Red Dow Investing Technique?

[Singuy]

I was discussing about this with my co-workers yesterday and I am wondering if this idea is a totally bad idea.

The concept is to invest and hold into ETF at 430pm ONLY on days when the dow is red(probably more than 50 basis point).

You add the concept of dollar cost averaging plus red dow.

Say you have 2k to invest per month. Normally you just invest on the 30th of every month.

Now we split 2k into 4 pots of 500 each and randomly pick 4 days of red dows within the month.

We figured this works well in a bear market, but not sure about a bull market.

[Nutria]

Sounds like market timing.

And you're right about -- by definition -- there being significantly fewer red days in a bull market than in a bear or flat market.

[tripods68]

My co-worker said market timing does not work for the most part unless you are constantly tracking every minute/hour and know what you are doing.

But let us know how it turns out for you.

[Jluke]

Why not utilize a Market Limit Order to purchase a stock at a price you are comfortable with?

For instance, prior to earnings I put a limit order in for AAPL to execute at $85/share. it only went down to $90 so the order didn't go through but it is still pending.

If you're not in a hurry to add shares, this could be an approach. It involves guesswork but given price fluctuations (non-mutual funds) it can work or you can miss out. I believe the term is moat when determining a price below the current NAV that you are comfortable getting in at. Buy a great company at a good price is another saying (if I got that quote exactly right).

disclaimer: this is not my primary investing strategy.

[Singuy]

I am basing this on two principles.

1. There will always be market crashes/corrections
2. Stocks will always go up.

Based on clause number #2, whenever you buy today will always be low compared to the stock market 30 years from today.

I just feel because of clause #1, you can always buy at a lower price in a short term sense since stocks goes up and down even during bull markets. The thinking is , if you always buy on red days, then you are always getting a lower price compared to yesterday.

[Nutria]

I just feel because of clause #1, you can always buy at a lower price in a short term sense since stocks goes up and down even during bull markets. The thinking is , if you always buy on red days, then you are always getting a lower price compared to yesterday.

I'm sure it can be modeled. Daily Dow and S&P 500 data is out there, so you should be able to compare the performance of blind DCA investments (on, say, the end of four whole weeks in the month) of every month vs. "Four Red Days".

Tell us which would have come out better over the last 30 years, and by how much.

[sv2007]

I am basing this on two principles.

1. There will always be market crashes/corrections
2. Stocks will always go up.

Based on clause number #2, whenever you buy today will always be low compared to the stock market 30 years from today.

I just feel because of clause #1, you can always buy at a lower price in a short term sense since stocks goes up and down even during bull markets. The thinking is , if you always buy on red days, then you are always getting a lower price compared to yesterday.

Right away your #1 and #2 contradicts each other.

Also, your assumption that whatever you buy today will be < 30yr from now is not true; easily proven by historical data. Imagine if bought GM 30 yrs ago (which at one time was the benchmark, what's good for gm is..).

What you say sounds like very primitive technical trading. You can look into technical trading very easy to do these days. No need to do a half-baked strategy there if that's what you are looking for.

[TexasHusker]

unfortunately there are no magic formulas for playing the stock market online poker game. But if you find one let us know!

[Nutria]

Right away your #1 and #2 contradicts each other.

Also, your assumption that whatever you buy today will be < 30yr from now is not true; easily proven by historical data. Imagine if bought GM 30 yrs ago (which at one time was the benchmark, what's good for gm is..).

Since he qualified this with invest and hold into ETF, the failure of individual stocks is greatly diluted by the success and replacement by others.

[corn18]

I don't see any downside to this approach as long as you don't miss a day that the markets are up 2% waiting for the day they are down.

[Singuy]

I don't see any downside to this approach as long as you don't miss a day that the markets are up 2% waiting for the day they are down.

I feel that with just putting your money into an index fund once a month for dollar cost averaging type of investment get you to lose out on those 2% up swings as well unless you get lucky.

I believe this type of investing I mentioned above coincides with what warren buffet said about "be fearfulful when everyone is greedy. Be greedy when everyone is fearful".

The two clause contradicts each other in a way, but explains index funds and s&p 500 to the tee.

[jIM_Ohio]

Financial success depends more on personal habits than on the markets or tactical investing decisions.

I know many people which invest, I only know one which times well, and he does it with options, so when he does it, he amplifies success and agonizes over failure, however 3 houses later his success is higher than the sum of his failures.

Most people need to focus on personal habits

spend less than they earn
invest/save regularly
research big decisions thoroughly

[feh]

I was discussing about this with my co-workers yesterday and I am wondering if this idea is a totally bad idea.

The concept is to invest and hold into ETF at 430pm ONLY on days when the dow is red(probably more than 50 basis point).

You add the concept of dollar cost averaging plus red dow.

Say you have 2k to invest per month. Normally you just invest on the 30th of every month.

Now we split 2k into 4 pots of 500 each and randomly pick 4 days of red dows within the month.

We figured this works well in a bear market, but not sure about a bull market.

If such a simple algorithm produced above average market returns, it would've been common knowledge long ago.

Invest money as soon as you can. Anything else is just speculation/market timing.