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tuctrohs t1_j6cs8sf wrote

A more interesting comparison might be to invest $1,200 a year, two different ways. One would be to invest $100 a month, and the other would be to look at the average share price over the year, figure out how many shares $1,200 would buy you, and buy 1/12th of that each month. That way you'd be still investing your money over time in a similar way, but you'd be missing out on the specific benefit of dollar cost averaging of buying more shares when the price is low and fewer when it's high.

All your showing here is that starting to save for retirement early is better than doing it later.

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Picksologic OP t1_j6csvt0 wrote

I may try to chart your suggestion. Since I'm new at this, I was trying to figure out how DCA affects your investment, but as others wrote, if the stock only goes up LS will win every time. I just learned what is obvious to more experienced people. Edit:. Is there a real world way to make a fair comparison? Your method only works in hindsight.

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tuctrohs t1_j6cwyg3 wrote

I'm not suggesting that method as a good strategy. I'm suggesting it as a comparison to show the benefit of DCA is a simple, unbiased way.

It won't show a huge advantage in this case, because the main story on Tesla stock was the several huge increases. Where it shows a clear advantage is when a stock has a generalizing trend, but has a lot of volatility.

If you want a comparison to what a naive investor might do instead of dollar cost averaging, rather than a neutral alternative like what I suggested, it could be that each month you put $100 into your bank account, and then look at what the stock did over the past month. If it's been steady, you invest $50. If it's been rising gently, you invest $100, and it it has been rising rapidly, you invest everything in your bank account. And if it has been falling, you invest nothing.

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Picksologic OP t1_j6d3lgd wrote

I just looked up Value Averaging and it suggests investing more when the stock is going down and less when it's going up. I'm curious about your approach.

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tuctrohs t1_j6d4y65 wrote

I seem to be having trouble communicating here. Absolutely, dollar cost averaging is the way to go. The other stuff I'm suggesting, I'm suggesting because it's worse, and if you want to show how good dollar cost averaging is, you need to compare it to something that is worse, but that somebody naive might do. I'm suggesting these for your plot, not for your investing strategy. For investing strategy, dollar cost averaging is the way to go, unless you are a genius or you have a better understanding of the particular market and company, then is available to expert investors.

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Picksologic OP t1_j6d67aq wrote

Ok I gotcha. I'm a little slow on the uptake since I'm just getting into this. I'm now trying to figure out the best way to get the annual averages in my chart. Anyway, thanks for all the guidance.

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Sheamus_1852 t1_j6dihkl wrote

This post is vastly skewed for multiple reasons.

  1. Quite literally every company will show that way if you lump sum when the company starts. You’re basically angel investing then. DCA isn’t made for that kind of investment.

  2. The argument is for mature companies. Track DCA for MSFT, SPY, or any fairly mature and stable security and DCA will come out on top. Post this same time frame for MSFT lump sum v DCA.

  3. With the meme nature around the cult of Tesla, I would never DCA here. It’s not predictable. Elon tweets an insult at someone the stock jumps, he sells shares to buy Twitter then stock plummets. Their share price is only partially indicative of their performance as a company and partially investor sentiment around Elon’s psychosis.

  4. Similar to point 1, choosing the bottom is easy in hindsight. Any idiot can look at a chart and say yeah it’s a no brainer to lump sum 8/1/19. The point of DCA is that you live in reality that it is difficult to predict the best bottom. Quite literally at the peak in 11/2021 people on here were still advocating for lump sum because stocks only go up. Lump sum is a gamblers mentality, DCA is a savers mentality.

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Picksologic OP t1_j6dorna wrote

The chart is skewed due to ignorance, not intention. I'm not advocating for DCA, just learning how to make graphs in Excel and picked two metrics which in this case are not appropriate. In any case the feedback I'm getting is really helpful. I think I will try charting a mature company as you suggested although it might be hard to pick a random start point.

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Sheamus_1852 t1_j6dv9lj wrote

Totally understand. Great chart design. Definitely do a mature company. Thanks for being humble rather than defensive.

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Jolly-Feed-4551 t1_j6dyinj wrote

I was going to point out that in a bull market you are obviously going to make more money by investing a lump sum early (or DCA early) than keeping most of your money uninvested for the better part of a decade, but this comment puts it into context for me. As far as the visualization itself, I am confused why orange is labeled as $15,084 initial investment in the chart but the description says $15,100. I would also like to see the total DCA investment identified, I assume the DCA investments are made on the first of each month but you don't say specifically.

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Picksologic OP t1_j6e8451 wrote

The discrepancy in the start amount is me trying to learn formulas as well as graphing.. It should be $15,100. The total DCA investment is also $15,100, with the investment on the first of the month. I mistakenly assumed that having the x axis dates on the first of the month was sufficient, but will keep that in mind for the next time.

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[deleted] t1_j6cq0tv wrote

[deleted]

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Picksologic OP t1_j6cq5j7 wrote

Newbie here. Can you explain?

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goodluckonyourexams t1_j6crpug wrote

DCA: you're making a mean by investing every day

LS: same as last value

so if last value is higher than first, LS wins

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jamck1977 t1_j6gkt4u wrote

DCA vs LS a stock you know that lost a bunch in the last two years. DCA wins!

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