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When buying the dip doesn’t work: An analysis of the dot-com crash

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Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#51

Post by kmonsen »

refurb wrote: post #40
300bps wrote: post #13

Earlier quoted context omitted.

Fed balance sheet is about $9 trillion. This article gives details on $5 trillion in government stimulus. https://www.nytimes.com/interactive/2022/03/11/us/how-covid-... To put those numbers in perspective, the market cap of the entire S&P 500 is about $40 trillion. I hear what you’re saying about supply-side inflation but you don’t think flooding the economy with so much unearned money might be driving up demand a b…

They blamed inflation in the 1970's on supply side issues as well. Sure, the oil embargo contributed to price increases, but looking back, it was pretty clear it was fed monetary policy that drove most of it. And monetary policy by Volker that fixed it. No different today. Massively expand the money supply and you (eventually) get inflation. Add in a few supply issues and you amplify the problem. But I agree with you…

That’s the problem, in bad times you pour money into the market either directly or with interest rates. Then I’m good times the opposite is supposed to happen. But this time the good times never arrived and now we are trying to fix it in the middle of a war, pandemic and massive supply shock, including for energy. It’s too easy to get it wrong and make the problem bigger.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#52

Post by bagacrap »

chii wrote: post #29
fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

> dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. i don't really agree with this - the money used to purchase financial products don't disappear, because for every product bought, there was a seller. This seller now has cash, which would be invested elsewhere. The only concern is low interest rates, which makes the hurdle for any i…

I've had this same thought, but everyone seems to be sitting in cash? No one wants to invest unless everyone else invests. Seems the emperor is suddenly naked.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#53

Post by bagacrap »

tyre wrote: post #16
fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

> The COVID fiscal canon blew growth and inflation skyward. This is not true and has wrongly given credit to people who have said, since 2020, that COVID relief would cause inflation. Our current inflation is driven by supply chain issues (unrelated to COVID relief) and rising oil (unrelated to COVID relief.)

I don't know why you're so confident. All of these things can contribute to inflation.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#54

Post by anonporridge »

tunesmith wrote: post #20

Another thing to look at is the CAPE ratio. Even now, it's still above 30. We've gone from around a 37 to a 32. Mean/median is in the 16-17 range. DotCom crash in 1999 topped out at around 44. Still a lot of room to fall.

Also known as the Shiller PE ratio, https://www.multpl.com/shiller-pe

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#55

Post by hunter2_ »

GlennS wrote: post #22
throw0101a wrote: post #9

Nick Maggiulli: > Logically, it seems like Buy the Dip can’t lose. If you know when you are at a bottom, you can always buy at the cheapest price relative to the all-time highs in that period. However, if you actually run this strategy you will see that Buy the Dip underperforms DCA over 70% of the time. > This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat do…

> This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat dollar-cost averaging. I'm a bit unconvinced by the studies that say this, because I don't think the "buy the dip" strategy they're talking about is the same one that people are running. The studies describe waiting for a low point in a given year (or even across multiple years!) then lumping in all your mo…

But even if you're just modifying a DCA schedule slightly (buying a little early/more when things feel particularly cheap, or buying a little later/less when things feel expensive) -- doesn't the same problem exist: that those adjustments typically cause a worse outcome than if you didn't apply them?

Maybe some people have a better crystal ball than others, but if we just look at the average case where studies favor vanilla DCA, I have to imagine that the reasons (why DCA wins) will prevail regardless of the extent that they're applied. But if your skill is enough above average that it's helpful to deviate, go for it...

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#56

Post by bagacrap »

refurb wrote: post #36
nathanvanfleet wrote: post #18

Sad to think that investing in the stock market, which I have only been able to financially over the last 5 years might have been much riskier than I might have previously thought. What I previously thought as "okay I just leave it in the stock market for a bit of time to recoup" is something I am now realizing would likely have to be 10+ years. It's kind of funny because I was getting shaky about having money in the…

My grandfather had $3M invested in the market in 2007. Lost $1M at the bottom in 2008, but didn't do anything other than rebalance. Now worth $8M. Either you fret over every price move and likely buy/sell at the worst times, or you invest with a long-term vision and stop tracking the price moves everyday.

yes but in that case the Fed rode to the rescue and delivered the greatest bull market in US history. There's absolutely no way the next decade looks like the last so this is a poor comparison.

As far as rebalancing --- you may have noticed stocks and bonds falling in unison this year, so rebalancing is not much help.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#57

Post by mbrubeck »

GlennS wrote: post #22
throw0101a wrote: post #9

Nick Maggiulli: > Logically, it seems like Buy the Dip can’t lose. If you know when you are at a bottom, you can always buy at the cheapest price relative to the all-time highs in that period. However, if you actually run this strategy you will see that Buy the Dip underperforms DCA over 70% of the time. > This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat do…

> This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat dollar-cost averaging. I'm a bit unconvinced by the studies that say this, because I don't think the "buy the dip" strategy they're talking about is the same one that people are running. The studies describe waiting for a low point in a given year (or even across multiple years!) then lumping in all your mo…

Even an investor who just waited for 5% or 10% dips would have underperformed an investor who bought on a fixed schedule each month, historically:

https://www.bogleheads.org/forum/viewtopic.php?p=6196749#p61...

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#58

Post by tsimionescu »

chii wrote: post #31
vitus wrote: post #2

> Buying the dip isn’t some secret strategy. Time is the secret strategy. Ah yes, the good ol' "time in market beats timing the market". Of course, that assumes that markets trend upwards in the (very) long term. Which... if past performance is any indicator of future performance [0], the past 100 years provide a fairly compelling narrative. [0] Another mantra: it's not.

> [0] Another mantra: it's not. it's the best indicator so far.

Given that global warming will cause the global economy to contract one way or another within the next 100 years (either we willingly contract to soften the blow, or keep going and producing more greenhouse gases until a massive crash), I really don't think this is the right time to think in these terms.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#59

Post by mberning »

anonporridge wrote: post #46
nathanvanfleet wrote: post #18

Sad to think that investing in the stock market, which I have only been able to financially over the last 5 years might have been much riskier than I might have previously thought. What I previously thought as "okay I just leave it in the stock market for a bit of time to recoup" is something I am now realizing would likely have to be 10+ years. It's kind of funny because I was getting shaky about having money in the…

Are you ignoring dividend reinvestment creating compounding growth? Even god couldn't beat dollar cost averaging, https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

Buy all the time. Only reliable way to win.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#60

Post by xeromal »

chii wrote: post #32
StanislavPetrov wrote: post #3

> Buying the dip isn’t some secret strategy. Time is the secret strategy. There is a Dutch guy out there with some rotted tulips who begs to differ.

when they say buy the dip, they refer to buying the stock market index (like S&P), not individual stocks like a tulip.

I think their analogy is that your investment in the Prussian/Holy Roman Empire/Carthage stock market can still end up ruined regardless of time.
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