Be the bid!

[KrazyHorse]

Called up my parents 2 weeks ago and tried to convince them to shift their discretionary retirement assets into 100% equities.

Mother's response: but the market's gone down so much! What if it loses more?



Too bad I have no actual assets of my own. Inquired about a personal loan from my bank, but they weren't willing to offer me any more than 15k.

[DanS]

My parents are late to the game in investing and my mom took to learning about it with some gusto. They've been real troopers. They rode part of the way down on my advice. Even though they're terrified, they haven't disowned me yet and continue to talk about dollar-cost averaging.

Part of it may be that I told them from the beginning that I thought there was a good chance of a market crash, but that there was good money to be made even in the darkest days of the depression.

[Japher]

Whenever I dollar cost average the stock goes up like crazy and I get a worse entry than had I not.

However, whenever I don't dollar cost average the stock dumps right after I buy. Like yesterday.

It's insane, and why I love playing the market. My wife's account, I just remembered she has cash sitting an IRA that hasn't been touched in 4 years! That will be in a mid-cap mutual by the end of the day.

[Japher]

What's the difference between investor shares and select shares, besides the load?

[Japher]

And minimum investment.

[KrazyHorse]

Whenever I dollar cost average the stock goes up like crazy and I get a worse entry than had I not.

However, whenever I don't dollar cost average the stock dumps right after I buy. Like yesterday.

It's insane, and why I love playing the market. My wife's account, I just remembered she has cash sitting an IRA that hasn't been touched in 4 years! That will be in a mid-cap mutual by the end of the day.

If you have money to invest and want to put it in equities then dollar-cost averaging provides a worse average (mean) result than simply dumping it all in immediately. This is based on empirical studies, and is not derivable from first principles. Basically, the volatility of equity prices is low enough compared to the equity premium that the additional time out of the market due to a dollar-cost averaging entrance loses you more money than you gain by buying more when the price is lower.

[KrazyHorse]

That's based on index investing, not individual stock investing. With individual stocks the swings might be big enough compared to the expected rate of return to make dollar-cost averaging worthwhile. Then again, if you're picking individual stocks you're probably under the (almost certainly; sorry, Dan) mistaken impression that you've found companies which are fundamentally undervalued by the market and which will presumably undergo a rapid rise in value in the near future. In other words, I don't know if slowly trickling in money that you have on hand is EVER a good idea.

[DanS]

which will presumably undergo a rapid rise in value in the near future

Don't misconstrue what I have said. I've never said that the rise would be rapid or soon.

[Japher]

At least not now that you've DanS'd that post

[KrazyHorse]

Rapid compared to the rate of return for equities in general.

And I find it more believable for you to claim that the mispricing is transitory and will be corrected in the near future than it is to claim that there are persistent mispricings.

[KrazyHorse]

Honestly, as long as you don't put all your eggs in one basket and aren't following a herd like Cramer's minions I doubt you're doing yourself that much harm. You're simply going to assume greater volatility for identical expected return (modulo the cost of actively managing a portfolio).

It's a fairly harmless delusion, and provides a social benefit....

[DanS]

Mispricing is transitory, but in the past we've seen those transitions take sometimes two decades. Please see chapters 8 and 20 of the Intelligent Investor for a good discussion of this subject.

[KrazyHorse]

By the way, I hope that your actively managed stuff is in an IRA. Otherwise you're really ****ing yourself taxwise.

[DanS]

Some is, some isn't. I've been able to offset some of my income with deductions for bad decisions, while keeping my good decisions in hand.

[Japher]

Genentech wasn't, but that had to be done. I use Roth IRAs and my children's educational accounts for everything I can, tax free growth

My defirential time horizon is long. Shortest investment period is 15 years.