Freemarkets the majority always lose?

[whitster]

none of what you said refutes my point .

i'll repeat it. there has never been a 20 yr period in the history of the US market, where a dollar cost averaging strategy would not have given a return that beat inflation (and many if not most asset classes)

note that looking at a performance OF THE DOW is misleading for two reasons.

1) the dow is not the market. if u are DCA'ing (a passive strategy) THE MARKET, you do not DCA the dow - a price weighted average of 30 blue chips. you DCA a MUCH broader benchmark, like a Wilshire fund, or AT LEAST a S&P fund

2) performance of the market is not the same as performance of DCA'd entries into same. when you DCA, you are necessarily buying more shares when it is cheaper, and less when it is more expensive

try to cherrypick the WORST 20 yr period you will find. the 20 year DCA'ing still did pretty well

hth

 

[whitster]

another common misconception is that the "majority is always wrong"

clearly, that is false. the majority was long during the LONG bull market of the 90's.

MOST of the time they were right.

fading them would have been dumb

what IS true is that at market tops or bottoms, is usually when u find the HIGHEST bulls and bears respectively.

so, it is true that the extremes tend to find the majority on the wrong side (or in the case of bear bottoms - out of the market entirely, since the general public rarely, if ever "shorts")

that's what MAKES tops and bottoms.

no more buyers - top
no more sellers - bottom

 

[aus_SPIder]

the majority is ALWAYS RIGHT

during long bull market majority is long

during crash majority are short

THE MAJORITY IS THE MARKET! hence by that definition the majority cannot lose money because otherwise we'd be trading at an index value of 0

 

[Voodoo-king]

The majority is ALWAYS long. If X shares are shorted, (shares outstanding) + X shares are held long.

The majority is not ALWAYS RIGHT, in Europe the majority is LEFT.

 

[empee]

Also consider that you are assuming the end point (and assuming I'm talking about the current market, but whatever) is today. What if the next year the market lost 50% of its value and went sideways for 15 years, than exploded 1000% higher. During those 15years it would break many of the common perceptions (ie you wont lose over 20year period), but it migh tbe confirmed after 15 years.

The point I'm making is that many of the arguements are based on today as the ending day for the "markets". I.e. if this poll were posted in 1929 (just after a major crash) or 1930 (I think it went sideways down there for awhile) would more people agree with the poll question?

Its also interesting what people consider "winning". For example, if inflation is 1% and you make 2% is that winning? What if the benchmark indexes were offering 5 or 10%? So is winning relative to what happens to the benchmark, or is it the absolute return/alpha?

Anyway, its interesting what I once thought winning was, and now what I think it is.

Also, the majority are in the wrong direction during reversals.

Dollar Cost Averaging only works as long as the long-term trend is up. If the trend were to go sideways or down. You might argue that dividends offset that, but then looking at a chart of the Dow, for example, priced in GOLD (which some consider a more constant currency or truly inflation adjusted than the USD) it shows the Dow still in a bear market. (I used Dow cause it broke to new highs in USD). I think in Euro's its also still not making new highs.

Of course, we are looking at such a short period of time it could just be random

 

[Pekelo]

Quote from whitster:


try to cherrypick the WORST 20 yr period you will find. the 20 year DCA'ing still did pretty well

Here you go: 1912-1932

Since the market spent most of the time above the price of 1912 you DCAed all the way up and just in 3 short years you got back where you started by 1932, thus you ended up with a loss...

Also when the market went sideways for decades, DCA might didn't lose money but sure didn't do pretty well either...

Any other challenges??

 

[Pekelo]

Quote from empee:


Dollar Cost Averaging only works as long as the long-term trend is up.

Not true. In a sideways market it just doesn't make any money, but doesn't lose either.

In a downmarket it can work, supposed at the end of the period we get back where we started. Averaging down...

The time when it doesn't work although the market is sidewaying when there is a long period of going up with a short period of correcting, just like the time between 1912 and 1932....

 

[whitster]

"Dollar Cost Averaging only works as long as the long-term trend is up."

as long as our economy, in the long run, continues to grow wealth, then the stock market, in the long run, will continue to go up

nothing is guaranteed (not even FDIC insurance, if our govt. fails)

but over the entire history of the market, there are few safer strategies (especially when considering how much it usually outperforms other asset classes) for a garden variety investor than DCA'ing into a very broadbased fund (bascically, the wilshire)

this is not "the best" strategy. but, historically speaking, it is a very sound strategy, and is probably better than the vast amount of "active trading" principles for MOST investors, who have a long time frame.

most traders lose money.

most investors don't

i'm a trader. but i don't recommend it for others, without the caveat that they have to undestand they are entering a difficult profession

i love it, love the $$$, the fun, and the accomplishm,ent. but it aint for everybody

 

[Smart Money]

Quote from Pekelo:

Not true. In a sideways market it just doesn't make any money, but doesn't lose either.

In a downmarket it can work, supposed at the end of the period we get back where we started. Averaging down...

The time when it doesn't work although the market is sidewaying when there is a long period of going up with a short period of correcting, just like the time between 1912 and 1932....

Hey, actually, even in a sideways market, provided that there is some volatility, it makes money. Model it yourself and see. Make a sine wave pattern, and you'll see that over the long term, the average purchase price is lower than the average price (middle of the sine wave). This is because when the price is low, you buy more, and when it is high, you buy less.

Theoretically, you could even make money in a slight downtrend if there was enough volatility.

SM

 

[niceneasy]

nobody on elite trader loses money. it is a utopia. merely suggesting it is an insult....