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birb_cromble  1mo ago (text post)   1672 thread views

Weekly Finance Thread

Since a lot of us here have expressed interest in not starving to death in a gutter, I figured I'd start a weekly thread to discuss financial matters.

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I could use some investing advice. I have about $120k in Vanguard VTSAX and $100k sitting around in a bank account that I have no plans for at the moment. My goal is to be low effort and just sit long on it, since I'm lazy and just generally want it to sit around and not have to pay attention to it. Should I just buy more VTSAX? Are there better index funds I can throw my money in and get more returns long term? I don't want to have to actually pay attention to the stock market and buy and sell different things, but am not sure if I'm leaving money on the table by not knowing about XYZ fancy financing thing I could stick my money in.

I guess I’m moderately bearish. Maybe a little sell in May correction. So I think I would wait for a 10% correction to deploy.

Some funds I’ve come across that could be of interests is David Orr’s Militia Capital. Does long and short. A lot of Japanese value. It’s corrected. Has had solid performance since inception. It’s a younger fund but I think you want managers in their prime. They do burn out. So he probably has 10 years. Also Gator Capital always interested me some for financials exposure. I think you can take 10-20% of exposures outsides of just beta products. Bonds also look like a reasonable risks reward at 5% on 30’s. So you can probably put $50k of your cash into them now. If shit would hit the fan they definitely provide a good hedge to other exposures now. If QE was needed again you could get a lot of cap gains there.

I guess I’m moderately bearish. Maybe a little sell in May correction. So I think I would wait for a 10% correction to deploy.

You could be waiting for years, at which point you will be buying back at a much higher price than had you bought now.

Nothing I like more for being bearish than hearing markets will never go down. It’s been a big fast rally. And we are entering the most bearish time of the year. I feel find being on sidelines.

Last time we had a market talk some one said they were dumping all their spy and only buying oil stocks on war. Now oil indexes are down a few % and spy up 14%. My gut says oil stocks have more downside. Because of all the AI capex buybacks from tech firms have collapsed. Big IPOs will suck up capital this summer. I see a lot of market reasons for a correction.

I’m low on fomo. Usually sitting out the current thing and being patient has some value.

I'm going to wait for a correction

You could be waiting years

Nothing I like more for being bearish than hearing markets will never go down.

You must have a talent for hearing that, since that's not what the guy said!

It's extremely difficult to beat DCA by buying the dip.

Whatever that guy is selling is obviously false. Also noticed he doesn’t seem to pay interests to cash balances. I think it’s because he’s also not selling the rip. And the general upward trend of the market doesn’t guarantee the next dip is bigger than the average value over the prior time period.

I also never said just buy the dip. I said don’t buy right now.

Jane St made 17b last quarter. This place is filled with those types. There is an absolute ton of alpha in the market.

Whatever that guy is selling is obviously false.

Should be easy to show why and score a black eye on Big Dollar Cost Averaging.

I think it’s because he’s also not selling the rip.

Timing both the peak and the trough is significantly harder than timing just the trough though.

Also noticed he doesn’t seem to pay interests to cash balances.

True, but he's looking at S&P valuation corrected for inflation so I think that's implicitly assuming that cash reserves keep their real value.

Jane St made 17b last quarter. This place is filled with those types.

I don't think even this august forum is "filled with" some of the smartest people in the country. Also note that Jane Street employees 3500 people working together to make that money rather than lone forum posters. The odds are... Not great, even if you are a genius.

Should be easy to show why and score a black eye on Big Dollar Cost Averaging.

Trivial observation: If you have perfect information, your strategy should not do worse than one that ignores it.

There are two errors he's making1: He's buying when a drop is forthcoming, and failing to buy at a price that's the lowest it will ever be. The proper strategy looks like this. Every dollar buys the most shares that it would ever be offered (e.g. your December 1999 dollars will eventually be offered the 2009 price, so don't buy the microdip in January 2000. Your 2010 dollars will never get a better deal, so don't wait for 2012ish.).

I guess I'm more powerful than God? Feels weird.

1 If he was highlighting the mistake for other people instead of making it himself, I'd think he would show more analysis of exactly why it fails, instead of the raw fact that a flawed strategy can be bad.

He's buying when a drop is forthcoming, and failing to buy at a price that's the lowest it will ever be.

This isn't true - he's buying at the bottom between every pair of ATHs.

The point isn't that this is the best you can do with perfect information - the point is that even if you time each trough perfectly you still usually lose to DCA. More complicated strategies can beat DCA, but they are even harder to get right.

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To be clear I never proposed by the dip versus DCA. I kind of get his math. The key thing is he’s not always buying after a 14% 1 month rally. I proposed market timing which is not the same thing. MOST of the time DCA is better than buy the dip because equities usually go up, but it’s NOT always better. By claiming he had “perfect” information it implied he was doing a lot more trading. Then he threw together a backward optimized test with parameters that made his article look smarter. Obviously if you know every tick of the index you could absolutely crush basically every trading system. You turn $1k into a $1 billion in a year.

Jane St literally recruited off of this forum so I assume there are some lingerers.

The key thing is he’s not always buying after a 14% 1 month rally.

Sure. But he's buying at the trough between each ATH. "You can do better with perfect information if you trade more often" is not a rebuttal - in real life you don't have perfect information and having to make more perfect trades to beat DCA is harder than the outlined strategy.

Jane St literally recruited off of this forum so I assume there are some lingerers.

How? When?

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This is why I tend to DCA.

He’s correct DCA is quantitatively bad. If equities have a positive risks premium then DCA just means you invest later.

This is different than having positive market timing. I’m bearish now but DCA in general is an inferior strategy. Its main benefit is psychological since if you do it over time your less likely to be sitting on a loss even though on average it produces lower returns.

If you have a big pile up front you're right, but I do it each month as I earn the money.

Fair. I guess it’s used in the same way in the vernacular. You are just fully investing as you earn money.

If I were a financial advisor and someone came to me who just won $5m on the powerball there would be a lot of psychological reasons to DCA. Primarily me not getting fired if market goes down. If market goes down I can sell that now they get to buy cheaper. If market goes up they are happy about making money.

even then you end up missing out. research shows if you have any $ the optimal strategy is to go all in

I do it every month from cash flow, so it's not like I'm losing out much. I don't have a lump sum to sit on.

VTSAX isn't a bad choice. If you really want to forget that it exists, you may want to look at VT for international exposure, or a target date fund if you want to build up some bonds over time.

Personally I'm getting into the upper 6-figures now with VTSAX only, with the total amount from returns about to catch up to my total contributions, with my vanguard account 'personalized rate of return' now over 15% nominal since starting in 2017. I've assumed that probably after 1 or 2 mil, I would think about being more defensive with extra diversification, but maybe not.

It just seems hard to beat US index funds when it comes to getting the most out of confidently throwing a lot of money into investments you don't even have to look at or think about. I'm very appreciative that "VTSAX and chill" was the meme in the FIRE community, who are people who have an interest in actually making the most amount possible without resorting to gambles. A lot of other advice comes from people who have some need to cover their ass, so they'll hedge and try to be prudent suggesting bonds and/or international equities. As for the other side, the intuition that 'index fund advice is for average normie sheep, if you're smart you can beat the market', I'm just happy I don't have that itch because I think it's ruinous with way more losers than winners in the long run.

I'm also sympathetic to people who don't have the incomes or savings rate in order to start socking away enough money for index funds to feel impactful. I think that's where there's more of a sense of 'missed the boat' hopelessness and a felt need to gamble for an initial win to jumpstart/catchup into the index fund 'chill' game.

There's no such thing as investing lazily while achieving absolutely optimal result. If there was, everybody would be investing in exactly the same thing and it would be the only option recommended by anyone who is not a crook. However, the reality is if you take more risk, you can earn more reward. Or not. That's why it's called risk.

If you just want to park the money somewhere and forget about it while it is gaining value in lockstep with the market, a wide market index fund is the way to go. Compare which one charges least expense and follows the index most faithfully and just park there. Vanguard has pretty good offerings in that area, with very decent expense ratios.

However, as it will raise with the market, it will fall with the market. Broader portfolios, incorporating more asset classes (bonds, gold, resources, even cryptos if you're into that), may provide better long-term returns due to being more robust against volatile markets. On the other hand, you may use more risky but potentially more rewarding narrower strategies - like, investing everything in AI companies only - if it works out, you can make enormous profits, but it also can go bust very easily. I don't think a thing where you can get more reward with the same risk profile can exist long term in the market - if it pops up, people will start buying it, and drive the price up, thus diminishing the potential reward, until it will be roughly the same as other things with the same risk profile. Of course, people can be mistaken in determining the risk profile - but so could be you.

I'd say if you don't want to get too deep into it, and if you are not going to need this money anytime soon, and you plan to HODL regardless of what the market does today, then index fund is not a bad option. Another option may be a target date fund, if you know when you'd need the money, which provides more balanced portfolio so you won't find yourself forced to sell in the market dip because you need liquidity now. Do not be tempted to "keep up with the Joneses" and seek seemingly more profitable investment, unless you understand why it is more profitable and what risks you are taking there. Yes, you may leave some money on the table this way. Better than leave all the money on the table if something goes wrong.

VTIAX, maybe? AKA "rest of the world", since VTSAX is US market only? Not necessarily more returns, but the global market does sometimes outperform the US market, and that bit of diversification isn’t a bad thing.

If you don't mind EFTs instead of mutual funds, you could always go VT, which is VTSAX + VTIAX -- aka "the entire global market in one fund". Minimum effort, maximum diversification.

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