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Two weeks ago, I managed to anger quite a few people with a Washington Post column titled: Missed the big market rally? Here’s what to do now.

There were a variety of perturbed commenters both here and at WaPo as well as angry emails and assorted bemused tweets.

While lots of readers, commenters and emailers “got it,” a great many did not. I was accused of being a shill for Wall Street (never), a perma Bull (Ha!), and a gold hater (I am not enamored of the money losing gold narratives).

Most of those pushing back were in the throes of their own cognitive foibles, and rationalizing their own erroneous investments.

The pushback included these lines from actual emails and comments:

• The only way you did not miss the 150 percent move is if you bought at the bottom and sold at the high and invested 100 percent in the stock market.

• The Fed is printing money, and the Dow is heading to 5000!

• Count on the fact that you are an outsider and not privy to the insiders’ knowledge or strategy.

• What makes you think you know where the markets are going?

• I went to all cash on [the day before any recent market sell-off].

• What should investors do if they missed the move in gold from $250 an ounce to nearly $1,900 an ounce?

• Aren’t you advocating a buy-and-hold approach? I thought you were not a fan of that.

I answer each of these succinctly and IMO, convincingly.

My conclusion could not have been simpler:

“The key to investment success is simple: Have a plan. Follow it faithfully. Max out your tax-deferred accounts. Dollar-cost average. Rebalance. Diversify. And invest for the long term.”

Go check out the full piece.

 

Source:
Missing the big stocks rally: Readers push back
Barry Ritholtz
Washington Post, June 30, 2013
http://www.washingtonpost.com/business/missing-the-big-stocks-rally-readers-push-back/2013/06/28/3ce5242c-dc1d-11e2-9218-bc2ac7cd44e2_story.html

Category: Apprenticed Investor, Asset Allocation, Cognitive Foibles

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Pushing Back Against the Big Rally Miss”

  1. chartist says:

    I am currently wondering about 401Ks. If distributions count as income, and therefore hurt your social security benefits, should we be so enamored with these investments?

    • The idea behind 401ks is to save enough money as to make SS bennies irrelevant (Since when do 401k distributions hurt your SS?)

      • Income can hurt SS distributions, if you are getting spousal benefits it can be reduced to zero if the spouse makes too much, that restriction goes away after a certain age. SS is very complicated and confusing, I am a long way from retiring but was looking at planning for the future and SS is quite simply a moving target for someone my age. I truely hope I do not have to rely it.

      • Iamthe50percent says:

        I’m 68 and so is my spouse. I work full time and have no SS reductions. If you are over full retirement age (66,67,or 68 depending on your birth date) there is no reduction. In any case, reductions are only made for wage/salary income (called the “retirement test”) not investment income. Generally, there are severe IRS penalties for not making MRA’s when over 69.5, but not SS penalties. Check out the FAQ at http://www.ssa.gov.

        P.S. @effective demand: I’m leery of the politicians too, that’s why I’m working as long as physically possible. Using the 4% rule, I need a million dollars to survive without SS. I’m one third toward it, but “it ain’t gonna happen” . “Put not your faith in Princes”.

      • @iam. you r absolutely correct. My situation is more unique in that i make significantly more than my spouse and i am 8 yrs younger. it was just a point of order that ss benefits can be reduced on several different metrics. im not sure whether 401k distributions were one of them so i defer to your expertise. thanks.

  2. CSF says:

    John Hussman offered a little insight in his letter two weeks ago. He says that for most investors the danger is not their strategy but their tendency to change strategies at precisely the wrong time. They rationalize this emotional decision by telling themselves that they’re committing to a new, rational, long-term strategy. This wonderful capacity for self-delusion means that investors who swore off buy-and-hold in 2009 and re-embraced it in 2013 stand little chance of sticking with their “new” strategy through the next bear cycle.

    He suggests that if you want to change strategies you should wait for the right time: ex, adopt buy-and-hold only after the markets are beaten up. I suspect few can actually pull this off, so BR’s approach makes even more sense: have a plan, dollar-cost average into it, and follow your plan faithfully, above all.

  3. jeisenhauer says:

    Effect of Rebalancing — I am fully on board with Barry’s principles but wonder about rebalancing. If you are in the mode of moving cash into your diversified, asset allocation portfolio over a long period of time (2-3 years) using a dollar cost averaging strategy, does it matter whether you rebalance? That is, rather than sell appreciated assets to rebalance your portfolio will continuing to invest in other assets to achieve rebalancing have the same effect? This assumes that 1) you are consistent in your rate of investment (regular timing and investment amounts), and 2) you stick with your plan (maintain target asset class percentages within your portfolio).

    • It matters over time, netting an extra 100-150 basis points per annum depending upon which method you use and which study you believe.

      $100k compounding at 8% per annum over 30 years turns into about $750k
      Squeeze another 100 basis points and its = > $1 million

      So yes, it does matter!

      • BR,

        no Doubt that, over Time, seemingly, small increases in ‘performances’ Compound dramatically..

        though, with that, what about Covered Call Writing as a method to increase Portfolio Returns..(?)

        I’m sure I need not ply you with belabored explanations of, such, a simple strategy, but I am unclear as “why?” it receives such little mention/recommendation..

        Which part, of the ol’ Adage, “One in the Hand, is better than Two in the Bush..”, Fails? or, does it, really?

  4. call me ahab says:

    BR-

    winning friends and influencing people again are we?

    anyway, was watching this the other day:

    and as http://www.youtube.com/watch?v=1pq5jnM1C-A

    follows up nicely to the “Paradox of Choice”, here is another one of her talks as well . .pretty good stuff . . thought you might find it interesting.

    http://www.youtube.com/watch?v=lDq9-QxvsNU

  5. MikeNY says:

    It’s sane advice.

    And the qualitative benefits of diversification are huge. All else equal, I find I am happier the less I am thinking about the markets: there are lots of other fun and interesting things in life to consider.

  6. b_thunder says:

    • Count on the fact that you are an outsider and not privy to the insiders’ knowledge or strategy.

    In the WaPo article you totally dismiss the fact that such “insiders” exist and give John Paulson as an example. Well, here are some other examples:
    1. Fact: Warren Buffett had several conversation with Hank Paulson and the Fed before he “invested” in GS in the fall of 2008, and right before the 1st massive wave of bailout. Fact: Hank Paulson and Buffett discussed the need for treasury & fed to “support” the banking system
    2. Fact: Hank Paulson met with hedge fund managers just weeks before the Fanny/Fredy takeover by the Treasury. Fact: Hank discussed Fanny/Freddy with the hedgies.
    3. Fact: Geithner and Bernanke have admitted on numerous occasions that they talk to bank CEOs and base Feds’ policy on what they hear. So not only the bank CEOs have (or have had) insider information of what’s Fed is doing, but they INFLUENCE what Fed’s about to do, and nobody outside of the Fed and the Banks (and perhaps their “best customers”)has any idea what’s about to happen.

    And now an example of a systemic insider trading on a massive scale takes place a lot more often than we have the balls to admit:

    August 16 2007: I wasn’t actively trading, I was probably 80% in cash (no short positions) awaiting “the big one”, but it’s one of a dozen or so days in the last 15 years that i remember for screaming “what the f&*%!!!” at my screen. The market sold off but then turned in the middle of the day and ran up like mad for no obvious reason. (now, in 2013 Fed-controlled market, it’s pretty much the norm to run up 200-300 on the Dow for no particular reason, but back in 2007 it was still a novelty)

    See Aug 16 volume and volatility spike?
    Date Open High Low Close Volume Adj Close*
    Aug 20, 2007 13,079.08 13,181.66 12,982.75 13,121.35 2,318,100 13,121.35
    Aug 17, 2007 12,848.05 13,167.68 12,847.81 13,079.08 4,239,400 13,079.08
    Aug 16, 2007 12,861.47 12,885.85 12,517.94 12,845.78 4,571,500 12,845.78
    Aug 15, 2007 13,021.93 13,119.32 12,834.24 12,861.47 2,727,600 12,861.47

    And guess what? On Aug 17 the Fed cut rates. So DON’T TELL ME that there’s no insider trading on the GRANDEST of scale; on a scale that makes Steve Cohen’s alleged insider trading pocket change!

    Still not convinced? A few years later we find out this:
    http://www.zerohedge.com/news/2013-01-18/did-tim-geithner-leak-every-fed-announcement-banks

    Yes, I sold in 2006/07 and waited for the crash – missed most of 25% Hank Paulson’s rally.
    Yes, I bought 1000-1500pts before the bottom, sold in 2009 and missed most of 2010-2013 rally because my brain could not cope with the idea that after the acute crisis was over the Fed would resort to more QE simply to jack up asset prices. Had I been an insider, I would have done much better.

    • As I have said here repeatedly, Geithner is a weenie, banks are corrupt, and the system is a mess. But that doesn’t mean your investing model should rely on insider info — or you cannot invest if you don’t have access to it.

      And the flows of dollars are visible in the charts anyway.

      All that insider buying you allege was a clue equities were going higher — thats something your sources at ZH seem to ignore as they sat out a generational 146% cyclical bull rally.

  7. Lamont says:

    “Most of those pushing back were in the throes of their own cognitive foibles, and rationalizing their own erroneous investments.”

    Hilarious post. There is nothing wrong with choosing not to own common stocks in a highly overvalued (PE 18-19 on GAAP earnings, which is near 100 year highs) at near all time margins on the S&P 500), very overbullish, and highly overbought environment. Just because speculation has driven the market to these levels in such an environment doesn’t mean it was a smart idea to take part in it. And it is certainly condescending for you to think you were the smart guy in the room because you did it. Like I’ve said before, many investors thought they were smart for doing the same thing in 1999 and 2007, and we all know how that turned out. It’s like a gambler who made a low percentage bet and won thinking he was smart for gambling. Buying common stocks in this environment now is not investing. It is gambling.

    • Hilarious response.

      What makes you think you will be able to jump in and out of equities in anything remotely close to what you would have achieved owning a diversified asset allocation + rebalance sort of model?

      You must believe you are one of the 00.001% of people on the planet who managed to do that repeatedly. (My guess is half of these are random anyway).

      Best of luck to you!

  8. kurtwestphal says:

    Barry
    loved both articles. surprising the push back.. people fight for their opinions, even if unsupported by data.. weird.. lizard brain stuff… keep up the great work

  9. WKWV says:

    The comments on the Washington Post website are frequently vicious. I imagine a few dozen trolls sitting home disabled in pain, doing nothing but spewing abuse all day.