Roger Nusbaum submits: There were a lot of comments left yesterday on the When To Go Back In post. It seemed like there was a fair bit of indecision, people questioning themselves, questioning me and readers seeking out new ideas. All of these are valid. Let me address some of the issues:
One reader asks: How many people are ahead of buy-and-hold this year? Great question. It may not be the right question however. First it speaks to trading too much or too nimbly. Over-trading usually is not the best thing. Over time tweaks need to be made; the reason may be a good one like a stock may have been a home run, is now too big, and needs some trimming, or it may be a bad reason like you were wrong. In a diversified portfolio there will be some of both.
Even if you only make four changes a year, not all of them will be correct. At 1304, the S&P 500 is up 4.29% plus dividends. Work with me here and assume every one benchmarks to this index. Chances are, half the people are ahead and half are behind the index YTD. Next year it will not be the same half ahead. Some of those who are beating the market this year will beat it again next year and some will not. What matters is whether what you are doing gives you a reasonable chance of meeting your goals, pursuant, hopefully, to some sort of plan you have saved in a spreadsheet somewhere.
If you beat the market last year by two points and you lag it this year by two points you are not hurting yourself. However if you beat last year by a little and you are trailing by 15% this year, you may need to make some changes. This calls for some genuine introspection.
For me the focus is getting where I need to be in the time allotted, good years and bad years included, and there will be bad years.
As far as fear being in vogue and the question, "Does the market have to go down?" Helene Meisler studied this, and in the 1970s, sentiment was correctly bearish - contrarian thinking be damned.
One person who manages money left a comment saying he is 75%-in and sees "no fundamental value in the names propelling the market." Yet he is 75%-in. I think this guy gets it. He could be dead-wrong in his no-value comment. I don't know. But he lightened up a little, which is what he thinks is right, and won't hurt people if he is dead-wrong. Let's face it: 1220 to 1304 is a nice move.
One reader shared going from 70% to 80% cash. I think that is extreme, but he has to do what he has to do. I will correct him on one thing though. He says I am more concerned with missing a move up than being in a move down. I am far more motivated to miss a big move down. But I am aware that big moves-up often come when no one expects, and the market has not done badly - circle back to my idea of too nimble.
One reader seems intent on going all ETF, yet seems to have a lot of unanswered questions. RW makes the right point (if this is the reader's concern) about day traders in ETFs: If you are buying 2,000 shares of an ETF that trades 10,000 shares per day, to hold for what you think is a long time, I wonder what difference the noise made by daytraders would make. If you have owned an ETF for two years, and six months ago there was some big trading one day and someone got a crappy fill (not that you would know), I submit it means nothing to you.
The better question which RW also asks is: Do you have a plan based on something that makes sense? A lot of what I see out there does not make use of what is available, does not diversify very well, and tends to be shorter term than what most folks need.
Take this post as a ramble, but hopefully it is useful.