#1 is dangerous because it's money that makes money, more money makes more money. If say you are in a fund that has lost 50% and you switch, you have to make double what the old fund will make in the future just be say you are in a better position. For instance if you are in fund A and it is down 50℅. Then you switch and say at the end of the year your new fund has made 8℅ and your old fund 6℅. You think you made the right decision but you didn't, because 6℅ of 100℅ is more than 8℅ of 50℅.

It just looks as if you did. So you are eroding capital, but all the time you think you are doing better.
Or you can follow FSMs portfolios.

Actually that would be 6% out of 0, because you switched everything to the new fund, you don't gain anything from the old fund any more.

Let's look at this by the numbers.

Scenario 1

You start with 10K. It drops to 5K. It recovers and adds 6%. What do you have now? 10K + 6%.

Scenario 2

You start with 10K. It drops to 5K. You switch all your capital to the new fund. How much can you switch? you can only switch 5k you can't switch 10K because you no longer have 10K at this point

So you switch 5K to the new fund. It makes 8%. What do you have now? 5K + 8%

Which one is better?

Do you see the trap here? you look at 6% and 8% and you think, you have done better. But you forget, that you lost 50% by switching, when you could have held on and made 6% out of 10k. Remember your starting point for scenario one is say, X. When it drops to X - 50%, then it recovers to X+6%, your stats will still say 6% profit.

If you switch at (x-50%), you will only switch (x-50%) capital, because that's all you have, because you have to realize your loss before you switch. Now the stats here will play a trick on you. You don't see the actual loss, because as far as new fund is concerned, you are starting with 5K capital. Your old fund is wiped from the table, you don't see your 50% loss, so that is easy to ignore. And then your new fund on the list says 8%.

Later your old fund recovers and makes 6%, and your new fund makes 8%. What you will see on your list is that you have made 8%. Then you look at your old fund at you see that it has increased only 6% from the price you bought in at. And so you think you have made the right decision

If you don't understand this, I'm not sure how to explain this to you any more

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The one on the left is a 6% gain, no switching (Scenario 1)

The one on the right is scenario 2, a 8% gain after switching at the middle point from Scenario 1.

If you start with 10k, and end with 10.6k, how can that be a 112% profit?

Exactly.. some people are already calling it 112℅ profit with very, very few exceptions paper loss is not real loss, otherwise no one would bother to invest at all.. with diversification and time.. there is almost zero chance of losing money long-term

But if you keep switching.. you have 100% chance of losing money. People invest because they can make money long term.. if you look at the long term charts.. you will see that pretty much every fund makes money in ten years' time.

Diversification and time. That always works.

Happy New Year everyone!

kimyee73 and wongmunkeong aka Sifu Wong, remember the saying, 'playing piano to a cow?'. Don't go there. It is a waste of time. 😀

BTW, can someone please teach me how to tag another forumer? Thank you in advance.

P/S : Edited to tag forumer