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Author: feleck Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75339  
Subject: Re: very uncomfortable Date: 7/24/2002 10:58 AM
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Hmmmmm??? So, you want to see a recovering market before you buy? When the market is low and valuations are looking good, it's not a good time to buy?

No, when the market is going down, its not a good time to gamble.

I mean, let's look at a fictional scenario. Let's say the market loses value at a rate of 5% a week. When it rebounds, it rebounds at 10% a week. You have 1000 dollars to invest.

You invest it now, and the market continues to go down for the next 6 weeks. So, at the end of 6 weeks, your 1000 dollars is now worth 735.0918
Then the market rebounds, for 6 weeks at 10% a week(making up for lost time) and than goes back to the common beleif of 10% a year. so your investment bounces back to 1302.2601 and than drops down to a sedate rate that in 20 years when you retire is worth 8760.9549

The scardy cat, however, decides to stick his 1000 in a small interest bearing acount(say almost 4% a year or .75% a week) untill he sees a rebound.

After 6 weeks, he has 1004.5084 than the rebound starts, at the end of 4 weeks he has 1007.5253 now he moves that into the S&P fund, picking up that 10% bonus for only 2 weeks instead of 6,
At the end of the 6 week rebound, he has 1219.1056 and than after 20 years, his investment will be worth 8201.5334

Yea, he only gets 93% of the person who decides to be risky. OTOH, if the rebound lasted only 5 weeks, he would have been ahead. And if the decline continued for 3 or 4 weeks more, he would have been ahead.

Certainly, if you are sure you will have no need for your money for the next 20-40 years, now is the time to buy. If your less sure, than waiting the downward slide out and than buying carries no shame.


Before you claim its superior to not wait, run the following numbers,
Assume someone had 50,000 to invest in 1965. If they purchased jus thte S&P 500 what would they have if they had sold it in 1995(well before its sharp decline). Than see how much they would have if they had sold their stake every time there was 6 consecutive weeks of declines, and purchased it back after 4 weeks of increases. I beleive you will find the difference between the two people to be negligible. But that is just my hunch.



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