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SDS (Seductive Dividend Stocks)
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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? /... More
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  • My Thoughts About “Stay 100% Investing” 7 comments
    Apr 15, 2013 11:30 PM

    Quite often stock market pundits propose to stay 100% investing. Usually they argue that missing small number of best days (let's say 10) during quite long period (let's say 10 years) significantly affect investor return (they always assume capital gains only).

    In my opinion (IMO) there are at least 3 factors in favor of the "stay":

    a) Wall Street has simple insensitive - their fee depends directly on amount of money investors handle them;

    b) It is rational for mutual fund managers to "stay 100% investing" if they cannot predict next market down-term (and most of humans really cannot) because of i) general stock market uptrend and ii) their common goal "to beat the market" in combination with short time horizon from 1 quarter to couple years;

    c) It might be rational for investors not to release capital gains because of taxes asymmetry in favor of Uncle Sam (investor has to pay taxes on ALL gains but only $3K losses can be claim annually).

    There are factors against the "stay":

    a) Well let me quote folks who phrase the idea better than me:

    "Activity is the enemy of investment returns." - Warren Buffett

    "It takes character to sit there with all that cash and do nothing." - Charlie Munger

    "Cash combined with courage in a time of crisis is priceless." - Warren Buffett

    b) Stock return depends mostly on price you paid. You have to have cash during serious market dip (like in March 2009);

    c) Don't try "to beat the market" especially in short term. You will not be fired if underperform this and next year but you will be sorry to "stay 100% investing" then big opportunity comes.

    Weighting cons and pros I'd conclude that "stay 100% investing" is NOT good advise for individual investors.

    15 April 2013

    Added 24 Nov 2013

    Generally price behavior of US stock market (represented byS&P500) can be separated into 3 groups strong bear and bull markets (defined as market returns below -30% or above +30% in a reasonable period - usually 1 year) as well as mild market (defined as market returns between +/- 30% within the reasonable period). It is really hard to predict stock market and market dynamics id often concentrated in few very best and worst days. So IMO the only time to get read out of stocks is if you can foresee strong bear market. Also for people with positive cash flow IMO it is better to keep a cash reserve "waiting" a good deal.

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  • SDS,

     

    Nice article as a reminder to have some cash on hand. Also helps to have a dividend portfolio that generates some cash for manual deployment.

     

    Cheers,
    Canadian
    9 Oct 2013, 01:47 AM Reply Like
  • Author’s reply » Canadian,
    I was quite lucky (well I'd like to pretend to be smart but lucky is more correct) to quite market in Feb. 2000 and Apr. 2008 to have cash to invest after crashes. I do "manual deployment" of dividends - thank you for the good term.
    SDS
    9 Oct 2013, 09:35 AM Reply Like
  • Maybe you used some skills along with luck. :)
    11 Oct 2013, 02:47 AM Reply Like
  • SDS I agree.......I went from 5% about 70% cash in the late summer of 08 and put about 30% of that back in in late 08 thru 09. Have been slowly and specifically adding a little to my positons since then and now am down to about 20% cash (my bull market target) which is always building because I am primarily a dgi investor since 09.
    I was more of a buy and hold guy so it was not easy to go to so much cash....but i had lost a fortune 2000 to 2002 by holding on to some internet titans....and that humbling gave me the nerve to go to so much cash in 08.
    I still have to deal with greed....because I have a lot of cash and am getting .1% it is difficult to wait to deploy the cash until we get a broad based 20% correction which is my plan for putting half my cash back into dgi stocks......it's been a hell of a bull these last 5 years.....
    nevertheless I will wait cos' what goes up will come down (unless it leaves orbit which I think is unlikely)
    10 Nov 2013, 12:18 PM Reply Like
  • Author’s reply » easyrob,
    I became a DGi in 2006 with idea to hold good stocks forever. It wasn't easy for me to sell in spring of 2008 but cash payed off in summer/fall of 2009. I also wait now market correction to deploy the cash but I don't have target how much to spend (well I guess retirees should be more careful when folk who can save part of their salary).
    SDS
    10 Nov 2013, 03:58 PM Reply Like
  • I've now very little W-2 income and it absolutely changes the psychology of investing for me. At 60 I've much less opportunity to recoup losses. Read an article here by DVK (2010), emphasizing the concept of a "business plan" for investing and decided to create a set of criteria as guidelines for my reaction to markets and the purchase/selling of positions. It has been very helpful for me. I still set aside 5% of the portfolio as "mad money" to feed the gambler in me, ha
    Thanks for your contributions here.
    10 Nov 2013, 09:58 PM Reply Like
  • "Mad money"...easyrob...you've got it right... Gotta do it..so am I
    27 Dec 2013, 04:52 PM Reply Like
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