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Dry powder...when is the time?
Old 03-16-2008, 10:23 PM   #1
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Dry powder...when is the time?

I read the Four Pillars book. This is one of those times where things are looking bleak. Risk is high, investment banks are in trouble, who could have predicted that a year ago. As was described in the book, to get above average returns you have to take above average risks.

I have some cash not invested. What do you think, is the time now? If not, when?
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Old 03-16-2008, 10:32 PM   #2
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The ideal time to buy is when most of your cousins, uncles and friends have told you they've sold all of their stock and they proclaim with strong conviction that they'll never, ever buy stocks again.
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Old 03-16-2008, 10:37 PM   #3
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Tough to pick the bottom - seems like a good time to buy now - I'd invest some now.
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Old 03-16-2008, 10:38 PM   #4
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I read the Four Pillars book. This is one of those times where things are looking bleak. Risk is high, investment banks are in trouble, who could have predicted that a year ago. As was described in the book, to get above average returns you have to take above average risks.

I have some cash not invested. What do you think, is the time now? If not, when?
Exactly one year ago today when ironically enough Retire Soon started a thread titled :

Will Subprime Foreclosures Spread?

As an answer to your original question a good time to buy is typically 18 months to 2 years after the previous top in the stock market. That is a tough thing to hold out for, so I am just adding 1 percent per month to my stock portfolio which I re-zeroed in October. Still actually short my February and March contributions - currently at 3 percent in market but I really wanted to see how this Fed action played out before I did anything. With a big break in the market I'd probably place 2 percent more of my portfolio in action to five percent in total. One percent in Coca Cola and one percent in United Technologies.


Will Subprime Foreclosures Spread?
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Old 03-16-2008, 10:46 PM   #5
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One way to play it is start with your cash and split it into 10piles. Whenever you see a big drop in the markets and the watercooler talk says the world is going to end, invest 1pile in the market.
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Old 03-16-2008, 10:55 PM   #6
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I have been investing a portion of my cash everytime the market has tested new lows after a big drop (I have a feeling I will be a buyer tomorrow). One day one of those lows will be the bottom. In the meantime it is hard to keep buying when the market keep sliding and sliding and there are no good news on the horizon. But I gotta keep faith in the market! I would rather invest on the way down rather than wait for signs that the market is recovering before putting my cash to work.
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Old 03-16-2008, 11:02 PM   #7
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If European markets follow Asian markets and the US markets follow the European Markets, we will all be buying lower tomorrow. Japan and HongKong down over 4% each. Watch out when European markets open early morning.

mP
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Old 03-16-2008, 11:34 PM   #8
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I've got plenty of dry powder....more than I probably need. I may make some small additions in the next week.
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Old 03-17-2008, 11:34 AM   #9
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I'm equally invested in foreign and domestic stocks. So my plan is to watch the average of the S&P 500 percent loss since its peak and EFA's (the ETF) loss since its peak. That came really close to 20% this morning.

When it hits 20% that's a pretty good low. I'll put 20% of my available cash back into equities, as well as reduce my bear market hedge (bearx and fsagx) target asset allocations by 20%. I also rebalance bearx and fsagx when they exceed the allocation by 20%, which I have had to do once already. I've been at 10% of equities) bearx and 5% fsagx for at least a year now. That excludes about 20% cash I've had out for at least a year as well. My first step would be to 8% bearx, 4% fsagx, and 16% cash.

Every time the market average falls another 5% (25%, 30%, 35%, 40%) I'll put another 20% (of the original cash and hedge targets) back into equities. So I'll be fully invested if it drops 40%. That looked like it would be pretty good during 2000-2002.

If the market loses 50% I'll take out some money from a HELOC and add that in too. Maybe only 10% though.

That's the easy part. The thing I haven't figured out yet is what I will do if the market just goes up from here. I won't be adding to my bearx or fsagx in any case. I think maybe when the markets get back to 10% down from the peak or so and the economy looks like nothing else really negative is coming I'll start reducing my hedge positions. The other plan might be to start when the hedge positions are about back to the point where I purchased them, or maybe equal in return to my equities. The cash will probably just stay out and I'll burn it during these first years of my retirement. My DW forgot to retire, so that may take a while. The ideal of the cash was to let it carry us through the first few years of retirement in relative safety, then be 100% equities as long as the market was not spiking upwards.

The first part of the plan, buying on the way down, is strictly a mechanical process. The alternate part requires a call of the market bottom, which is not going to be very accurate. But so far I like the results. I can't wait for the market to hit that -20% point!

Dan
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Old 03-17-2008, 11:38 AM   #10
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I'm equally invested in foreign and domestic stocks. So my plan is to watch the average of the S&P 500 percent loss since its peak and EFA's (the ETF) loss since its peak. That came really close to 20% this morning.

When it hits 20% that's a pretty good low. I'll put 20% of my available cash back into equities, as well as reduce my bear market hedge (bearx and fsagx) target asset allocations by 20%. I also rebalance bearx and fsagx when they exceed the allocation by 20%, which I have had to do once already. I've been at 10% of equities) bearx and 5% fsagx for at least a year now. That excludes about 20% cash I've had out for at least a year as well. My first step would be to 8% bearx, 4% fsagx, and 16% cash.

Every time the market average falls another 5% (25%, 30%, 35%, 40%) I'll put another 20% (of the original cash and hedge targets) back into equities. So I'll be fully invested if it drops 40%. That looked like it would be pretty good during 2000-2002.

If the market loses 50% I'll take out some money from a HELOC and add that in too. Maybe only 10% though.

That's the easy part. The thing I haven't figured out yet is what I will do if the market just goes up from here. I won't be adding to my bearx or fsagx in any case. I think maybe when the markets get back to 10% down from the peak or so and the economy looks like nothing else really negative is coming I'll start reducing my hedge positions. The other plan might be to start when the hedge positions are about back to the point where I purchased them, or maybe equal in return to my equities. The cash will probably just stay out and I'll burn it during these first years of my retirement. My DW forgot to retire, so that may take a while. The ideal of the cash was to let it carry us through the first few years of retirement in relative safety, then be 100% equities as long as the market was not spiking upwards.

The first part of the plan, buying on the way down, is strictly a mechanical process. The alternate part requires a call of the market bottom, which is not going to be very accurate. But so far I like the results. I can't wait for the market to hit that -20% point!

Dan
I've got to run but I'm going to take a look at your plan. I agree mechanical is better. I may have a comment or two later, good luck on that 20%.
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Old 03-17-2008, 11:56 AM   #11
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I'd still not go "all in" with a pile of idle cash with all the uncertainty. For sure, if I had the cash lying around, I'd start nibbling on a little bit here and there, but probably not much bolder than that.
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Old 03-17-2008, 12:59 PM   #12
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Everyone is still ready to buy. We can't be anywhere near the end.

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Old 03-17-2008, 01:12 PM   #13
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Old 03-17-2008, 04:00 PM   #14
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I used up my dry powder in Dec and Jan. Now I am just waiting, the shoe has fallen on one of the stocks I bought MMA, and I can see shoes dangling off feet on a couple of others...

But I don't think the we are a bottom, not enough capitulation including from myself.
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Old 03-17-2008, 04:19 PM   #15
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The first part of the plan, buying on the way down, is strictly a mechanical process. The alternate part requires a call of the market bottom, which is not going to be very accurate. But so far I like the results. I can't wait for the market to hit that -20% point!

Dan
Sounds like you had the timing down pretty well. I cannot find anything wrong with your plan other you are risking that if the bottom is happening now, you will have to chase prices going up to get in. There's always risk and you are aware of yours.

With all the news coming out in the last few months, it's really surprising to me that the market is not down 40% or more. Maybe that is telling. It doesn't want to go down any more?

I put some cash in today, I'm looking primarily at the closed end etf's right now. They seem safer than equities and have upside. My biggest purchase was a bank loan fund. Time will tell if those will hold, the yields are good. I think sometime in the next year will be a good time to get fully invested. I wish I knew if I should be in a hurry to get it all in. If you know for sure, fill me in.

What looks really interesting to me is anything Health Care. The Democratic risk and all, those stocks have sold off.
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Old 03-17-2008, 04:35 PM   #16
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Which way to the "Bridge Over Troubled Waters"? Don't know, but if ever there was a time to keep the power dry, this is it. I'll pull my head out of the "asset preservation" sand every quarter but will stay out of equities for now, best estimate now is to stay out for two years. (I was a gun-ho buy and holder for 36 years--my philosophy was to always be ready to lose 30%, even if I just lost 30%; changed AA from 70/30 to 4/96 in mid-summer '07.)
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Old 03-17-2008, 04:48 PM   #17
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Which way to the "Bridge Over Troubled Waters"? Don't know, but if ever there was a time to keep the power dry, this is it. I'll pull my head out of the "asset preservation" sand every quarter but will stay out of equities for now, best estimate now is to stay out for two years. (I was a gun-ho buy and holder for 36 years--my philosophy was to always be ready to lose 30%, even if I just lost 30%; changed AA from 70/30 to 4/96 in mid-summer '07.)
Nothing for two years. That is a little beyond my worse case.
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Old 03-17-2008, 05:25 PM   #18
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Invested the remaining cash in 401K in index fund - not enough to get excited but am now fully invested. Due to company being bought out - later this year will be getting a boat load of cash - so forgive me if I wish for prolonged down markets until then.
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Old 03-17-2008, 05:39 PM   #19
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RockOn,

I almost cheated and joined you, but I decided to wait for something a little closer to my target at the market close.

My feeling is that the problems (including reduced consumer spending which I seldom see mentioned) are just starting to be recognized, so we have a way to go. But, who knows? I have been constantly amused by the pudits saying the worst is now behind us and the market should head up now! I think most people are quick to look for the upside and reluctant to consider the downside. One of these days they'll be right.

I'm usually too early acting in either direction. I started hedging at the start of 2006 and missed plenty of upside there. My volatility looks pretty good though, I bet.

My situation is sort of unique, in that I just retired at 53 with one son in college and another going in two years. I'll have a heavy cash outflow for the first few years. That's half the reason I have so much cash now. I'm perfectly happy to just hang on to it and spend it to zero before I touch any stocks. So I don't have to worry about getting it all back in before the market goes up too far. I just hope they are back up within 3 to 4 years!

I plan to fiddle with the cash allocation throughout retirement, or until I get tired thinking about it. I'd like to increase cash when the market is above the value I planned for (an early withdrawal really), and put that cash (if any) back in according to the above plan when the market has declined. I don't want to carry a bunch of cash for 40 years.

Dan
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Old 03-17-2008, 06:19 PM   #20
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Nothing for two years. That is a little beyond my worse case.
I'm testing the waters, when I admitted to pullling out of equities last summer, I and and couple of others, heard the expression, "yelling fire in a crowded theater." Have the times really changed? Frankly, I thought I would be DCAing again by now.
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