Anyone else having panic attacks about the market?

[Zoocat]

Right, it will seem much worse if you run out of pot.

LOL! Lucky I have a birthday party for my son planned for tonight and a marguerita fueled restaurant dinner party planned for tomorrow! No one will be talking about the stock market, that's for certain.

Don't be disheartened by this dip. Take a look at the one year market chart, which is what I did this morning. It will give you perspective on the short term. So what if you lose a year's gain? This market could do anything next year. I only wish I hadn't made that IRA to ROTH conversion so I would have more cash to invest if this market keeps going down.

 

[d]

For all you folks ready to purchase bargains, how much cash are you holding? Are your bargain purchases relatively small percentages compared to your total net worth and driven primarily by current savings levels? Or do you keep a high percentage of cash, beyond your emergency fund, as dry powder waiting for this kind of "opportunity?"

i do tend to hold a fair amount of cash ... currently about 5.5% of my portfolio (excluding "emergency" cash) ... and my "emergency" cash is padded ... and the remainder of my non-equity % is largely "available" as well. the "trick" is to rebalance, but not use-up the cash before the botton.

if you hold X% in equities, and plan to have sufficient cash on hand to rebalance after a Y% correction,
% cash needed = Y%(X%)(1-X%)
so with a 4.5% holding you would be able to rebalance to a 65% equity position after a 20% correction.

i've long felt that cash is an undervalued asset, so don't mind having a fair amount in MM, short-term funds, etc. (the "sleep factor" can't be beat!)

 

[dex]

i've long felt that cash is an undervalued asset, so don't mind having a fair amount in MM, short-term funds, etc. (the "sleep factor" can't be beat!)

I agree - 4 week treasury bills are paying 5.22% and state tax free!

 

[Bikerdude]

Yes you are...if you don't take a long-term view of equity markets. Unless you are willing to ride the roller coaster both up and down, you shouldn't be on it.

I would seriously examine your tolerance for risk. You sound like the classic "buy high, sell low" investor. I would add lots of fixed income to your portfolio. The current market volatility is NOTHING. If you think it is... YOU will sell at the bottom.

My apologies if this observation has been posted before I didn't read every post.

 

[jazz4cash]

I would seriously examine your tolerance for risk. You sound like the classic "buy high, sell low" investor. I would add lots of fixed income to your portfolio. The current market volatility is NOTHING. If you think it is... YOU will sell at the bottom.

My apologies if this observation has been posted before I didn't read every post.

well put bikerdude....I agree 100% Not everyone has the risk tolerance. There's not much benefit in being "correct" in the long run if you're losing sleep in the meantime. Stress and anguish are not healthy. Returns on cash right now are decent. That said, I agree with the general sentiment to hang on for the ride.

 

[haha]

In reality it is impossible to know what is a good course of action. It will be revealed in hindsight only.

It's easy for us to hang around here full of confidence after a 25 year bull market. Maybe this confidence is well founded, maybe not.

Ha

 

[Cut-Throat]

In reality it is impossible to know what is a good course of action. It will be revealed in hindsight only.

It's easy for us to hang around here full of confidence after a 25 year bull market. Maybe this confidence is well founded, maybe not.

Ha

I guess it depends where you have been invested in the last 8 years or so.

Or we are in the 70th year of a 200 year bull market. Whatever way you want to look at it.

 

[Sandy]

Right, it will seem much worse if you run out of pot.

Definately all in the perspective.

Not as dreary in the salt mines today, along with a fun road trip coming up. Market having some shudders, ho hum.

 

[Dog]

Intellectually I know I shouldn't be concerned, but it is disheartening to see the portfolio head in the wrong direction. So...you are not alone.

 

[JustCurious]

Intellectually I know I shouldn't be concerned, but it is disheartening to see the portfolio head in the wrong direction. So...you are not alone.

Dog, assuming you are in the accumulation phase, and assuming you have quite a few years to go before retirement, you need to do what I did... I retrained my brain to be happy when the market goes down, since I will then be able to buy more shares at relatively lower prices. Now, I actually feel good when I see a nice drop, because I know that my next automatic purchase will pick up a few more shares for the same money!!

I think it was Buffett who once said something like this....if you wanted to store up apples for the winter, would you prefer the price of apples to go up right before you buy them or down? How would you feel if the store marked apples down by say 10 percent right before you bought them?

 

[Nords]

"This is the one thing I can never understand. To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the "Hallelujah Chorus" in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying--except stocks. When stocks go down and you can get more for your money, people don't like them anymore."

http://www.ibmemployee.com/PDFs/WarrenBuffettStockMarket.pdf
Fortune's investment guide 2002

 

[BigMoneyJim]

i think that once you make a substantial amount of money then there is the fear of losing that money.

I noticed that, too, after I paid off all my debts. I went from maybe having enough to cover debts from my IRA after taxes and penalties (I didn't do that, but it was a mental measuring stick) to having no debt, no liabilities beyond the next month and my intact and growing IRA. When I was in debt there was never any second-guessing: you pay the CC bills. Now I had lots of spare income, lots of savings and found myself fretting about what to do with it. Is this budget too generous? Is my AA too aggressive?

I broke myself from that fretting by constantly reminding myself that I was financially way better off now than I was when I was in-debt and had little choice. I also rode the 2000 drop down without panic selling and rode it back up since then, so now I feel even better about my AA with respect to my risk tolerance.

Also remember that there is a grave risk in being too conservative, and that is inflation risk. Most likely if you stuff your cash into your mattress or into fixed income then your savings will erode to inflation.

Quit worrying, find your happy AA and go with it. Don't base your AA on the market, base it on your situation.

Alternatively you can find a friend who doesn't have savings and is in debt and gripe to her about how worried you are about your money. She'll set you straight real fast.

 

[wolfbay]

It all depends on your risk tolerance. Can you sleep at night with the asset allocation and diversification you have?I'm more risk averse than most and only have 25% in equities and am willing to accept probable lower returns but with less volitility.Long term you'll always come out ahead in the market but potentially that could be many years. From the 29 high it took 25 years to get back to even(1954).Hopefully that is an extreme worst case scenario.

 

[Goonie]

When stocks go up, you make money. When they go down, it's a buying opportunity. You can't lose!

Gosh I'm not in a panic, in fact last night when dh mentioned it (with a worried look on his face) I said great, time to keep buying

I'm hoping the market drops some more. I want a nice deep drop so than I can pick up more shares at lower prices.

I DCA, but when I have some spare change laying around, I'll dump that into the market also. The only 'panic' I've had recently is trying to dig up some more spare change to dump in!!! :

In fact I scrounged up a couple hundred bucks yesterday and dumped it in! Every little bit helps!

 

[Cut-Throat]

Long term you'll always come out ahead in the market but potentially that could be many years. From the 29 high it took 25 years to get back to even(1954).Hopefully that is an extreme worst case scenario.

Not really! -- If you had held a 50/50 portfoilo on the indexes and rebalanced after the crash of 1929, you would have been buying stocks at a deep discount. I ran FireCalc and with $1Mil invested in 1929, would have been over $1.15 MIllion about 5 years later! - That is the benefit of sticking to a plan and not 'going with your gut' or where your 'head' may be leading you to.

The worst case may have been in 1966, when you did not have a big plunge, had high inflation. It looks like it took about 18 years to get to $1.15 Million.

 

[bbuzzard]

"This is the one thing I can never understand. To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the "Hallelujah Chorus" in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying--except stocks. When stocks go down and you can get more for your money, people don't like them anymore."

Personally, I do not eat these hamburgers, but rather buy them in order to sell to others. Thus, while I like low prices during the buying part, I am less than happy about low prices during the selling phase. I plan to start selling at some point in the next 5.5 years.

 

[kcowan]

I am reminded of a saying my mother used to quote:
"Don't count your chickens before they hatch."

Don't count on your investments just because a nice number shows on a report. You will lose some and win some. Just hope the balance meets your investment objective. if so then that is all you can hope for.

 

[soupcxan]

Buffet may be one of the greatest investors of all time, but this is a pretty stupid analogy. I'm not buying stocks to eat them, I'm buying them so that I can resell them at a later point in time.

"This is the one thing I can never understand. To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the "Hallelujah Chorus" in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying--except stocks. When stocks go down and you can get more for your money, people don't like them anymore."

http://www.ibmemployee.com/PDFs/WarrenBuffettStockMarket.pdf
Fortune's investment guide 2002

 

[brewer12345]

Buffet may be one of the greatest investors of all time, but this is a pretty stupid analogy. I'm not buying stocks to eat them, I'm buying them so that I can resell them at a later point in time.

Perhaps you have the wrong investment perspective then.

 

[ERD50]

Perhaps you have the wrong investment perspective then.

I thought it was a stupid analogy too.

You buy hamburgers to (literally) consume them - a low price is always good.

You buy stocks (ideally when they are 'on sale'), but unless you bought them for dividends only, you plan to sell them in the future, or use their NAV as collateral - so, you want prices to rise in the future. Stocks are not consumables.
It is, IMO, a terrible analogy.

Buy low, sell high. Not buy low, sell lower.

-ERD50

edit to clarify that the analogy was stupid, not the poster, also one typo

 

[brewer12345]

Hmmm, I have a different perspective. Unless I am intentionally speculating, I always invest based on the discounted cash flows of the underlying investment in mind. So ultimately, I don't really care what the price of the stock in the open market is unless it is either at a big enough discount to my estimate of DCF value, or at a big enough premium that I am willing to part with the investment. Otherwise, I am happy to watch cash flows compound within an operating business (or collect coupons & dividends).

 

[justin]

I know for the next 10-20 years I'll be buying a big truckload of burgers each month. I buy these burgers fully expecting them to be worth two to five times what they are worth today after 10-20 years. I'd rather the price of these burgers drop right now while I'm buying them (so I can get more burgers for my dollars). Then, when I'm about done buying burgers in 10-20 years, I'd like the price to rise. That would be pretty optimal. I think that is all buffet is saying.

 

[cute fuzzy bunny]

Question I have is whether you get cheese on those burgers or have to pay for it.

And may I have those burgers dressed like a big mac?

 

[ERD50]

I think that is all buffet is saying.

I'm sure that is what he means also, and of course, I agree. But, using a very perishable consumable as a metaphor for long term stock investing is just wrong.

Many electronic products have been going down in price for as long as I remember. As a consumer, that's great. But I have yet to sell one of those for a capital gain. I don't 'consume' my stocks.

-ERD50

 

[soupcxan]

But if stocks are priced based only on DCF (not really, but let's pretend all investors share your approach) and the price drops, that means that either their future cash flows decreased or the discount rate increased. Neither of these things seems to be something I would look forward to in my investments.

Or are you saying that the price can drop substantially without an underlying change in the inputs to your DCF model, just because of irrational/behavorial investors?

Hmmm, I have a different perspective. Unless I am intentionally speculating, I always invest based on the discounted cash flows of the underlying investment in mind. So ultimately, I don't really care what the price of the stock in the open market is unless it is either at a big enough discount to my estimate of DCF value, or at a big enough premium that I am willing to part with the investment. Otherwise, I am happy to watch cash flows compound within an operating business (or collect coupons & dividends).