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reddingrunner (97.46)

Fully Invested: The Key to Success?

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March 08, 2013 – Comments (14)

To be honest, I think that most of my success over the past 8 years has been due not to stock picking skills (though that has helped some) but to the simple strategy of staying fully invested.  Not that I don't have any bonds or alternative investments, but, with regard to the portion of my portfolio allocated to stocks (based on a % based on my age) I have stayed fully invested in equities and out of cash (with rare and brief exceptions that didn't do me any good).

Yes, in 2008-9 I rode it all the way down to the March '09 bottom.  Lost a lot of money.  Rode it all the way back up (and then some) subsequently while others were dithering.

There are two unassailable reasons why this works:

1.  Over time, the market always beats cash.  If your time frame is over 10 years (and the world as we know it doesn't come to an end), you'll always do better with 100% equities than with any other ratio.

2.  No one can successfully time the market consistently.  Get out at the right time and back in at the right time?  Maybe once or twice out of sheer luck, just enough to make you overconfident.  Setting aside cash to buy more stocks when they go down?  They may never be this low again.  If you had tried that last fall, before the fiscal cliff and sequestration and all, you would have had a bunch of cash sitting around idle while the market had four huge months.  You might be able to pick winning stocks over 50% of the time (I do).  But you can't time the market.  No one can.  

If both of those are true, you will make more money by staying 100% - 0% equities to cash than you would by any other ratio (realistically 1-2% cash just because you don't need to buy a new stock the instant you sell an old one).

I consider this one of the inviolable rules of investing.  It will work if you are investing for yourself and have the stomach for it.  It won't work if you are investing for others because they will panic and tell you to sell (and later buy) at the wrong times. 

14 Comments – Post Your Own

#1) On March 08, 2013 at 5:30 PM, EnigmaDude (98.11) wrote:

Did you really lose money in 2009?  Only if you sold stocks did you lose.  If you stayed fully invested as you say then it was just a paper loss.

But overall I agree with you.  The trick is being able to stay fully invested as the market goes through its gyrations and having enough cash set aside for living expenses/emergencies to avoid having to sell at the lows.

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#2) On March 08, 2013 at 5:33 PM, Option1307 (29.96) wrote:

I would argue that one of the most important aspects of successful investing is to always have some cash on the sidelines available for buys. The number can depend on your personal preference but maybe 10%

I'm not suggesting you need to time the market or that is even possible, but it is rather easy to buy whenever there are overall market corrections. That is, stay invested with your 90% or whatever and simply add to your shares when there is a good opportunity via a market correction or individual stock opportunity.

No market timing here, just good use of your resources and cash when the market gives you the opportunity.

 

 

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#3) On March 08, 2013 at 6:28 PM, Valyooo (99.67) wrote:

Ill never understand how some people believe you can pick successful companies, but not time the market. What makes you think that identifying macro trends is impossible but that discerning which companies have been improperly priced by the market is possible?

I believe you can time the market (not to the tick, but getting out in 2007 and back in 2009. I also believe you can pick the right stocks. But I don't see how you can believe one and not the other

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#4) On March 08, 2013 at 8:38 PM, reddingrunner (97.46) wrote:

Valyooo, this didn't look too accurate to me:

http://caps.fool.com/Blogs/my-correction-prediction-for/770576

Nor this:

http://caps.fool.com/Blogs/market-top/711946

If you can tell us when the next big correction is coming we'd all appreciate it.  

As for how I can believe one and not the other, there are great stock pickers out there, but there aren't any great timers- at any moment some are saying one thing and some are saying the opposite so someone will always be right, but no one has proven the ability to be right consistently and the great ones (Buffet, Kass, etc) admit that they can't.  What do you know that they don't?

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#5) On March 08, 2013 at 8:40 PM, reddingrunner (97.46) wrote:

Option:

If you always have 10% cash, that's 10% of your portfolio that isn't earning anything.  If you spend the 10% to buy stocks during a correction, what if the market keeps correcting?  While you are waiting for a correction, the market can go up a long way and never come back down again.  If the market is at 10 and you are holding cash waiting for a correction, it might go up to 13 and then correct to 11.  I like your theory, it just doesn't add alpha in practice. 

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#6) On March 08, 2013 at 8:58 PM, awallejr (82.68) wrote:

Well Val here:

http://caps.fool.com/Blogs/overbought-at-its-peak-bull/797877

Market at the time of that blog was under 14k when you were challenging the market direction. Market is up more than 400 points since.  Come Monday the market could start a correction or it can continue to grind higher.

And Red while conceptually I consider the market a great way to accumulate wealth, there are many companies  that still haven't recovered their losses from the great crash.  If you bought C in 2007 for $50 and kept it throughout, it is still selling for less than $5 (discounting the stock reversal).

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#7) On March 09, 2013 at 12:45 AM, tomlongrpv (81.96) wrote:

Interesting.  I have some cash now but only because I am too stupid to figure out what to buy.  Or perhaps I would have more cash but I am too stupid to figure out what to sell. 

In general your logic makes sense to me.  Whatever return someone might pay me for my cash it is because they think they can take my cash and invest it at a profit.  Well why shouldn't I invest that same cash myself and pocket that profit?

In general I have trouble figuring out what to buy except when it is blindigly obvious (like late 08 and early 09 when you could buy almost anything).  So where possible I am lazy and arrange dividend reinvestment.  But I still have to deal with each year's new money and it sometimes takes me a whole year to figure out what to do with that new money.

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#8) On March 09, 2013 at 2:08 AM, reddingrunner (97.46) wrote:

tomiongrpv: if you have cash because you are taking your time, there is nothing wrong with that.  there is such a thing as being too slow to pull the trigger but being too fast is worse.

If you need to know where to invest, just follow my advice in my blogs!  each week i tell what i have purchased (for real) and sold. overall, i'm consistently beating the market.  (though, as they say, yesterday is no guarantee of tomorrow).

 

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#9) On March 09, 2013 at 2:27 AM, awallejr (82.68) wrote:

Tom I really urge buying into mlps, bdcs, or reits if you don't mind dealing with the K-1s come tax time.  Intuit does make it pretty easy except you do wind up filing income tax returns in early
April.  So what.

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#10) On March 09, 2013 at 2:10 PM, Option1307 (29.96) wrote:

Redding:

Well I guess we agree to disagree.

i just don't get it, it seems so obvious to me to have cash on the sidelines that you can disperse and buy on market dips. 

Market corrections happen, that's a simple fact of life. Why not take advantage of them and set yourself up for increased gains etc?

I understand that by having a small percent of your portfolio on the sidelines you may miss some gains, sure that's possible. But when a correction or opportunity does present itself you have cash to deploy and buy when the situation is more advantageous.

Its better to buy after things have settled out and corrected slightly then when things are going continuously upwards. The odds are more in your favor after corrections 

  

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#11) On March 09, 2013 at 3:10 PM, tomlongrpv (81.96) wrote:

Well I just dumped some poor performers for me DGS and TLM.  Thinking of dumping TEVA.  I also dumped ABBV in light of the future risks.  With these transactions and my new annual contribution I will have over $100,000 sitting on the sidelines waiting to be reinvested until I figure it out and I don't have much time and I am not too good at research so it may take a while.  Not conscious market timing on my part but just a way station in between investments.  I don't like it but what is the alternative?

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#12) On March 11, 2013 at 2:56 AM, jiltin (22.72) wrote:

 

reddingrunner,

 

May I know the yearly percentage return on investment based on your last 6 years experience?

 This is just to know average return on stocks on yearly basis?

 I am new to stcoks and would like know whether returns are greater than 20% based on loss and gain overall.

 

 

 

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#13) On March 11, 2013 at 10:52 AM, reddingrunner (97.46) wrote:

Option: We do have to do only what we feel comfortable with.  My position is the more unorthodox one.

Tomion...: If it was me, I'd stick it in an index etf (actually several for diversification) while I was deciding.

jiltin: I'm happy if I can beat the S&P by a couple points a year given my diversification.  that's about what I've been doing.  I think Doug Kass has researched and determined that pretty much no one is doing better than 16% per year in stocks over the long haul. 

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#14) On March 16, 2013 at 1:40 PM, tomlongrpv (81.96) wrote:

Which index?  Even choosing index ETFs seems difficult.  I now have about $50,000 just sitting.

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