Selling or buying the dip ?! BTD sounds good in theory, but then so does "buy low, sell high". Easier said than done.
1. Where does the cash come from?
2. When does one pull the trigger, i.e. how much does the dip need to be to buy?
The examples below are not intended to "prove" that BTD doesn't work. Sometimes it does, sometimes it doesn't. Obviously if one waits for too large a dip before buying, one is stuck holding cash forever. And if one pulls the trigger on small dips, one risks losing a little bit on most buys - there are frequent small dips that don't bring the market back down to below where you started.
So I'm curious about how people choose their thresholds and where they get their cash.
Here are some sample scenarios starting on Oct 1, 2020 (roughly a year ago), comparing BTD with "buy when cash is available". I use VFIAX as the investment vehicle and market proxy. Red font indicates longer delays (more than a month) before investing on a dip.
For Q1 (where does the cash come from), I have worked through two hypotheticals:
a) One starts with $1200 on Oct 1
b) One has a spare $100 (perhaps from income) at the beginning of each month ($1200 total)
For Q2 (when to buy the dip), I've worked through 1%, 2%, 3%, 4%, 5%, 6%, 7% triggers. There were no dips of 8% or more over the past year.
Lump sum investing: 33.6844% gain on $1200 = $404.21 gain (returns from M*)
Lump sum, invest on dip (on day fund drops specified percentage):
1% dip (Oct 12-Oct 14): 29.4760% gain on $1200 = $353.71 gain
2%, 3% dips (Oct 12 - Oct 19): 31.8043% gain on $1200 = $381.65 gain
4% dip (Oct 12 - Oct 27): 33.1892% gain on $1200 = $398.27 gain
5%, 6%, 7% dips (Oct 12 - Oct 28): 38.0612% on $1200 = $456.73 gain; these are winners
To come out ahead in this time frame with a lump sum and waiting for a dip, one must wait for a 5% - 7% dip. Any faster trigger and one gains less. Any slower trigger, i.e. waiting for an 8%+ dip that never comes, and one is left holding cash and losing out on a $400 gain.
Monthly $100 investing (not waiting for dip):
Oct 1: 33.68% x $100 = $33.68 gain
Nov 2: 36.40% x $100 = $36.40 gain
Dec 1: 23.07% x $100 = $23.07 gain
Jan 4: 21.64% x $100 = $21.64 gain
Feb 1: 19.13% x $100 = $19.13 gain
Mar 1: 15.08% x $100 = $15.08 gain
Apr 1: 11.56% x $100 = $11.56 gain
May 3: 6.87% x $100 = $6.87 gain
June 1: 6.47% x $100 = $6.47 gain
July 1: 3.45% x $100 = $3.45 gain
Aug. 2: 1.78% x $100 = $1.78 gain
Sept. 1: -1.44% x $100 = -$1.44 (loss)
Total gain: $177.69
----------------------
Monthly $100 investing, waiting for a 1% dip:
Oct 1, dip Oct 12-14, 29.48% x $100 = $29.48 gain
Nov 2, dip Nov 16-18, 26.40% x $100 = $26.40 gain
Dec 1, dip Dec 8 -11, 22.97% x $100 = $22.97 gain
Jan 4, dip Jan 8 - 15, 19.38% x $100 = $19.38 gain
Feb 1, dip Feb 12-22, 15.87% x $100 = $15.87 gain
Mar 1, dip March 1 - 3, 17.37% x $100 = $17.37 gain
Apr 1, dip April 16 - 20, 8.39% x $100 = $8.39 gain
May 3, dip May 7 - 10, 6.94% x $100 = $6.94 gain
June 1, dip Jun 14 - 18, 7.30% x $100 = $7.30 gain
July 1, dip July 12 - 16, 3.23% x $100 = $3.23 gain
Aug 2, dip Aug 16 - 18, 1.39% x $100 = $1.39 gain
Sept 1, dip Sep 2 - 10, -0.29% x $100 = - $0.29 (loss)
Total gain: $158.43
----------------------
Monthly $100 investing, waiting for a 2% dip:
Oct 1, dip Oct 12-19, 31.80% x $100 = $31.80 gain
Nov 2, dip Jan 25 - 27, 19.92% x $100 = $19.92 gain
Dec 1, dip Jan 25 - 27, 19.92% x $100 = $19.92 gain
Jan 4, dip Jan 25 - 27, 19.92% x $100 = $19.92 gain
Feb 1, dip Feb 12-25, 17.27% x $100 = $17.27 gain
Mar 1, dip March 1 - 3, 17.37% x $100 = $17.37 gain
Apr 1, dip May 7 - 12, 10.23% x $100 = $10.23 gain
May 1, dip May 7 - 12, 10.23% x $100 = $10.23 gain
June 1, dip Jun 14 - 18, 7.30% x $100 = $7.30 gain
July 1, dip July 12 - 19, 4.89% x $100 = $4.89 gain
Aug 2, dip Sept 2 - 14, 0.30% x $100 = $0.30 gain
Sept 1, dip Sept 2 - 14, 0.30% x $100 = $0.30 gain
Total gain: $159.45
----------------------
Monthly $100 investing, waiting for a 3% dip:
Oct 1, dip Oct 12-19, 31.80% x $100 = $31.80 gain
Nov 2, dip Jan 25 - 29, 21.08% x $100 = $21.08 gain
Dec 1, dip Jan 25 - 29, 21.08% x $100 = $21.08 gain
Jan 4, dip Jan 25 - 29, 21.08% x $100 = $21.08 gain
Feb 1, dip Feb 12-26, 17.82% x $100 = $17.82 gain
Mar 1, dip March 1 - 4, 19.12% x $100 = $19.12 gain
Apr 1, dip May 7 - 12, 10.23% x $100 = $10.23 gain
May 1, dip May 7 - 12, 10.23% x $100 = $10.23 gain
June 1, dip Sept 2 - 20, 2.25% x $100 = $2.25 gain
July 1, dip Sept 2 - 20, 2.25% x $100 = $2.25 gain
Aug 2, dip Sept 2 - 20, 2.25% x $100 = $2.25 gain
Sept 1, dip Sept 2 - 20, 2.25% x $100 = $2.25 gain
Total gain: $161.44
----------------------
Monthly $100 investing, waiting for a 4% dip:
Oct 1, dip Oct 12-27, 33.19% x $100 = $33.19 gain
There are no 4% or greater dips after October, so $1100 remains uninvested
Total gain: $33.19
----------------------
Monthly $100 investing, waiting for 5%, 6%, 7% dip:
Oct 1, dip Oct 12-28, 38.06% x $100 = $38.06 gain
There are no 4% or greater dips after October, so $1100 remains uninvested
Total gain: $38.06
Selling or buying the dip ?! @stillersI would add that there are way less outstanding shares/co's to purchase over the past 10-12 years..due to private co's having easier access to
capital no need to go public, sure buybacks, different less
capital intensive co's such as software based need less
capital so no rush to go to market, etc.
So would it be wrong to say that this is an "inflationary scenario" causing the market to continusouly rise due to supply/demand....more money chasing less product....
"Transitionary"...who knows??
Baseball Fan
Selling or buying the dip ?! "There must be some phenomenon market pundits have not been able to explain that is causing an overriding sentiment to keep the market in an upward trajectory and they are describing the symptom (BTD) as the cause."
No need to look for a phenomenon.
The list is pretty endless, and somewhat obvious.
Thinking out loud in no particular order...
1. Liquidity - a FED juiced market
2. Most bonds ain't worth the risk
3. Endless supply of new money - trillions of dollars on the sidelines
4. Inflation - while others worried/worry about it, we reallocated higher %'s to stocks starting late
2020 (We weren't/aren't alone in that strategy
5. Duh, the US stock markets have historically been/are still the best investments on the planet
6. Oh those millenials
https://www.yahoo.com/finance/news/hard-bearish-stock-market-risk-121500864.html7. Add any of a number of other reasons
Alternatively...
https://fifthperson.com/why-the-stock-market-keeps-rising/
4 ETFs for a 7% Yield Portfolio Really like HNDL, the others meh except for HIPS which is a train wreck.
Man, what does this tell you? :
HNDL, which is a fund-of-funds, has a target distribution strategy that you often find in the closed-end fund universe.
... On the downside, the fund's distribution is dependent upon the performance of the fund. If the share price goes down, your dividend also goes down.
... The fixed distribution strategy is the unique feature and must be watched closely because it has the potential to be good or bad. Because it aims to distribute an annualized rate of 7% of assets, HNDL needs to generate that type of total return in order for it to "stay above water".
The fund will, of course, distribute any income that is generated, but any shortfall from the 7% target needs to be made up by the fund's net assets. That could include capital gains generated by the fund or what's considered a "return of capital", which is essentially returning the investor's initial investment. ...
CrossingBridge Pre-Merger SPAC ETF The ETF launched on Tuesday under SOC.
"SPC is a renter, not an owner," said CrossingBridge's Founder and Portfolio Manager, David Sherman. "In other words, we aim to capture the fixed income nature of pre-merger SPACs purchased at a discount-to-collateral value with a potential equity pop from shareholders reacting favorably to an announced deal. But we are not interested in being an equity investor post-business combination – that is a whole different ballgame."
According to CrossingBridge, SPACs offer very similar characteristics to fixed income securities, which include:
· SPACs have a liquidation date which is equivalent to a bond's maturity date.
· SPAC common stock shareholders have a full-redemption right upon a business combination, similar to a change-of-control put provision found in corporate debt indentures.
· SPACs are fully collateralized by U.S. government securities for the benefit of SPAC common stock shareholders to be released upon a redemption or liquidation. Hence, when an investor purchases SPAC common stock below its pro rata trust account value and holds the security to redemption or liquidation date, the investor will receive a positive yield, similar to a fixed income security's yield to maturity.
· SPACs may have equity upside by participating in an attractive business combination. This upside is similar to a convertible bond with the added feature that SPAC investors may redeem their common shares for their collateral value rather than continue ownership post-transaction.
SPACs are not a new asset class for Sherman; he made his first SPAC investment over 15 years ago. Given the increased popularity and capital flowing into SPACs, Sherman has significantly increased the firm's exposure to SPACs during the past few years. CrossingBridge believes the market is now large and liquid enough to effectively manage SPAC-dedicated strategies.
"Our guiding principle has been, and will continue to be, that return of capital is more important than return on capital," emphasized Sherman
Selling or buying the dip ?! MCSMX Purchasing a toe hold as fund is down a couple of bucks from 52 week high.
I'll keep an eye on as two fairly new managers since 2020.
Derf
Xi Jinping Aims to Rein In Chinese Capitalism, Hew to Mao’s Socialist Vision But assuming Xi's rhetoric has teeth, the real play here is not to sell out of China completely, but to switch to small- and mid-cap China stocks.
The Matthews China "small companies" fund MCSMX (86% small & mid-cap) has stayed well ahead of the China Fund (19% small & mid cap) since January
2020. (They're both growth funds.) From that limited comparison, looks like that advice has been good for a while now.
Schwab’s New Twist on the Fee Wars - by Lewis Braham in Barron’s Schwab Raises Fees for Buying Fidelity and Vanguard Funds“After years of fee wars with other brokers, Charles Schwab is pushing back. Starting on Nov. 1, the cost for retail investors to buy Vanguard, Fidelity, and Dodge & Cox funds at the broker will rise from $49.95 to $74.95—a 50% increase. Similarly, at TD Ameritrade, which Schwab acquired in October 2020, prices for the same fund families will rise from $49.99 to $74.95 on Oct. 1.
“Schwab's stated reason for this shift is covering its record-keeping and other administrative costs. ‘The majority of mutual fund families pay Schwab/TD Ameritrade for necessary and important shareholder servicing expenses, but some do not,’ says Alison Wertheim, a representative for Schwab (ticker: SCHW), in an email. ‘We are applying this different amount on retail mutual fund purchases only for funds from which we do not receive shareholder servicing compensation in order to offset the expense we incur in providing shareholder servicing.’ But is it a coincidence that Schwab is raising prices on two fund families with brokerage divisions that are its biggest competitors and the source of the fee wars?”Excellent article. Delves into the history of the fee price wars, some of the causes and motivational factors and makes some inferences about where things may be heading.
From:
Barron’s - September 20, 2021
LINK (May require subscription to access complete article)
All that glitters is not gold
For I Bonds bought by October 31, the one year yield will likely be 4.8%This is understated. He's assuming 0% inflation in August and for September. It was 0.3% for the month of August, or 5.3% Y/Y Aug 2021/Aug
2020.
The combined return from November 1, 2021, through October 31, 2022, will therefore be close to the combination of 1.77% for the six months ending and the 3.07% (6.14% annualized) likely for the subsequent six months, if not higher. The total one year inflation component combining the two is 4.84%Assuming a savings bond purchased Nov 1, the inflation adjustments would be the Mar '21 - Sept '21 inflation rate for the first six months, then the Sept '21 - Mar '22 inflation rate. The old 1.77% rate (inflation Sept '20 - Mar '21) would be irrelevant.
OTOH if you were to purchase a savings bond before Nov, then you would get the rate as described for a year. But that year would start the in the month you purchased the savings bond and terminate before Oct 31, 2022. At that point you'd start getting the Sept '21 - Mar '22 inflation rate.
Either way, he's missing this future, completely unknown rate in what you'd earn through Oct 31, 2022.
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#changeIMHO, an argument for purchasing Series I savings bonds now instead of after Nov. 1 is that you're getting a guaranteed 3.54% (annualized) rate for six months in addition to whatever the future holds. Not too shabby.
One can argue about the defects of the Urban CPI but it's what is used for all important measures such as resets of Social Security payments. Bzzzt. Try again. CPI-W is used for the all important measure of
SS COLA.
For I Bonds bought by October 31, the one year yield will likely be 4.8%. You can buy $10,000 electronically at TreasuryDirect and another $5000 with your tax refund.Yes, but a couple can't buy $10K with their refund if they file jointly. The purchase amount is limited to $5K/savings bond type/filing. So a couple filing jointly could purchase just $5K, though they could purchase $5K each if they filed separate returns.
https://www.nytimes.com/2021/07/09/your-money/us-savings-bond-inflation.html I Bonds give you the opportunity to avoid this [tax on phantom income] problem by electing to defer taxes until maturity.Meaning that you have the option to pay tax annually, e.g. if the savings bond is in the name of a low income tax payer.
Not mentioned is the opportunity for a deceased savings bond owner to pay tax on accumulated interest to date of death. This can be advantageous if the deceased is in a low tax bracket (likely if retired), or in the alternative, if the deceased is subject to estate taxes at state or federal level. If the deceased elects to pay the deferred taxes after death, that reduces the size of the taxable estate. And similar to inheriting a Roth, the beneficiary inherits savings bonds with no built in tax liability. Though liability attaches going forward, as the savings bond continues to accrue interest.
PRWCX Cuts Equity Exposure As an aside, I believe “bank loans” are ST, floating rate (secured?) loans given to companies that couldn’t float a regular bond/loan…NOT loans taken out by banks. Less interest rate risk, but more credit risk (which seems ok at this point in economic cycle)
*snip*
In his previous interviews he mentioned that bank loans (or floating rate bonds) are attractive because of their high yield (3%) and short duration (1-2 years). Even though bank loans are rated junk, they are safer because they are high in capital structure in case of the banks defaulting on the loans. Also he mentioned that utilities are attractive and stable while offer 3-4% yield.
All that glitters is not gold Back in 2002-03, there was a lot of discussion in the media about impending hyper inflation after we entered Iraq and Afghan wars. From that time through
2020, IBonds (or inflation) disappointed. Federal Reserve repeatedly said for the past year that in its estimate the current uptick in inflation is going to be transitory. I do not know the future but neither do I have a reason to think Fed is not being sincere in its estimate of future inflation. See also
https://fred.stlouisfed.org/series/T5YIFR for what future inflation the market is currently pricing.
P.S.: I can not read the SA article.
PRWCX Cuts Equity Exposure Look like it was invested in TRP money market. Considering losing 2% annually to inflation is a small price to pay. When the opportunity presented itself as March 2020 where S&P 500 index went down 30% within 2 weeks, the 10% cash will allow one buy stocks with 30% discount. The Fed came in to rescue the market and it fully recovered by September. By year end, S&P500 gained over 18% for the year. PRWCX managed to gain 18.2% in 2020 while holding 10% cash.
PRWCX Cuts Equity Exposure To be accurate on the fund's holdings, go direct to the source - TRP annual and semiannual reports. As of 6/30/21, the semi-annual report stated:
bonds, 18% = 10.4% bank loans and 7.8% corporate bonds.
cash, 10%
Options, 1%
Stocks, 72%
Noted that Giroux is taking a bar-bell approach by holding high % of defensive sector such as utility (8.1%) while holding 16% technology.
https://prospectus-express.broadridge.com/summary.asp?doctype=semi&clientid=trowepll&fundid=77954M105In his previous interviews he mentioned that bank loans (or floating rate bonds) are attractive because of their high yield (3%) and short duration (1-2 years). Even though bank loans are rated junk, they are safer because they are high in
capital structure in case of the banks defaulting on the loans. Also he mentioned that utilities are attractive and stable while offer 3-4% yield.
