Early Retirement Extreme Forums

Am I correct in assuming that this flash crash risk can be "avoided" by NOT selling in a panic when prices drop? Either be lucky, gutsy or knowledgeable enough to sell high or ride out he low?

@SE - No, incorrect. Insofar that the fund company mishandled the crash, they would have lost money permanently. This loss is subsequently reflected in the fund price. The solution (for you and the fund company) is not to trade during such crashes. Mostly this works well (which is why liquidity vanishes almost completely) but sometimes it's difficult to distinguish a flash crash from a real crash (a type 1 error) and this would actually be a bigger problem. Note that there are plenty of minor flash crashes constantly and yet fund companies track their indexes pretty well, so this is not a huge problem.

How to profit from "dumb money"? I think it is fair to assume that only a minority is willing to learn about investing (similar that not many are willing to consider the ERE concepts). So "dumb money" is here to stay. Besides that big companies like OIM (oldmutualinternational) or big Pension funds are feeding on this, how can an individual make use of this? May be the wrong question, but it appeared in my mind

I am dumb money (dollar cost average into target retirement funds that automatically re-balance across asset classes). I could not find an investing strategy that gave me confidence it would do any better. Learning the math (that investment science book that on the blog years ago) did not change my mind. More so when considering the additional costs of investing actively, both transaction and time. I am slow to enter, will be slow to leave, and I think it will be good enough.

IMO the people who reliably produce alpha are working with insider information. The rest of us are gambling. The hand takes a long time to play out, so any one individual that has encountered good luck, can hold up their results and claim "winning!". Admittedly, that is an easy way to dismiss any one individual's experience.

I've diversified the risk by - understanding how to live cheaply, developing strong professional skills, owning my home. I'd eventually like to develop some additional cash flow streams, but justifying the energy draw from my primary profession is tough.

Hankaroundtheworld wrote:I think it is fair to assume that only a minority is willing to learn about investing (similar that not many are willing to consider the ERE concepts).

I think I've learnt about investing and I follow the dumb approach. Warren Buffet agrees with my approach as well.

I just think you need to be careful with investing. The dumb approach is more likely than not the smart approach and the reverse applies as well.

Scott 2 wrote:I am dumb money (dollar cost average into target retirement funds that automatically re-balance across asset classes). I could not find an investing strategy that gave me confidence it would do any better. Learning the math (that investment science book that on the blog years ago) did not change my mind. More so when considering the additional costs of investing actively, both transaction and time. I am slow to enter, will be slow to leave, and I think it will be good enough.

IMO the people who reliably produce alpha are working with insider information. The rest of us are gambling. The hand takes a long time to play out, so any one individual that has encountered good luck, can hold up their results and claim "winning!". Admittedly, that is an easy way to dismiss any one individual's experience.

I've diversified the risk by - understanding how to live cheaply, developing strong professional skills, owning my home. I'd eventually like to develop some additional cash flow streams, but justifying the energy draw from my primary profession is tough.

Exactly. The dumb money is the smart money.

I also feel exactly the same way as you with regards to diversification however I'm not going to bother with additional cash flow streams. My dumb money investments will handle all of that. I don't believe the risk/reward/effort trade off is worth it when it comes to creating additional cash flow streams.

One concern I have is when you buy an index fund you are giving up your voting rights, and these megafunds are starting to become majority stakeholders in our largest corporations. Are Vanguard and Blackrock actually the best people to be making these strategic decisions for corporations in every sector of the economy?

ether wrote:One concern I have is when you buy an index fund you are giving up your voting rights, and these megafunds are starting to become majority stakeholders in our largest corporations. Are Vanguard and Blackrock actually the best people to be making these strategic decisions for corporations in every sector of the economy?

This is a tough question but it's also a big picture question. I tend to leave these issues out of my investment decisions.