My experience of March 2009 was that I was fully invested 2 months prior to the bottom and had nothing to bet with - there are two losses in my mind: capital loss and opportunity loss.
And both are only known in the hindsight.
OK, I am not for 100% stock-0% cash allocations. However, it is stupid when people say "oh, if only I didn't put all my cash into stocks in Jan 2009, I coulda bought at bottom in March 2009". No, in Jan 2009 you did not know that the bottom will be in March. And in March, you did not know either that it was the bottom and that market won't go lower in May. So you only could have had 20% cash in January and 0% cash in March by chance.
There are 3 feasible approaches:
- You spend cash while market is dropping. You are very likely to be out of cash before bottom. (I am somewhat in this camp).
- You never go below X% cash. (Buffett is in this camp). Well, you will have cash at the bottom, but it will stay cash, so you can't boast that you bought at the bottom.
- You only spend cash when the market is recovering after bottom. (Dale is in this camp, AFAIK). Once again, you won't have bought at the bottom.
In all three scenarios you have similar experience as you had in March 2009.
Anyone who says that they had 50% cash and spent it all at the exact bottom is either extremely lucky or boasting at the party. It is not believable and even if it's a fact, it's not repeatable.
Sure, you can try to distribute cash spending so that you won't run out of it today or this week. But if the downturn takes 6-9 months like it was in 2008-2009, it's very likely that you either will run out of cash before bottom or that you will have cash during the bottom and after it and it won't be all used for investments at cheapest price.
And coming back to your statement:
opportunity loss - yes, but hitting the bottom is not opportunity, it's winning the lottery chance.
capital loss - no, if you did not sell at the bottom. You would not call it capital loss if stock went from $10 to $12 and you bought it there and it went to $15, so why would you call it capital loss if stock was at $12, you bought it and then it went to $10 and back to $15? |
