up my husband's TFSA with index ETFs near market prices was the stupidest thing I've ever done) - hope it does produce better results than his 2.5% People's Trust TFSA )


----------



## none (Jan 15, 2013)

#41

http://www.fool.com/investing/general/2014/02/10/77-reasons-youre-awful-at-managing-money.aspx

A REALLY bad article I think in line with your thinking:
http://www.getrichslowly.org/blog/2014/10/28/investing-two-ways-to-beat-average-returns/

Read the comments.


----------



## sags (May 15, 2010)

Well, a person could get rich doing exactly the wrong things they would be advised to do.

For example, if they had taken their last $10,000 and a whim, they could have bought 40,000 shares of Carfinco stock and sold them for $9.00 each a few years later.

$360,000 for a $10,000 investment, but had they posted on CMF they put all their money into 1 stock............people would have been wagging their fingers at the folly of it.

Sometimes it is just luck and nerve.

I do agree that starting to save early is the best advice for most people, as it avoids the inevitable "looking back" by people when are older and it is too late.

I should of..........I could of...........I would have.............


----------



## Moneytoo (Mar 26, 2014)

My husband and I will be celebrating our 28th wedding anniversary this July (and 30th anniversary since we met in September - ah, the first year of university... ) - yet I don't walk around giving people relationship advice (nor do I tell them the #1 reason they got divorced is because they're intolerably boring )

Scratch that. Of course you're right. We should all follow the same strategy, buy the same stuff - and live happily ever after off the 'average' millions that we've made


----------



## none (Jan 15, 2013)

Ouch, that was a bit of a nasty low blow. Yikes.

Anyway, here's some relationship advice that I can share based on my reentry into the dating world:

When a woman tells you to "do whatever you want" do not do whatever you want.


----------



## Moneytoo (Mar 26, 2014)

none said:


> Ouch, that was a bit of a nasty low blow. Yikes.


Yeah, I'm sorry, I did my darnest not to say anything in the last few days in the other few threads lol


----------



## none (Jan 15, 2013)

I think there is a bit of a disconnect in the level of response. I was trying to communicate the fact the market timing generally doesn't work. This is supported by reams of data and quantitative analysis. It is difficult for many people to separate signal from the noise and this is why people who try to time the market generally make less than index investors. Slapping oneself on the back in a multiyear bull market is an easy thing to do (and is undeserved).

Anyway, to then respond by making light of, and making a personal attack over, an extraordinarily painful period of someones life is a pretty crappy and juvenile thing to do.


----------



## Moneytoo (Mar 26, 2014)

none said:


> A REALLY bad article I think in line with your thinking:
> http://www.getrichslowly.org/blog/2014/10/28/investing-two-ways-to-beat-average-returns/


Thank you, great article - in line with my bad thinking 

_"Whichever strategy you choose, do not make the mistake of simply buying a stock or a portfolio. You’re too late for a passive approach. You have to roll up your sleeves and take charge of your investments; you have to know what you are doing and why."_

I'm watching this thread: http://forums.redflagdeals.com/trading-idea-based-graham-tsx-1682065/ - didn't buy anything yet, but considering to follow this model in my TFSA 



none said:


> Read the comments.


_#18
mysticaltyger says:
28 October 2014 at 11:04 am
Blech. It seems the investing blogosphere has been overtaken by dogmatic index fund purists! I’m not knocking indexing, but there is always going to be a minority of people who beat the market. 
_
True that... lol


----------



## blin10 (Jun 27, 2011)

Moneytoo said:


> Well I said repeatedly (twice to be exact) how I doubled our downpayment money. what, 30 years to become a millionaire? It took a couple in Garth's example (I quoted the example before since I know you read his blog) less than 3 years.


Just by reading this line I can tell you that you're a rookie with no more than 5 years of experience with investing. You gambled with your down payment and got lucky, simple as that, and now you're acting like everyone should go big or go bankrupt. If I could, I would bet money against your strategy, you will not keep get getting lucky doubling your account over 5 years+, one day you will learn it the hard way (but it'll be a good educational fee).


----------



## Moneytoo (Mar 26, 2014)

blin10 said:


> Just by reading this line I can tell you that you're a rookie with no more than 5 years of experience with investing. You gambled with your down payment and got lucky, simple as that...


...and it was almost 20 years ago - the house is paid off since then lol It was part luck, part calculated risk - and I didn't do it since then. Successfully managed our daughter's RESP - she's graduating this year and going to Europe on the 10K "RESP leftovers" (which I asked her to invest in TFSA, but alas )

But yes, I'm a rookie with a proper index investing - and don't like it in its "pure form". But go ahead, give me a #1 reason I'm terrible with money - none's #41 wasn't it 

And forgive me for hijacking this thread - I know that indexers have a lot to discuss, so there could be an interesting and polite conversation instead...


----------



## gibor365 (Apr 1, 2011)

> I'm watching this thread: http://forums.redflagdeals.com/tradi...m-tsx-1682065/ - didn't buy anything yet, but considering to follow this model in my TFSA


 Did you sign up? ...


----------



## Moneytoo (Mar 26, 2014)

gibor said:


> Did you sign up? ...


To portfolio123? I did, but my free trial expired - and Rod (the owner of the thread) promised to post the picks every month (for rebalancing), so you can just subscribe to his thread (or check it last week of the month when he posts the next month's picks


----------



## donald (Apr 18, 2011)

Just because someone is a index investor does not mean they won't or can't succumb to emotional decision making
I have lost sums of money in business dealings(not a immaterial amt)as painful as it is/was
I feel better prepared(silver lining or at least that is what I tell myself...lol).
anyone who hasn't lost money in their past could be in for a rude awakening 
You never know how you will react

indexer or stock holder...period....I think 'losing' money is a rite of passage in the money game and it separates the true investors....going to happen


----------



## gibor365 (Apr 1, 2011)

Moneytoo said:


> To portfolio123? I did, but my free trial expired - and Rod (the owner of the thread) promised to post the picks every month (for rebalancing), so you can just subscribe to his thread (or check it last week of the month when he posts the next month's picks


Yeap, I gonna check it ... and track his performance


----------



## Moneytoo (Mar 26, 2014)

donald said:


> I think 'losing' money is a rite of passage in the money game and it separates the true investors....going to happen


I found losing money (in both business and investing) an easy lesson - learn, move on and make more money  But one skill I'm yet to master is recognizing losers and selling them earlier... I find averaging down easy (for example, bought CPG and FCG before they dropped ~50% - added more near bottom - now waiting patiently) Dunno if it would be better if I had a stop loss for both as I'm sure they'll recover. Unless I purchased a "winner" instead?  

But I had a few "write-offs" that I kept holding for years - and keep holding a few now... Thinking every month, "should've sold last month!" 

Well maybe they'll surprise me and recover - and since they're a small part of our portfolio, no big deal if they won't - but yeah, I don't have second thoughts when selling winners, but somehow seem to be more "emotionally attached" to losers...


----------



## Moneytoo (Mar 26, 2014)

gibor said:


> Yeap, I gonna check it ... and track his performance


I got curious because his portfolio has 3 stocks from my watchlist (that I've been watching before - CTC.A, LNR and TIH) So if nothing else, I'm thinking I can try to use his "buy signals" when I have the cash - and he recommends one of the stocks that I was considering buying anyway  Same goes for selling I guess... sigh


----------



## donald (Apr 18, 2011)

yeah money2
I also think(forgive me if you take this the wrong way)you and gibor came from political unrest(those are real hardships)maybe you lived a good life though in your mother country
Anybody that has been through hardships gains thresholds 
A downdraft in the market or even a severe correction I don't think will bother me
Last year my best friend of 30 yrs(35 yr old)died and a co-worker also year fell and became a quadriplegic those are REAL emotional hardships
imo(not losing money)
Losses of any kind are seldom talked about in cmf land but all types of losses teaches you fortitude and how to 'frame' things that come along in life
One thing about money is it always moves....nature of the stuff(if your a investor or business owner)


----------



## gibor365 (Apr 1, 2011)

donald, did get yoir point  , but in any case we hold always 40-45% of ALL money available in HISA/GICs



> I find averaging down easy


 don't think so  One guy on stockhouse.com averaged down on PSN 7 or 8 times , and where is PSN now...?!
doctrine on his bloq gave numbers that he averaged down on LRE about 5-6 times and than it dropped another 50-60%...
So, it's not that easy 
My last average down onTPH also didn't work well ......


----------



## donald (Apr 18, 2011)

I also have a e-fund
My main point is:losing money is not fun(hopefully temporary)but in the grand scheme of things it is very doable
Obviously one doesn't want to but the sun will come up and next day and as person it shouldn't change you(hopefully)


----------



## Moneytoo (Mar 26, 2014)

donald said:


> Last year my best friend of 30 yrs(35 yr old)died and a co-worker also year fell and became a quadriplegic those are REAL emotional hardships


I'm sorry to hear that, Donald { hug } We had a terrible death in our "circle of friends" last Friday - a girl who was under 30 died of cancer, after a prolonged suffering... What's more unbelievable, the doctors gave her husband a month to live (also terminal cancer - and neither of them knew it when they got married!)

I wasn't too close with either of them, but meeting a friend tomorrow who was - will try to be supportive...


----------



## donald (Apr 18, 2011)

Thanks
Puts things in perspective doesn't it
My friend left behind 3 young boys and a wife(last December)
He was 35 
a unexpected and unexplained massive heart attack
stock market portfolio are low on the totem pole and I don't mean that to be flippant or to suggest headship can't come from financial 'challenges'
but you know what I am driving at.


----------



## donald (Apr 18, 2011)

Hardship


----------



## Moneytoo (Mar 26, 2014)

donald said:


> but you know what I am driving at.


I know. I was surprised to see "a warning" in another thread:

"In an alternate life, working, the new guy said he was paying off his mortgage as fast as he could. Offhandedly I said why bother, it won't be your house much longer anyway ... me and a few others had gone the divorce route and I was just ribbing him. Well you can guess what happened ... his stay at home wife wasn't staying home alone. It was very unfortunate, they have a daughter as well. So you young married guys ... just saying, you might reconsider working your butt off to pay down that mortgage ..."

From the first two sentences I thought the guy was dying - maybe because I was still thinking about our couple who lost each other to cancer...


----------



## donald (Apr 18, 2011)

I though the same a few lines in also.....though i am sure the guy mentioned in the story felt like death/dying
Tough pill to swollen for him finding out about his wife's extra curricular 'activities'
That will wound the best of any man.


----------



## andrewf (Mar 1, 2010)

'Averaging down' is a phrase that always gives me a sinking feeling. I translate it as "investing good money after bad". You cannot repair a previous error buy doubling down on it today, and any investments you make today should not be predicated on having invested earlier at higher prices.


----------



## Moneytoo (Mar 26, 2014)

donald said:


> That will wound the best of any man.


Ok, I'll need to be more careful with what I say (my parents got divorced when I was little, few of our friends divorced, and more often than not it was for the better - or at least looked so in retrospect)


----------



## KaeJS (Sep 28, 2010)

none said:


> Anyway, here's some relationship advice that I can share based on my reentry into the dating world:
> 
> When a woman tells you to "do whatever you want" do not do whatever you want.


Is this a bit of a red flag?

:biggrin:


----------



## KaeJS (Sep 28, 2010)

Look - Some people can time the market and do well with it. Others can't.

It's just like everything else in life. Most people aren't about to become a professional athlete. But some people do.

I have been successful year of year with market timing. I know it works. I am up over 28% YTD for 2015. Passive investing has nowhere near 28% YTD for 2015.


----------



## Moneytoo (Mar 26, 2014)

andrewf said:


> 'Averaging down' is a phrase that always gives me a sinking feeling. I translate it as "investing good money after bad". You cannot repair a previous error buy doubling down on it today, and any investments you make today should not be predicated on having invested earlier at higher prices.


I don't know - depends on the stock or etf and the purpose of the purchase I guess. After 'averaging down', I'm currently losing 10% on CPG (which was planned as a long-term position) and 25% on FCG (natural gas etf - a seasonal play gone wrong). In the future, I think I'll be averaging down on long term investments, but putting in stop loss orders on short term trades. Unless I'll get converted to the indexer lol


----------



## Moneytoo (Mar 26, 2014)

KaeJS said:


> Look - Some people can time the market and do well with it. Others can't.
> 
> It's just like everything else in life. Most people aren't about to become a professional athlete. But some people do.
> 
> I have been successful year of year with market timing. I know it works. I am up over 28% YTD for 2015. Passive investing has nowhere near 28% YTD for 2015.


Yay a successful market timer!  So, what's your opinion on 'averaging down'?


----------



## hboy43 (May 10, 2009)

andrewf said:


> 'Averaging down' is a phrase that always gives me a sinking feeling. I translate it as "investing good money after bad". You cannot repair a previous error buy doubling down on it today, and any investments you make today should not be predicated on having invested earlier at higher prices.


I don't accept that an investment made that loses is by definition an error. Every investment is made by waking up in the morning, sticking your finger in the air to feel the wind direction, and making a buy (or sell) decision based upon what is known that day. It is all any of us can do. Besides if they are errors, then I make a stunning amount of money despite 40% errors. I think of them as the strikes before the home run hit.

I look at massive drops in my holdings as a personalized message mailed to me every month in my statement that a company I follow is currently on sale. My task is then to decide if the goods are rotten, or just over stocked. As I already follow the company (for years usually) I don't need to do much new work or fresh contemplation to decide.

Note well, that unlike many (most?) here almost never (only one example I can think: EMA that flash crash Monday years ago) buy a security with the intention to sell it quickly at a small profit. I am interested in the possibilities 5 and 10 years out. If it sits in the doghouse in the mean time, so be it, I just buy and buy as the weighting drops down to the ~1% to 3% range and nudge it back to the ~3 to 5% range. Heaven comes eventually.

I have purchased MX at up to ~$25 before buying boatloads at $8.
I have purchased NBD at up to ~$100 before buying boatloads between $5 and $10.
I have purchased NCX at up to ~$30 before buying boatloads at $1.50.

Those 3 holdings have returned something like $300,000 or something like 1/4 of my lifetime investment returns. NCX went private, but the other two are numbers 1 and 2 in my portfolio. I have held MX something over 15 years now I would think, and NBD since 2006. Like I said above, 5 and 10 years out.

Consider investor A who say bought XXX at $4 last fall, at time it was say 2% of his or her portfolio.
Consider investor B who never owned XXX.

Say XXX is now ~$1, so A has a loss and a portfolio weighting of 1/2 percent now.

So if A and B decide that XXX at $1 has reasonable chances, they both might consider buying it now. They are both at approximately the same place, one at 0%, the other at 1/2% weighting. How is A different from B if A today buys an additional 2% weighting and B buys an initial 2.5% weighting? The fact that A already has it and related big loss is quite irrelevant really. The loss that A has is a "strike". The buy today is the next pitch that might be the home run. The opportunity today does not care what happened yesterday. It is only our defective brain processes that makes it matter to A that he has a loss and somehow that matters.

Further consider now that A and B have exactly the same holdings purchased in the aggregate with the exact same dollars. Why does it matter if security YYY in A's portfolio gained it's weighting by a 50% loss, while in B's case YYY landed it's weighting by a 100% gain? And the reverse holds for security ZZZ, A has a 100% gain and B has a 50% loss?

My investing wet dream are those stocks that become temporarily sick and drop and fluctuate wildly - even if I already own it. I consider this a feature of individual stocks over index investing, not a bug. If investing is "buy low, sell high", it just logically follows that there is more opportunity to buy low if there is more low.

hboy43


----------



## andrewf (Mar 1, 2010)

Moneytoo said:


> I don't know - depends on the stock or etf and the purpose of the purchase I guess. After 'averaging down', I'm currently losing 10% on CPG (which was planned as a long-term position) and 25% on FCG (natural gas etf - a seasonal play gone wrong). In the future, I think I'll be averaging down on long term investments, but putting in stop loss orders on short term trades. Unless I'll get converted to the indexer lol


Did you buy to fix your previous error ("averaging down"), or would you have made those purchases if you did not currently have a position ("it's a good investment today on its own merit")?


----------



## andrewf (Mar 1, 2010)

hboy: I don't know if we're disagreeing. My point is that investment decisions today should not be driven by the prices at which you purchased the same security earlier. Only caveat is tax considerations.


----------



## Moneytoo (Mar 26, 2014)

andrewf said:


> Did you buy to fix your previous error ("averaging down"), or would you have made those purchases if you did not currently have a position ("it's a good investment today on its own merit")?


CPG I only purchased 100 shares initially, thinking I'll buy more "later" (so they'll DRIP a share per month) So when it dropped - I bought 70 more (just enough for a DRIP, thinking that I'll buy more if they cut the dividend - so far they didn't not, so just holding it)

FCG I shouldn't have purchased in the first place (decided to follow "a tip" from a BNN analyst without doing any research myself ), but when it dropped from $20+ to under $10 - bought 100 more to fix my previous error. 

I most likely wouldn't buy either right now because my first year of semi-active investing (making mistakes and trying different things to see what works and what doesn't) is almost over, learning about bonds now


----------



## BoringInvestor (Sep 12, 2013)

KaeJS said:


> Look - Some people can time the market and do well with it. Others can't.
> 
> It's just like everything else in life. Most people aren't about to become a professional athlete. But some people do.
> 
> I have been successful year of year with market timing. I know it works. I am up over 28% YTD for 2015. Passive investing has nowhere near 28% YTD for 2015.


Looking at your spreadsheet the calculated 28% return is your is your annualized rate of return, correct?
If so, you can compare this against my portfolio (passive investing, index-tracking), which at the end of March had an annualized rate of return of 39.06%.

EDIT: actually I see we're calculating it slightly differently. I use today as the end date, whereas you're using Dec 31 with your ending balance.
In this case my XIRR, calculated the same way as yours, would be: 8.43%.


Good luck with your trading.


----------



## Toronto.gal (Jan 8, 2010)

hboy43 said:


> *1.* I am interested in the possibilities 5 and 10 years out. *If it sits in the doghouse* in the mean time, so be it....
> *2.* I have purchased MX at up to ~*$25 before buying boatloads at $8.*
> I have purchased NBD at up to ~*$100 before buying boatloads between $5 and $10.*
> I have purchased NCX at up to ~*$30 before buying boatloads at $1.50.*
> *3.* *Heaven comes *eventually.


*1.* Yes & speaking of possibilities, while they sit in the doghouse [depending on the dog ofc, as some do deserve to be put out of their misery], one can do more than just average down while waiting for the recovery [with and without options]. 

- *A. DCAing:* [excluding commissions/dividends]

Bought at $20 and it later dropped 70% to $6 [you rode it down for a good reason & let's assume you did not average down until this monster drop] - by the time the stock were to recover to your new ACB of $13, the stock would have recovered over 100% [$6 - $13], while you would still be down -35% [$20 - $13]. 

- 100 sh x $20 = $2K
- 100 sh x $6 = $600
- ACB = $13
- down -35% 

*- B. No DCAing:*

- 100 sh x $20 = $2K
- no DCAing [assuming same low as above].
- by the time stock recovered to your ACB, the increase would have been over 200% [$6-$20].
- you would have made $0 in said recovery. 

I was down on one [few] of my stocks 50%, but felt 99% certain it would recover, so I DCAed a few times, but not before the stock dropped significantly enough each time, so increasing the positions was affordable & substantial. The damage happens when DCAing takes place after calling a 1% to 3% price drop a correction & adding more capital then! In between, I traded the stock recovery over some years [which I intend to hold for 10+ years], and which brought my ACB even lower. The $20 ACB in above example was reduced 35% after a -70% price dive. In comparison, at a price correction of -5%, -25% and -50%, the ACB would have improved by 2.5%, 12.5% and 25% respectively [$19.5/$17.5/$15].

Without having averaged down [and executed short-term trades], after 5 years, I would be up on that initial investment about 10% [excluding dividends], even when the stock has recovered about 120% in same time period [5 years]. 

*2.* You have a stomach of steel!

*3.* Inferno & heaven are always waiting!


----------



## andrewf (Mar 1, 2010)

How does buying more later increase your return on the initial investment?

If you buy 10 shares for $10, then after a drop to $5 buy another 10 shares to 'average down', then sell everything when the price rises to $9, you made -10% on the original purchase, and 80% on the second. Buying the second batch of shares didn't lower your earlier purchase price. A mistake in the past remains in the past, buying more now doesn't fix it. That said, it was a good buy at $5, regardless of earlier purchase prices. Buying because the price went down encourages people to try to catch a falling knife.


----------



## KaeJS (Sep 28, 2010)

Moneytoo said:


> Yay a successful market timer!  So, what's your opinion on 'averaging down'?


Averaging down is a great strategy. I am a fan of averaging down.

You have to be patient and be picky about when you average down, of course. The key is not to average down too quickly and only average down if you still think the stock is a good buy and there hasn't been any real material change.

But of course, you know this already. Don't you? 



BoringInvestor said:


> EDIT: actually I see we're calculating it slightly differently. I use today as the end date, whereas you're using Dec 31 with your ending balance.
> In this case my XIRR, calculated the same way as yours, would be: 8.43%.
> 
> Good luck with your trading.


Correct. Good luck with your portfolio, as well!


----------



## KaeJS (Sep 28, 2010)

andrewf said:


> Buying because the price went down encourages people to try to catch a falling knife.


It's only a falling knife if you are buying junk and not quality stock.
A successful market timer is probably not buying garbage.


----------



## Moneytoo (Mar 26, 2014)

andrewf said:


> A mistake in the past remains in the past, buying more now doesn't fix it.


I think it's just easier psychologically - to think that you'll make 20% on the whole batch instead of losing 10% on the original purchase, but I see what you mean. What's your strategy? Do you just cut your losses and move on? At what point? One of the suggestions I found was to start shorting "the mistake" - but will need to do some more reading to understand how it works...

One of our "write offs" (a tiny position to which we didn't add when it tanked) went up 10.5% today. 80 more to go... lol


----------



## KaeJS (Sep 28, 2010)

Moneytoo said:


> One of the suggestions I found was to start shorting "the mistake" - but will need to do some more reading to understand how it works...


I would highly advise you to not do this. This is going against everything you originally thought. In addition, usually stocks will turn around and start going up just about when you are ready to short. Lastly, shorting has unlimited liability.


----------



## andrewf (Mar 1, 2010)

KaeJS said:


> It's only a falling knife if you are buying junk and not quality stock.
> A successful market timer is probably not buying garbage.


A successful market timer probably doesn't use the fuzzy logic of averaging down to justify purchase decisions.


----------



## KaeJS (Sep 28, 2010)

^ Everyone makes mistakes. You can't be right 100% of the time.

Averaging down is anything but fuzzy logic. It is actually a wise decision in most cases since the market is volatile.

A falling knife situation only occurs when buying junk. How often does a Canadian Bank, REIT, Utility or Telecomm enter into a falling knife scenario? Hardly ever.

But how often do they fluctuate? Everyday....


----------



## andrewf (Mar 1, 2010)

Moneytoo said:


> I think it's just easier psychologically - to think that you'll make 20% on the whole batch instead of losing 10% on the original purchase, but I see what you mean. What's your strategy? Do you just cut your losses and move on? At what point? One of the suggestions I found was to start shorting "the mistake" - but will need to do some more reading to understand how it works...
> 
> One of our "write offs" (a tiny position to which we didn't add when it tanked) went up 10.5% today. 80 more to go... lol


Precisely. It is a mental trick that can be dangerous. Is the company you just lost money on really the best possible investment in the whole investible universe for you to invest incremental dollars in? Or are you buying more to try to repair a previous bad trade?

Edit: Agree with Kae re: shorting. I'm not interested in shorting companies. As far as my strategy, I maintain a core portfolio of diversified equity ETFs. I haven't had opportunities to 'average down' on these in years, since they all have substantial gains. I would consider leveraging up if equities declined down to attractive CAPE valuations, but that is not because I would want to lower my average purchase price but rather because there is a higher long-run return expectation in that situation and I have a long investment horizon. In other words, my decision is not based on the prices I paid for the same or other assets earlier.


----------



## Moneytoo (Mar 26, 2014)

KaeJS said:


> ...if you still think the stock is a good buy and there hasn't been any real material change.
> 
> But of course, you know this already. Don't you?


Haven't made enough mistakes yet to learn everything there's to learn lol But regret not buying more Husky (really like the stock, just didn't have the cash to add more - the downside of being "fully invested" ) and still iffy about AT&T (bought 100 shares for my husband last May for $36 - he wanted "something safe that yields 5%+" - and it's being mostly down since then, but not down enough to average down )


----------



## KaeJS (Sep 28, 2010)

andrewf said:


> Precisely. It is a mental trick that can be dangerous. Is the company you just lost money on really the best possible investment in the whole investible universe for you to invest incremental dollars in? Or are you buying more to try to repair a previous bad trade?


That is the difference between a good trader and a bad one.


----------



## KaeJS (Sep 28, 2010)

Moneytoo said:


> Haven't made enough mistakes yet to learn everything there's to learn lol But regret not buying more Husky (really like the stock, just didn't have the cash to add more - the downside of being "fully invested" ) and still iffy about AT&T (bought 100 shares for my husband last May for $36 - he wanted "something safe that yields 5%+" - and it's being mostly down since then, but not down enough to average down )


You will learn with time, for sure.

And I would be a buyer of T @ $33 or less.


----------



## Moneytoo (Mar 26, 2014)

^ Thank you both! =)


----------



## gibor365 (Apr 1, 2011)

KaeJS said:


> You will learn with time, for sure.
> 
> And I would be a buyer of T @ $33 or less.


I started to buy T 4 years ago at $28.5450 (when US$ was cheaper than CAD$ ), bought another couple of times on pullbacks....will buy more below $32.5


----------



## LBCfan (Jan 13, 2011)

Moneytoo said:


> Well I said repeatedly (twice to be exact) how I doubled our downpayment money (by doing the opposite of what you say repeatedly - and against my advisor's advice not to do it ) ....


Good for you. Tell me why anyone as financially savvy as you PAYS an "advisor"? Why doesn't (s)he pay you for advice?


----------



## KaeJS (Sep 28, 2010)

gibor said:


> I started to buy T 4 years ago at $28.5450 (when US$ was cheaper than CAD$ ), bought another couple of times on pullbacks....will buy more below $32.5


Nice work, gibor!


----------



## Moneytoo (Mar 26, 2014)

LBCfan said:


> Good for you. Tell me why anyone as financially savvy as you PAYS an "advisor"? Why doesn't (s)he pay you for advice?


Well that's what he said when I told him my "plan" - that if it works, I should be sitting in his chair lol And, as I also said before, it was years ago - since then he left the brokerage, then we left the brokerage, so not paying anyone anymore, and learning to invest "properly"  But sometimes I wish I didn't tell my husband when he wanted to buy Apple shares with all his cash last April, "But-but-but what about diversification?! You can't do it, we need to buy some losers to offset the winners!"

Anyways, I've learned since then that it was a beginner's luck, and I'm not trying to do it again. It just annoys me when people repeat the same things over and over again, so it was meant sarcastically. Yes, I get it, indexing is great and works for most people. But on both forums that I frequent indexers seem to have formed a cult, and condemn anyone who does or wants to do something differently. It was hard to get an unbiased opinion here last year when I joined, seems to be even worse now. 

So more often than not I feel like a university student getting advice from kindergarten teachers. Even when I open my own thread to ask for a specific advice from more experienced investors, an indexer would feel compelled to post the Couch Potato article from 5 years ago, wondering why consider doing it when "the Bible" clearly says why thy shant do it? 

And it seems to me that some traders are not posting much because they don't want to be called gamblers who'll lose their money any minute now since "the numerous studies have proven and stuff". And since the OP wrote to admins asking them to ban HP (one of the most knowledgable members of the forum) for personal attacks, I guess we'll be able to enjoy more "Bible studies" in the future


----------



## hboy43 (May 10, 2009)

andrewf said:


> hboy: I don't know if we're disagreeing. My point is that investment decisions today should not be driven by the prices at which you purchased the same security earlier. Only caveat is tax considerations.


Agreed!


----------



## Moneytoo (Mar 26, 2014)

*2015-04-28, 03:00 PM*



Moneytoo said:


> But here's a less drastic example. So last year when TSX dropped unexpectedly, I asked my husband to buy 200 shares of ZCN (Canadian equities ETF) for $19 in his RRSP (because both my accounts were fully invested and I didn't have spare cash). We didn't need more ZCN, and we definitely didn't need it in his RRSP. Today I sold it (along with 2 more shares that it DRIPed) for $20.70 - to buy 400 more shares of DLR (for the Norbert's Gambit to buy more USD that we also don't yet need, but CAD went above 83 cents, so I wanted to average down - or rather up )


*2015-05-06, 02:40 PM*

ZCN: $20.28
USD: 13K
VTI: $107.16

VTI still too high... but soon might be a good time to buy 

Yellen issues warning on equity-market valuations


----------



## Pluto (Sep 12, 2013)

The best message in the article about Bob, the millionaire who always bought at the top, is the disclaimer at the end of the article that says in essence, don't be a bozo like Bob. If Bob had bought near market bottoms he'd be way ahead. Yes, I know, Bob doesn't know were the bottoms are. That's because Bob didn't go to the library, and for free, avail himself of Value Line's Median appreciation potential estimate. 

http://www.theburningplatform.com/2014/01/29/value-line-appreciation-potential-lowest-since-1969/

In march 2009 appreciation potential reached a whopping 185% 3-5 years hence. That 185% was realized when the S&P hit 2094, gee about 5 years. Not bad considering the strong belief that nobody can predict anything anytime any where about the market. If Bob could have just waited until appreciation potential was 80 or greater, there would be plenty of fine buying opportunities during his investing time frame, and he would likely out perform dollar cost averaging.


----------



## Moneytoo (Mar 26, 2014)

Pluto! Where have you been?  So glad you're back - missing your wisdom! =)


----------



## none (Jan 15, 2013)

Pluto said:


> The best message in the article about Bob, the millionaire who always bought at the top, is the disclaimer at the end of the article that says in essence, don't be a bozo like Bob. If Bob had bought near market bottoms he'd be way ahead. Yes, I know, Bob doesn't know were the bottoms are. That's because Bob didn't go to the library, and for free, avail himself of Value Line's Median appreciation potential estimate.


Doesn't work that way - garth did small example: http://www.greaterfool.ca/2015/05/19/how-to-stay-calm/


----------



## Pluto (Sep 12, 2013)

Been relaxing, soaking up some sun. Just biding my time waiting for this very unusual market environment to, lets say, mature. I put a lot of stock in the appreciation potential model, so until the current situation resolves, I don't pay much attention to the stock market.


----------



## Moneytoo (Mar 26, 2014)

I'm trying to follow your advice to buy stuff when it's "on sale", but still working on my patience...


----------



## avrex (Nov 14, 2010)

Pluto said:


> and *for free*, avail himself of Value Line's Median appreciation potential estimate.


There's no need for Bob (and most investors for that matter) to pay *$600/year* for this 'stuff'.










Note: Value Line’s Median Appreciation Potential (VLMAP) can be found on page 1 of the Summary & Index, in Part 1 of our flagship Investment Survey,


Bob would be better off invested, based on a proper asset allocation for his risk tolerance.


----------



## none (Jan 15, 2013)

Accepting the efficient market hypothesis as correct enough really sets one free.


----------



## Moneytoo (Mar 26, 2014)

Sigh... why do some people choose to believe in hypothesis, but not their own eyes and personal experience? Rhetorical 

http://valuestockguide.com/all/wall...ficient-market-hypothesis-doesnt-always-work/ and more if you choose to google "efficient market hypothesis doesn't work" instead of "in what theories ETF providers would like you to believe"


----------



## Pluto (Sep 12, 2013)

avrex said:


> There's no need for Bob (and most investors for that matter) to pay *$600/year* for this 'stuff'.
> 
> Bob would be better off invested, based on a proper asset allocation for his risk tolerance.


You seem to have overlooked the work "library". The library doesn't charge 600 a year for you to read it. Their appreciation potential estimates are a component of their asset allocation/risk model. 
Are you selling "proper" advice and the free stuff at the library is too competitive for you?


----------



## Pluto (Sep 12, 2013)

none said:


> Accepting the efficient market hypothesis as correct enough really sets one free.


Its just a rationalization to buy at any price or value.


----------



## Moneytoo (Mar 26, 2014)

Pluto said:


> Are you selling "proper" advice and the free stuff at the library is too competitive for you?


Don't bother, Pluto, a lot of people have bought into frugality combined with indexing paradigm: they would give up buying coffee and eating out to save more and invest for retirement, yet keep buying Starbucks and McDonald's shares to retire early and live off dividends, but won't spend an extra hour to buy the shares cheaper/invest smarter... And instead of learning from the best, are using the worst as an inspiration


----------



## none (Jan 15, 2013)

Or... perhaps we know what we are talking about.... You need to consider that as well. The indexing paradigm is well established because it has a strong theoretical basis, the model is supported by a tremendous amount of empirical evidence, and is easy to implement. We do it because it maximized the probability of ending a time frame with the most amount of money. that's why I invest.

Of course, it's your money to play with so you are welcome to do as you wish.


----------



## KaeJS (Sep 28, 2010)

Efficient market hypothesis?

You do know that by saying you believe in this... you are saying that people are never wrong. You are saying they are making the best decisions at all times and the market is always valued appropriately with the given information. And then... the market falls (surprise).

Doesn't seem too efficient to me. Especially considering we know the market moves in cycles.

Just like how we should all buy NFLX.. even though it has a P/E of 162.
Or FB... with a P/E over 80....
These are appropriately priced. Just like how GPRO was appropriately priced in the past at $100/share?

Efficient Market Hypothesis is for fools.


----------



## none (Jan 15, 2013)

That's not what the EMH means. 

"Better to Remain Silent and Be Thought a Fool than to Speak and Remove All Doubt"


----------



## Moneytoo (Mar 26, 2014)

none said:


> For me accepting the efficient market hypothesis as a reasonable approximation of the stock market made a huge difference. Now when I buy ETFs I don't look at the price - it's priced exactly what it should be priced. If it was going to go lower in the summer it would cost less, if it was going to go up soon it would cost more so it just is what it is.





none said:


> That's not what the EMH means.
> 
> "Better to Remain Silent and Be Thought a Fool than to Speak and Remove All Doubt"


So true... lol


----------



## none (Jan 15, 2013)

Big words coming from someone who exchanged a mess of CAN$$ to US at 0.80 and didn't buy in when VTI was $106.

Who know though, you may have end up being right but if you really knew what you were doing you wouldn't have done those thing and you would have sold now waiting for the 'market correction'. Of course you don't.

Proof is in the pudding. Speaking of which, you really should be off pudding.

http://www.forbes.com/sites/quora/2...hypothesis-have-to-say-about-asset-bubbles/2/


----------



## Moneytoo (Mar 26, 2014)

First batch at almost 81 (ignoring for almost two months those who were suggesting to buy at 78 cause it could go lower), second at more than 83 (and if had more patience and faith in myself - would have waited a bit longer ) Think that VTI could drop lower before interest rates rise, so keeping the cash for now (not losing much on dividends - and think that "time in the market is more important than timing the market" is a clever marketing slogan )

Have limit orders for zcn, xef and Vfv in my husband's freshly maxed out TFSA (last time when I bought at near market prices just before they all went down to my limits tought me yet again to try to stick to what I believe in, not in what nuns are preaching )

Hate pudding, will stick to chocolate cakes, thanks for yet another useless advice


----------



## none (Jan 15, 2013)

81? Well that was stupid. You should have just waited to exchange it all at 0.835. What's the deal with that?


----------



## Moneytoo (Mar 26, 2014)

81 is still better than none (pun intended )

And, seeing some of your smarter posts while searching for that stupid quote, why don't we agree to somewhat agree?


----------



## none (Jan 15, 2013)

Sure, I exchanged far in excess of my US$ allocation at par thinking I knew better. Did I? Who knows? Maybe it was luck. I'm willing to concede that it could have been luck.

I just know that I sat on a fair amount of cash when VTI was $80 thinking it was too expensive. I should have just dumped it in and forgot about it. 

The greatest enemy that an investor has is his or herself. The size of residuals in the efficient market hypothesis are small compared to those that actively trade. Of course these are generalizations.

I hope you have a wonderful weekend. I'm going on vacation for a week. Take care.


----------



## Moneytoo (Mar 26, 2014)

We have plenty of VTI in both RRSPs at the moment, and are only slightly off balance (just added 15.5K this week, bought two bonds with 10+, 4.5 are waiting for better prices on index ETFs - maybe in vain, but I was really upset in April when I didn't wait ) And of course the moment I decided to buy WIR.U.TO and entered a limit order 20 cents below its Friday close on the weekend - it jumped up more than a dollar on Tuesday, and climbed further up by end of the week, so maybe I'll regret later not buying it for 12 when it hits 14 - but for now I'd rather wait if it comes down back to earth... and, believe me, patience was never my virtue, so buying "whatever whenever" would be much easier for me than waiting for weeks and months - but so far I saw that in a sideways market there's always a second or even third and fourth chance, so trying yet again to wait for it 

Have a nice vacation!


----------



## My Own Advisor (Sep 24, 2012)

Fraser19 said:


> Pretty cool story.
> Goes with my investing plan. No need to sell for the most part. I make regular contributions and I feel that will be what makes the biggest difference. Buying in the highs and lows just keeping the compounding active at all times is what I seek to do.


I liked the post as well. Ben does a good job with his articles. 

I agree Fraser19, buy and hold and hold stocks. Indexing of course is easier to do but I've been convinced for many years, buying and holding some blue chips and getting a mild form of investor amnesia is likely very good for the portfolio long-term.


----------



## Vicjai (May 15, 2015)

:triumphant: finally a solid thread that makes great sense here.


----------



## Pluto (Sep 12, 2013)

none said:


> Or... perhaps we know what we are talking about.... You need to consider that as well. The indexing paradigm is well established because it has a strong theoretical basis, the model is supported by a tremendous amount of empirical evidence, and is easy to implement. We do it because it maximized the probability of ending a time frame with the most amount of money. that's why I invest.
> 
> Of course, it's your money to play with so you are welcome to do as you wish.


none, you baffle me. When Bob buys at the worst time, you say that is a neat way of looking at it. But if Bob bought when appreciation potential was high, you imply something negative about that. 
I have asked for references to this "tremendous amount of empirical evidence" but alas, I seem to only get a few vague quotes from some glossy pamphlets. I'm not convinced it maximizes the probability of ending a time frame with the most amount of money and I have yet to be offered references to research that proves it. 

My thesis is that if Bob saved and bought an index fund when appreciation potential was 80 or greater (as per Value Line) he'd do way better than dollar cost averaging the same index fund. So where is the proof that I am wrong? Answer: nowhere that I know of. 

I'm not against dollar cost averaging index funds. It is quite suitable for many people. But many who subscribe to it and promote it reveal themselves as ideologues who strongly resist any modification of it to enhance its effectiveness. Not very scientific none.


----------



## Westerncanada (Nov 11, 2013)

Fraser19 said:


> Pretty cool story.
> Goes with my investing plan. No need to sell for the most part. I make regular contributions and I feel that will be what makes the biggest difference. Buying in the highs and lows just keeping the compounding active at all times is what I seek to do.


In the same boat.. with the exception of two funds in my TFSA I sell high and buy lo, the bulk of my portfolio is purchased with monthly contributions into E-Series funds and will continue to do that for the next 30 years until im done. 

Great Post + Story! Thank you for sharing


----------



## snowbeavers (Mar 19, 2013)

KaeJS said:


> Look - Some people can time the market and do well with it. Others can't.
> 
> It's just like everything else in life. Most people aren't about to become a professional athlete. But some people do.
> 
> I have been successful year of year with market timing. I know it works. I am up over 28% YTD for 2015. Passive investing has nowhere near 28% YTD for 2015.


I was for 2014 

That's the problem with active investors, they only post their short-term results and conveniently don't report the years they fall (reporting bias). Let's see how you do after 10-15 years and we'll compare portfolios


----------



## Moneytoo (Mar 26, 2014)

Why the economic slowdown hasn't derailed the stock market rally

Because the indexers keep buying! lol


----------



## Guban (Jul 5, 2011)

Moneytoo said:


> Why the economic slowdown hasn't derailed the stock market rally
> 
> Because the indexers keep buying! lol


It is not the indexers! The index reflects the value of the underlying shares, not the other way around. If the index value becomes different than those shares, there are people who use arbitrage and pick up a quick, no risk profit. 

The real reason that the slowdown is not reflected in stock markets is the optimistic investors of individual shares.


----------



## Moneytoo (Mar 26, 2014)

Guban said:


> The real reason that the slowdown is not reflected in stock markets is the optimistic investors of individual shares.


"Greek threat to default on loans slams stocks, euro" yet XEF is up almost 1.5% as of noon...

I'm watching too much 'financial porn' I guess lol


----------



## KaeJS (Sep 28, 2010)

snowbeavers said:


> Let's see how you do after 10-15 years and we'll compare portfolios


Deal.


----------



## Moneytoo (Mar 26, 2014)

Daydreaming about day-trading TSX-listed US equity ETF on Memorial Day lol:

View attachment 4545


----------

