John Price
Gang Gang
- Sep 19, 2008
- 385,203
- 30,620
The stock market thread Part II (The GME Phenomenom)
- Thread starter John Price
- Start date
Fixed to Ruin
Come wit it now!
Kairi Zaide
Unforgiven
Ix was so hungry to make a new thread (he hasn't in a while!) that he decided to make a part 2 of a thread he gives absolutely no crap about. That's him for you.
Jiminy Cricket
#TeamMeat
- Mar 9, 2014
- 2,183
- 2,090
John Price
Gang Gang
- Sep 19, 2008
- 385,203
- 30,620
Bones Malone
Owner - HF Boards
Fixed to Ruin
Come wit it now!
I invested in pumpkins. They were going up the whole month of October.
Hatter of the Beach
I’m the real hero
John Price
Gang Gang
- Sep 19, 2008
- 385,203
- 30,620
I thought the "Wolf of Wall Street" was a really good movie about how one man was able to exploit the system for millions.
LarryFisherman
o̯̘̍͋̀͌̂͒͋͋ͯ̿ͯͦ̈́ͬ͒̚̚
@Roman Fell talk to me about your portfolio. I have about $1000 sitting in Think or Swim that I want to throw somewhere.
Kairi Zaide
Unforgiven
LarryFisherman
o̯̘̍͋̀͌̂͒͋͋ͯ̿ͯͦ̈́ͬ͒̚̚
Fixed to Ruin
Come wit it now!
Kairi Zaide
Unforgiven
No, but it's a guaranteed ~10+% growth every year !
Fixed to Ruin
Come wit it now!
Dakota Sioux
Wild Time
Jiminy Cricket
#TeamMeat
- Mar 9, 2014
- 2,183
- 2,090
Hockey Outsider
Registered User
- Jan 16, 2005
- 9,491
- 15,795
The S&P reached an all-time high today. I'll post some comments since I took a lot of criticism for my post on March 29th where I said that "Now is probably a good time to buy" and "this correction will pass".
The previous high (3,386.15) was reached on February 19th. (I'm looking at the daily close with these numbers, but it also reached an all-time high if you're looking at the intraday high - and it doesn't change the calculations in any meaningful way). It took the stock market just under six months to recover from one of the largest crashes of all-time, and reach a new all-time high, marginally surpassing the previous high. (An investor would actually be ahead after today, as they'd also collect six months' worth of dividends while they waited for the recovery - granted it's not much, but it's still an additional return).
The low point (2,237.4) was reached on March 23rd. It took less than five months to recover. Someone who did nothing - that is, they didn't panic sell their portfolio and simply held it - would have earned a 51.5% return (plus dividends) in under five months.
So the market rebounded from its low in less than five months. But what's really impressive is the market got 55% of its recovery in just over six weeks. (It dropped exactly 1,000 points from its February 19th high to its March 23rd low, and was up 553 points on April 29th). And 85% of the recovery took place in less than 12 weeks. (From its Feb low, the market was up 846 points by D-Day). The point is - nobody can time the market. Time in the market is far more important than timing the market.
(I'll give my standard disclaimer - I have no idea where the market goes from here. Maybe it'll drop another 30% tomorrow, and maybe it'll be lower in a year than it is today. As long as you're investing long-term, and don't have any imminent cash needs, buy on those dips and enjoy the recoveries).
The previous high (3,386.15) was reached on February 19th. (I'm looking at the daily close with these numbers, but it also reached an all-time high if you're looking at the intraday high - and it doesn't change the calculations in any meaningful way). It took the stock market just under six months to recover from one of the largest crashes of all-time, and reach a new all-time high, marginally surpassing the previous high. (An investor would actually be ahead after today, as they'd also collect six months' worth of dividends while they waited for the recovery - granted it's not much, but it's still an additional return).
The low point (2,237.4) was reached on March 23rd. It took less than five months to recover. Someone who did nothing - that is, they didn't panic sell their portfolio and simply held it - would have earned a 51.5% return (plus dividends) in under five months.
So the market rebounded from its low in less than five months. But what's really impressive is the market got 55% of its recovery in just over six weeks. (It dropped exactly 1,000 points from its February 19th high to its March 23rd low, and was up 553 points on April 29th). And 85% of the recovery took place in less than 12 weeks. (From its Feb low, the market was up 846 points by D-Day). The point is - nobody can time the market. Time in the market is far more important than timing the market.
(I'll give my standard disclaimer - I have no idea where the market goes from here. Maybe it'll drop another 30% tomorrow, and maybe it'll be lower in a year than it is today. As long as you're investing long-term, and don't have any imminent cash needs, buy on those dips and enjoy the recoveries).
Last edited:
Hockey Outsider
Registered User
- Jan 16, 2005
- 9,491
- 15,795
The other point I'll make is this shows the futility of the "20% rule" - where you sell after the market has dropped 20% from its high, and buy after its up 20% from the bottom. The reasoning is superficially plausible - you cash out before there's a big market plunge, and you buy back in after there's some sustained gains (so you don't buy in and see the market dip more). So, it sounds plausible - the problem is it doesn't work in practice.
The theory's been around for decades, and the percentage keeps changing (I've heard 5% or 10% instead of 20%). And the theory had some newfound popularity about a decade ago, as this strategy would have worked very well during the Great Recession. But it would have caused you to lose money during most other times of market volatility over the past 40 years.
In this case - the S&P set an all-time high on February 19th, at 3,386. A 20% drop from that is 2,708, which it reached on March 16th. So you'd sell (in the middle of a once-a-decade panic) at the close of 2,386. The market sets a new low a few days later (2,237 on March 23rd). The market is up 20% from that low on April 8th, when it closes at 2,749.
The end result is - you'd sell in a panic at 2,386 and buy back a few weeks late at 2,749. You've sat out for three weeks, and you've bought back in at prices that are 15% higher than when you sold. Not so good.
Someone might say I'm being unfair, since I'm assuming you sold on March 16th at the daily close (of 2,386), as opposed to immediately selling when it hits 2,708 (20% off the previous high). The problem is the index plummeted after hours, and only opened at 2,508. So even if you sold instantly when the market opened, you'd still have to buy in at prices 9.6% higher than when you sold. Not to mention you'd incur unnecessary commissions on each transaction, and you'd trigger taxes if this is outside a tax-deferred account.
I've studied this approach back to 1980. I can post data for other periods if people are interested. Like I said, this strategy would have served you well during 2008/2009 (which is probably why the theory briefly made a comeback), but it causes you to lose money far more often than it helps you.
The theory's been around for decades, and the percentage keeps changing (I've heard 5% or 10% instead of 20%). And the theory had some newfound popularity about a decade ago, as this strategy would have worked very well during the Great Recession. But it would have caused you to lose money during most other times of market volatility over the past 40 years.
In this case - the S&P set an all-time high on February 19th, at 3,386. A 20% drop from that is 2,708, which it reached on March 16th. So you'd sell (in the middle of a once-a-decade panic) at the close of 2,386. The market sets a new low a few days later (2,237 on March 23rd). The market is up 20% from that low on April 8th, when it closes at 2,749.
The end result is - you'd sell in a panic at 2,386 and buy back a few weeks late at 2,749. You've sat out for three weeks, and you've bought back in at prices that are 15% higher than when you sold. Not so good.
Someone might say I'm being unfair, since I'm assuming you sold on March 16th at the daily close (of 2,386), as opposed to immediately selling when it hits 2,708 (20% off the previous high). The problem is the index plummeted after hours, and only opened at 2,508. So even if you sold instantly when the market opened, you'd still have to buy in at prices 9.6% higher than when you sold. Not to mention you'd incur unnecessary commissions on each transaction, and you'd trigger taxes if this is outside a tax-deferred account.
I've studied this approach back to 1980. I can post data for other periods if people are interested. Like I said, this strategy would have served you well during 2008/2009 (which is probably why the theory briefly made a comeback), but it causes you to lose money far more often than it helps you.
John Price
Gang Gang
- Sep 19, 2008
- 385,203
- 30,620
John Price
Gang Gang
- Sep 19, 2008
- 385,203
- 30,620
Jiminy Cricket
#TeamMeat
- Mar 9, 2014
- 2,183
- 2,090
Bears only need another 50% drop to be correct. Don't worry bears, I'm sure that's coming any day now.
Jiminy Cricket
#TeamMeat
- Mar 9, 2014
- 2,183
- 2,090
I love beating my children with a switch. If any of them ever tried to short the stock market because they thought they could time a crash, I would beat them with a switch and cackle about it.
