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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

#331

Post by temp_praneshp »

maire wrote: post #330
temp_praneshp wrote: post #326

Earlier quoted context omitted.

Out of curiosity: How do you test your sheets? I feel like I can arrive at such a sheet over a few days of reading, but unsure how I'd test I'm doing the right things (since there isn't a tool or a combination of tools that can act as oracle)

I used ETFs (and not stocks) to simplify the test. I was mostly looking for correlations of different investments across different scenarios. I then looked at severe market downturns to see how the correlations changed. As you can imagine - when there is a severe market drop, most investments are highly correlated to the S&P. The most negative correlation I could get was medium term bond ETFs. Short term bonds were s…

gotcha, thanks for answering!

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

#332

Post by doopy1 »

layer8 wrote: post #306
qznc wrote: post #303

Earlier quoted context omitted.

There is an inverse question: If you have a cash windfall you want to invest, all-at-once or split it up? I have seen a similar analysis (but can’t find it right now). Even if you invest at the all time highs, so the market drops right after you buy, you still win with the all-at-once strategy. The general lesson: Get your money into the market as soon as possible. Maybe more memorable: Time in the market beats timin…

Investing in the stock market has the general assumption that, a priori, stocks are more likely to rise than to fall at any given point in time. Under that assumption, the all-at-once strategy has the better expected outcome. Of course, you can be unlucky and end up buying the all-time-high just before a crash. You can avoid that risk by splitting up the investment, at the cost of lowering the overall expected value.…

Peter Lynch had a pretty interesting talk where he said that on average the stock market has a sizable dip every few 2-3 years, meaning it's lower at the end of that year than it was at the beginning. Generally though, it goes up over time.

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

#333

Post by maire »

temp_praneshp wrote: post #331
maire wrote: post #330

Earlier quoted context omitted.

I used ETFs (and not stocks) to simplify the test. I was mostly looking for correlations of different investments across different scenarios. I then looked at severe market downturns to see how the correlations changed. As you can imagine - when there is a severe market drop, most investments are highly correlated to the S&P. The most negative correlation I could get was medium term bond ETFs. Short term bonds were s…

gotcha, thanks for answering!

If you are using google sheets you can use ycharts to pull in the dividend data. Here is my calculation to get 1 year of dividends.

=query(importhtml(concatenate("https://ycharts.com/companies/",$A4,"/dividend"),"table",0),...)

where $J$2 is ="select Col6 where Col1 > date '"&TEXT(I2,"yyyy-mm-dd")&"' LIMIT 12"

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

#334

Post by hn_throwaway_99 »

FredPret wrote: post #219
hn_throwaway_99 wrote: post #92

Earlier quoted context omitted.

> the past 100 years provide a fairly compelling narrative. In the US. The Nikkei is down over 25% from its peak 32 years ago .

Japan and the US got into a trade war; it’s a special situation for them. Absent getting a bloody nose from an economic giant, they would have done well

> Absent getting a bloody nose from an economic giant, they would have done well

I don't know any economic historian with expertise in Japan who believes that.

Their bubble basically puts all other bubbles to shame. The land under the Imperial Palace really was worth more than all the real estate in California at the peak. Japan was destined to have an epic crash of equal proportions to the size of their bubble, any US actions notwithstanding.

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

#335

Post by qgin »

MisterMower wrote: post #329
qgin wrote: post #285

Earlier quoted context omitted.

The value of stocks is pinned to two events that you often don’t directly participate in but are absolutely connected to in a real way. 1. The IPO. While it’s true that only the people who buy at the IPO directly finance the company, if there wasn’t the promise of someone else in the future to sell the shares to, nobody would buy at the IPO. The existence of future second-hand buyers makes the direct funding at the I…

Point 2 is false: shares of stock derive their value from the fact that they represent ownership in a company. If the company is profitable or owns valuable assets beyond their liabilities, then the shares themselves are valuable. Their value does not depend on current or future dividends, but on the company’s current assets and the market’s estimation of the value of the company’s future cash flows. Your point about…

But if there is no mechanism for giving cash to the shareholder, ownership is essentially worthless (from a money perspective) except for the possibility of amassing enough ownership to take a controlling stake in the company. But even a controlling stake is just a hobby unless somehow that stake returns cash to you at some point.

I agree about assets though. Book value of assets does need to be added to the value of shares, though usually that’s the smallest part of a share’s valuation.

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

#336

Post by hn_throwaway_99 »

chii wrote: post #148
hn_throwaway_99 wrote: post #86

Earlier quoted context omitted.

> 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. But just look at housing, which has exploded well beyond the rate of inflation since the Great Recession bottomed out, and especially in the past couple years. Yes, if money is plowed into housing, the homeo…

> if money is plowed into housing, the homeowner has more cash when they sell. but it's not expensive _everywhere_. It's expensive in some of the most desirable places. And housing has some issues unrelated to the market - such as NIMBYs stopping new constructions.

> but it's not expensive _everywhere_. It's expensive in some of the most desirable places.

I disagree with this. I think this was true for the mid 00s property bubble, but now prices are exploding not just in the usual suspects like SF, LA and NYC. Pretty much every place that's not a total shithole is experiencing huge home price appreciation.

I made a post on a different thread making this point, and I used Flint, Michigan as my example of "sure, prices in Flint are still low..." only to get a response from another commenter along the lines of "You'd be surprised - while bad areas of Flint are still depressed, many of the nearby areas have also seen huge runups in real estate values."

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

#337

Post by kmonsen »

icelancer wrote: post #177
jokethrowaway wrote: post #174

Earlier quoted context omitted.

If you're the Chinese Communist party, that's it. I'm not willing to ruin my life on the chance some 90 years old may catch the flu and die. If they're worried about COVID they can isolate.

I happen to agree with you. Unfortunately, that debate isn't allowed to happen in the US. Or most modern countries.

Not sure what you mean here. In the U.S. there has been considerable debate, vaccines are free, safe and available same day. Finally we have given up on almost all safety measures as long as the healthcare system can handle the load.

Can you be specific in the change you want or which debate isn’t allowed?

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

#338

Post by Tiktaalik »

benjaminwootton wrote: post #154
Tiktaalik wrote: post #35

Earlier quoted context omitted.

Every other country did what the Fed did for the same reason: We've experienced (and are still experiencing) a once a century global pandemic. The measures to limit pandemic deaths would have completely destroyed the economy had the governments and their associated banks not taken the measures they took to support people during this difficult time. It's not the Feds fault, it's the pandemic.

There is still considerable debate if those measures were actually effective. Did closing down entire industries, closing borders, making 20 year olds WFH etc really move the needle on Covid deaths in retrospect? And even if it did, was it ethical, fair and is it a reasonable price to damage the economy and life prospects of hundreds of millions of young people who weren’t at statistical risk? Its important because i…

The measures were certainly very effective under the metric of limiting deaths.

British Columbia and New Zealand have about the same population, both are rich jurisdictions. BC was relatively open (compared to other Canadian provinces) while NZ was more locked down. BC has dramatically more deaths than NZ.

And then if you compare BC, which was more locked down than various US states, BC had less deaths than them.

It seems pretty clear to me that the "lock downs" worked.

(putting "lockdowns" in scare quotes here because really the only thing BCians were prevented from doing was going to restaurants and bars. You could still go to the grocery store and home depot etc with a mask on)

If you have some other metric well I dunno, but I don't think there's any better metric than deaths avoided.

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

#339

Post by Kon-Peki »

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.

> Ah yes, the good ol' "time in market beats timing the market".

In the context of this article, buying the dip is a form of timing the market.

Consider instead the effect of time in market via the standard 401k model: You buy $250 of QQQ at the opening price on the 5th trading day of every single month, and you start in April of 2000 - the first month after that QQQ high mentioned in the article.

By January of 2004, you have a positive total return (which sucks). Your total return stays at less than ~20% all the way until 2006 (which sucks). You would get hit hard again in 2008, but by mid-2009 you are back to being positive. You hit a 100% return in 2013 (that took a really long time!). The next doubling is 2017 and the next is in 2020. In November 2021,you are sitting at very close to a 600% total return, but as of right now it is back down to ~450%.

Your $250 per month totals ~$66k and has a present value of ~$360k. That really isn’t so bad for being the worst case scenario the author could find ;)

PS - this does not consider dividend reinvestment, but QQQ doesn’t pay much in the way of dividends.

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

#340

Post by kmonsen »

kortilla wrote: post #214
kmonsen wrote: post #138

Earlier quoted context omitted.

Right, so the theory is that in good times you put on the brakes so there is something in the tank you can spend during bad times. Spending can take many forms, but the traditional ones are lower interest rates and tax cuts. The issue is that we lowered taxes significantly in the middle of good times. It's like feeding ice cream to kids already on a sugar high. There is no room to lower taxes anymore as we are alread…

This is simplistic thinking in line with the “what if the government budget was a household budget” memes that float around. > theory is that in good times you put on the brakes so there is something in the tank you can spend during bad times The government is not a squirrel with acorns. It can spend during both good and bad times, as the past 30+ years have shown. The only backpressure is inflation. Nobody seems to…

I’m not talking about rubbing the country like a household, still there are considerable reasons to do some accounting.

1. Even the most spend willing economists agree there is some limit to debt that is sustainable. It’s just way higher than what most are comfortable with.

2. There is also political/popular will. If this is not there it doesn’t matter what makes economical sense. In the U.S. we are firmly against that.

3. About that inflation …

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