I have to disagree with you. Comparing long-term, passive investors to short-term speculators seems unfair and simplistic to me.

I thought we were talking exclusively about short-term speculators.

Oh? Perhaps I misunderstood when you said "infrequent trading".

I'm also wondering why I'm getting downvoted but this is the Internet for me :)

> At the time I guessed that he was much smarter than me — that it would take me years to become as investment-savvy as this guy was.

You lucked out by mistakingly believing he was intelligent. The classic scenario is when your neighbor is obviously an idiot, making tremendous amounts of money in the market, and you have to explain to your spouse why you can't/won't emulate them. That's when even bright, (normally) level-headed people start piling in before the bubble bursts.

Indeed, most frustrating is when someone (stupid) is proven right, even though they used completely wrong reasoning (in spirit of Gettier problem).

There’s a common saying in the investing world that applies here: “confusing strategy with outcome.” The outcome may be good, as it was in this case, even though the strategy was terrible. But most people get them confused and think it’s the strategy (going all in on bitcoin or TSLA options or whatever) that was good and won them their riches.

The Gov't / Federal Reserve has made it clear they will not let the value of assets drop significantly ever again. The entire planet's capital is now betting on US equities going up and to right forever, and all levers will be used and invented wholesale from nothing to keep that going.

The federal reserve literally just got through a monetary tightening policy that paid zero regard to the stock market.

The fed will juice to keep employment up and tighten to keep inflation down. They will not support stocks at the expense of those mandates

We're dealing with people who interpret the words "price stability" to mean "prices should increase exponentially, we'd consider it a serious problem if they stayed level". It seems a bit of a stretch to go from that to believing that their mandate constrains them somehow. Their mandate can be interpreted to mean whatever they want it to mean. They're a political beast, they're going to do whatever they can get away with politically while making life comfortable for the banks.

And I'd imagine the stock market is still fairly confident that rates are going back down. If we look at a chart of fed interest rates [0] the statistical evidence suggests we're going to see low rates in the near future. It'd be nice to buck the trend and have the US stay focused on prosperity but there isn't much evidence of it yet. The basic plan of high debt then inflating the debt away hasn't changed.

[0] https://fred.stlouisfed.org/series/fedfunds

It’s impossible to keep prices perfectly steady, the Fed could not possibly be that precise. If they tried, we would bounce back and forth between inflation and deflation, which would be incredibly destabilizing to long-term investment… and therefore destabilizing to job growth and capital improvement, innovation, etc.

So instead the Fed aims for a small amount of inflation. That way when they miss a bit, we still stay out of deflation. It is much better to bounce between 2% and 3% than between -1% and 1%.

If the goal was actually to inflate the debt away, they would be aiming higher. Proof: the debt has been growing in real terms, not shrinking.

The Fed has stated that one benefit of a small amount of inflation is that it provides employers with a mechanism to effectively revise wages downward without employees quitting (by denying them an annual raise), but yes - they have never stated that they are trying to inflate the debt away.

The Federal Reserve targeting "price stability" literally does mean that they target prices increasing exponentially by an average of 2% per year[1]. The mathematical form is P(t) = P₀(1.02)ᵗ, where P₀ is the initial price level and t is time in years.

[1] https://www.federalreserve.gov/economy-at-a-glance-inflation...

This implies that a sustained crash will only happen if/when these two institutions are no longer capable of supporting the market. In effect, it's a bet against the US, which so far has been a losing one.

At some point though something will happen such that they can’t keep their fist on the scale, and then the market can correct suddenly.

Unfortunately government intervention makes it even more unpredictable when that will be.

Yea, except the inflation we encountered in the last 3 years were directly from trying to keep asset values from dropping. They are at their ropes end. There really isn't that much room between mass inflation vs. the rich keeping their numbers infinity growing.

That’s a fundamental misunderstanding of asset prices vs interest rates.

Exactly. The "crash" can happen via exploding inflation, or falling markets. Either way results in the same thing.

There's more to assets than US equities, the Fed would be far more concerned with serious weakness in the Treasury market, and Treasuries often move inverse of US equities.

Certainly hope they’ll keep going to the right…

I wonder if this sets up a moral hazard that only exacerbates a possibly coming crash. People assume the Fed will prevent assets from dropping, which makes them bid up asset prices to even higher levels that even the Fed is incapable of maintaining.

This is easy to say but the reality is being a monkey and throwing money in the market over the last 15 years would have made you f u money. Yet most people never did it. So who is the genius: the guy who remains on the sidelines and eventually is proved right or the guy who remained in the market and did face a brutal correction. One thing I've learned about myself is that I'll never be the guy on the right end of that mid curve meme so I might as well lean in on being on the left.

The problem is that I have been seeing some version of the “crash imminent, sell everything” thesis for my entire life. Almost nobody who “saw the crash coming” in the case of the dotcom bubble, or covid, or the subprime crisis made any money, because almost nobody gets the timing or magnitude of the crash right. You can find YouTube channels that have been warning people that a crash is imminent for the last two years. If you had been out of the market for the last two years you would have missed historical gains, and for what? The magnitude of the crash you’re protecting yourself from would now have to be impractically huge for you to come out ahead.

Much better to just stay in the market, knowing that there will be crashes and you will have days where the numbers look awful, because they’ll look great again in a few years.

Agreed this sort of advice is standard - but many people don’t follow it because it’s boring.

One way to make this sort of advice “not boring” is to apply the advice to 90% of your net worth (or cash flow), but then give yourself permission to “gamble” with the other 10%.

For me, that has fulfilled my personal interest in playing around in the markets for fun while still building/growing a traditional “safe” portfolio at the same time.

This is the way. Boring is, well, boring. Slice off some small percentage to do high risk investments with to sate your FOMO. Buy GME, sell it for Doge, and short TSLA with that pool after inhaling too much r/WSB because you want to think you're a genius.

Why do I need to get my ya-yas off gambling any part of my retirement? There is zero coherent nor compelling reason to tie your enjoyment of gambling to the size of your portfolio.

To be clear I’m not opposed to gambling. I enjoy occasionally going to the local poker room and have an established bankroll. I have plenty of fun at $1/$2 tables even though the buyin is a fraction of a fraction of my net worth. I am mildly profitable in the long run, but nobody sane would suggest I’d be better off at the $100/$200 tables even though my Vanguard balance could easily support it.

All of this advice to keep it at 10% also ignores what happens when you lose most of that. Do you restart with a new 10%? Ideally no, but that’s really unsatisfying to somebody who’s enjoying their new day trading hobby.

Honestly just save yourself the headache. Put your nest egg into index funds and find some other way to make your life exciting. Gamble with pocket change from your entertainment budget. Or maybe even just don’t.

For those who need it, it is a way to manage impulse control. Not everyone needs it, but some people do.

GLP-1s may regulate it (via anti addiction mechanisms observed), more data to come in that regard.

For those who “need” it, you are really playing with fire. It’s not like chasing after losses to turn things around is a particularly rare response.

We’re in a thread under an article revealing how more and more people are falling victim to gambling addiction through the stock market. I’m not convinced that “you should just gamble some of your life savings” is the best suggestion for most people.

In a just and sane world, we would have pensions, locking up retirement savings away from human impulses and bad decisions. But here we are, doing our best to get through the shit show, surprised when humans do humans things.

I get that there are some people who do need that outlet. I’m just saying we don’t need to make “set aside 90% to gamble with!” the first recommendation, but maybe the last.

This is the reason dollar-cost-averaging works. You buy less (shares) when the market is high, and more when it is low, without thinking about it and without trying to "time" your transactions (which almost always fails unless you have inside info).

It works in a sense of not timing the market. Lump sum beats dollar-cost averaging - because you have more time in market.

Sure, if you have a lump sum to start with.

But dollar-cost-averaging beats saving up a lump sum and then investing.

I think the phrase you're looking for is "automatic investing" or something, not DCA. DCA is usually framed explicitly as a counterpart to lump sum of an existing pile of money

DCA in my understanding is automatically investing a fixed amount at fixed intervals. E.g. $100/month, or whatever. The amount and interval aren't all that critical. The point is to do it automatically and not try to time the market.

Yes I also have heard the advice to dollar cost average a lump sum, not so much in the scenario of a rollover of an existing investment, but when a large amount of cash has become available for some reason. I guess the theory there is you won't accidentally put it all in at a market high point. If you average it in over a year in a declining market, you're better off. If you average it in to a rising market you're worse off than if you had invested it all up front. Trying to guess which of these scenarios is going to happen is trying to time the market. I'm sure people have done the research -- intuitively, if you're investing for the long term, better to put it all in at once. But there are probably risk tolerance considerations.

A year is pretty extreme. If you cut a lump sum into a series of transactions over a couple weeks or even days it is just about the least expensive way to exchange earning potential for reduced volatility. You miss out on like 2 weeks of earnings in exchange for a huge reduction in the chance that you buy in and are immediately down 2% or something.

You can do both. You can invest the entire amount, but make it short/medium bond heavy on Day 1. As you go thru the year, you rotate more and more of your fixed income allocation towards equity until you reach your target equity %. This is relevant if, for example, you downsized your home or received a retirement payout.

There's just as much probability that you miss out on a big swing up as there is that you miss a big a drop.

It's not the big swings you're trying to avoid, you're just trying to average together a bunch of interday minor ups and downs so your starting price is not as volatile.

Depending on the definition of “beating”. On average investing right away is better but the variance of outcomes is higher.

On average across all investors. Not so much if you invested at the peak of dot.com (would have taken decades to break even) or even the covid bubble.

Dollar cost averaging does not work and has never worked. Because most assets have unlimited upside and unlimited downside. A stock or asset can go ballistic for decades like Apple or Bitcoin, or it can fall to zero value.

There are no mathematical ways of winning investing. If it was that easy, everybody would do it. You can only follow your heart and do your due diligence.

> Because most assets have unlimited upside and unlimited downside. A stock or asset can go ballistic for decades like Apple or Bitcoin, or it can fall to zero value

Spot equities and crypto have limited downside. You put in x, most you can lose is x as you observed. Unlimited downside is not a thing outside certain exotic derivatives.

I didn't mean the upside/downside on your investment, but on the asset. Most investment assets except for bullion can fall to 0. They can also increase without an upper limit, like for example Apple stock. The market being "high" or "low" is not remedied by dollar cost averaging.

You’re misusing the term “unlimited downside” which is why you were corrected. Shorting stock is an example of unlimited downside.

What dollar cost averaging does is reduce short time price risk. The result is the long term.

Even if zero is the bottom, an asset can have unlimited downside. It can go from $0.1 per share to $0.0001 per share and so on without end. Or, with the rational perspective, after 0 the downside does not matter anymore. An asset cannot go below zero, at least the assets I know of. An investment can go below zero and beyond, when you use leverage. But that's a derivative and not an asset, as you've pointed out.

What I mean is that dollar cost averaging is a myth and cargo culting in the world of investment. Let me explain:

Let's say you're "dollar cost averaging" by purchasing an asset during a few years, which fluctuates between $90 and $110. So after some time you have averaged around $100 per share. Now if the asset goes to $5000 next year, what has your dollar cost averaging accomplished? Or if it goes to $3, what has your dollar cost averaging accomplished. Nothing in both cases.

One of the hardest myths about investment, that seems to be impossible to beat out of people's heads even with a sledge hammer, is that there is a proper historical price for an asset and that prices only fluctuate around that price. So you buy when it's under that price and sell when it's over that price. Smart, right? No, it's dumb and the reason why most people trying to invest lose their money. An asset can go down and stay down on a new price level. Or it can go up and stay up on a new price level.

>> Even if zero is the bottom, an asset can have unlimited downside. It can go from $0.1 per share to $0.0001 per share and so on without end. Or, with the rational perspective, after 0 the downside does not matter anymore. An asset cannot go below zero, at least the assets I know of. An investment can go below zero and beyond, when you use leverage. But that's a derivative and not an asset, as you've pointed out.

This is drivel. Being able to tag on infinite 0s after the decimal doesn’t make an asset have unlimited downside, the limit is $0 as you yourself apparently know.

An asset has unlimited downside, in the same sense that you can't move anywhere. See, to move somewhere, you would first have to get halfway there, and to get halfway there, you first half to get a quarter of the way there, and so on, so therefore you can never move from where you are.

X to 0 is an interesting definition of unlimited.

Unlimited in ratio, I guess.

Even then, brokers just show a percent loss of -100%. Our buddy would never see the cool infinity symbol.

It’s too bad they aren’t a fan of dollar cost averaging into broad index funds, I think their older self would thank them.

My investments have always had fantastic results, far above what any index fund could render. I have been forced to involuntary "dollar cost averaging" by having to wait for the next salary in order to invest more. But "dollar cost averaging" is not an investment strategy, it's confusion on the highest level.

Dear Internet Stranger (who is also an amazing investor): Have you considered starting you own hedge fund? If not, are you willing to share some of your best investments in the last few years?

You wouldn't be interested in an answer from an internet stranger. But please tell me how "dollar cost averaging" would help any investor in a real world scenario?

It actually grieves me that your average person is completely unwilling to just take a few days of their life to understand investing and what it is and how they can sensibly do it. Instead they decide to treat it like a casino and chase hocus-pocus like "dollar cost averaging" or "technical analysis" or "day trading".

Every person usually has some area of expertise or interest, or even a hunch. Take that and invest accordingly, long term. There are tools available to make any investment very conservative or very risky, according to taste.

So what you're saying is you avoid timing the market (which doesn't work) by timing when you buy shares? What?

You buy at a regular cadence, and sometimes it's low and others it's high, but on average you do OK.

No. You invest the same amount of money at a regular cadence throughout the year. The end result is that you obtain less shares when the price is high, and more shares when the price is low. It's explicitly not timing the market.

It's implicitly timing the market. If you have all the money available at the beginning of the year a better strategy is to just invest everything asap.

If you get the money monthly (e.g. from salary) then that's just normal investing and you don't have a choice anyway.

If you think that is some clever strategy then honestly you probably should get professional advice because you have some fundamental misunderstandings of the stock market.

Heh, I totally agree with you.

I don't know hoe many times I've explained people the given strategy is not what researchers mean when they compare lump sum investing (LSI, a.k.a. converting all cash you have available for investing into equities) and dollar-cost averaging (DCA, a.k.a. splitting the available cash into equal parts and slowly converting the cash into equities at a regular pace.)

What that strategy is is just a regular (e.g. monthly) series of lump sum investments every time cash comes available (e.g. when salary comes in), that people tend to confuse with a DCA strategy.

Having said that: one LSI investment every month is a great strategy that historically does better than any DCA strategy.

ETA:

Relevant research:

- Vanguard Research's Dollar-cost Averaging is Just Taking Risk Later: https://www.passiveinvestingaustralia.com/wp-content/uploads... - PWL Capital / Ben Felix's Dollar Cost Averaging v.s. Lump Sum Investing: https://pwlcapital.com/wp-content/uploads/2024/08/Dollar-Cos...

Please everyone note that there is a long-standing and somewhat pointless argument over whether or not DCA means “regular monthly contributions” versus “taking a lump sum contribution and dividing it up into contributions over time”.

Strictly speaking time in the market beats timing in the market. If you have a lump sum, the theoretically best option is to put it into an index fund today.

Most people in most situations don’t have one lump sum to invest, so recurrent monthly contributions to retirement accounts is the way to go (and what OP here is advocating).

If dollar-cost-averaging is so great, why don't professional asset managers use this strategy? (Hint: They don't.) I think dollar-cost-averaging is an idea promoted to non-professional investors to help them manage the psychological burden of (initial) paper losses after making an investment. Assuming that very short term stock market performance is essentially random (long term: it is not), then the day after you make an investment is roughly 50/50: Am I up or down? Recall: The human brain wants to avoid losses much more than gains.

The risk of a crash is why you stay out of single stock concentration and why you avoid day trading. Its not an argument to stay out of the market.

I remember at one point a couple years ago, I saw a thread on the Bogleheads forum where people could basically call their shot on market crashes; they would post and timestamp when they exited the market and when they re-entered, so that people could go and calculate if the timing was correct or if they lost money by missing out on market growth.

I might not have the dates correct, but I remember the general strokes of one guy who decided in like 2017 or something that the market had topped out, the crash was coming any moment now, and he sold everything and called his shot. He missed out on three years of incredible gains, and then the market absolutely _crashed_ in early 2020. He got it right, by a very small amount; he had gotten more selling his positions than he would have gotten selling in march 2020. He buys back in at what ended up being the absolute nadir of the market in like april 2020 or something. The rare success story of timing the market, you love to see it.

And then a few days later, he decides that actually, no, the market still has more to drop, and he sells again. Oh well.

> He buys back in at what ended up being the absolute nadir of the market in like april 2020 or something. The rare success story of timing the market, you love to see it.

The stock market usually goes down faster than it goes up, which makes it slightly easier (well, less difficult anyway) to time the bottoms than to time the tops.

    > The stock market usually goes down faster than it goes up, which makes it slightly easier (well, less difficult anyway) to time the bottoms than to time the tops.

As the saying goes: "Elevator down; escalator up."

Yes, the problem with market timing is it requires two decisions that for the marginal investor are inconsistent. That's why people who sell at a high fail to reenter at a low, and also why people who stay invested at the high remain fully invested long after prices revert to a much lower level.

This suggests the answer is... fundamental analysis, which neither camp is doing.....

I just always buy and never sell until the leadership and the board of the company appear to be going full retard. And not in a good way like Netflix pivoting to streaming in 2006 but like HP in 2006. Haha.

What was the last sell you did?

the last big one was BABA.

I assume PP means they are staying out of leveraged bets and risky individual stocks.

Generally the saw it coming crowd is just sticking it in diversified index and bond funds and doing other things.

    > The problem is that I have been seeing some version of the “crash imminent, sell everything” thesis for my entire life.

What do you think is the root cause for this kind of thinking? It is hard-wired from childhood, or borne of (difficult) experiences?

    > Much better to just stay in the market, knowing that there will be crashes and you will have days where the numbers look awful, because they’ll look great again in a few years.

This assumes that you are talking about the US stock market. Most other stock markets are far slower to recover from economic downturns and crises. Why? Their economies are less dynamic and their political leaders are more fearful of difficult (economic policy) changes.

    > The stock market is a mechanism for transferring wealth from the impatient to the patient - Warren Buffett

    > For 240 years it's been a terrible mistake to bet against America - Warren Buffett

Lastly: The Nikkei 225 (Japan's most important equity index) peaked in 1990, then took 30+ years to recover.

Also: Look at Mainland China since it was opened to (direct) foreign investment in the last 15 years. Overall: The Mainland China economy has grown a lot, but their stock market is a terrible place to invest.

`What do you think is the root cause for this kind of thinking?`

It's probably quite advantageous to have some individuals irrationally hedging against catastrophe--even though they are likely to be wrong, when one of them is very occasionally right the humans survive.

Your point is that patience and discipline, not panic or overconfidence, are the real superpowers in investing

The market is people making bets on bubbles and crashes. That's how we get prices.

At any point or during any stretch of time, one of these sides will be correct.

The SPY and QQQ charts zoomed out are starting to look like the biggest parabola of all time in markets. 1999 is just a blip on this monster.

Seeing all kinds of warning signs from family members who never traded or got into crypto until just this past 6 months.

Change the chart to logarithmic scaling. You need to use log scaling for long term stock market charts

The dotcom crash was huge in terms of the percentage drop

Nasdaq crashed 84%.

https://www.tradingview.com/x/xm2zypvg/

> Seeing all kinds of warning signs from family members who never traded or got into crypto until just this past 6 months.

That's just jealousy, Those who sit on the sidelines complain the most. Like I said in my previous post if you didn't see it. I see it as that the barrier to entry for making money has never been lower. Right now, it’s one of the best times in history for anyone to start earning, not just the Wall Street elites. Thanks to AI tools and online platforms, it’s easier than ever. Every week, new tools are being launched, some even claiming returns as high as 400%. Take the NexusTrade guy on Reddit as an example. He created his own investment tool and is now in conversations with Wall Street professionals.

It’s so accessible now that with just $100, you could invest in a stock like NVIDIA, double your money in a week, then reinvest across multiple stocks and multiply it again. Suddenly, $100 turns into $2,500 in no time.

I get your point about everyone making money, but why is that a bad thing? Isn’t it great that anyone can do it? These platforms are practically making money for you, whether you’re at work, at home, or even asleep. Like someone once said, “If you can’t make money while you sleep, you’ll work until you die.”

It’s never been easier to earn significant amounts of money, and it doesn’t look like this trend is slowing down anytime soon.

> you could invest in a stock like NVIDIA, double your money in a week

NASDAQ: NVDA (3.09%) past month

Chat Jippity is that you?

I thought people HN know better than random "traders" on reddit/YouTube/TikTok

> The problem will resolve itself if (when?) the market crashes.

Someone said something like, Everyone thinks they're a genius, when the market only goes up.

Although, one thing different now is the heavy throughout-the-day manipulation of retail investors, effectively making strong social groups and identities around it.

That wasn't a thing when, say, ETrade started, and lots of people dabbled, and found it was hard to lose money, just trading around different companies, with little understanding of how things even supposedly work, much less how things actually worked.

Today, from what I occasionally glimpse, you've got all these supposed skills you're applying as a retail investor/sheep/pawn (including various degrees of snake oil, or thinking you're going to be one of the smarter people on a pump/dump scheme that leaves others holding the bag), and constant social groups where people even self-deprecatingly celebrate huge day-trading losses. Like a wholesome support group that actively encourages you to stick with the bad habit, rather than encourages you to stay sober.

So maybe, when the next big culling comes, you'll have lots of people who can somehow still get margin accounts, and will say, "Blood in the streets, and I'm missing 3 limbs, but, hey, stocks are on sale!" And a thundering chorus of other addicts, and their manipulators, encouraging them.

(Disclosures: S&P 500 ETF with low expense ratio in tax-advantaged, plus an emergency fund that goes nowhere near the market. :)

> Although, one thing different now is the heavy throughout-the-day manipulation of retail investors, effectively making strong social groups and identities around it.

Buying and holding is the best option, because of this.

Load up and pay no attention to trades based on what (90% of) the media commentary has to say.

A market crash won’t be a silver bullet. I’ve known several gambling addicts and that’s not how addiction works. They don’t just stop because they lose a bunch of money. They always hold out hope they’ll be able to win everything back “next time”.

I've worked as a software engineer for various investment banks. The best quote and investment advice I've heard on those engagements is "Only monkey's pick bottoms"

Middle of the road, risk managed funds are our best chance of financial success, not individually predicting the market dynamics.

The worst is the crypto gamblers thinking they are "investing". If they make even the smallest profit you'll never hear the end of it.

>> They expect the problem to worsen. The stock market has climbed 23% this year... > >The problem will resolve itself if (when?) the market crashes.

This sounds like a terrible way to "solve" the problem

I see it as that the barrier to entry for making money has never been lower. Right now, it’s one of the best times in history for anyone to start earning, not just the Wall Street elites. Thanks to AI tools and online platforms, it’s easier than ever. Every week, new tools are being launched, some even claiming returns as high as 400%.

Take the NexusTrade guy on Reddit as an example. He created his own investment tool and is now in conversations with Wall Street professionals.

It’s so accessible now that with just $100, you could invest in a stock like NVIDIA, double your money in a week, then reinvest across multiple stocks and multiply it again. Suddenly, $100 turns into $2,500 in no time.

I get your point about everyone making money, but why is that a bad thing? Isn’t it great that anyone can do it? These platforms are practically making money for you, whether you’re at work, at home, or even asleep. Like someone once said, “If you can’t make money while you sleep, you’ll work until you die.”

It’s never been easier to earn significant amounts of money, and it doesn’t look like this trend is slowing down anytime soon.

You could also have invested in SMCI at its high of $113. it's now down at $34.

Personally I got into this when the stock market crashed in 2020 and I made shit loads. There are big winners during crashes too, some of the biggest wins.

Yeah currently young adults are screwed when it comes to gambling addiction.

They were children in the heyday of abusive loot boxes and cs go gambling.

Turned 18 right around when sports betting apps became legal.

In their early 20s crypto exploded.

Now, apps like yotta prey on them. Stock trading apps make it easy to dump your money on tsla.

Is going to be rough

I've yet to really land on my opinion of the idea of a pending market crash with how much money printing has gone on.

All the standard indicators I look at really line up with the idea that a crash should be coming, or should already have happened. Companies aren't valued based on the fundamentals anymore, for example, and yet here we are.

Its starting to feel more like the perpetually increasing market, despite the fundamentals, is a sign of how weak printing and inflation is making the dollar. Stocks can go up when the companies are worth more (ideally because they are producing more), but prices can also go up because the currency used to value the stocks is taking a serious hit.

Illusion of genius