Does it make sense to buy index funds in a depression?

[Scott Bradley]

When the stock market crashes and you feel the market is about at its lowest point after looking at the trends & the economy isn't doing well, isn't that a great time to buy mutual and index funds?

When stock prices are low enough, and the market eventually recovers, the prices of stocks will go up and we'll be making bank.

Instead of buying at a time when stock prices are high, the stock market then eventually crashes, and people end up selling their shares because they don't want to lose any more money

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[jon.a]

Control?

 

[jpmartin]

you feel the market is about at its lowest point

The problem is letting your feelings take control over your investing / trading. Can you really catch a falling knife?

Conventional wisdom states that its best to buy low and sell high... however, that is exactly what investors/traders don't do. There are a group of traders (like myself) that buy high and sell higher.

"The time to buy is when there's blood in the streets." - Baron Rothchilds.

Ok, the original quote is probably... "Buy when there's blood in the streets, even if the blood is your own."

 

[Scott Bradley]

The problem is letting your feelings take control over your investing / trading. Can you really catch a falling knife?

Conventional wisdom states that its best to buy low and sell high... however, that is exactly what investors/traders don't do. There are a group of traders (like myself) that buy high and sell higher.

"The time to buy is when there's blood in the streets." - Baron Rothchilds.

Ok, the original quote is probably... "Buy when there's blood in the streets, even if the blood is your own."

Why wouldn't you buy low? Why would you buy high?

After all buying low is what I've been doing when I've been in Ecommerce purchasing goods to resell for profit.

I don't see any difference

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[jon.a]

You're not investing, you're gambling. And, in a game with bad house odds.

 

[MarkNNelson]

Why wouldn't you buy low? Why would you buy high?

Well, because you don't really know what "low" is. As I'm typing this, the S&P 500 is at 1920. That's lower than the recent high of 2130, but is it "low"? Not if you look at a 10-year chart.

Not to speak for @jpmartin, but for me, I'd rather find an instrument that is trending up, and bet on it continuing in that direction until it shows otherwise. See Trend Following or Momentum Investing for examples of the thought process.

 

[theag]

http://www.investopedia.com/terms/d/dollarcostaveraging.asp

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[jpmartin]

Well, because you don't really know what "low" is.

Bingo. You took the words right out of my mouth!

Here are some screenshots from a course I'm preparing...

http://d.pr/i/13zpl
http://d.pr/i/1fNlw
http://d.pr/i/WQCD
http://d.pr/i/ioLK
http://d.pr/i/Gxhz

If you'd like to learn more about how you can sign up, message me.
Cheers

 

[jpmartin]

http://www.investopedia.com/terms/d/dollarcostaveraging.asp

Instituted by the very same mutual fund industry to get you to invest more when the market goes against your position!

 

[Scott Bradley]

No I'm talking about when after the news reports start telling the masses that we are in a major depression.

And you look at a 60 year chart showing the ups and downs of the stock market.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Scott Bradley]

No I'm talking about when after the news reports start telling the masses that we are in a major depression.

And you look at a 60 year chart showing the ups and downs of the stock market.

And wasn't it that in 1929 - most of the people lost money but there were the very few who took advantage of the opportunity and amassed wealth.

 

[Shredder83]

When the stock market crashes and you feel the market is about at its lowest point after looking at the trends & the economy isn't doing well, isn't that a great time to buy mutual and index funds?

When stock prices are low enough, and the market eventually recovers, the prices of stocks will go up and we'll be making bank.

Instead of buying at a time when stock prices are high, the stock market then eventually crashes, and people end up selling their shares because they don't want to lose any more money

Historically, the US market has always made a recovery that eventually ended up higher than the preceding high before the crash. Without going too much in depth about this, you have to look at a few things to figure out whether the crash is legitimate and even STILL this will not be 100% method of getting the timing right but at least it will have you close to the bottom:
- 100 day moving avg. If the correction busts through this "floor", it's time to investigate further,
- major cataclysmic event,
- macro-economic activity. This one is hugely important currently... Everybody talks down the USD on how much it's getting printed and that he inflation will blow up our currency and the bottom will fall out of the stock market. Sorry to say but WE (USA) ARE THE PRETTIEST PIG OF THEM ALL!!! Period.
We have the most liquid market and BIG money will come here first if it's looking for an escape. Not EU, not China and definitely not Russia. World is awash with USD for a reason. It's the most commonly accepted currency and when sh%#t hits the fan people are buying dollars in PANIC!
- P/E ratio. In "normal times" this makes sense. In today's world, not so much for the reason stated above about the USD going higher.
- rising interest rates. Opposite to conventional school of though, this is bullish for the stock market. Take a look at historical values of interest rates rising and stock market activity.

As for an investment engine, I'd recommend buying index funds vs. mutual funds because of the carrying costs. Also, please mind the taxes... if you sell too soon, you'll be hit with capital gains. If you feel confident you can look at futures and options to leverage your investment as well. Leveraged ETF's are also a good way to get into it without much technical trading knowledge.

Happy investing!

Cheers,

Tomasz

 

[bringitnow28329]

When you invest in the stock market, and remember I said invest an not trade, you are betting that the market will rise in the following 10+ years. You have to understand there's no way to pick a bottom. You can analyze all the trends and the economic outlook but you will never pick the exact bottom. Regardless there are two ways to invest. Dollar cost averaging, meaning buy a small amount at a set interval in hopes of getting a lower average price, or just dumping your money in on a pull back at once price in hopes it doesn't go much lower. Either way in 10+ years the market should be higher so it really doesn't matter.

The fact is anytime you buy you have to be able to handle the volatility or risk. If you buy the market, aka the S&P 500, Dow or Nasdaq, you should understand you will potentially need to sit through a -50-60% loss assuming worse case scenario. If you can't stomach this risk you should not buy straight stock index fund/ETF and instead buy some bonds as well. This can reduce that risk to -20-30% if you have a mix of say 50% stocks and 50% bonds, but your return will be reduced as well. Also keep in mind bond yields are at all time lows and with the fed talking about raising rates as soon as this month, that means bond prices will decline, so again you have to be able to handle the unrealized loses or you should not be involved in the market (bond prices and interest rates are negatively correlated). Finally if you buy an index fund make sure it's ultra low cost like a Vanguard fund or ETF and stick to the plain vanilla. Just like any companies that sell certain products with a different packaging, and varying prices, the same happens in the financial services industry. Don't fall for the bs and over pay for an index fund. It is a passive investment and the portfolio manager doesn't doing anything so it should be cheap. Mutual fund sand active management is a scam basically. Don't fall for their under performance and high fees.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Unknown]

If it was 2009 then sure, but there's no way to tell if this market is going up or down. On a positive note if you are planning to buy stocks either way then at least you're paying less than you would have a month or two ago.

 

[jpmartin]

No I'm talking about when after the news reports start telling the masses that we are in a major depression.

By the time the news start talking about depression... you're already in the middle of it. Have you heard about Shadow Stats? John Williams the author who tracks a different set from what the Fed is publishing... says that the U.S. is already in a recession.

If you're familiar with Technical Analysis, you'll start to see cracks in the market... not easy, but take a birds eye view with 3 moving averages - short term (8 Day Moving Average), medium term (23 DMA) and long term (200 DMA) - and if you see the infamous death cross - you'll know that we're in the transition phase for what could be very nasty down turn. Of course, that means plenty of opportunities will come your way, when the reverse of those three indicators happen - that would be a good time to get in the market.

If you're familiar with cycles, then you might want to check this out.

 

[michalo]

of course it's logic to buy when it's low but it's easier said than done... but try you luck... you wil at least never lose any money because you won't buy anything (all the time you will be thinking "it's bottom nooo it's now nooo and now is going up again"). If you are 100% sure that "it's not bottom" you can always buy short positions... Gambling is good gambling is nice but don't call it investing.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[D11FYY]

By the time the news start talking about depression... you're already in the middle of it. Have you heard about Shadow Stats? John Williams the author who tracks a different set from what the Fed is publishing... says that the U.S. is already in a recession.

If you're familiar with Technical Analysis, you'll start to see cracks in the market... not easy, but take a birds eye view with 3 moving averages - short term (8 Day Moving Average), medium term (23 DMA) and long term (200 DMA) - and if you see the infamous death cross - you'll know that we're in the transition phase for what could be very nasty down turn. Of course, that means plenty of opportunities will come your way, when the reverse of those three indicators happen - that would be a good time to get in the market.

If you're familiar with cycles, then you might want to check this out.

Great article