Do you have a Stock Market Exit Strategy?

[chinaco]

Elaboration based on Ha's question:

This is a little different than timing the market. I am not referring to attempting to judge market movements as a strategy for gain (eg. long, short, puts, calls, etc) short term or normal business cycle. Rather, exiting the market because you think there is a fundamental problem. For example the protractive bear on the Nikkei 225 average hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. It currently stands at 17,399.58

This would have destroyed your porfolio in two ways. Once by cutting in half over 3 years and essentially going sideways for another 7 years, then down further and bottoming out in about 2003 at about 1/7th of its high. If you at least got out after the 3 year period and invested elsewhere, you would have regained some of the losses. For example, the S&P 500 would have gained substantially over that period of time.



Under what conditions would you exit the market to cash? Do you have a firm strategy/approach (e.g., trigger, threshold, etc)? Or would you just play it by ear? Or do you intend to always sit tight?


Same question about returning to the market (or another market). Do you have some sort of rules? or Just play it by ear?

 

[kcowan]

I intend to purchase some index puts to mitigate a serious downturn. Right now I think M&A activity will continue to drive up valuations. Look to the premium MSFT just paid for their latest.

 

[Zathras]

The only way I would pull out of the stock market would be if half my individual stocks cut their dividends by 50% or more.
I may slow down the amount I put into the market, or may rebalance. But no overall withdrawal.

 

[haha]

This is a little different than timing the market.

Under what conditions would you exit the market to cash? Do you have a firm strategy/approach (e.g., trigger, threshold, etc)? Or would you just play it by ear? Or do you intend to always sit tight?


Same question about returning to the market. Do you have some sort of rules? or Just play it by ear?

How is this different from timing the market?

Ha

 

[bssc]

How is this different from timing the market?

Ha

Timing the market is like playing roulette. Having a strategy requires a team of highly paid financial analysts who look through the data and the trends then tell you to put your money on red based on Markoff Processing.

 

[Eagle43]

What's the rule, 100-your age. So when I hit 100, I'll go to zero.

 

[brewer12345]

Dunno about the stock market, but the individual equities I own are bought with a specific price target in mind and I usually liquidate as the price gets even with or above what I believe to be full valuation.

 

[aenlighten]

I would never move totally in or out of the market. I would be willing to shift +/- 10% when pessimism is heavy late in a recession or optimism is high late in an expansion, but I wouldn't be willing to be out of the market for long which is the error in most timing. I think we have some time to go before we get to that point. I want to hear a lot of people talking about which stocks they own and how much they have made before I cut back and if I miss it, I just skip it.

 

[chinaco]

How is this different from timing the market?

Ha

See the original post. I elaborated a bit more.

 

[Alan]

I don't have an exit strategy

I'd probably run around waving my hands shouting

Help, Help, I'm melting down

I have 25% in the US stock market and 15% in international so it will have to be a serious situation for all those sectors to go down the toilet for such a pro-longed period. I am also fortunate to have (hopefully) 3 pensions as a cushion for such disaster.

However, I really don't know exactly how I would react

 

[Spanky]

When valuation is out of whack -- S&P 500 P/E of 32, NASDAQ 100 with P/E of 100. Would not be completely out of market but definitely reduce exposure to 50% or less.

 

[Nords]

Under what conditions would you exit the market to cash? Do you have a firm strategy/approach (e.g., trigger, threshold, etc)? Or would you just play it by ear? Or do you intend to always sit tight?

Pretty much the same as last time-- we wouldn't even blink for the first 30% drop. When everything starts getting down to our cost basis (some at -35%, most at >-45%), we'd think about putting 20-30% cash aside for a buying spree. And again we'd probably wait for a year or longer before things got bad enough to merit that move.

I'd be extremely tempted to spend most of my time shorting entertainment stocks, retailers, and mortgage financing companies. I'd also be paying attention to international investments-- might be some real bargains there if they get swept up in the U.S. selling hysteria.

It helps one's attitude to have a govt pension, rental property, and a budget with plenty of slack in it.

Same question about returning to the market (or another market). Do you have some sort of rules? or Just play it by ear?

I'd wait for the usual signs:
- Single-digit P/Es
- Warren Buffett coming back from the dead for the unbelievable bargains
- Bill Gross' Dow 5000 prediction
- Massive institutional selling at capitulation
- Enough articles like Business Week's "The Death of Stocks"
- Gold over $1500/ounce (inflation-adjusted from its 1981 runup)
- Companies buying back their stock
- The U.S. starting a war to distract the voters defend democracy
- Tweedy, Browne Global Value re-opening (closed for two years so far)
- Execs disdaining options in favor of dividend-paying restricted stock
- Abby Joseph Cohen calling a suicide hotline
- Jeremy Grantham going 100% equities

and, of course, the ultimate sign that it's time to get back in:

"This time it's really different and we're permanently screwed!"

 

[Gone4Good]

Sure do.

It's called death.

 

[cute fuzzy bunny]

I dont, but I think there may be one or two times in an investors lifetime when the market is really drunk and stupid and has to be told to go home before someone calls the cops. During those periods of highs and lows, selling off or buying in might be prudent.

1999-2000 was one of those. I got out of expensive stuff and into some cheaper asset classes. Wouldnt have ER'ed without that move, had I bought and held.

I dont think I'd espouse any 'system' that tries to actively market time. But you cant be stupid about it either.

 

[mathjak107]

THE MARKET CAN REMAIN IRRATIONAL LONGER THAN I CAN REMAIN SOLVENT. man i love that saying. its the basis for all my pre-retirement planning

 

[kumquat]

Sure do.

It's called death.

Exactly, I'm with you.

 

[Freein05]

I have been in the market for over 30 years and plan to stay. Who knows when to get in or out. This strategy has worked out to be very profitable. I am shifting to more income producing investments because I am retired and need the income. I will keep 40 to 50% of my investments in the market.

 

[slepyhed]

I allow my fear of a protracted bear market to be balanced by my fear of missing a protracted bull market.

If you recall, Greenspan made his "irrational exuberence" comment in 1996...

 

[kaudrey]

How is this different from timing the market?

Ha


See the original post. I elaborated a bit more.

-----

Just because you say it's not market timing, doesn't mean it isn't.

 

[megacorp-firee]

How is this different from timing the market?

Ha


See the original post. I elaborated a bit more.

-----

Just because you say it's not market timing, doesn't mean it isn't.

I see I'm not the only one that has noticed. A lotta 'do as I say ... ' going on around here. That doesn't make them bad people ... only human
Their expertise and knowledge is still useful. You just have to separate the grain from the chaff.

 

[AltaRed]

No plans to be out of the market since I have a DB pension that currently provides for basic (not luxury) living needs (but it won't cover basics in 10 years since it is not indexed).

I do take profits when valuations appear too high on select stocks and thus cut back on equity allocation by as much as 10 percentage points. Likewise, I would probably add substantially to equities (likely ETFs) with P/E<10.

I will likely simplify the portfolio as health deteriorates (e.g. ETFs only at some point) and likely reduce equity to ~40% range by the time I become 80 yrs of age and leave that way to death.

 

[audreyh1]

No, I do not have a stock market exit strategy. I do not believe that such a strategy is effective, and that you are more likely to fall behind by getting out (too early) and getting back in (too late) than you are just riding it out.

I limit my portfolio to 60% equities, so that if equities exceed that I trim my equity exposure. That's the only way I know how to consistently sell high and buy low.

To "ride out" bad times, I have 1) a multi-year cash cushion and 2) 40% of my portfolio in cash and bonds which significantly reduces portfolio volatility.

Audrey

 

[VaCollector]

I can't wait until I can understand all of this

 

[sgeeeee]

How is this different from timing the market?

Ha

Well . . . when you are engage in market timing you are trying to move money in or out of the market at the right time in order to improve your risk-reward situation.

In this case, you are trying to move money in or out of the market at the right time in order to improve your risk-reward situation.

 

[HFWR]

Glad we cleared that up...

And, yes, I ended that sentence with a preposition!!