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Is it time to get out of stock market?

Big Rig

Well-known member
May 6, 2009
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Is it time to go to cash and wait for a market drop before getting back in?

I know market timing is a fools game but still... sell high and buy low ... market is high right now and if you are all in how can you buy low?
 

wbh32

Member
May 4, 2015
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I don't think anyone can answer that for you.

There's no question the markets as well as real estate are on a prolonged run, so do you wait for a correction for one or both? I don't think its the time to be all in, but that doesn't mean you should cash out completely either.
 

nosidam

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May 12, 2008
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Market seems to have a major correction every 7 years and it's getting to that time now. Good companies I just hold on to but I sold my s&p 500 index fund and waiting to go back in when prices go down.
 

onceaday

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Sep 28, 2015
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It always pays to be properly hedged when the market is @ cycle highs as is the case currently. It is relatively easy for retail investors to "take out insurance" through various volatility ETF's (see link), reduction in long positions/increased cash position.

As the OP mentioned it is impossible to time this with any precision. That said the stocks that will get hammered first and hardest will be those with bloated PE's often NASDAQ high flyers - most of these also have no dividend to cushion the blow.

Have a list of some great stocks to buy in the event of a big correction and then have the balls to buy them when the time comes. G/L

http://www.investopedia.com/articles/etfs/top-etfs-short-market/
 

Big Rig

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May 6, 2009
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ETFs seems like a new concern that the market does not account for. Trillions tied up in them. They may be overvalued and could tumble so fast any stop loss will not kick in as there will be no buyers.

But, if you go to cash and wait then meanwhile the market goes up 30% before correcting 20% you have lost 10%.
 

onceaday

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Sep 28, 2015
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ETFs seems like a new concern that the market does not account for. Trillions tied up in them. They may be overvalued and could tumble so fast any stop loss will not kick in as there will be no buyers.
Rig, it doesn't work that way. For every sale of a share there has to be a buyer = liquidity. If there are "no buyers" of shares there can be no sellers = share price doesn't move (btw this is a bad situation also).

S/L's are explained here: http://www.investopedia.com/ask/answers/04/022704.asp Note that there are scenarios where your S/L will not fire, such as when a stock opens below the S/L due to a sudden drop (bad news, earnings miss, etc.) after/pre market trading hours.

But, if you go to cash and wait then meanwhile the market goes up 30% before correcting 20% you have lost 10%.
Nobody goes to 100% cash but may increase their %age cash position from say 10-20% to 30-40% in order to de-risk and/or buy shares in the event of a market downturn if they feel a correction is imminent.
G/L
 

Big Rig

Well-known member
May 6, 2009
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Rig, it doesn't work that way. For every sale of a share there has to be a buyer = liquidity. If there are "no buyers" of shares there can be no sellers = share price doesn't move (btw this is a bad situation also).

S/L's are explained here: http://www.investopedia.com/ask/answers/04/022704.asp Note that there are scenarios where your S/L will not fire, such as when a stock opens below the S/L due to a sudden drop (bad news, earnings miss, etc.) after/pre market trading hours.



Nobody goes to 100% cash but may increase their %age cash position from say 10-20% to 30-40% in order to de-risk and/or buy shares in the event of a market downturn if they feel a correction is imminent.
G/L
OK. But WTF happens with a stop loss if there is a sudden crash like the market loses a huge percentage in one day or even a few hours ? Will your order always get filled if your stock falls?

I am having difficulty conceptualizing a drastic sell off.

Say my stop loss is set at $10 and the market will only give me $2 in a market collapse. Is not my stock now worth $2 ? Is not my stop loss contingent on someone willing to pay $10 for my stock? It is not like every point between the current price and the price after a collapse is covered to guarantee a sale. Price could go from $10 to $2 with no other offer between those two points ever made, correct ?

Am I not correct in stating a stop loss may not work in a collapse?
 

wbh32

Member
May 4, 2015
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I'm not an expert...but my understanding is this....

With a Stop Loss order in the scenario you represented your shares would be sold at $2.
With a Stop limit order your shares would not be sold(assuming you put the limit at lets say $9.50).

In my opinion the bigger issue with ETF's is flash crashes. Where the ETF value diverges from what the underlying stock value. The ETF price can drop and come back up in less than a second, and your stop loss or Stop limit could sell your shares and you'd be like....wtf? why?
 

onceaday

New member
Sep 28, 2015
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@Rig @wbh32 If you read the link in my prior post and the one here you will have a much better idea of the process. To make a very long story short S/L's can be technically very complicated, have their place in active trading, but can provide equal measures of "safety" and risk especially when used incorrectly. I use them sparingly and review them regularly (IE daily).

https://www.theglobeandmail.com/glo...rder-is-a-double-edged-sword/article17513501/

If you prefer ETF's/Index Funds this guy is local and has a solid take on the space. G/L

http://canadiancouchpotato.com/
 

Big Rig

Well-known member
May 6, 2009
1,913
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I'm not an expert...but my understanding is this....

With a Stop Loss order in the scenario you represented your shares would be sold at $2.
With a Stop limit order your shares would not be sold(assuming you put the limit at lets say $9.50).

In my opinion the bigger issue with ETF's is flash crashes. Where the ETF value diverges from what the underlying stock value. The ETF price can drop and come back up in less than a second, and your stop loss or Stop limit could sell your shares and you'd be like....wtf? why?
That is my point with ETFs. There is no guarantee their price matches their intrinsic value and during a sudden crash it seems to me you could lose huge as the ETF crashes below intrinsic values.


But the attraction of so small cost to buy an ETF compared to mutual funds is hard to resist as mutual funds do not beat the market and ETFs will match it ( except in the scenario I outlined is my fear of ETFs) The argument that some mutual funds outperform the index so buy those funds is false reasoning. With so many mutual funds out there some will beat the average by mere chance, even over the long term, but past performance is no guarantee of anything
 

Big Rig

Well-known member
May 6, 2009
1,913
64
48
@Rig @wbh32 If you read the link in my prior post and the one here you will have a much better idea of the process. To make a very long story short S/L's can be technically very complicated, have their place in active trading, but can provide equal measures of "safety" and risk especially when used incorrectly. I use them sparingly and review them regularly (IE daily).

https://www.theglobeandmail.com/glo...rder-is-a-double-edged-sword/article17513501/

If you prefer ETF's/Index Funds this guy is local and has a solid take on the space. G/L

http://canadiancouchpotato.com/
Just as I suspected. You got to know WTF you are doing to mess with a stop loss and I do not know WTF I am doing.
 
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