# How to Succeed in a Sideways Market



## Moneytoo (Mar 26, 2014)

After having doubts that now may not be a good time to start the Couch Potato portfolio, I found this article very informative: How to Succeed in a Sideways Market. 

I have even more questions now, but will do some googling first. In the meantime, would love to hear the success stories from the previous Sideways Market survivors!


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## brad (May 22, 2009)

They forgot to mention the thing that matters the most: your investment time horizon.

If you're investing for a distant goal (e.g. if you're in your 30s or 40s and investing for retirement in your 60s), as opposed to a short-term need, does it really matter whether today's market is up, down, or sideways? Long-term investors shouldn't expect steady growth. Instead the goal is long-term growth, which is usually dynamic (lots of ups and downs, periods of stasis, but an overall trend of growth).

If you're living off your investments now, or you're going to need your investment income in the next few years, the market's current behaviour is very important. But if you're investing for a far-distant goal, not so much. Your investment time horizon is probably the most important factor in whether you even feel it's necessary to spend time trying to "succeed in a sideways market."


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## Moneytoo (Mar 26, 2014)

brad said:


> They forgot to mention the thing that matters the most: your investment time horizon.
> 
> If you're investing for a distant goal (e.g. if you're in your 30s or 40s and investing for retirement in your 60s), as opposed to a short-term need, does it really matter whether today's market is up, down, or sideways? Long-term investors shouldn't expect steady growth. Instead the goal is long-term growth, which is usually dynamic (lots of ups and downs, periods of stasis, but an overall trend of growth).


Personally, I believe that even for long-term is not wise to start near the top. I've done a lot of reading and neither Index Funds/ETFs nor Bonds make sense at the moment. We've bought some shares of Preferred Shares ETF and REIT ETF and now looking to buy some dividend stocks (and find that picking them it's not easy, either - but at least learning). So in a way, I'm looking for a short-term strategy - to make some money before the prices drop a bit. And then go with the Couch Potato strategy. That's why this article struck a cord with me - that passive investment is good for a bull market, but you have to be active in a sideways one


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## jcgd (Oct 30, 2011)

So what if you wait for this sideways market or drop and there isn't one? You won't know what it was until after the fact. If anyone knew, there would be a hell of a lot more rich people out there.

If you are doing couch potato do it, and do it sooner rather than later. The odds are that getting in sooner will put you ahead of waiting for a correction. There is a correction coming eventually, but no one knows when. The chances of you buying in during a correction are low, the chances of you missing the bottom are very high, all around the chances of you pulling off anything remotely like what you intend are unlikely.


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## Moneytoo (Mar 26, 2014)

jcgd said:


> If you are doing couch potato do it, and do it sooner rather than later.


I'm doing it in my RRSP account (started last month) - with the intent to sell if the indexes go up 10%. My husband doesn't want to do in his RRSP now - with the intent to buy if the indexes drop 10%. 

As I learned in my other thread, we have to treat both our RRSP accounts (and upcoming TFSA) as one pool of money, so, ideally, I need to sell my TD Index Funds first - before we buy ETFs across the accounts. In the meantime, my husband has 100K+ cash that we are trying to invest. And, as I also learned in my other thread, some people are also sitting with cash, waiting for better opportunities.



> ...all around the chances of you pulling off anything remotely like what you intend are unlikely.


All the more interesting to try


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## londoncalling (Sep 17, 2011)

Moneytoo said:


> All the more interesting to try


http://www.youtube.com/watch?v=BQ4yd2W50No

:tongue-new:

I am in a similar position. My spouse wants to start a couch potato portfolio. She is an extremely conservative investor. I hope the correction comes before the fund transfer. Longer term it won't matter financially. However, in regard to investor psychology it will.

Cheers!


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## Pluto (Sep 12, 2013)

jcgd said:


> So what if you wait for this sideways market or drop and there isn't one? You won't know what it was until after the fact. If anyone knew, there would be a hell of a lot more rich people out there.
> 
> If you are doing couch potato do it, and do it sooner rather than later. The odds are that getting in sooner will put you ahead of waiting for a correction. There is a correction coming eventually, but no one knows when. The chances of you buying in during a correction are low, the chances of you missing the bottom are very high, all around the chances of you pulling off anything remotely like what you intend are unlikely.


1. Historically there has always been dips, corrections, and bear markets. I assume the future will be similar to the past. So I am curious about your question, What if there is no drop? It's never happened. And I doubt it will happen. Such questions are never asked during a bear market, and often asked near a top. "What if there is not drop?" is a psychological indicator of a top. We are talking approximation of a top. 
2. Knowing after the fact. Look at 2007,8,9. At a specific point in 2008, the market was about 30% lower. We knew that after the fact. We also knew that buying 30% lower was better than buying a peak - even if if was to fall another 20%. My point is, knowing after the fact isn't a reason to buy near a top. 
3. The chances of buying in a correction are low. When you think that way, the chances are low. But if one intends to buy in a correction, the chances are high. We are in a generally over valued market. Why put a lump sum into a known overvalued market? 

Lots of successful investors stay in cash for long periods of time. They strike when the opportunity is more clear, for example, a fairly valued market or under valued one. There is not much too lose by waiting right now, but, of course, it requires patience. Too, one risks looking foolish if the market continues sideways or goes to new highs in the meantime. Worry warts like me are invariable discounted and disbelieved until after the fall. (Incidently, the definition of over valued I am going by here is Total market cap value is > US GNP or GDP. It happened in 2000, and 2007, after which a serious correction and bear market followed. I have no reason to believe it is different this time, except in the particulars. Last time it was potash, and real estate speculation for instance. This time it has been speculation in gold, bio tech, 3D Printing, for example. Last time, it took from December 2007 - the peak - to almost mid year before the momentum to come off potash, and the general decline didn't accelerate until Sept. This time the momentum has come off the recent cited speculations. So things are only different in the particulars. The general part stays the same - bear markets follow over valued markets.) 

I'd wait until the opposite psychological indicator is evident before committing a lump sum. For instance, what if someone was considering buying during a significant correction and someone wrote, don't buy, for what if the rise does not happen? That's a buy signal - an approximation of a bottom, the exact opposite of, What if the drop doesn't happen? 
What if the drop does not happen? is an expression of optimism, complacency, safety, and concern about missing out on future gains, all signs of a bull long in the tooth. Time to be wary. 
Its opposite, What if the rise does not happen? is an expression of pessimism and fear. Time to buy then. 

Having said all that, I still own some stocks. I don't have any plans to sell them. But I also have cash. And I'm going to wait. I'll buy around the time people are fearful the rise won't happen, and are busy predicting the next leg down. I might not get the exact bottom, but it's better than buying the top. 

Any way, as to the OP's original quest, how to survive a sideways market, my guess is that very few make consistent money at it. I didn't. It requires a lot of attention, and sooner or later, the market either takes off and leaves you behind, or, it plummets just after one thinks they bought a trough. If the OP does it, and nothing wrong with that, I suggest using a small percent of his total stake. I believe it would be good experience.


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## Moneytoo (Mar 26, 2014)

londoncalling said:


> http://www.youtube.com/watch?v=BQ4yd2W50No
> 
> :tongue-new:


Exactly! lol And this is what I usually DO - while my husband DOESN'T... So working together is trying 



> I am in a similar position. My spouse wants to start a couch potato portfolio. She is an extremely conservative investor. I hope the correction comes before the fund transfer. Longer term it won't matter financially. However, in regard to investor psychology it will.
> 
> Cheers!


So far my husband found flaws in every strategy I dug out - so I keep digging... while he's waiting for the correction


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## Moneytoo (Mar 26, 2014)

Pluto said:


> 1. Historically there has always been dips, corrections, and bear markets. I assume the future will be similar to the past.
> ...
> I might not get the exact bottom, but it's better than buying the top.


Thank you, Pluto, for your comment - which is, as usually, both informative and inspiring!


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## jcgd (Oct 30, 2011)

My whole point is, the bottom of the next correction or crash or the point where you buy in on average could be higher than the market right now. Yes there will be corrections. That doesn't however mean you'll get a cheaper price than today. If you have a long time horizon and are doing couch potato then it is my opinion you get in ASAP.

Everyone is so darn confident about where the market is valuation wise and how to play the corrections, jumping in and out, holding cash, not holding cash. 

I somewhat feel like we are now falling into a correction but I'm not willing to bet on it. I'm mean, jeez, many people here didn't buy in 2010 at or near the bottom. They were still talking about the risks in 2011 when I started pouring all my money in (ignorantly, I didn't know things would turn out so well for me). Three years later half the people have given up and jumped in while the other half still complain about how overvalued the market is. A correction has been just around the corner for three years. This does not mean the market cannot irrationally run up even more, no matter how unlikely. 

If you want to wait around for a correction go for it. But if you intend do a couch potato strategy than you should commit. For people who think they know what the market is going to do couch potato is probably the safest bet, because in reality they probably have no clue what will happen. 

If you are disciplined enough to sit tight and manage to buy in on the way down I agree that that is the way to go. I just don't see it happening with many people.


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## blin10 (Jun 27, 2011)

Pluto, "1. Historically there has always been dips, corrections, and bear markets. I assume the future will be similar to the past. So I am curious about your question, What if there is no drop? It's never happened."

that's not what jcgd is saying... what if you buy now and markets will run up another 20% and then correction happens and market sinks 15%, you technically still ahead by 5%... I agree though, it's tough to buy at the highs, maybe deploy 25% now and rest if correction happens...


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## Moneytoo (Mar 26, 2014)

jcgd said:


> If you are disciplined enough to sit tight and manage to buy in on the way down I agree that that is the way to go. I just don't see it happening with many people.


Well, apparently not everyone believes that Couch Potato is the best strategy there is for long term, either:

_If you have a long-term investment horizon of at least ten years, your best investment is not mutual funds, ETFs, growth stocks, bonds, or gold, but a diversified portfolio of high quality dividend stocks.

*Don't overpay for quality dividend stocks. *Ideally, P/E, P/B, and P/S should all be less than those of the S&P 500. In any case, if P/E exceeds 20, P/B exceeds 6, or P/S exceeds 2, do not buy; instead, *set a target price and wait patiently to buy when the stock falls to your target price. Remember, the next bear market is always right around the corner.
*_
http://m.wikihow.com/Invest-in-Dividend-Stocks

Closer to me heart:

_In general, you should wait till the next bear market to buy stocks, but if you have extra cash sitting around waiting for the next bear market, it is prudent to invest in high yield stocks now so you can paid some dividend income in the mean time, which you can use to buy more stocks when the prices drop with the next bear market._

http://m.wikihow.com/Find-High-Yield-Stocks


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## MRT (Apr 8, 2013)

Moneytoo said:


> Personally, I believe that even for long-term is not wise to start near the top...


I have read a lot of your posts. Despite liking a couch potato portfolio style (smart, IMHO), you continue to consistently subscribe to the idea of being able to time the market...why?


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## james4beach (Nov 15, 2012)

As was mentioned earlier, it really depends on the time frame. If you're 30 or more years from cashing in your investments, then it really doesn't matter (stocks do a good job of reflecting fundamental corporate growth over long periods of time).

For shorter periods, and especially if you get under the 10 year mark, you have to start to be really careful. From what I've seen in the long term charts, returns even under 20 years can be quite poor, historically.

But if you're like everyone else out there, you simply pray for the Perpetual Bull Market god to passively make you rich (money from nothingness), and you use psychological tricks to make yourself forget about horrendous stock market returns in not one but two cycles since '99


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## doctrine (Sep 30, 2011)

I don't see anything wrong with being cautious. For indexers, there was a 6 year period where you could have bought the indexes below their record high, and in some cases way below. 

Would I rather own the TSX at 14,500 in 2014 than 2008? Absolutely yes, because the economy is larger and there is 6 years of inflation behind us - the index is not measured in real terms. 

I am not planning any big moves with the indexes hitting new highs. I'm happy for my invested capital to continue growing while building savings. I'll continue investing in my TFSA as well. If a major correction happens, I want to be in a position to take advantage.

If I was just starting out, I would see nothing wrong with beginning a DCA program with monthly contributions. Anyone who started one in 2007-8, at or just before the previous market highs, has had absolutely fantastic 6 year returns if they stuck with their plan.


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## jcgd (Oct 30, 2011)

MRT said:


> I have read a lot of your posts. Despite liking a couch potato portfolio style (smart, IMHO), you continue to consistently subscribe to the idea of being able to time the market...why?


+1. 

@ Moneytoo, I'm all for timing the market, but you seem to be in a phase of learning investing where it _appears_ that instead of reading everything you can and soaking up information like a sponge you instead try to act, or consider acting on every style or method you see. Of course there are people who disagree with me. You'll find one opinion for and against every subject if you look around enough. Generally I don't advise reading things like Seeking Alpha or taking stuff you find on Wikihow competely seriously. Just look at the sources on that first Wikihow article you posted. There's nothing cited to prove that, and I quote, "your best investment is not mutual funds, ETFs, growth stocks, bonds, or gold, but a diversified portfolio of high quality dividend stocks. Here are the steps to build your investment portfolio to achieve the best long term returns". You simply cannot state that because until the dust settles - in the future - you cannot say for certain what will happen.

My best advice is to read some good quality books like the eight with weight listed on this site and reach your own conclusions. Lay out your investing plan and stick to it. Give it an honest shot before you go changing your methods because what doesn't work now tends to work later. I find you generally do not want to do what is popular when it comes to a stock picking style.

If you find you keep learning copious amount every week and your plan keeps changing as you learn more, give yourself a few more years before you get crazy into it. Pick something simple to follow in the mean time while you figure out your personal style. I read everything I could for nearly three years before I bought my first stock. Until then I kept my money in a balanced mutual fund. After three years of picking individual stocks and doing very well (knock on wood) I'm starting to move a lot of my money into a couch potato portfolio just to cut my workload down. Researching stocks IMO is very taxing even if you enjoy it. It may or may not be for you and you may or may not believe in the merits of individual stock picking.


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## Moneytoo (Mar 26, 2014)

MRT said:


> I have read a lot of your posts.


I believe this is the second thread that I started - the previous one was about Inverse ETFs... 



> Despite liking a couch potato portfolio style (smart, IMHO), you continue to consistently subscribe to the idea of being able to time the market...why?


Because, as I explained a few times before, I only started a couch potato portfolio in my RRSP account last month, so don't have any real experience with it. And when my husband (who still has 100K+ cash in his RRSP that he's not willing to invest at this time) starts asking me questions that seem logical - I don't know the answers, so continue reading and start questioning my own decisions. And we need to somehow come up with a joint strategy - that will work for both of us...


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## cjk2 (Sep 19, 2012)

jcgd said:


> My whole point is, the bottom of the next correction or crash or the point where you buy in on average could be higher than the market right now. Yes there will be corrections. That doesn't however mean you'll get a cheaper price than today. If you have a long time horizon and are doing couch potato then it is my opinion you get in ASAP.


I agree with this completely--it seems like so many people are afraid of missing out on buying at the bottom that they end up missing out on the top.



Pluto said:


> We are in a generally over valued market. Why put a lump sum into a known overvalued market?
> 
> ...
> 
> ...


Pluto, I do find all your posts very interesting--personally, I don't know enough about the market to decide whether or not it is overvalued, trending up or down, etc. so I simply go with a passive investing style and don't worry about what the market is doing. But I definitely enjoy reading your analyses on the situation.

However, I personally don't think optimism is at a high point right now. Doesn't the very fact that many people are currently still fearful (i.e. saying the market is currently overvalued, selling off stocks because they're afraid of the next crash, hesitating to jump into the market with their money and instead choosing to wait) signify that we haven't actually reached the top yet? In fact, a lot of people around me (friends, family) are still very fearful of the stock market (some because they were burned badly in 2008, others because they knew people who got burned, or simply because the current attitude towards stocks is still very cautious). On the other hand, I see most of these people being extremely optimistic about real estate and they are enthusiastically pouring money into condos or houses.

Of course, I do realize this is all very anecdotal and unreliable; nevertheless, I don't think I will really start to get worried until most of the people around me stop being scared of stocks and I stop reading so many articles/threads about how a crash is just around the corner. (Actually, even in that case I'm not sure I would do anything about it because I don't have confidence in myself to be able to time the market right. I'd just hope I chose the right risk tolerance level for myself and I can stomach my losses so I don't panic at the bottom.)

Your theory about total market cap > US GDP is an interesting one though, and I will keep an eye on how that turns out. I also agree with others about the time horizon being very important--if I were planning to retire in 10 years I would probably pay more attention to market-timing strategies and be more cautious with my money. In fact, I'd probably follow the strategy that you currently employ. Currently though, since I still have many years ahead of me, I'm not that nervous about an impending market crash.


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## Moneytoo (Mar 26, 2014)

james4beach said:


> But if you're like everyone else out there, you simply pray for the Perpetual Bull Market god to passively make you rich (money from nothingness)


Yeah, I surely feel like an agnostic who wandered into the church full of devotees most of whom never questioned their beliefs...


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## Moneytoo (Mar 26, 2014)

doctrine said:


> If I was just starting out, I would see nothing wrong with beginning a DCA program with monthly contributions.


We're not just starting out. We have~200K in two RRSP accounts with a plan to open and max out two TFSAs this year and contribute 20K+ each into our RRSPs by next year's deadline. After that we plan to contribute 60K+ a year (RRSPs first, then TFSAs). 

So I seriously don't understand why do we need to commit ourselves to the couch potato now when we'll have the time and the money to experiment with different strategies and see which ones work better for us as a couple. 

And I don't understand why can't we have dividend paying stocks and preferred shares/REIT/precious metals ETFs in addition to the index ETFs if neither of us is convinced that bonds provide the balance in the so called balanced portfolios: http://www.hussmanfunds.com/rsi/policyportfolio.htm


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## Moneytoo (Mar 26, 2014)

jcgd said:


> +1.
> 
> @ Moneytoo, I'm all for timing the market, but you seem to be in a phase of learning investing where it _appears_ that instead of reading everything you can and soaking up information like a sponge you instead try to act, or consider acting on every style or method you see.


Yes, I believe that "Experience is the best teacher". If my husband doesn't feel comfortable with the couch potato portfolio at the moment and i want to try something more risky - I don't see why not purchase some quality dividend paying stocks in his RRSP and say options in my TFSA while keeping the couch potato in my RRSP (his TFSA is HISA - 3% at People's Trust)

From the Couch Potato gurus themselves:

_Before committing yourself to the Couch Potato or any other strategy, we encourage you to explore alternatives, then pick the level of complexity that suits your needs. So long as you keep your costs low and diversify widely, you'll do just fine._


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## Moneytoo (Mar 26, 2014)

cjk2 said:


> On the other hand, I see most of these people being extremely optimistic about real estate and they are enthusiastically pouring money into condos or houses.


Do you think they're wise? If not, maybe you can recommend them this blog: http://www.greaterfool.ca



> Currently though, since I still have many years ahead of me, I'm not that nervous about an impending market crash.


Say with 20 more years to invest, would you advise your spouse who doesn't trust financial advisors, has low risk tolerance and fear of investment and strongly believes in an upcoming market correction to invest 100K (half of the money in both RRSPs) in the couch potato portfolio ASAP?


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## james4beach (Nov 15, 2012)

cjk2 said:


> However, I personally don't think optimism is at a high point right now. Doesn't the very fact that many people are currently still fearful (i.e. saying the market is currently overvalued, selling off stocks because they're afraid of the next crash, hesitating to jump into the market with their money and instead choosing to wait) signify that we haven't actually reached the top yet?


Small traders and retail people playing with stocks in their discount brokerages really don't matter. The biggest force are institutions: mutual funds, *pension* funds, sovereign funds, etc.

Among these guys, stock allocations are back to historical highs. They have never been _more_ in love with stocks than they are currently. And all the institutional literature is full of arguments that basically say "we have to be in stocks, because bonds don't offer enough returns"

Most of them buy stocks even though they acknowledge fundamentally high valuations. They do it because they have no choice... ZIRP means that fixed income returns are unacceptably low for pension funds.

Personally I think it will end very badly. There is a low probability that pensions are going to achieve the kinds of returns they need from stocks.


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## Pluto (Sep 12, 2013)

cjk2 said:


> I agree with this completely--it seems like so many people are afraid of missing out on buying at the bottom that they end up missing out on the top.
> 
> 
> 
> ...


Optimism high: According to the media last year s&P earnings were up 0.9%, but the index was up almost 33%. When stocks go up, not because of earnings, its optimism. Even so, there is no way to tell in advance when the air will come out of the optimism balloon. So although your personal associates are not optimistic, and I applaud them, and I hope they are planning to buy at much lower prices, the institutional money managers are optimistic. And they usually do not tip their hand in advance of turning pessimistic. they just start quietly selling. At a certain point, as their pessimism increases, there is a flood of shares on the market as can be seen by high volume down days. That's when their hand is tipped. That's when those who want to preserve gains should get out. 

Total market Cap > US GNP is Warren Buffett's favourite valuation method. Incidentally, we are apparently more overvalued now than in 2007 - 8 (which proves nothing about precisely when the fall will come.)

To get a better idea of when watch US unemployment. The market tanks when unemployment is low. Low is less than 6%. If and when it reaches 5% politicians and the Fed are very happy. At that point, they do not want to stimulate the economy, and eventually go in reverse. That breaks the bull market. 

Due to the approximation character of timing indicators, I use the 270 day moving average in index charts. When the market is over valued, and then indexes fall below the 270 day ma, that's usually the last good time to get out, for those who want to get out. I also use high volume down days on the index - eg the NASDAQ fell 3% on higher than average volume a while ago. If we get tow or three of those with in a couple of weeks, its a reliable sign the end is at hand. 

Notwithstanding my worry, I still own some stocks that are not, as far as I can tell, over valued. (Look at CIBC for example. 23% annual growth in the last 5 years, but a p/e that is reasonable in that context.) I also still own some stocks because, as others have observed, the market can stay over valued for a long time. But in general, appreciation potential is low. Value line has it at about 30% over the next 3 to 5 years. In 2009 Valueline had appreciation potential at about 185%. So I play the odds. The odds of making money being 100% in stocks right now is slim. So I cut my risk by having a lot in cash. 

Even so, buy and hold investors can do very well. But I expect it would be very discouraging for them if they put a lump sum into an over valued market. Look at index charts from 2000 to present. Buying near any top 2000 or 2007-8 means years just to break even. Many who did that end up selling near a bottom never to return to stocks. But for those who put a lump sum into stocks near a bottom, they are delighted. They are in sync with the market cycle. Do things to make yourself delighted even if it means patience.


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## Squash500 (May 16, 2009)

Pluto said:


> Optimism high: According to the media last year s&P earnings were up 0.9%, but the index was up almost 33%. When stocks go up, not because of earnings, its optimism. Even so, there is no way to tell in advance when the air will come out of the optimism balloon. So although your personal associates are not optimistic, and I applaud them, and I hope they are planning to buy at much lower prices, the institutional money managers are optimistic. And they usually do not tip their hand in advance of turning pessimistic. they just start quietly selling. At a certain point, as their pessimism increases, there is a flood of shares on the market as can be seen by high volume down days. That's when their hand is tipped. That's when those who want to preserve gains should get out.
> 
> Total market Cap > US GNP is Warren Buffett's favourite valuation method. Incidentally, we are apparently more overvalued now than in 2007 - 8 (which proves nothing about precisely when the fall will come.)
> 
> ...


Excellent post Pluto.


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## Pluto (Sep 12, 2013)

blin10 said:


> Pluto, "1. Historically there has always been dips, corrections, and bear markets. I assume the future will be similar to the past. So I am curious about your question, What if there is no drop? It's never happened."
> 
> that's not what jcgd is saying... what if you buy now and markets will run up another 20% and then correction happens and market sinks 15%, you technically still ahead by 5%... I agree though, it's tough to buy at the highs, maybe deploy 25% now and rest if correction happens...


Yes, I see your point. He probably did mean that. 

So lets look at it more closely with indexes, since many are using index etf's.

Looking at the S&P 500 2009 bottom that took nearly 12 years of gains away. In order to break even in 2009, an index etf buyer would have to buy around 1996. So buying an index etf now hoping that the next bottom is 15% higher than now, seems unlikely. To me it is similar to buy8ing in 2006 hoping that the next bottom will be higher than 2006 prices. 

On the other hand, we had a very rare (9 year?) bull market all through the 1990's. When that ended and bottomed out in 2002, it took prices back to 1997 as well. So in order to break even by 2002, one would have to buy prior to 1997 about 5 years in advance of the bottom. Those who were buying and holding prior to 1997 made out OK, but it has been a tough road for those who bought the index between 1997 and 2001, and between 2005 and 2007. 

Again, my approach is not primarily a market timing approach. Its a value approach. Buy index funds when the market is fair value or undervalued. don't buy overvalued markets on the assumption that they will stay over valued for another 4 or 5 years. the odds are against you.


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## jcgd (Oct 30, 2011)

I agree with you Pluto, but how do you ensure you time the bottom? Although I more or less agree with you I cannot myself solve the problem of timing the bottom. My solution, abiet risky, is to stay fully invested and and employ leverage in the case of substantial corrections. I will ideally buy more and more to average into a large drop. At this point however my plan it theoretical and I have a mechanical method I intend to use. I have a very long investing horizon, no debt, and the means to service a lot of leverage if things ever go bad. 

Not the ideal plan for many, but for me it makes the most sense and I feel like it offers the best risk/ reward. It always negates any urge to leverage myself because I am fully invested all the time, and I need to avoid any debt in the case I require it for a large drop.


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## jcgd (Oct 30, 2011)

Just realized you don't market time when I re-read your post. Still, I find if more risky to wait for obvious value while sitting on a lot of cash than staying fully invested at this point in my investing career. I bet this will change when I have less time and capital preservation becomes a higher concern. There isn't a lot of capital to preserve at this point.


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## Moneytoo (Mar 26, 2014)

Pluto said:


> Do things to make yourself delighted even if it means patience.


Thank you again, Pluto! Do you have a blog where you share your wisdom by any chance? 

Another thing we realized today - it's not a good time to buy US stocks because the exchange rate is ~1.1 at the moment. We found a US stock that we both liked, it trades under $35 and pays $2 dividend per share a year. So we decided to buy 200 shares, called TD Waterhouse to set up automatic wash trading for Norbert's Gambit, did the calculations before placing a Buy order for DLR - and came to conclusion that it's not worth it to pay ~700 Canadian dollars for $400 US dollar dividend a year (because the dividends will be converted to Canadian dollars at the time of payout, so if Canadian dollar goes up - which some believe it will in the near future - we would've paid too much upfront)

So we decided to be patient and in addition to markets start watching the exchange rate. If nothing else, both our RRSPs are set up now, and we understand how Norbert's Gambit works, so will be able to act fast when the time is right


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## cjk2 (Sep 19, 2012)

james4beach said:


> Small traders and retail people playing with stocks in their discount brokerages really don't matter. The biggest force are institutions: mutual funds, *pension* funds, sovereign funds, etc.
> 
> Among these guys, stock allocations are back to historical highs. They have never been _more_ in love with stocks than they are currently.





Pluto said:


> Optimism high: According to the media last year s&P earnings were up 0.9%, but the index was up almost 33%. When stocks go up, not because of earnings, its optimism. Even so, there is no way to tell in advance when the air will come out of the optimism balloon. So although your personal associates are not optimistic, and I applaud them, and I hope they are planning to buy at much lower prices, the institutional money managers are optimistic. And they usually do not tip their hand in advance of turning pessimistic. they just start quietly selling. At a certain point, as their pessimism increases, there is a flood of shares on the market as can be seen by high volume down days. That's when their hand is tipped. That's when those who want to preserve gains should get out.
> 
> Total market Cap > US GNP is Warren Buffett's favourite valuation method. Incidentally, we are apparently more overvalued now than in 2007 - 8 (which proves nothing about precisely when the fall will come.)


Thanks for these insights! As I mentioned I don't really follow any market news or stats...but these numbers are quite interesting. Also, Pluto: your "market timing" strategy is really the only active strategy I have ever been tempted to follow myself (as you recall the backtesting I did definitely showed that your model outperformed the couch potato over the last 2 crashes). And I've been considering maybe cashing out half of my portfolio if the S&P does drop below its 200 or 270-day MA, while keeping the other half invested in couch potato...but I've always been very indecisive so we'll see. (That's partly why couch potato works so well for me--no major decision-making involved! XD)

At any rate, I agree that if I were in Moneytoo's position, I would be quite nervous about putting all my money into the couch potato porfolio all at once right now--but I would maybe DCA half of it or so over a long period of time. I wonder if anyone has done analysis on that (I know the consensus is lump-sum >> DCA in the majority of cases, but if they took into account only the times when the market was considered overvalued, perhaps that would change things?).


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## Pluto (Sep 12, 2013)

jcgd said:


> Just realized you don't market time when I re-read your post. Still, I find if more risky to wait for obvious value while sitting on a lot of cash than staying fully invested at this point in my investing career. I bet this will change when I have less time and capital preservation becomes a higher concern. There isn't a lot of capital to preserve at this point.


There is nothing wrong with being fully invested, I think. I suspect having dividend payers helps, because when the fall comes, at least one got some dividends - although the stock falls, the cash from dividends doesn't. And using leverage after prices fall is I think a good idea. As far as timing the bottom goes, there is no way to tell in advance where the bottom will be. For me part of the answer is just value: i'm familiar with the stocks I like, and I can just tell when the price is right. That doesn't mean I can tell the exact bottom, it just means I can tell a good deal when I see it. It's similar to the super market: When my favourate food goes on sale, I buy more than usual and put it in the freezer. But that doesn't mean that the price might not be even lower next week. However, shoppers get a sense of prices, and they know a good deal when they see it. So be familiar with your stocks - how low did they go last time? Last time how high did the dividend yield get? how low did the p/e get? Use the last 2 or 3 bear markets to get a rough idea of what a good price might be the next time. Armed with historical data on your stocks, you are enhancing your capacity to gage good value next time.


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## Pluto (Sep 12, 2013)

cjk2 said:


> Thanks for these insights! As I mentioned I don't really follow any market news or stats...but these numbers are quite interesting. Also, Pluto: your "market timing" strategy is really the only active strategy I have ever been tempted to follow myself (as you recall the backtesting I did definitely showed that your model outperformed the couch potato over the last 2 crashes). And I've been considering maybe cashing out half of my portfolio if the S&P does drop below its 200 or 270-day MA, while keeping the other half invested in couch potato...but I've always been very indecisive so we'll see. (That's partly why couch potato works so well for me--no major decision-making involved! XD)
> 
> At any rate, I agree that if I were in Moneytoo's position, I would be quite nervous about putting all my money into the couch potato porfolio all at once right now--but I would maybe DCA half of it or so over a long period of time. I wonder if anyone has done analysis on that (I know the consensus is lump-sum >> DCA in the majority of cases, but if they took into account only the times when the market was considered overvalued, perhaps that would change things?).


I think part of the solution is to acknowledge what we can and can't do. We can't know exactly when and where the exact tops and bottoms will be. But experienced supermarket shoppers know a good deal, and bad deal when we see it. Lots of shoppers really track prices, and when they see beef on sale at the lowest prices in a year, they buy more than usual. Its the same with stocks - if one is familiar with their own holdings and ones they want to buy, they will know when the price is right. Strangely, the majority of people think differently about stocks. When they are overvalued, people tend to love them. When they go on sale, at rock bottom prices, people fear them. Part of the fear at bottoms is the fact that some stocks stay down for years. That's why I buy ones that historically have proven they snap back. 

Anyway, I think you should follow your instincts about if you should sell or not upon the cross below the 270 ma. Its a personal decision. What you might do is just sell maybe 20% or less for experience. And then buy it back when it seems like good value. Your last good buy point will be a cross above the ma. I've tried and tested a lot of strategies, and most are complicated, unreliable, and use arcane language. The one I use now is the simplest reliable one I know of. But its not really about timing. The underlying strategy is value - striving to buy quality at a low price, and then, if one sells, sell into an overvalued market many years later. The moving average and charts are an accessory and visual aid to assist in deciding where we are in a cycle.


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## Moneytoo (Mar 26, 2014)

Moneytoo said:


> If nothing else, both our RRSPs are set up now, and we understand how Norbert's Gambit works, so will be able to act fast when the time is right


And that we did 



Moneytoo said:


> SheaButters said:
> 
> 
> > There's another high yield too with A rating..
> ...


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## Canadian (Sep 19, 2013)

Pluto said:


> Optimism high: According to the media last year s&P earnings were up 0.9%, but the index was up almost 33%. When stocks go up, not because of earnings, its optimism. Even so, there is no way to tell in advance when the air will come out of the optimism balloon.


I agree that the discrepancies between earnings growth and index growth allude to [possibly irrational] optimism. However, business valuations are typically based [and should be] on future earnings, rather than historical. Other metrics, such as revenue growth, FCF/OCF growth, and changes in capital structure are proxies for future earnings growth and should also be taken into consideration to truly see the discrepancies between index growth and improvements in business conditions.


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## Eclectic12 (Oct 20, 2010)

Moneytoo said:


> Well, apparently not everyone believes that Couch Potato is the best strategy there is for long term, either:
> 
> _If you have a long-term investment horizon of at least ten years, your best investment is not mutual funds, ETFs, growth stocks, bonds, or gold, but a diversified portfolio of high quality dividend stocks._


_

This assumes that the investor has the time, temperament and sufficient speed to react. 
One of the problems I see is that everyone wants their style to be the only style when there are a lot more factors involved.

No matter it's down sides, the Couch Potato would have been fantastic for my father as he spent decades in CSBs and GICs.
Whereas someone like me who has more time/understanding ... jumping on some opportunities has paid off in nice profits compared to what the index has done.

I'd rather see people match up to what they are comfortable with that gives them a reasonable return versus potentially losing out big time as they don't match up to whatever they have been convinced is "the" strategy.




Moneytoo said:



Closer to me heart:

In general, you should wait till the next bear market to buy stocks, but if you have extra cash sitting around waiting for the next bear market, it is prudent to invest in high yield stocks now so you can paid some dividend income in the mean time, which you can use to buy more stocks when the prices drop with the next bear market.

Click to expand...

Problem is ... for investing, it's a lot easier to see after the fact.

Someone buying BNS that was off it's $53 high around Oct 2008 might have thought buying at $40 was great ... only to see it hit $24 around Mar 2009. On the other hand, I also know people who were so concerned about the risks, that they didn't buy at all during the downturn so that they ended up paying $48+ for what they could have bought a lot cheaper.


Or the extreme where some thought the financial world was ending and locked in their losses by selling everything in Nov/Dec 2008.



Cheers


*PS*

Only those with a narrow view would say one has to put one's entire portfolio into one method._


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## Eclectic12 (Oct 20, 2010)

Pluto said:


> There is nothing wrong with being fully invested, I think.
> 
> I suspect having dividend payers helps, because when the fall comes, at least one got some dividends - although the stock falls, the cash from dividends doesn't.


That's where it depends on the company/environment ... it is not guaranteed that dividends won't be cut. Many companies did this in mid to late 2008 or 2012 or 2013.

Where the dividends are not cut - when the prices have dropped, the dividends provide cash to buy what is on sale.




Pluto said:


> And using leverage after prices fall is I think a good idea.


Assuming one has worked out what the risks are, what cash flow is required and has room to maneuver should the market go in a different way then they are expecting.




Pluto said:


> As far as timing the bottom goes, there is no way to tell in advance where the bottom will be...


Or another strategy is to keep some cash or have ideas of what to sell to buy more if a company one likes, that has good future prospects is being beaten down further as there is a general pessimistic view.


Cheers


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## Moneytoo (Mar 26, 2014)

Eclectic12 said:


> I'd rather see people match up to what they are comfortable with that gives them a reasonable return versus potentially losing out big time as they don't match up to whatever they have been convinced is "the" strategy.
> 
> Problem is ... for investing, it's a lot easier to see after the fact.
> 
> ...


Well for now we're trying the Couch Potato and dividend stocks, and I'm sure they can co-exist well together long term (i.e. we won't have to choose one over another) 

In a year or two we might dedicate a portion of portfolio (say 10-20%) to play with growth and value stocks: http://canadianmoneyforum.com/showthread.php/17713-Investment-game?p=232744&viewfull=1#post232744

But one thing for sure - I don't see GICs in our foreseeable future...


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## juniperpansy (Jan 5, 2013)

-Looking at historical equity returns you lose 10% interest each year you wait for the crash
-Even if you buy at the peak and things crash you can use claim the losses (if its in a taxable account)
-If the market drops 10% is that the bottom? What if drops 30%, is that the bottom? As other's have mentioned this cannot be predicted beforehand

-If you are really are afraid of the crash you could always do dollar cost averaging (eg. moving 5% or 10% of your funds into the market each month)


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## Moneytoo (Mar 26, 2014)

From *Investors are often wrong (why you shouldn't follow the herd)* thread:



MoreMiles said:


> I found this on Mawer's blog... it presents a good point of view.
> 
> http://www.mawer.com/knowledge-centre/mawer-blog/engrained-truths/
> 
> You guys keep saying just ignore the noises, everything will be all right... really? Think deeper about it. We are in the middle of untested money-printing experiment, never ever happened before to this magnitude.. how can one be so certain of outcome? Is it right to get comfy and just buy the dips? Do all crashing stocks rebound? How about Blackberry, Yellow Pages, and Nortel? Do falling trees really make noises? You really have to sit down and rethink about these "truths".


_It is important to recognize engrained truths as the perception of risk can become dangerously distorted when an investor’s assumptions turn into an embedded reality. Therefore, it is beneficial for an investor to escape the views of the masses when they become myopic._

Case in point:



juniperpansy said:


> -Looking at historical equity returns you lose 10% interest each year you wait for the crash
> -Even if you buy at the peak and things crash you can use claim the losses (if its in a taxable account)
> -If the market drops 10% is that the bottom? What if drops 30%, is that the bottom? As other's have mentioned this cannot be predicted beforehand


It's in RRSP. And not wanting to buy near the top does not equal waiting for the bottom. The other others have explained that... never mind, I guess you would've noticed pluto's posts if you wanted to 

_While this may not always be easy to do, we find that a questioning, skeptical mindset is a good starting point. This type of thinking can help uncover unique investment opportunities and also help limit one’s negative exposures._



juniperpansy said:


> -If you are really are afraid of the crash you could always do dollar cost averaging (eg. moving 5% or 10% of your funds into the market each month)


We just moved almost 20% within a week - purchased shares of a high-yield dividend stock (not part of an index), gold and short term corporate bonds ETFs. And we're not afraid of the crash - we just don't see the point of buying an Index Fund or ETF now. Or almost any stock for that matter


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## rossco12 (Dec 4, 2013)

World Class Investors Panel: Frank Giustra, Rick …: http://youtu.be/Og6j9U7TDsU
This is a very good presentation. Frank Giustra, Vancouver billionaire, has been making a strong case for gold since QE started. Sooner ot later the funny money has to come out of the markets.


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## Moneytoo (Mar 26, 2014)

rossco12 said:


> World Class Investors Panel: Frank Giustra, Rick …: http://youtu.be/Og6j9U7TDsU
> This is a very good presentation. Frank Giustra, Vancouver billionaire, has been making a strong case for gold since QE started. Sooner ot later the funny money has to come out of the markets.


Very interesting - thank you for sharing!


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