How To Face Up To Buying The Dips
Kanebridge News
    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,436,707 (+0.82%)       Melbourne $958,938 (-0.18%)       Brisbane $805,276 (+0.20%)       Adelaide $743,261 (+0.57%)       Perth $641,111 (+1.35%)       Hobart $739,768 (-1.32%)       Darwin $641,804 (-0.09%)       Canberra $971,787 (-1.13%)       National $936,660 (+0.16%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $694,570 (-0.33%)       Melbourne $471,297 (-0.44%)       Brisbane $430,588 (-1.62%)       Adelaide $353,294 (-0.18%)       Perth $357,545 (+0.46%)       Hobart $558,931 (+4.60%)       Darwin $356,380 (-2.21%)       Canberra $476,932 (+0.93%)       National $489,111 (+0.53%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,093 (-72)       Melbourne 13,872 (+186)       Brisbane 10,770 (+38)       Adelaide 3,078 (+82)       Perth 9,971 (+180)       Hobart 911 (+13)       Darwin 300 (-7)       Canberra 996 (+8)       National 49,991 (+428)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,400 (-137)       Melbourne 7,842 (-9)       Brisbane 2,243 (-20)       Adelaide 542 (+7)       Perth 2,413 (+1)       Hobart 156 (+3)       Darwin 371 (-4)       Canberra 529 (+5)       National 22,496 (-154)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $660 (+$10)       Melbourne $500 (+$10)       Brisbane $560 (+$10)       Adelaide $510 (+$10)       Perth $550 ($0)       Hobart $550 ($0)       Darwin $650 (+$25)       Canberra $700 (+$5)       National $593 (+$9)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $600 ($0)       Melbourne $450 (+$5)       Brisbane $500 ($0)       Adelaide $403 (+$3)       Perth $470 ($0)       Hobart $473 (-$3)       Darwin $550 ($0)       Canberra $560 ($0)       National $508 (+$)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 6,525 (+243)       Melbourne 7,106 (-5)       Brisbane 3,920 (+102)       Adelaide 1,146 (+39)       Perth 1,623 (+85)       Hobart 243 (+11)       Darwin 102 (-7)       Canberra 588 (+44)       National 21,253 (+512)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 8,070 (+376)       Melbourne 5,906 (+117)       Brisbane 1,516 (+27)       Adelaide 327 (+5)       Perth 673 (-3)       Hobart 86 (+5)       Darwin 232 (+7)       Canberra 662 (+66)       National 17,472 (+600)                HOUSE ANNUAL GROSS YIELDS AND TREND       Sydney 2.39% (↑)      Melbourne 2.71% (↑)      Brisbane 3.62% (↑)      Adelaide 3.57% (↑)        Perth 4.46% (↓)     Hobart 3.87% (↑)      Darwin 5.27% (↑)      Canberra 3.75% (↑)      National 3.29% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND       Sydney 4.49% (↑)      Melbourne 4.97% (↑)      Brisbane 6.04% (↑)      Adelaide 5.92% (↑)        Perth 6.84% (↓)       Hobart 4.40% (↓)     Darwin 8.03% (↑)        Canberra 6.11% (↓)       National 5.40% (↓)            HOUSE RENTAL VACANCY RATES AND TREND       Sydney 1.6% (↑)      Melbourne 1.8% (↑)      Brisbane 0.5% (↑)      Adelaide 0.5% (↑)      Perth 1.0% (↑)      Hobart 0.9% (↑)      Darwin 1.1% (↑)      Canberra 0.5% (↑)      National 1.2%    (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 2.3% (↑)      Melbourne 2.8% (↑)      Brisbane 1.2% (↑)      Adelaide 0.7% (↑)      Perth 1.3% (↑)      Hobart 1.4% (↑)      Darwin 1.3% (↑)      Canberra 1.3% (↑)      National 2.1%   (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND         Sydney 30.4 (↓)       Melbourne 29.7 (↓)       Brisbane 36.6 (↓)       Adelaide 25.3 (↓)     Perth 41.0 (↑)        Hobart 32.2 (↓)       Darwin 33.8 (↓)       Canberra 28.3 (↓)       National 32.2 (↓)            AVERAGE DAYS TO SELL UNITS AND TREND         Sydney 33.0 (↓)       Melbourne 30.1 (↓)       Brisbane 35.1 (↓)       Adelaide 29.4 (↓)     Perth 43.7 (↑)        Hobart 26.9 (↓)     Darwin 44.0 (↑)      Canberra 31.9 (↑)        National 34.3 (↓)           
Share Button

How To Face Up To Buying The Dips

Buying stocks as they drop is harder than it sounds. Here’s one strategy that might help keep you on course in turbulent times.

By Jason Zweig
Tue, May 24, 2022 3:10pmGrey Clock 3 min

All investors are the prisoners of their past, and that shapes how they face the future.

Until the past few weeks, stocks had resembled a perpetual moneymaking machine, rising smoothly for nearly all of a decade and a half. From March 2009 through the peak this January, U.S. stocks gained more than 800%. The pandemic panic of February and March 2020 lasted only five weeks.

So it’s understandable if you think the nearly 20% collapse so far this year is just a blip. Stocks will soon resume their smooth upward course, right?

I hope so.

But, for all we know, the coming years might resemble 1966 to 1974 or 1929 to 1943, long slogs when stocks kept jolting up and down but finished essentially where they started.

In that case, you will need new weapons in your psychological arsenal. Years on end of poor stock returns would torment anyone who isn’t prepared for a long grind.

One weapon to consider is called value averaging. It’s like buying the dips—purchasing more stocks as prices drop—on steroids.

At its heart, this technique combines two basic ideas: dollar-cost averaging (putting money to work automatically every month or quarter) and rebalancing (selling some of your winners and buying some of your losers).

In value averaging, you set a target amount by which you want your account to grow each period. Say you want to end each month with $1,000 more than you started with.

In periods when stocks fall, you have to add enough to your holdings to hit the target you’ve set.

If, for instance, the value of your portfolio falls $250, you would need to buy $1,250 in stocks to finish the month with $1,000 more than you had at the beginning. If your portfolio’s value drops $500, then you’d add $1,500, and so on.

In a rising market, you’d buy less than $1,000—and even sell some, if stock prices go through the roof.

Value averaging is the brainchild of Michael Edleson, ex-chief economist at the Nasdaq stock exchange and former chief risk officer for the University of Chicago’s endowment.

Most investors say they intend to buy and hold—but many end up buying high and selling low instead.

Investors who use value averaging “have precommitted to bury their demons,” Mr. Edleson says—“the greed demon that makes you buy high and the fear demon that makes you sell low.”

This technique can’t eliminate the risk of underperformance, however. “If you cherry-pick certain periods, value averaging can look horrible,” says Mr. Edleson. “Your success is always going to depend on the starting point and ending point.”

The strategy does better when volatility is high and worse when stocks move smoothly up or down. In a long, steady market, Mr. Edleson says, “there’s nothing better than buy-and-hold, just sitting on it.”

So value averaging is a kind of bet that markets won’t soon return to the abnormally smooth upward slope of, say, the mid-2010s. If you think they will, it might not be for you.

Harald Deppeler, 53 years old, a semiretired physicist in Zurich, has been using the approach since 2013. He built his own spreadsheets to do so; most financial firms aren’t set up to automate value averaging for customers.

The approach “gives you a sense of having a slight edge, but also it tests you,” Mr. Deppeler says.

As stocks rose smoothly between 2013 and 2018, his holdings in an S&P 500 fund exceeded his targets, so Mr. Deppeler had to sell roughly 8% to 12% of that position, he says. (Capital gains are not taxable in Switzerland; as a rule, U.S. investors should consider value averaging only in tax-deferred retirement accounts.)

Mr. Deppeler says he’s aware that having to sell down his holdings during a long bull market probably cost him a small fortune in forgone gains, although he hasn’t calculated that opportunity cost. “I had a pile of cash, which I just couldn’t make any use of,” he says.

On the flip side, in March 2020, value averaging compelled Mr. Deppeler to put a “six-figure amount” into his S&P 500 stock fund during a horrifying decline. “It forced me to say, ‘The market is still falling, and now I have to buy into that,” he recalls.

“At the time, I had to keep telling myself, ‘This is what the plan is actually designed for, to make you buy more when the market dips. Stick to the plan, stick to the plan,’” says Mr. Deppeler.

“If someone really can take the appropriate amount, put it in stocks and then let it ride, rebalancing from time to time but otherwise holding, I’m not going to tell them value averaging is any better,” says Mr. Edleson. “But in practice not many people can do that.”

Then again, if you don’t have the discipline to buy and hold, you might not have the extra discipline to buy even more in a down market.

Few things are harder than buying more when markets fall. That’s why discipline is an investing superpower. Value averaging could help some people stay the course—but it takes work, and it won’t work all the time. Then again, in markets nothing works all the time.

MOST POPULAR

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

Related Stories
Money
How Crypto’s Collapse May Have Done the Economy a Favour
By GREG IP 25/11/2022
Money
Global Economy Slows, but Seems to Be Faring Better Than Feared
By PAUL HANNON 24/11/2022
Money
Stressed-Out Americans Plan to Buy Fewer Christmas Gifts, Donate Less to Charity
By Rachel Wolfe and Jon Hilsenrath 21/11/2022
How Crypto’s Collapse May Have Done the Economy a Favour

Crypto’s lack of connections with traditional finance means its problems haven’t spilled over to the economy

By GREG IP
Fri, Nov 25, 2022 4 min

This year’s crypto collapse has all the hallmarks of a classic banking crisis: runs, fire sales, contagion.

What it doesn’t have are banks.

Check out the bankruptcy filings of crypto platforms Voyager Digital Holdings Inc., Celsius Network LLC and FTX Trading Ltd. and hedge fund Three Arrows Capital, and you won’t find any banks listed among their largest creditors.

While bankruptcy filings aren’t entirely clear, they describe many of the largest creditors as customers or other crypto-related companies. Crypto companies, in other words, operate in a closed loop, deeply interconnected within that loop but with few apparent connections of significance to traditional finance. This explains how an asset class once worth roughly $3 trillion could lose 72% of its value, and prominent intermediaries could go bust, with no discernible spillovers to the financial system.

“Crypto space…is largely circular,” Yale University economist Gary Gorton and University of Michigan law professor Jeffery Zhang write in a forthcoming paper. “Once crypto banks obtain deposits from investors, these firms borrow, lend, and trade with themselves. They do not interact with firms connected to the real economy.”

A few years from now, things might have been different, given the intensifying pressure on regulators and bankers to embrace crypto. The crypto meltdown may have prevented that—and a much wider crisis.

Crypto has long been marketed as an unregulated, anonymous, frictionless, more accessible alternative to traditional banks and currencies. Yet its mushrooming ecosystem looks a lot like the banking system, accepting deposits and making loans. Messrs. Gorton and Zhang write, “Crypto lending platforms recreated banking all over again… if an entity engages in borrowing and lending, it is economically equivalent to a bank even if it’s not labeled as one.”

And just like the banking system, crypto is leveraged and interconnected, and thus vulnerable to debilitating runs and contagion. This year’s crisis began in May when TerraUSD, a purported stablecoin—i.e., a cryptocurrency that aimed to sustain a constant value against the dollar—collapsed as investors lost faith in its backing asset, a token called Luna. Rumours that Celsius had lost money on Terra and Luna led to a run on its deposits and in July Celsius filed for bankruptcy protection.

Three Arrows, a crypto hedge fund that had invested in Luna, had to liquidate. Losses on a loan to Three Arrows and contagion from Celsius forced Voyager into bankruptcy protection.

Meanwhile FTX’s trading affiliate Alameda Research and Voyager had lent to each other, and Alameda and Celsius also had exposure to each other. But it was the linkages between FTX and Alameda that were the two companies’ undoing. Like many platforms, FTX issued its own cryptocurrency, FTT. After this was revealed to be Alameda’s main asset, Binance, another major platform, said it would dump its own FTT holdings, setting off the run that triggered FTX’s collapse.

Genesis Global Capital, another crypto lender, had exposure to both Three Arrows and Alameda. It has suspended withdrawals and sought outside cash in the wake of FTX’s demise. BlockFi, another crypto lender with exposure to FTX and Alameda, is preparing a bankruptcy filing, the Journal has reported.

The density of connections between these players is nicely illustrated with a sprawling diagram in an October report by the Financial Stability Oversight Council, which brings together federal financial regulators.

To historians, this litany of contagion and collapse is reminiscent of the free banking era from 1837 to 1863 when banks issued their own bank notes, fraud proliferated, and runs, suspensions of withdrawals, and panics occurred regularly. Yet while those crises routinely walloped business activity, crypto’s has largely passed the economy by.

Some investors, from unsophisticated individuals to big venture-capital and pension funds, have sustained losses, some life-changing. But these are qualitatively different from the sorts of losses that threaten the solvency of major lending institutions and the broader financial system’s stability.

To be sure, some loan or investment losses by banks can’t be ruled out. Banks also supply crypto companies with custodial and payment services and hold their cash, such as to back stablecoins. Some small banks that cater to crypto companies have been buffeted by large outflows of deposits.

Traditional finance had little incentive to build connections to crypto because, unlike government bonds or mortgages or commercial loans or even derivatives, crypto played no role in the real economy. It’s largely been shunned as a means of payment except where untraceability is paramount, such as money laundering and ransomware. Much-hyped crypto innovations such as stablecoins and DeFi, a sort of automated exchange, mostly facilitate speculation in crypto rather than useful economic activity.

Crypto’s grubby reputation repelled mainstream financiers like Warren Buffett and JPMorgan Chase & Co. Chief Executive Jamie Dimon, and made regulators deeply skittish about bank involvement. In time this was bound to change, not because crypto was becoming useful but because it was generating so much profit for speculators and their supporting ecosystem.

Several banks have made private-equity investments in crypto companies and many including J.P. Morgan are investing in blockchain, the distributed ledger technology underlying cryptocurrencies. A flood of crypto lobbying money was prodding Congress to create a regulatory framework under which crypto, having failed as an alternative to the dollar, could become a riskier, less regulated alternative to equities.

Now, stained by bankruptcy and scandal, cryptocurrency will have to wait longer—perhaps forever—to be fully embraced by traditional banking. An end to banking crises required the replacement of private currencies with a single national dollar, the creation of the Federal Reserve as lender of last resort, deposit insurance and comprehensive regulation.

It isn’t clear, though, that the same recipe should be applied to crypto: Effective regulation would eliminate much of the efficiency and anonymity that explain its appeal. And while the U.S. economy clearly needed a stable banking system and currency, it will do just fine without crypto.

MOST POPULAR

The iconic bootmaker is now solely in local hands.

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

0
    Your Cart
    Your cart is emptyReturn to Shop