# Is now the time to buy shares?



## Happy Girl (6 Mar 2007)

Is now the right time to buy into the stock market with recent share prices dropping so dramatically. Or is it as straightforward as buying when share prices are low


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## ClubMan (6 Mar 2007)

*Re: Is now the time to buy shares*

As I said here...


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## monkeyboy (6 Mar 2007)

*Re: Is now the time to buy shares*



susang said:


> Is now the right time to buy into the stock market with recent share prices dropping so dramatically. Or is it as straightforward as buying when share prices are low



Beware trying to catch falling knives!

Personally Im going to put my SSIA back into an idex fund after missing the dip luckily for the epriod I removed it. I lost 10% on the nalance I left in it over that period.


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## Murt10 (6 Mar 2007)

*Re: Is now the time to buy shares*

The stock market is driven by a mixture of fear and greed. 

Personally I'm worried about a dead cat bounce and this will probably cause me to miss out on the bottom.


Murt


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## Happy Girl (6 Mar 2007)

*Re: Is now the time to buy shares*

Get the gist of what you all talking bout but surely if I have no investment time limitations then surely there has to be a big advantage buying now. Does it not mean that it minimises possible future drops and maximises future increases. Have I got things wrong here!


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## silvamuppet (6 Mar 2007)

*Re: Is now the time to buy shares*

Susang, what ClubMan means is that the best over all performance you can achive is via dollar cost averaging. You can't predict market movements and if you time your purchase strategy purely by when you 'think' the market is low you could be in for a few surprises (market timing is a black art that although people profess to be able to do it achives dubious gains over time).

Is now currently a good buying oppertunity. It might be.
Then again the market could get a lot worse (thinking Black Monday in 87 I think it was?). If you buy now and it goes further south does that make your purchase a bad one because you didn't time it well. Of course not. If you buy now you are getting stocks at a discount to what they were just before the new year. If they go further lower and you keep buying you decrease the overall average cost of your holding and therein lies the wisdom of clubman's statement. Over time this mechanism should give you decent returns.

If you want to invest in the market the right time is whenever you are ready , rather than the market.


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## RedJoker (6 Mar 2007)

*Re: Is now the time to buy shares*

Dollar Cost Averaging is the right play.  Why don't you try buying half of what you planned to buy now and, if the market falls further maybe 10-20%, put in the other half?  Or do it in quarters every 5% drop.  You won't get in at the bottom but you won't get in at a peak either.

The beauty of DCA is that you get more for your money when the price is low, so you will get in closer to the bottom than the top.


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## charttrader (6 Mar 2007)

*Re: Is now the time to buy shares*

DCA is fair enough if the thought of buying near a top is keeping one awake at night, but it's worth noting that there's a ton of academic research which shows that returns via a DCA approach are almost invariably worse than investing a lump sum.


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## Gulliver (6 Mar 2007)

*Re: Is now the time to buy shares*



susang said:


> Is now the right time to buy into the stock market with recent share prices dropping so dramatically. Or is it as straightforward as buying when share prices are low


Now is a better time than last week.


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## PMU (6 Mar 2007)

*Re: Is now the time to buy shares*



susang said:


> Is now the right time to buy into the stock market with recent share prices dropping so dramatically.



Remember what Mark Twain said about March - this is one of the peculiarly dangerous months in which to speculate in stocks. The others are July, January, September, April, November, May, October, June,    December, August, and February.


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## kilomike (6 Mar 2007)

*Re: Is now the time to buy shares*



PMU said:


> Remember what Mark Twain said about March - this is one of the peculiarly dangerous months in which to speculate in stocks. The others are July, January, September, April, November, May, October, June, December, August, and February.


 
PMU I love it!


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## room305 (6 Mar 2007)

*Re: Is now the time to buy shares*



charttrader said:


> DCA is fair enough if the thought of buying near a top is keeping one awake at night, but it's worth noting that there's a ton of academic research which shows that returns via a DCA approach are almost invariably worse than investing a lump sum.



This is true. If you have an investment time frame of ten years or more then buy and hold is a better strategy than DCA. If you which to split your investment between asset classes, then periodic portfolio rebalancing performs slightly better than splitting your lump sum between the asset classes and leaving them. However, on any papers I have seen transaction costs have not been accounted for so it could be argued that buy and hold is the best strategy overall.

Either way, if you have a lump sum to invest in the stock market and are prepared to invest for ten years (the minimum I think for stock market investment), DCA will offer a worse return than simply investing the lump sum right now.


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## ClubMan (7 Mar 2007)

*Re: Is now the time to buy shares*



Gulliver said:


> Now is a better time than last week.


Not necessarily. Just because prices are lower this week than last doesn't necessarily mean that they are better value or that returns are likely to be better into the future.


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## PubMan (7 Mar 2007)

*Re: Is now the time to buy shares*



ClubMan said:


> Not necessarily. Just because prices are lower this week than last doesn't necessarily mean that they are better value or that returns are likely to be better into the future.


The parent poster didn't claim that. If you are buying a stock then surely your initial investment will return a larger gain if you buy after their price has been depressed.


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## RedJoker (7 Mar 2007)

*Re: Is now the time to buy shares*



ClubMan said:


> Not necessarily. Just because prices are lower this week than last doesn't necessarily mean that they are better value or that returns are likely to be better into the future.


 
Yes, they are better value.  And I can gaurantee that you will get better returns investing now than if you invested last week.


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## ClubMan (7 Mar 2007)

*Re: Is now the time to buy shares*

Grand so - let me know when I should cash in to maximise my returns please.


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## smiley (7 Mar 2007)

*Re: Is now the time to buy shares*

red joker..you cant guarantee anything. Are you God?


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## charttrader (7 Mar 2007)

*Re: Is now the time to buy shares*



smiley said:


> red joker..you cant guarantee anything. Are you God?



Don't think he's God, but he is right in guaranteeing that returns will be better for those who invested this week as opposed to last.  Even if the market goes down for the next ten years, the person who invested this week will have lost less money.


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## darag (7 Mar 2007)

*Re: Is now the time to buy shares*



> DCA is fair enough if the thought of buying near a top is keeping one awake at night, but it's worth noting that there's a ton of academic research which shows that returns via a DCA approach are almost invariably worse than investing a lump sum.


Could you be more specific about the conditions where this would hold?  I can accept that sticking 100k cash under the mattress and buying 5k of stock each year for 20 years would perform more poorly than investing the 100k at the start of the period.  However I would also imagine that saving up your money over a period of 20 years until you have a 100k lump sum to invest would perform more poorly than investing 5k at the end of each year.  And in between there is a whole range of situations many of which will show a significant reduction in volatility without adversely affecting growth by using DCA.

In other words, I don't accept that "returns via a DCA approach are almost invariably worse than investing a lump sum".  I think that under some conditions (like the example I gave above), it may be true.  However I believe under many cases, it would be false especially as most people get their wealth through income.


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## room305 (7 Mar 2007)

*Re: Is now the time to buy shares*



darag said:


> Could you be more specific about the conditions where this would hold?  I can accept that sticking 100k cash under the mattress and buying 5k of stock each year for 20 years would perform more poorly than investing the 100k at the start of the period.  However I would also imagine that saving up your money over a period of 20 years until you have a 100k lump sum to invest would perform more poorly than investing 5k at the end of each year.  And in between there is a whole range of situations many of which will show a significant reduction in volatility without adversely affecting growth by using DCA.
> 
> In other words, I don't accept that "returns via a DCA approach are almost invariably worse than investing a lump sum".  I think that under some conditions (like the example I gave above), it may be true.  However I believe under many cases, it would be false especially as most people get their wealth through income.



The saving and investing a lump sum every year approach you have outlined is generally considered a "buy and hold" strategy rather than DCA.

Say you have €100k to invest in both the stock market and low risk bonds. You wish to split your allocation between the two asset classes 50/50. However, you are worried about trying to time your entry into a volatile risky class like stocks so your broker advises you to put the lot in bonds and transfer €5k per year from bonds to stocks.

Numerical and empirical research suggests there is a very high probability that the brokers strategy will underperform either

1) Putting €50k into bonds and stocks and leaving them for ten years
2) Putting €50k into both and periodically rebalancing the portfolio so that the assets are evenly divided.

Option 2 should perform the best overall but not by much. Both 1 and 2 will massively outperform DCA.


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## CCOVICH (7 Mar 2007)

*Re: Is now the time to buy shares*



RedJoker said:


> Yes, they are better value.  And I can gaurantee that you will get better returns investing now than if you invested last week.




And who says you wouldn't be better off waiting until next week.  Or the week after.  Or the week after that.


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## ClubMan (7 Mar 2007)

*Re: Is now the time to buy shares*

Or x weeks ago since we are comparing things to the past?


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## PubMan (7 Mar 2007)

*Re: Is now the time to buy shares*



CCOVICH said:


> And who says you wouldn't be better off waiting until next week.  Or the week after.  Or the week after that.


No one. But that has nothing to do with present discussion, ie that shares bought this week will have a higher return than the same shares bought 1 week ago.


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## CCOVICH (7 Mar 2007)

*Re: Is now the time to buy shares*

Well the point I am trying to make (as have others) is that if you didn't have the resources and inclination to invest in shares last week, doing so this week isn't necessarily a great idea either, regardless of the price.


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## DrMoriarty (7 Mar 2007)

*Re: Is now the time to buy shares*

Presumably, however, the 'buy-while-they're-down' logic _does _apply when buying units in an ETF, as opposed to directly purchasing shares?
[broken link removed]
If you'd bought into the ISEQ20 ETF a couple of weeks ago, €10K would have got you about 513 units (leaving aside charges, for the moment). Two days ago, you'd have got about 558 units. In that case, whatever the future movement of the individual shares that make up the index (and their relative weighting in the ETF), that buyer's future gains on a €10K investment will be marginally greater — or his/her losses marginally less. Or no?

Over time, trying to time the markets may be a mug's game (no relation!  ), but does a momentary fall in prices not in _some _sense represent a 'buying opportunity' — presuming there's a subsequent recovery of sorts?

_[Edit: post crossed with the last two, while I was dithering about linking to an image...]_


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## darag (7 Mar 2007)

*Re: Is now the time to buy shares*



> The saving and investing a lump sum every year approach you have outlined is generally considered a "buy and hold" strategy rather than DCA.


I believe DCA is often considered to apply to a wider range of strategies than this but I'm not sure quoting wikipedia or whatever to argue about definitions will add to the debate here.  Nonetheless when people advocate DCA, they often mean in situations like the example I gave; investing a fixed amount in a risky asset at regular intervals ignoring the fluctuations in price.

I accept in the example you give above, the broker's stragegy may provide inferior returns but I still feel you really need to quantify this claim with specific variables: for example the gap between bond yields and stock yields, the volatility of both, the time period during which you apply DCA versus the overall investment period, etc.

In any case, isn't it the case that the idea of DCA isn't necessarily to maximise returns but instead to reduce risk without adversly affecting returns?

Anyway this is an interesting topic.


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## CCOVICH (7 Mar 2007)

*Re: Is now the time to buy shares*



DrMoriarty said:


> Over time, trying to time the markets may be a mug's game (no relation!  ), but does a momentary fall in prices not in _some _sense represent a 'buying opportunity' — presuming there's a subsequent recovery of sorts?



Yes, but it's not an approach I would recommed for novice investors.


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## DrMoriarty (7 Mar 2007)

*Re: Is now the time to buy shares*

IMO it's not really an 'approach' at all, more an unforeseeable opportunity to take advantage of a blip on the graph. And of course, nobody should invest in shares purely because the price drops. Falling knives, etc., as someone has already said.


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## CCOVICH (7 Mar 2007)

*Re: Is now the time to buy shares*

Well put.


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## DrMoriarty (7 Mar 2007)

*Re: Is now the time to buy shares*

I'll look up the Latin for it... 
Unfortunately, I didn't _have _€10K lying around two days ago.


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## room305 (7 Mar 2007)

*Re: Is now the time to buy shares*



darag said:


> I believe DCA is often considered to apply to a wider range of strategies than this but I'm not sure quoting wikipedia or whatever to argue about definitions will add to the debate here.  Nonetheless when people advocate DCA, they often mean in situations like the example I gave; investing a fixed amount in a risky asset at regular intervals ignoring the fluctuations in price.



I am sure I've probably used it in this context as well before but it is usually a moot point. If it is just a case of investing part of your income into stocks then you don't have the alternative of investing a lump sum immediately unless you borrow money.



darag said:


> I accept in the example you give above, the broker's stragegy may provide inferior returns but I still feel you really need to quantify this claim with specific variables: for example the gap between bond yields and stock yields, the volatility of both, the time period during which you apply DCA versus the overall investment period, etc.



The studies were based on random data supplied using Monte Carlo simulation in a numerical framework designed to imitate the typical returns and volatility expected from a diverse stock market index or secure treasury bonds. They verified their conclusions using empirical data from the S&P 500 and US treasury bonds. With the exception of extremely risk averse investors (less than 10% of portfolio in stocks) buy and hold investments of longer than ten years had a much higher probability of outperforming DCA irrespective of when they were invested. The DCA was always applied over the entire length of the investment timeframe.



darag said:


> In any case, isn't it the case that the idea of DCA isn't necessarily to maximise returns but instead to reduce risk without adversly affecting returns?



Yes but that was the point of the studies - to prove it does significantly affect returns over the investment time frame.

Remember as well, these studies are usually conducted without consideration of brokerage charges which will be much higher for a DCA strategy. For the empirical data the example given averaged at 9% compounded annual return for buy and hold but only 8% for DCA. That's if the investor is 90% invested in stocks. If they are 50% invested then it is 8.3% and 7.6%.

Also, don't forget, studies usually don't account for dividends either. Use google scholar to find a host of academic papers on the subject. I haven't seen any attesting that DCA is a better strategy, except for brokers who benefit from additional charges.


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## charttrader (7 Mar 2007)

*Re: Is now the time to buy shares*

_In any case, isn't it the case that the idea of DCA isn't necessarily to maximise returns but instead to reduce risk without adversly affecting returns?

_Unfortunately, it does adversely affect returns.

I have nothing against DCA.  If a person does not have a lump sum to invest, then some kind of DCA approach is fine.  Many people do have lump sums to invest, however, and are still encouraged to DCA.  Why?  Because it's an easier way of getting people to part with their money.  The salesmen in the 'investment' industry know that returns will be inferior (at least, they should know), but they don't bother informing the client of this.  Instead, they're likely to whip out some irrelevant statistics showing the DCA approach in a bear market.

Since 1950, dollar cost averaging with the S&P 500 has failed to beat investing the lump sum at the start of the year in two years out of three.


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## darag (7 Mar 2007)

*Re: Is now the time to buy shares*

Hi charttrader, room305 - I did a bit of googling.  There's an interesting article on DCA here.  His analysis using historic prices leads him to the conclusion that while in many cases DCA (in the particular case where you've a lump sum which you drip feed into stocks) seems to cost too much in terms of returns for the protection it offers you, if it is applied for periods of longer than a year.  And yes he does include dividends. However he also claims that it still can be a valuable  strategy;  in particular, if conducted over a period of one year and where the amount involved constitutes a significant part of your wealth (i.e. where the lowered risk would be considered valuable).  Also note that his definition of DCA is the general one (i.e. including the case where you don't have the lump sum at the begining).


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## Rory Gillen (7 Mar 2007)

*The comment made earlier that 'The returns from dollar cost averaging are most likely to be less than a lump sum invested' is mis-leading and most probably plain incorrect.* The correct answer to Susang's question was given earlier - dollar cost averaging - which is the most effective way for most of us to deal with stock market volatility. The example below hopefully more effectively demonstrates the point. 

Near term peaks in markets are only obvious in hindsight. Dollar cost averaging allows you to iron out the inevitable volatility that exists in markets. In fact, the success of the entire equity SSIA programe was founded on that very principle - equity SSIA investors made a positive return over the five years largely because they consistently added the same amount of money to the programme each month, which means they bought many more units in whatever fund they were in at the lower prices. 

To nail it on the head - assume you started investing in an equity unit-linked fund when it was priced at €10. With your initial €254 you got 25.4 units. Now if the fund dropped in value by 50% to €5 per unit then at that time your €254 bought 50.8 units. Now ask yourself what was your average cost? It was not €7.5 - the mid point - but €6.67. The markets then only had to recover a small distance from the bottom for Equity SSIA investors to be back in profit. *Therein lay the success of the SSIA Equity investor.* It was not the stellar performance of stock markets, which were mostly still down in value over the period, but rather the positive effect of dollar cost averaging.

Of course, you have to believe markets will bottom...you if you don't assume that then you should not be in markets.....hope that helps.


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## charttrader (7 Mar 2007)

_The comment made earlier that 'The returns from dollar cost averaging are most likely to be less than a lump sum invested' is mis-leading and most probably plain incorrect.

_No Rory, all the research confirms that DCA will provide poorer returns.  As a stockbroker and seller of expensive investment seminars, you should know this.

_To nail it on the head - assume you started investing in an equity unit-linked fund when it was priced at €10. With your initial €254 you got 25.4 units. Now if the fund dropped in value by 50% to €5 per unit then at that time your €254 bought 50.8 units. Now ask yourself what was your average cost? It was not €7.5, the mid point but €6.67. The markets then only had to recover a small distance from the bottom for Equity SSIA investors to be back in profit. Therein lay the success of the SSIA Equity investor. It was not the stellar performance of stock markets, which were mostly still down in value over the period, but rather the positive effect of dollar cost averaging.

_Big deal.  DCA works well in a bear market, we know that.  Cherry picking particular time periods doesn't alter the fact that DCA is almost certain to provide poorer returns for investors.  DCA is convenient, but it will cost people.

After checking out the research, perhaps you'll include the long term results of the DCA approach in your investment literature.


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## ClubMan (7 Mar 2007)

The original question was "is now the time to buy shares?". My answer would be "yes" if you have decided that now is the right time for you to start investing for the medium/long term and "no"/"nobody knows" if you mean is now the "best" time to buy shares.


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## macbri (8 Mar 2007)

It all depends on the stock u pick and the price u paid.
This will be determined by your research and assessing risk/return of your stock picks.If your happy with your analysis and are comfortable with maximum downside,then go ahead and buy.

It doesn't matter in long run whether current market has dipped,it depends price u got in on your individual shares compared with value that u perceive company should be valued at.
I know this sounds basic but thats' the reality.

If u pick an overvalued share,then u may never receive a return-ie tech boom in 2001 where Nasdaq stood at over 5000,now still only 45% of that value 6 years later.  This what drives me away from shares with a p/e over 15.


I have over $350k invested in stock market but am happy with risk as I have put options for 80% of portfolio and remainder is in high dividend yield companies apart from 1 tech & soccer club.

Agree that stocks should be held long term but if u think your stock is fully valued or see a better alternative investment then don't be afraid to sell.


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## room305 (8 Mar 2007)

Rory Gillen said:


> *The comment made earlier that 'The returns from dollar cost averaging are most likely to be less than a lump sum invested' is mis-leading and most probably plain incorrect.*



Considering that you advise people about stocks this is one hell of a statement to make. The long term trend of stock markets is up (otherwise why would you invest?) so DCA will always provide a poorer return over the longer term than lump sum investments.

The SSIA scheme was a five year investment, which is not a sufficiently long period of time for stock market investment. I can only hope that you follow charttrader's advice and add the facts regarding the underperformance of DCA over the longer term to your seminars.


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## room305 (8 Mar 2007)

*Re: Is now the time to buy shares*



darag said:


> Hi charttrader, room305 - I did a bit of googling.  There's an interesting article on DCA here.  His analysis using historic prices leads him to the conclusion that while in many cases DCA (in the particular case where you've a lump sum which you drip feed into stocks) seems to cost too much in terms of returns for the protection it offers you, if it is applied for periods of longer than a year.  And yes he does include dividends. However he also claims that it still can be a valuable  strategy;  in particular, if conducted over a period of one year and where the amount involved constitutes a significant part of your wealth (i.e. where the lowered risk would be considered valuable).  Also note that his definition of DCA is the general one (i.e. including the case where you don't have the lump sum at the begining).



I am extremely dubious about the validity of this article. Apart from his use of language ("I feel that/It is my feeling that ...") he, similar to Rory, misrepresents the difference between DCA and investing via a lumpsum:



> DCA is not for people who consider themselves competent market-timers. Market-timers lump-sum in at whatever time they judge that the market is very likely to go up in the near future. And they get back out of the market when they judge that the market is very likely to go down in the near future. The DCA choice is for people who fear that the market may drop drastically at any time, but do not feel competent to judge whether that is more or less likely now than at some other time.



The scenario he uses to justify why he is a "strong believer" (as he refers to it) that DCA is a better strategy is so specific as to be pointless. How many people have more than 50% of their entire net worth in cash to invest in the stock market in one lumpsum? He makes no mention of costs either.

The simple fact of the matter is that brokers push DCA because it is an easier sell to people who are worried about stock market volatility. However, they do not like to admit that it also offers comparatively poorer returns.

Think about it logically, the stock market offers the greatest returns of any asset class because it entails the greatest risk. By reducing your risk exposure through DCA, you also reduce your potential return.


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## Gulliver (8 Mar 2007)

susang said:


> Is now the right time to buy into the stock market with recent share prices dropping so dramatically. Or is it as straightforward as buying when share prices are low


 
Since the question was asked day before yesterday at 11.41am, the ISEQ has jumped almost 400 points


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## darag (8 Mar 2007)

room305 said:
			
		

> I am extremely dubious about the validity of this article. Apart from his use of language ("I feel that/It is my feeling that ...") he, similar to Rory, misrepresents the difference between DCA and investing via a lumpsum:


Like I said before, I didn't think there was much point in arguing about definitions but I think some of the disagreement regarding the validity of DCA in this thread is now due to differing definititions of DCA.  In this regard yourself and charttrader are also somewhat guilty in "misrepresenting DCA" when you restrict your definition to applying DCA through-out the investment period and to situations where the investor is starting with a lump sum.  DCA is generally accepted to cover far more investment strategies than this, so to dismiss DCA completely on the basis of a narrower definition is not entirely fair.

Regarding the validity of the article, I can't see why you'd be dubious besides the fact that he only agrees 90% with you.  You might be swayed by the fact that it's not supposed to be an academic paper so the language is not academic.  Howerver, he clearly explains this methodology and the data he's used and quantifies everything.  He starts the article claiming he is a strong believer in DCA but ends it, having done the analysis with historical data coming to the conclusion that DCA is only beneficial under certain particular circumstances and that under many circumstances (such as under the conditions you give in your example), it is poor value.  So basically the article largely supports your claim?



> The scenario he uses to justify why he is a "strong believer" (as he refers to it) that DCA is a better strategy is so specific as to be pointless. How many people have more than 50% of their entire net worth in cash to invest in the stock market in one lumpsum? He makes no mention of costs either.


It's not as unusual as you'd think.  Off the top of  my head, I can think of people receiving an inheritance, a lump sum from property disposal, redundancy payment or a lump sum as part of their pension.  These are also the kind of situations where people are likely to consider investing in shares.  


> The simple fact of the matter is that brokers push DCA because it is an easier sell to people who are worried about stock market volatility. However, they do not like to admit that it also offers comparatively poorer returns.


I've no doubt that brokers encourage people to invest in ways which may not be to the client's benefit.  However that's a reason to be sceptical not to completely dismiss DCA.  Brokers also encourage people to invest in stocks in the first place (for the brokers' self interest - earning commissions) but that's not a reason enough to claim that investing in stocks is a mugs game.



> Think about it logically, the stock market offers the greatest returns of any asset class because it entails the greatest risk. By reducing your risk exposure through DCA, you also reduce your potential return.


I agree with you 100%!  And I've learned something from you and charttrader that I hadn't thought about before but I still think the paper I linked to above gives a more balanced picture of the strategy than a blanket dismissal.


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## charttrader (8 Mar 2007)

Darag
As I already said, I have nothing against DCA - it's a practical solution for many people, albeit a flawed one.  As for the article you cited, the author acknowledges that DCA is a costly affair and his conclusions aren't far away from what I have been saying.  

I do have a problem with people who sell DCA as some kind kind of magic wand.  Sure, you save a few quid in a bear market.  Why not tell people that you will lose out the rest of the time?  

Rory Gillen's assertion that the case outlined my myself and Room305 was "most probably plain incorrect" is actually quite breathtaking, not only for its ignorance but for its complacency.  ''Most probably'' - I would expect an 'expert' in the business of selling stock market 'education' to base his teachings on facts rather than assumptions, especially when such assumptions were conclusively disproved decades ago.

He goes on to inform us lesser mortals of the "correct answer" before giving an example that "more effectively" demonstrates the point.  Unfortunately, Rory's example does the opposite, obscuring the grim reality by cherry picking  his time period. 

Do the math Rory, and not just during a period of market under-performance.   Check out some of the literature - it's basic stuff.

When you've done so, perhaps you will inform the people who fork out good money for your seminars that DCA is not the panacea that you have been making it out to be.


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## CupofTea (22 Mar 2007)

I think the best way to know what and when to invest is by educating yourself. Everyone seems to have an opinion so why not form your own by reading well respected works. I suggest anything by Benjamin Graham, Warren Buffet and also Common Stocks and Uncommon Profits by Phil Fisher. Many of these titles are old and quote US stocks so it's easy to understand the point and not get distracted by pre-conceived ideas you might have if shares you know are used as examples.

For a quick introduction to shares there is a lot of good common sense from the master himself, Warren Buffet, at www.berkshire-hathaway.com


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## room305 (22 Mar 2007)

If reading through endless books doesn't appeal or the idea of shelling out €700 for Rory Gillen's rather questionable advice galls you, then here is a simple strategy for making money on the stock market.

Purchase the Dow Jones Industrial Average at the end of the last trading day of the year. Hold your position for 25 years and sell on the last day of the 25th year.

Measured over 82 separate periods of history, this strategy has yielded an average return of 14.17% before dividends.

That's pretty impressive. Read more about it here


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## Remix (22 Mar 2007)

I thought this guy raised an interesting point with regard to the Dow Jones 25 year test. In retrospect you can demonstrate that this strategy performed because you are using the benefit of hindsight to select the stock market of a country that emerged as world leader. But no one really knows what the next 25 years will bring for the USA:



> ..
> 
> Also, you are looking at one market, for the USA which happens to have become the world super power over the period of your sample. It is like saying, pick the country that is going to emerge as the world leader over the next 100 years, then invest in it's stock market. The hard part is picking the country IN ADVANCE. In retrospect, America is an easy bet. What would your results have been if you had selected Prussia?


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## room305 (22 Mar 2007)

Remix said:


> I thought this guy raised an interesting point with regard to the Dow Jones 25 year test. In retrospect you can demonstrate that this strategy performed because you are using the benefit of hindsight to select the stock market of a country that emerged as world leader. But no one really knows what the next 25 years will bring for the USA:



Admittedly if you think there is a risk that America will not exist twenty five years from now, this strategy may not be for you.


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## Remix (22 Mar 2007)

room305 said:


> Admittedly if you think there is a risk that America will not exist twenty five years from now, this strategy may not be for you.


 
The original author wasn't at all defensive and had a reasonable response even if he didn't seem to fully answer the question.

He appeared to acknowledge the even if he did 'select' the dow with the benefit of hindsight, that the important fact is that it's tough to beat the buy and hold benchmark in that selection. Seems reasonable. But can't tell you much about its quality as a buy and hold strategy over the next 25 years.


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## PubMan (22 Mar 2007)

Remix said:


> . But no one really knows what the next 25 years will bring for the USA:


If things swing around that much in the next 25 years that America's dominant position drops dramatically, I think you'll have much more pressing issues to worry about than your shares


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## room305 (22 Mar 2007)

Remix said:


> But can't tell you much about its quality as a buy and hold strategy over the next 25 years.



True. The DJ Wilshire 5000 might provide a broader index measure for the same strategy. The DJIA has only a limited number of companies and is not market cap weighted but it has been around a long, long time.

You could always hedge the strategy by putting a percentage of your portfolio into physical gold. This will provide insurance in the event of catastrophic financial upheaval.


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## Remix (22 Mar 2007)

PubMan said:


> If things swing around that much in the next 25 years that America's dominant position drops dramatically, I think you'll have much more pressing issues to worry about than your shares


 
Nah, don't be so scared, it'll be fun to learn how to write like this

激光, 這兩個字是什麼意思? 激光, 这两个字是什么意思?


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## Purple (22 Mar 2007)

Remix said:


> Nah, don't be so scared, it'll be fun to learn how to write like this
> 
> 激光, 這兩個字是什麼意思? 激光, 这两个字是什么意思?



AAM will have to support different text as well.


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## joe sod (23 Mar 2007)

I know the mantra is shares outperform everything in the long term, however 25 years is too long for most people, a third of a lifetime, not even warren buffet would be this patient, you really want to be looking at the 5 to 10 year time frame, when you look at that time frame , what shares will perform in that time frame, then asia, then energy, then agriculture appear. What are the stongest investments that can take advantage of this global trend and also what investments will suffer, thats what you want to be looking at.


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## DirtyH2O (25 Mar 2007)

DCA is represented here as a solution to market volatility yet there are academic studies showing that to outperform the market using this technique would require extraordinary timing and luck if it is even possible. If you feel that shares\funds have value at a point in time you should buy, if you don't then don't.
One example of this view is www.efmoody.com/planning/dollarcost.html
DCA probably suits a passive investor who doesn't do a lot of research but for an active investor it is not suitable, they should read,read and read again instead. You can't catch a falling knife but you should have prices that you would like to enter at otherwise what are you using to represent value?


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## smiley (25 Mar 2007)

i agree..for passive investor it seems the way to go but for those who do their homework and are more active, buying in at good value seems the best way to go....


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## joe sod (26 Mar 2007)

[broken link removed]

an excellent interview with marc faber in january, he basically predicted the february correction in detail, going into detail about the yen carry trade and how its unwinding would cause big ripples in world markets.


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## room305 (27 Mar 2007)

smiley said:


> i agree..for passive investor it seems the way to go but for those who do their homework and are more active, buying in at good value seems the best way to go....



Actually the best thing a passive investor could do is invest their money when they have it to invest, in the lowest cost, most widely diversified passive investment vehicle possible, in the most tax advantageous way possible and then forget about their investment for as long as possible.


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