To Capitulate or Not To Capitulate

[KTSPcalc]

I've been following the disparate discussions on the wisdom of holding when you're down (to not lock in losses) vs. getting out if it looks to get much worse. There's a smattering of these conversations in "Just Like Clockwork" and "Keep Calm Index," so I thought I'd start a thread so people could debate all in one place.

For myself, I have pretty mixed feelings. My seasonal strategy (166008) like many others moved to S mid-month and will keep me there until mid-February. So, I am down -10.79% at the moment. That stings - a lot - but I am not retiring any time soon and still have faith in seasonal strategies (if I was just holding S like I used to it would be worse).

But, a lot of folks I really respect here think we're not at the bottom (and I get the impression some think we're not even close to the bottom). See TSPsmart's post on "Final Support for SP500," for example.

So, what are people doing? Are you locking in the loss (or happily sitting tight because you never left G) because you think there is more misery to come? Or, do you think we're close to the floor - at least temporarily - so you're staying the course? Either way, I'd love to hear why.

[Aitrus]

Staying the course here. I learned the hard way - multiple times - that I don't know what the market's going to do. I've tried to learn how to read market bottoms and tops, and have failed miserably.

There have been times when I thought my read on the market, and that of others as well, all said that the market was going to continue going down, so I got out. I was wrong and it cost me money.

There were times when I thought the market was done going down and was going back up, so I bought back in. I was wrong then also, and it cost me money.

So instead of flailing around and trying to outguess the market using skills that I know to be faulty, I'm going to trust the system that I know inside and out. Yes, the approach will lose at times, but since I started using it I've done much better than I was doing before. And it's done better than if I'd done just basic buy-and-hold because I know that I don't have the emotional stamina to just close my eyes and throw good money after bad (or so it seems in buy-and-hold when the market's crashing).

In 2020, at the low point I was at -21%. I trusted my system and at the end of 2020 I was 39% to the good. I also make the losses easier by reminding myself that I plan my retirement using 7-8% CAGR, and that 12% a year or better is my goal. Anything past that is gravy. So the 39% I got in 2020 will help even out any loss I might have this year.

[bloobs]

As Aitrus says, for us commoners the odds are roughly 50/50 or thereabouts. A flip of the coin. No matter how some may be convinced they know where it will likely head tomorrow--only hindsight (empirical info) is ever 100% correct. Although a very small bunch of really powerful people with $$$$ may actually know better since they and their buddies (ahem Elon) proactively (directly or through their proxies) buy and sell massive quantities of these assets and actually influence the price action--but that's not us.

Accordingly there is no point in blaming yourself when, in hindsight, an IFT goes wrong. Just be comforted that your decision was previously quantified either by a TSPCALC research, TA, or some plausible approach.

What I do personally is rely on risk management principles and practices. Whenever and before I make a IFT I always construct a Plan B (aka mitigation plan) that directs me on what to do next if and when the market goes the other way than what my seasonal research foretold.

The plan could be as simple as:

"IF, per my seasonal, I buy into S to hold it for 20 trading days, it drops more than 5% by day 19 THEN I will hold on to it for 10 more trading days. The reasoning being that my TSPCALC research shows that staying invested for 10 more days only marginally increases that month's standard deviation and actually raises its historical mean."

IOW, do not make a rash, knee-jerk, EMOTIONAL decision (because that's what Elon wants all of us to do). Rationalize or better yet, justify it.

My 2 cents.

[Bubba]

Don't beat yourself up. It helps when you look here https://tspcalc.com/seasonal.php?ID=787 ... Deena-Ryan. Sometimes we feel completely alone, but its nice to see how others are doing as well. By checking that page, it makes me feel like we're in the same boat.

Having said that, some strategies are doing well others not so well. The investing "game" is a hard thing to play. It really pays to (a) see what type of investor you are (I'm probably too aggressive) and (b) it pays to decide what works best for you in the investing environment. If you're very conservative, you'll probably select a lower SD for your investment theme. If you go for the 200 MA, then you'll do things differently.

Finally, I would echo what Aitrus said. Sometimes things suck, but you never know when they'll turn around quickly.

I saw this yesterday and gave me some hope:

https://markets.businessinsider.com/new ... rat-2022-1

If you do decide to capitulate, don't beat yourself up. Losses can always be regained. It's more important to be able to sleep at night.

Best,

Bubba

[Aitrus]

"IF, per my seasonal, I buy into S to hold it for 20 trading days, it drops more than 5% by day 19 THEN I will hold on to it for 10 more trading days. The reasoning being that my TSPCALC research shows that staying invested for 10 more days only marginally increases that month's standard deviation and actually raises its historical mean."

Not to hijack the thread, but I really like this. Can you start another thread and explain how you did the research to come to this conclusion?

[bloobs]

"IF, per my seasonal, I buy into S to hold it for 20 trading days, it drops more than 5% by day 19 THEN I will hold on to it for 10 more trading days. The reasoning being that my TSPCALC research shows that staying invested for 10 more days only marginally increases that month's standard deviation and actually raises its historical mean."

Not to hijack the thread, but I really like this. Can you start another thread and explain how you did the research to come to this conclusion?

Aitrus, no need to create a new thread. For the example above, I simply use TSPCALC's brilliant "Seasonal Calculator" and "Results" sections (front page of the TSPCALC.COM):

1. I first enter my current strategy number in the "Go to Strategy" field, click Submit. This then brings up that strategy's IFT schedule in the aforementioned "Seasonal Calculator" and "Results" sections.
2. Adjust the IFT dates accordingly in "Seasonal Calculator" to your in this case delayed IFT, click Submit.
3. Take note of the new Seasonal Strategy Number created by that adjustment.
4. Finally, enter the original Strat # and the new Strat # in the "Benchmark by ID" field (separated by a dash character) and voila.....the "Results" table) puts the old and new strategy's STDDEV and MEAN side by side FOR YOU TO COMPARE AND CALCULATE THE DIFFERENCE at the monthly and annual dimensions.

All there is to it. What would take hours of work shrunk down to literally less than a minute--all thanks to a $20 a year donation to Matt

[GPIN]

For what it is worth, which I recognize it likely is not much, I have tried to outguess my chosen seasonal on several occasions and in all instances I finished the year behind the strategy. This year I was resolved to not deviate...but I did. This is the first time in several years, playing with seasonals that I am actually beating C and S. That is, I am less negative than they are. I got cold feet and jumped to G after riding my seasonal down for a bit. Time will tell if I did the right thing this year. In the past, I always wish I had followed my seasonal and I suspect come Dec 31 2022, history will repeat. Slow learner, I guess .