Economics

[Biggles]

Wish I moved it all out at the end of February. Like biggles, I got greedy.

SP500 closes 12% down.

Realistically, you need to move it out some weeks/months earlier. The "greedy" part is expecting to maximize your gains rather than accepting the possibility of missing out on some of the up-side. The Canadian market (TSX) is at 12,360 where it was half way through the collapse in 2008, which is when I cashed out then. It took 12 years to claw up to 18,000 & in a couple of weeks has collapsed back to that level. I expect a relatively short recession & then strong growth ... but who really knows? In any case, even if the markets recover 30% or 40% of their losses in a year or two, I would expect it to take many more years for them to climb back to the highs of a month ago.

 

[Eunos_Cosmo]

Realistically, you need to move it out some weeks/months earlier. The "greedy" part is expecting to maximize your gains rather than accepting the possibility of missing out on some of the up-side. The Canadian market (TSX) is at 12,360 where it was half way through the collapse in 2008, which is when I cashed out then. It took 12 years to claw up to 18,000 & in a couple of weeks has collapsed back to that level. I expect a relatively short recession & then strong growth ... but who really knows? In any case, even if the markets recover 30% or 40% of their losses in a year or two, I would expect it to take many more years for them to climb back to the highs of a month ago.

Those highs of a month ago were zirp-inflated bubble assets. I don't think its realistic to expect valuations to reach that level for quite a long time. And I think we're in for a rough few years all besides that.

 

[Danoff]

He isn't "full of crap" at all

A couple of months ago I went to my advisor & suggested that it might be time to start pulling back. My wife was adamant about it, based on our age & potential exposure & actually went to a much more conservative portfolio. I was sort of talked out of it - although it really was my decision to make & what stopped me, in the end was greed - the hope of making more gains.

...sounds like he's full of crap.

Nobody could have anticipated how bad the impact of the Coronavirus would become , but regardless, I should have pulled back from the market at the time because my own common sense indicated that the market - especially the US market - was way overblown.

You called it, I called it. Anyone could see it, especially given that it wasn't even our jobs to call it and we still called it. If your adviser had been doing his job he'd have told you to sell. Mine sent me a list of things to buy in late January. Late January. I sold (some) mid-February. I'm firing mine. He's incompetent.

I don't count myself as any kind of expert, but I have been investing a lot longer than you

What exactly are you trying to do with this? There are no winners in a pissing contest. There are wieners though. Oooohhh that's clever. I bet someone already came up with that.

Edit:

I just realized that it looks like I took his advice in late january. I didn't. I ignored him, and then proceeded to sell some of what I ready had in Feb.

 

[Biggles]

...sounds like he's full of crap.



You called it, I called it. Anyone could see it, especially given that it wasn't even our jobs to call it and we still called it. If your adviser had been doing his job he'd have told you to sell. Mine sent me a list of things to buy in late January. Late January. I sold (some) mid-February. I'm firing mine. He's incompetent.



What exactly are you trying to do with this? There are no winners in a pissing contest. There are wieners though. Oooohhh that's clever. I bet someone already came up with that.

You obviously have a different kind of financial advisor. The person I am talking about NEVER sends me "a list of things to buy". His job is only to offer advice on long-term investment planning - not about investing in particular stocks or "timing the market". That's just not his job.

Of course, in hindsight, selling everything at the end of January would have been brilliant, but at that time the coronavirus was only a blip on the distant horizon. And yes, experience, at least my experience, shows it's not realistic to expect to be able to time the market. I'm offering you that insight FWIW - there's no call to be rude.

 

[Danoff]

You obviously have a different kind of financial advisor. The person I am talking about NEVER sends me "a list of things to buy". His job is only to offer advice on long-term investment planning - not about investing in particular stocks or "timing the market". That's just not his job.

Then he blew it on this one. I don't know why you refuse to call him out. You came to him wanting to sell, when the market was at a huge high, having run up basically forever... and he talked you out of it. He blew it. Just let him own it. Whatever his job is, it seems to me that he didn't do it.

Of course, in hindsight, selling everything at the end of January would have been brilliant, but at that time the coronavirus was only a blip on the distant horizon. And yes, experience, at least my experience, shows it's not realistic to expect to be able to time the market. I'm offering you that insight FWIW - there's no call to be rude.

It wasn't just coronavirus that made both of us realize that it was time to bail.

 

[mustafur]

To those looking to get into the market I wouldn't be doing it until this virus shows signs of ending, I don't see a market recovery happening while this is still going on.

 

[Eunos_Cosmo]

I've got so many alerts on for houses right now. Ready to deploy the war chest! Drop baby, drop!

 

[Biggles]

Then he blew it on this one. I don't know why you refuse to call him out. You came to him wanting to sell, when the market was at a huge high, having run up basically forever... and he talked you out of it. He blew it. Just let him own it. Whatever his job is, it seems to me that he didn't do it.



It wasn't just coronavirus that made both of us realize that it was time to bail.

What you are really talking about is timing the market. It is very difficult to that - anyone who could reliably do that would be a multi-millionaire. Often the big movements in the market, both up & down happen quite quickly - it's always easy to see what would have been the right thing to do in hindsight. The coronavirus pandemic is a good example. You tell me how serious & how prolonged it will be & what the effect will be on the markets for the next one month, 3 month, 12 months, 24 months? Like with the run-up in the markets in the late 90's, the tech collapse, 911, 2008, the coronavirus pandemic is a unique situation & it's only possible to guess at the what exactly is going to happen.

In my case, my financial advisor was looking at the longer term picture: 5 - 10 years. It's not his job to "pick stocks". I can tell you for sure that in your case you shouldn't be worrying about short term movements in the market, as your investment strategy (presumably) is very long term. Of course, it sucks to see your investments drop a huge amount, especially in my situation, but most likely 20 years from now your losses will just look like another blip in the market ... & there will almost certainly be more.

 

[Danoff]

What you are really talking about is timing the market. It is very difficult to that - anyone who could reliably do that would be a multi-millionaire. Often the big movements in the market, both up & down happen quite quickly - it's always easy to see what would have been the right thing to do in hindsight. The coronavirus pandemic is a good example. You tell me how serious & how prolonged it will be & what the effect will be on the markets for the next one month, 3 month, 12 months, 24 months? Like with the run-up in the markets in the late 90's, the tech collapse, 911, 2008, the coronavirus pandemic is a unique situation & it's only possible to guess at the what exactly is going to happen.

In my case, my financial advisor was looking at the longer term picture: 5 - 10 years. It's not his job to "pick stocks". I can tell you for sure that in your case you shouldn't be worrying about short term movements in the market, as your investment strategy (presumably) is very long term. Of course, it sucks to see your investments drop a huge amount, especially in my situation, but most likely 20 years from now your losses will just look like another blip in the market ... & there will almost certainly be more.

I understand that. But your assessment of "irrational exuberance" was accurate, and I was there as well. Coronavirus existed and was known about before the crash. It was clear that it would have at least some impact. But even if you ignore it completely, which I pretty much did when I decided to sell, I sold because we had seen an irresponsible influx of government manipulation of the markets that was unsustainable. We had an absurdly long bull market, and it was clear that the fed was stimulating the "high" rather than the "low". In February, I did not see anything but turbulence and downward movement through the US election. That's why I bailed. I didn't call coronavirus.

You were right to want to bull back at least some when you did. Your adviser (and mine) should have known that as well. They pretend they know something about diversification across assets in the market, or that they know something about which sectors are doing well and which ones are performing poorly. But the reality is that they know nothing. When the market goes up, they do well because it goes up. When the market goes down, they do badly because it goes down.

 

[ROAD_DOGG33J]

Berkshire is really diversified as more or less an investment holding company and the stock would indirectly reflect that, but a true index strategy would be tied to something like a S&P 500 fund or a Russell 2000 fund.

It would be mainly to simplify things. I have some high risk stocks. I like how Berkshire has been operating, though haven't researched it much.

 

[Dotini]

There's probably a global depression on the way, which is not a fun thought but could be prudent to prepare for.

 

[Biggles]

I understand that. But your assessment of "irrational exuberance" was accurate, and I was there as well. Coronavirus existed and was known about before the crash. It was clear that it would have at least some impact. But even if you ignore it completely, which I pretty much did when I decided to sell, I sold because we had seen an irresponsible influx of government manipulation of the markets that was unsustainable. We had an absurdly long bull market, and it was clear that the fed was stimulating the "high" rather than the "low". In February, I did not see anything but turbulence and downward movement through the US election. That's why I bailed. I didn't call coronavirus.

You were right to want to bull back at least some when you did. Your adviser (and mine) should have known that as well. They pretend they know something about diversification across assets in the market, or that they know something about which sectors are doing well and which ones are performing poorly. But the reality is that they know nothing. When the market goes up, they do well because it goes up. When the market goes down, they do badly because it goes down.

Again, the job of my financial advisor isn't to pick stocks. He doesn't pretend to know "something about which sectors are doing well and which ones are performing poorly". The point of diversification is precisely to be able to ignore those kind of movements & simply benefit over the long term increase in stock market valuations. Focussing on particular stocks, or particular sectors, may lead to over-performing the market during a given period, but it is just as likely to lead to underperforming during a subsequent period. For someone your age, staying in the market (& being well-diversified) through the ups & downs will work out well for you in the long term. Trying to time the market on the way up, or the way down, is as likely to work against you as for you.

Having said all that ... this is scary. Dotini-level scary. But it felt the same in 2008/09 - nobody knew what was going to happen & many people predicted a depression to equal the Great Depression, but the markets did rebound in about 3 years. Puling some cash out in January would have been a reasonable thing to have done, but the coronavirus collapse would have made a minor move to cash pretty meaningless in the context of what's happening now. And going forward from where we are now, the question on a daily basis remains: what is going to happen tomorrow ... & the next day... & so on ?

 

[Joey D]

What happens to the stock market will really depend on who's elected in November. Typically, the market doesn't do as well with a Democrat in office as it does with a Republican. If Sanders somehow wins the nomination, I can't see the market rebounding during his entire tenure. Biden isn't nearly as far left as Sanders so that should help. Looking back historically, the best thing for the markets would be to keep Trump in office, but the way he's currently botching things, I'm not sure how well that's going to work.

 

[Eunos_Cosmo]

What happens to the stock market will really depend on who's elected in November. Typically, the market doesn't do as well with a Democrat in office as it does with a Republican. If Sanders somehow wins the nomination, I can't see the market rebounding during his entire tenure. Biden isn't nearly as far left as Sanders so that should help. Looking back historically, the best thing for the markets would be to keep Trump in office, but the way he's currently botching things, I'm not sure how well that's going to work.

I don't think that's right.

https://www.macrotrends.net/2481/stock-market-performance-by-president

Going back to Reagan, Democrats have outperformed Republicans across the board.

 

[Biggles]

What happens to the stock market will really depend on who's elected in November. Typically, the market doesn't do as well with a Democrat in office as it does with a Republican. If Sanders somehow wins the nomination, I can't see the market rebounding during his entire tenure. Biden isn't nearly as far left as Sanders so that should help. Looking back historically, the best thing for the markets would be to keep Trump in office, but the way he's currently botching things, I'm not sure how well that's going to work.

Why do you say that? This is from Forbes in 2016. It doesn't include Trump, but what can you really say about Trump? What's happening now is sort of an indication of how ephemeral the movements of the stock market can be.

 

[Joey D]

That's just what I've always been told by brokers and when I took econ classes in college. Looking at the numbers though, looks like I stand corrected.

 

[Eunos_Cosmo]

It seems that Republican policies feed the "irrational exuberance" hype that inflates asset bubbles rather than chase sustainable growth. The Fed is probably more to blame though...where did they expect would happen with interest rates so low for so long?

Outsourcing & globalism begot deflation (stuff is cheap man!) which begot lower interest rates, which begot asset price inflation, which begot extreme inequality. I'm afraid the bubble that is popping is not the one that starting growing post 2008, but the one that started growing in the post 1982 deflationary bubblicious period - the fed has been juicing the stock market for nearly 40 years. Dow 7,500 is the bottom of this rout, I'd guess.

/@Dotini hat

Edit: And if I may continue railing on stock buybacks:

After Blowing $4.5 Trillion on Share Buybacks, Airlines, Boeing, Many Other Culprits Want Taxpayer & Fed Bailouts of their Shareholders

Buybacks need to be outlawed again. I hope that happens after this.

 

[Biggles]

That's just what I've always been told by brokers and when I took econ classes in college. Looking at the numbers though, looks like I stand corrected.

I could understand why a broker might say this, but why would econ classes in college propagate that misinformation? The stats could certainly stand some further analysis. They are very heavily skewed by the huge bounce back in FDR's first term, but even Carter had much better numbers than Nixon/Ford. You could say that most of it is just cyclical, but there does seem to be a pattern where things eventually collapse under Republican laissez faire policies & then rebound under more "conservative" (irony) Democrat stewardship.

The '80's & '90's were the period with the most long-term consistent growth, the period in which the asset-wealth of many well-to-do Boomers was consolidated. The growth under Clinton was particularly impressive: the "peace dividend" & the unchallenged dominance of the US in the new tech industries.

I think the current events might prove to be an inflection point, like the Second World war, in bringing a more equitable distribution of wealth ... but who knows.

 

[Danoff]

Focussing on particular stocks, or particular sectors, may lead to over-performing the market during a given period, but it is just as likely to lead to underperforming during a subsequent period.

See, you're coming tantalizingly close to suggesting that what you buy doesn't matter. Which suggests that none of it is based on anything rational.

For someone your age, staying in the market (& being well-diversified) through the ups & downs will work out well for you in the long term.

I'm not bailing any more than I did earlier. I think you're right, and that's exactly what I'm doing, but I recognize that I'm gambling rather than playing a game that's based on merit or rules.

Trying to time the market on the way up, or the way down, is as likely to work against you as for you.

If there is one thing that I have learned, having experienced multiple periods of "irrational exuberance", it's that when your instincts are telling you that people be crazy, they are.

 

[ROAD_DOGG33J]

@Danoff

Did you use market indexes or sector indexes or both?

 

[Danoff]

@Danoff

Did you use market indexes or sector indexes or both?

Both.

To be honest, I don't even necessarily take my own advice always, because it's not always possible. Most of my 401k money is restricted into only a few investment types. So I'd guess that the majority of my money is in lifecycle funds with a designated retirement date, well at least it was the majority of my money. I guess it's probably not worth what it used to be. What I could I put in the S&P, and then, because I hate Apple, I started moving into preferred fund indexes.

I own some GLD, biotech index, real estate index, consumer staples index, preferred stock index. If I really dig in to all of the positions, there are a lot (diversification!), and it's all crushed (so much for diversification!). Even GLD, which you would think would be killing it right now.

I think my main point is that the stock market should be played with a broad brush, and with the acknowledgement that it's very emotionally driven.

You're watching me somewhat give up on diversification within the stock market in real time.

 

[Eunos_Cosmo]

It seems like the only thing doing well right now is $USD$. That's pretty unnerving. I wonder what that means with regards to inflation/deflation.

 

[Dotini]

It seems like the only thing doing well right now is $USD$. That's pretty unnerving. I wonder what that means with regards to inflation/deflation.

I think the first thing that it means is that other countries' currencies are in danger of collapsing, but probably not Japan. Our goods will be harder for other nations to buy. We might want to go on a shopping spree in the UK, etc.

 

[TenEightyOne]

we might want to go on a shopping spree in the UK, etc.

Cross pasta, rice, flour, toilet rolls and tinned food off your list before you travel

 

[Dotini]

Cross pasta, rice, flour, toilet rolls and tinned food off your list before you travel

For the right price, could we have the Tower of London moved to Disneyland?

 

[Biggles]

See, you're coming tantalizingly close to suggesting that what you buy doesn't matter. Which suggests that none of it is based on anything rational.



I'm not bailing any more than I did earlier. I think you're right, and that's exactly what I'm doing, but I recognize that I'm gambling rather than playing a game that's based on merit or rules.



If there is one thing that I have learned, having experienced multiple periods of "irrational exuberance", it's that when your instincts are telling you that people be crazy, they are.

What you buy does matter, but it's hard, perhaps impossible, to know what that is going forward from any given point in time.

Periods of "irrational exuberance" sometimes last an irrationally long time. 1990's were a good example, as has been the last 3 years under Trump. Missing out on them really diminishes your gains. Hanging in too long guarantees big losses. My own experience in 2008 was I bailed completely about 1/3 into the rout & went entirely to cash, but then took too long to get back in ... which meant I ended up at exactly the same point after about 4 years as if I'd simply ridden it all out.

Diversifying helps minimizes the possibility that what you pick is the wrong thing. It may limit your potential gains in the short term, but will also limit your potential losses. It reduces the gambling aspect & combined with a long term horizon makes it almost certain that you will realize solid gains over time. It's like gambling - but being the "house" rather than the individual gambler. Having said that, the deck is stacked against the individual investor, so that is a negative factor.

Diversification with a variety of indexed funds is the best way to minimize portfolio depleting fees, but it requires a lot of work to keep on top of everything. I tried index funds for a while - it works out well when the market is going up, less well when it's going down.

I've lost a lot of money (on paper) over the least month. It seems like we are at an inflection point right now. The understood economic ramifications, (plus some extra fear & panic) have been factored into the market already. That would appear to be flat growth in the 1st quarter, a big contraction in the second & a smaller contraction in the 3rd quarter, followed by strong growth in the 4th quarter. My concern is: people in the US seem to be blithely unaware of, or ignoring, what is happening in Italy & in other European countries. This suggests that in 3 - 4 weeks time there will be a health care crisis in the US. This may mean that thing might get a lot worse & last a lot longer than the market is anticipating at this time. Against that, there's the uncertain prospect of an immediate "miracle cure", which if it turned out to be true would turn everything on its head in short order.

 

[TenEightyOne]

For the right price, could we have the Tower of London moved to Disneyland?

Of course. Isn't London Bridge already part of a new build town somewhere in the US?

 

[Eunos_Cosmo]

What you buy does matter, but it's hard, perhaps impossible, to know what that is going forward from any given point in time.

Periods of "irrational exuberance" sometimes last an irrationally long time. 1990's were a good example, as has been the last 3 years under Trump. Missing out on them really diminishes your gains. Hanging in too long guarantees big losses. My own experience in 2008 was I bailed completely about 1/3 into the rout & went entirely to cash, but then took too long to get back in ... which meant I ended up at exactly the same point after about 4 years as if I'd simply ridden it all out.

Diversifying helps minimizes the possibility that what you pick is the wrong thing. It may limit your potential gains in the short term, but will also limit your potential losses. It reduces the gambling aspect & combined with a long term horizon makes it almost certain that you will realize solid gains over time. It's like gambling - but being the "house" rather than the individual gambler. Having said that, the deck is stacked against the individual investor, so that is a negative factor.

Diversification with a variety of indexed funds is the best way to minimize portfolio depleting fees, but it requires a lot of work to keep on top of everything. I tried index funds for a while - it works out well when the market is going up, less well when it's going down.

I've lost a lot of money (on paper) over the least month. It seems like we are at an inflection point right now. The understood economic ramifications, (plus some extra fear & panic) have been factored into the market already. That would appear to be flat growth in the 1st quarter, a big contraction in the second & a smaller contraction in the 3rd quarter, followed by strong growth in the 4th quarter. My concern is: people in the US seem to be blithely unaware of, or ignoring, what is happening in Italy & in other European countries. This suggests that in 3 - 4 weeks time there will be a health care crisis in the US. This may mean that thing might get a lot worse & last a lot longer than the market is anticipating at this time. Against that, there's the uncertain prospect of an immediate "miracle cure", which if it turned out to be true would turn everything on its head in short order.

I had a good meeting with my financial advisors today:

Spoiler

 

[Biggles]

I had a good meeting with my financial advisors today:

Spoiler

The point I've been trying to make is that the sanguine advice offered should be that history indicates over the long term staying invested works out. Trying to jump in & out of the market could, but statistically, for the average investor, doesn't. So there's really no magic 8 ball or ouija board involved in it. On the other hand the short term can be excruciating. And there's always the sense, when a new crisis occurs that it is unlike anything that has happened before & so things might be different (worse) this time. That's where we are right now.

 

[Danoff]

What you buy does matter, but it's hard, perhaps impossible, to know what that is going forward from any given point in time.

Periods of "irrational exuberance" sometimes last an irrationally long time. 1990's were a good example, as has been the last 3 years under Trump. Missing out on them really diminishes your gains. Hanging in too long guarantees big losses. My own experience in 2008 was I bailed completely about 1/3 into the rout & went entirely to cash, but then took too long to get back in ... which meant I ended up at exactly the same point after about 4 years as if I'd simply ridden it all out.

I attended a lecture about a decade ago which was discussing the general trends of the stock market. The lecturer had compiled the best and worst days from the entire history of the market, including some very bad times in the early 1900s. His conclusion was that if you could perfectly pick the 5 worst days of the market to sit out, but be in it the rest of the time, you'd do much better than the market. But if you also had to sit out the 5 best days, you'd do worse than the market.

The point was that the best days are more important than the worst.

That being said, it's much easier to predict the worst than the best.

Diversifying helps minimizes the possibility that what you pick is the wrong thing. It may limit your potential gains in the short term, but will also limit your potential losses.

My potential losses seem to be only limited by what I have invested outside of the stock market altogether.

It reduces the gambling aspect & combined with a long term horizon makes it almost certain that you will realize solid gains over time. It's like gambling - but being the "house" rather than the individual gambler. Having said that, the deck is stacked against the individual investor, so that is a negative factor.

As you say, it's still gambling.

I've lost a lot of money (on paper) over the least month. It seems like we are at an inflection point right now. The understood economic ramifications, (plus some extra fear & panic) have been factored into the market already. That would appear to be flat growth in the 1st quarter, a big contraction in the second & a smaller contraction in the 3rd quarter, followed by strong growth in the 4th quarter. My concern is: people in the US seem to be blithely unaware of, or ignoring, what is happening in Italy & in other European countries. This suggests that in 3 - 4 weeks time there will be a health care crisis in the US. This may mean that thing might get a lot worse & last a lot longer than the market is anticipating at this time. Against that, there's the uncertain prospect of an immediate "miracle cure", which if it turned out to be true would turn everything on its head in short order.

You're assuming that any of the market is rational. Or perhaps you're assuming that there will be some emotional impact from these events. Emotions are very difficult to predict, and rationality is in short supply.