: One of the most important and difficult tasks in the world of investing is to call when is the right time to sell stocks. Well-known American investor Nick Maggiulli, who is also the COO of Ritholtz Wealth Management, said there were three situations in which you should retire. In this interview with ETMarkets, Maggiulli, who runs the famous financial blog OfDollarsAndData.com, also talks about the ‘Just Keep Buying’ ideology on which his new book is based.
At the moment, the name of your book ‘Just Keep Buying’ sounds more like the theory of the average dollar cost or buying the dip? Can you explain the difference between the three terms, if any?
There are two main definitions of “average dollar cost”, but the one I use is the purchase of assets over time when you earn income to buy them. The difference between this and “Just Keep Buying” is that Just Keep Buying has the psychological motivation built-in. This is an aggressive investment strategy that allows you to put your wealth structure on autopilot. It’s also much easier to say / remember than the average dollar. Finally, buying a dip is a trend where someone keeps cash on the sidelines in hopes of buying when markets go dive. Although this policy sometimes works as I showed in the book (
Just keep buying), in the long run this policy is a loss year.
In your book, you have been advised to buy individual stocks. In your opinion, what is the probability that an average but qualified and disciplined general investor will outperform the index?
Assuming that they are similar to a professional stockbroker, the probability of them outperforming the index over a five-year period is only 20-30 percent. You can check this out by looking at SPIVA reports for various stock markets around the world. And this is to be conservative, because I assume a retail investor has the same talents and resources as the professionals. However, we know that this is not always the case.
How much emphasis do you place on investment luck? Is it a game of both luck and skill?
Luck is important, especially how markets perform in a given period. However, despite this, investing still has great skills because there are many decisions you need to make to keep them rich over time. For example, there are a lot of people who thought they were investment geniuses until November 2021, only to realize that they were just lucky in 2022. You realize how much skill you have when markets are falling, not when they are rising.
Although trade fairs are often talked about, exit methods are less discussed. Can you share your thoughts on how one should find out when is the right time to sell stocks?
There are three times when you should sell stocks: (1) to balance, (2) to move from a focused / losing position, or (3) to finance your lifestyle. I think all of this is important in itself and will be used in different places throughout your financial journey. For example, you probably need to regain your balance on an annual basis and you need to sell regularly when you finance your retirement lifestyle. While it should be rare to get out of a focused / losing position, it may also need to be done to reduce the risk in your investment portfolio.
Within the macroeconomic concerns around us, what type of portfolio allocation would you recommend for the average investor?
I would recommend one that works for you. It will be very special for a person, his risk tolerance and where he is in his financial life. For me, this is a portfolio of five percent bonds, 85% income-generating risk assets and 10 percent in options (ie art, cryptocurrency, etc.). For someone else, it would be a different allotment. You can do this with stocks and bonds, or you can add REIT, other types of real estate, farmland or whatever suits you. Do your research and find something where you can sleep at night.
Given the market situation, do you think one should be scared or greedy? Although the US market is already in full swing, there are concerns that the worst may be ahead of us but not behind.
Nobody knows what’s next. Therefore, I would not be greedy or afraid. I would just keep buying like I always do. It is difficult to time the market, but getting rich does not have to be.
Should investors worry about a recession? Could it be another “just keep buying” opportunity?
I think investors do not have to worry but people do. Recessions are usually worse because of their economic impact and how it could affect your life, work, and so on. It is not your portfolio that you should be concerned about, but your livelihood. Of course, if markets continue to decline, this is likely to be an opportunity to buy more, especially for younger investors, but I think the economic impact of the recession is much more important for most people.
(The book ‘Just Keep Buying’, written by Nick Maggiulli, was recently published by Harper Collins in India)
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