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(Marketwatch)   20% stock market correction coming. It's time to sell   ( divider line
    More: Obvious  
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946 clicks; posted to Business » on 05 Aug 2014 at 9:12 AM (3 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»

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2014-08-06 01:57:08 PM  

machoprogrammer: Shazam999: machoprogrammer: Shazam999: machoprogrammer: BMFPitt: DaStompa: Man I really need to learn about this stock market stuff :(

You really don't. Just buy a cheap index fund and hold it indefinitely. You'll beat 70% of professional fund managers in the long term.

It's like walking into a casino and betting that the house will win.

Actually, it's higher than that. Over a 10-year period, index funds beat 70%. Over 15 years, I think it's 80%. Over 25 years, it's something like 98%.

Put your money in a low-cost total stock market index, total international index or a combination of the two and you'll do just fine.

You can count on one hand the number of fund managers that have beat the market over the past 10 years.  Luckily I picked one of them :P

How do you know they beat the market? A lot of managers diversity their funds to get better returns (or at least make it appear they did).

I.e. a managed large cap fund could invest 10% into small cap. Since small caps can have better returns, the fund could "beat" the S&P 500 but in reality, it was only 90% S&P 500.

Yeah I don't think you understand how funds work.  At the end of the day you have units, those units are priced at some dollar amount, you can easily compare against an index fund's unit price, ta da.

What? Each fund has a different NAV price due to the size of it and the shares. $10000 of Fund A may be 300 shares, while $10000 of Fund B may be 600 shares. You can't go by the unit price alone. Hell, Vanguard's 500 index is like $180 a share, while Fidelity's is like $55.

What I am saying is that a managed fund may claim to be large cap, but it is actually 90% large cap and 10% small cap (they add the small cap to try beat "their" index). When that happens, you can't compare it to the S&P 500 or any other large cap index because it isn't entirely that cap. If it is 90% large cap and 10% small cap, for example, you would have to compare 90% of it to S&P 500 and 10% of it to the Russel 2000 (or what ...

Also, you can't go by nav price alone because distributions (dividends, capital gains) will change the NAV price, too. If Fund X is $10 per share, and pays out 10 cents of distributions at the end of the year, it is now $9.90, but you didn't actually lose any money since that money goes to buying more shares (or whatever you have for your distributions).
2014-08-06 02:00:19 PM  

SansNeural: machoprogrammer: trying to "time" the market rarely ever works out well.

You seem so be talking about trying to milk the market for a relatively short-term windfall. If I were to do that, I'd invest on bad news and a precipitous drop in a particular stock price.  I like to track those kind of things, but don't actually invest money in them because I'm very risk-averse.

Example, in November 2012, Hewlett-Packard announced that their purchase of a company called Autonomy was an extreme waste of money, taking an $8.8 billion write-off.  Their stock, already on a steady decline, dropped to below $12.  Following my hunch, I "bought" (I didn't buy anything) $1000 worth at $12/share.  It has been climbing ever since, presently at a shade over $35, nearly tripling my purchase value in less than 2 years.  Honestly, I think HP's stock is going to continue to rise for another year or two, but if I'd actually bought their stock back in 2012, I'd be selling it within the next 6 months.

Anyway, my real life strategy is much longer term and when things went to shiat in 2007 it was pretty clear that it was going be quite a while before it got much better, hence my earlier mentioned increased 401(k) contribution during the nastiest of it.  My mantra "buy low, and I ain't selling for a couple of decades".

Yeah, definitely invest for the long haul, but you still have no way to know how the market will be tomorrow. Trying to put money in "when the market is bad", you may be waiting a long time. If you wait now, for example, we could have another 5 years of average 5% gains before a 20% correction. If that is the case, you would still come out behind if you invest in the dip in 5 years than if you had invested the money now.
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