Chapter 44 [There Is No Perfect Way to Buy in This World]

Source:https://www.facebook.com/100063294665283/posts/602217365231414/

[James Origins and Today] Chapter 44 - There Is No Perfect Way to Buy in This World (06/20/2023)

Previously, in 2022, someone sold a house and asked me how to put the funds into the market. I suggested buying in batches. I was still optimistic about the overall market! But for many people who are not mentally ready, going all in is too strong an action.

To help ordinary people avoid fearing the market, buying in batches may feel like a good method (and it is only a feeling). But statistically, its performance is not as good as lump-sum buying. This has already been proven in many research papers.

If you had bought in twelve monthly batches over the past year or so (2021), you would have happened to buy at the mountain peak. Of course, buying a lump sum exactly at the highest point is also painful, but it also gives you a chance to buy at the low point of a year (2022). In terms of probability, the market rises forever. Over the past twelve years (2009-2023), the market rose almost every year, so buying a lump sum at any time was correct. Only 2021-2022 formed a top. From mid-2021 to 2022, lump-sum buying may have had a short-term loss, but buying in batches was not better than lump-sum buying.

Unless you do not invest and keep holding cash, that is not the question of how ordinary investors should buy. Over the past twelve years, in eleven of them, putting in a lump sum at any time was good. The expected success rate of lump-sum buying in the market is 91%, so lump-sum buying is still good. But ordinary people cannot do it, so they can only buy in batches, though they should not drag it out too long.

Only if the market keeps falling for the next year (in a stock market where indexes keep rising forever, declines are the minority of time), and only if you can know in advance that the future will keep falling for more than a year, does buying in batches make sense. Otherwise, whether the market is topping, trending upward, or moving sideways, the expected value of lump-sum buying is better than buying in batches.

Any way of buying is acceptable. In the short term, it is impossible to compare which is good or bad. It is hard to prove in the short term that any method can increase the return rate, but over the long term you can see the power of a lump sum. For ordinary people, both buying in batches and buying in one lump sum are difficult. When buying in batches, if the market rises, you want to wait for a pullback; if the market falls, you want to see whether it will fall more. In the end, buying in batches is usually not better than buying a lump sum. This is the average situation.

There is no good and perfect way to buy in this world. No matter how you buy, as long as you buy U.S. broad-market index funds at any time, and more importantly hold for the long term and never sell no matter what, you can become wealthy. Buying is not the absolute factor that determines investment success. Long-term holding, unmoved like a mountain, is the key.

When fear is greatest, you must be brave!