Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (410)	6/19/1998 7:45:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

>But, Graham, near the beginning of the Intelligent Investor, points >out that 20 years of dollar cost averaging on the DJIA, starting in >the worst possible year, January 1929, would nonetheless have yielded >a very respectful 8% annualized, well ahead of cash, bonds, gold, or >real estate. Based upon the past 200 years, for the long term >conservative investor, I can't conceive of what would have more >margin of safety than dollar cost averaging in a large cap indexing >product. What you say is true. However the whole point of the extra work we do as analyst/investors is to try to improve on those returns. This can only really be accomplished by concentrating your purchases in cheap stocks (which usually appear in cheap markets) and possibly selling overpriced ones (in markets like todays). In order to shoot elephants you need a gun! Meaning you must have cash available before the bargains become present.

To: porcupine --''''> who wrote (410)	7/18/1998 2:30:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

[#517] [Wayne:] "But purchases made in the 1927-1929 period were under water or close too it 20 years later." [porc:] "Not if they had dollar-cost-averaged." My statement is technically incorrect. What I meant to say was that the "portfolio" would not have been underwater 20 years later -- in fact, as stated several times elsewhere, it would have been up by 8% annually. To refocus, yet again, what I wrote, in part, in #519 (which is consistent with what I have been writing for more than 3 years), was: "In this light, my prediction remains that over the 20+ year time frame that people are typically investing for, very few part-time investors will be able to outperform dollar-cost-averaging into a low-fee Indexing product." "Yes, but.......................................................", is not really "yes", so much as it is "but.......................................................". These "buts" serve to frighten and confuse the average investor -- and encourage him or her to pursue a course that is all but statistically certain to fail to outperform the simple advice of dollar-cost-averaging into a low-fee Indexing product. Yes, stocks bought in 1929 took a long time to return to their purchase price. That's the whole point of dollar cost averaging: We don't know in advance which is the 1929 and which is the 1933 (Graham certainly didn't), but we do know in advance that the bargain priced shares have always made up for the overpriced shares over a 20 year time frame. We also know that missing a bottom by one month out of every 12 has been severely penalized over the long run (5% annually). And, we know that a mechanical d-c-a program takes out all of the guesswork about which months to be in the Market and which months to be out, unlike pondering how high is too high, etc. As Graham commented, vast fortunes can be made by getting out at Market tops and back in at bottoms, but the likelihood of the average investor succeeding in this course is similar to that of finding money growing on trees in the backyard. [#509:] [Wayne:] "No doubt. Most investors should dollar cost average." I have to agree with Wayne on this one --'''':>