Why Buying On the Dips Is Still All It’s Cracked Up to Be
Wall Street Journal columnist Jason Zweig wrote a puzzling article Why Buying on the Dips Isn’t All It’s Cracked Up to Be. The gist of it is that buying on the dips doesn’t work.
I find the article puzzling because it has a weird definition for buying on the dips. It defines a dip as a relatively large one-day drop. If the market reaches an all-time high and the very next day it drops say 2% or 5%, it’s a dip. The article goes on to show that, in the last 10 years, holding cash waiting for those "dips" didn’t beat investing a lump sum on day one.
Of course it wouldn’t. I don’t have access to the raw data used in the backtesting, but I would venture to guess that a large percentage of the one-day dips happened toward the end of the study period. Although prices were lower than those on the previous day, they were still still higher than several years before. That’s why buying on the dips, as defined by the article, didn’t work.
Fidelity Cash Back Rewards Cards
The 2% cash-back rewards card formerly known as Schwab Invest First Visa lasted a year and a half after Schwab officially ended its sponsorship back in April 2010. Like many other cardholders, I received a notice from the card issuer that it will be replaced effective Nov. 1, 2011.
The replacement card offers 3% cash-back for gas, 2% for groceries and 1% for everything else. Because I buy a lot more outside gas and groceries, the blended cash-back rate will be barely over 1% – not very appealing.
In addition, if I want a card just for gas and groceries, other cards pay a higher cash-back percentage for these two categories. PenFed Platinum Cash Rewards Visa pays 5% cash-back on gas. AmEx Blue Cash Preferred card pays 6% cash-back at supermarkets with a $75 annual fee (it beats a 2%-back card when you spend more than $160 a month at supermarkets).
Market Timing: Criticisms From John Bogle
In the previous post Market Timing vs Conservative Portfolio I explored a possible valid reason for market timing.
Proponents say that market timing isn’t so much for enhancing returns but for reducing risks. Although market timing underperforms the market, an investor with low risk tolerance would invest in a conservative portfolio anyway, which also underperforms the market. It’s not clear whether a portfolio that invests 50% in stocks all the time beats a portfolio that invests 70% in stocks at some times and 30% at some other times.
I continue to play devil’s advocate for market timing and see if it can be one of many roads to Dublin. Vanguard founder John Bogle strongly advocates indexing and buy-and-hold. He wrote about “the perils of market timing” in his book Enough. How do proponents of market timing answer the criticisms from Mr. Bogle? » Read more …
Market Timing vs Conservative Portfolio
After listening to Paul Merriman’s Sound Investing podcast, I found out that Paul Merriman does both indexing and market timing. He said of the $1.5 billion his company manages for clients, about 15% are invested in market timing strategies.
That’s quite peculiar. Usually people who follow indexing believe in market efficiency, which says it’s unlikely to beat the market through active management. Active management includes both security selection and market timing. I’m sure Mr. Merriman has read all the arguments against market timing. Why is he still doing it?
Instead of dismissing the practice as simply foolish or smoke and mirrors to woo clients, I decided to give Mr. Merriman the benefit of the doubt. After all he appears to be knowledgeable and experienced. I trust he has made an informed decision that indexing and market timing both have their place. Maybe he’s onto some nuances that I didn’t pay attention to before.
Merriman Online Workshop
While I was looking for more podcasts, I found Sound Investing by Paul Merriman. It then led me to a Merriman Online Workshop, which is a series of 33 short videos on YouTube.
Paul Merriman is the founder of fee-only investment advisory firm Merriman, Inc. in Seattle. According to its SEC disclosure form, the company manages $1.5 billion for about 2,000 clients. Most of the client assets are invested in passively managed mutual funds such as those from DFA and Vanguard.
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