Finally, the market is getting back to normal

[Dawg52]

I've done a much better job of avoiding watching doom and gloom tv this past week. Haven't read much on it here either. Staying busy with my work project and making a little money, which is a good thing. Heck, yesterday was the first day I looked at my brokerage account all week. Feel much better about it all too. The knots on my head are slowly going away.

I do still take my meds.

[Spanky]

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Heck, yesterday was the first day I looked at my brokerage account all week. Feel much better about it all too.

I looked at the mine on Friday. It was still way down -- cannot honestly say that I feel good about it.

[Dawg52]

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Originally Posted by Spanky I looked at the mine on Friday. It was still way down -- cannot honestly say that I feel good about it.

I didn't mean about my balance, just feel better about everything because I'm not looking at my balance often or doom and gloom tv.

[Moemg]

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Originally Posted by Spanky I looked at the mine on Friday. It was still way down -- cannot honestly say that I feel good about it.

I do not feel good about my balance but it is what it is . When I retired I had a lot of surplus built into my budget so my lifestyle will not change . I've cut back on my travelling but now I'm rethinking that because I'd rather go now while I'm still able to enjoy it.

[Frugality_of_Apathy]

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Originally Posted by soupcxan In case you had any doubt in the accuracy of my new theory that down is the new up, just look at today's returns. +500k jobs lost last month but we're up 250 points. That's change you can believe in.

Unfortunately this is always the way it is. Wall Street doesn't care about jobs they care about profits.

It's always been the case that when a company's profits forcast falls short their stock drops but when they announce that they are laying off half their employees the stock will shoot right back up ensuring the CEO a nic bonus from the board of directors that year.

Investors are so short sighted, all they see is less employees to pay= bigger profits that year! they don't really care that they just cut production by 50% so next year they are going to make far less money unless they lay off more people. Works great when you're at the helm of a company you didn't build up and you aren't going to be with when times get too bad. Bad for the economy though.

[haha]

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Originally Posted by Oldbabe I wonder why so many rely on the adage: the market bottoms when the hysteria gets manic. Who came up with that? Why do you believe it unequivicably? I know that people behave predictably and perhaps behavioral economics plays into this theory.

You underestimate us by saying that we rely on old homilies. Most of us have seen this over and over; this is no homily, it is an understanding of what tends to happen.

Speaking for myself only, I know that stocks can continue to go down. But one should make the decision before she goes out on the field- I am going to play, or I want to stay on the sidelines. If she is going to play, play hard when the deck is rich. Not the time to take a potty-break.

Ha

[Zoocat]

I hope no one felt I was questioning their intelligence. But I have learned, through hard experience, to question and be skeptical. Especially of those who seem so certain they are right. I think this economic downturn has re-emphasized my skepticism.

[Sparky]

Normal? I heard that the average 4% gain or loss in the market in the last 60 years happened about once every 500 days. However, since September 2008, that has happened about once every 3 days. You tell me about normal...

[haha]

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Originally Posted by Oldbabe I hope no one felt I was questioning their intelligence. But I have learned, through hard experience, to question and be skeptical. Especially of those who seem so certain they are right. I think this economic downturn has re-emphasized my skepticism.

It is always wise to be skeptical of others. For the most part I too feel that what is said here or anywhere else should be taken with a grain of salt. But that leaves you with two choices- either work out your own framework for investing, or stick to a very conservative allocation and never change it, or only change it only on some age-related schedule that you work out in advance of stress. What you probably should not do is change to a more conservative plan because equity quotes are down. I guess one exception might be if you know you could still survive on whatever you still have, and you have no faith that you could hang on until your networth recovers. I would do almost anything to avoid being caught in this position.

I want to be very clear. I am not sure that I am right to currently have a constructive posture toward the equity markets. What I am sure of is that based on past history the odds now favor investment in equities, rather than dis-investment. If you want to say past history may not count, I have to admit that you are right in this statement.

But I am a practical person and I have to work with what I have, so I am pretty much all in. What I can do now if I want to increase exposure is trade speculative bonds for stocks, but I probably won't. My committment to equities may be excessive, but I doubt that my timing will turn out to be wrong given a little time.

I know for sure that if I ever was willing to be close to 100% invested, now would likely be a good time. And prior to this recent meltdown, I haven't been willing to be 100% invested since 2004 or 2005. So far this time around I made one clear mistake- I underestimated how far down many excellent companies might go.

If anyone is interested, I have commented on stocks and investments from time to time. It's all here. I am definitely not a perma-bull, at least with regard to investing.

Ha

[Bestwifeever]

Also it's been discussed here (as well as written about in the news) the market may recover well in advance of the rest of the economy. So yes, the US stock market could have hit bottom already even if the next year or two are tougher than this one.

[NW-Bound]

Ha, you da man!

There is never any 100% certainty in investing. If something ever was, people would flock there, and it would no longer be so. The probability that stocks are going up from here is not 100%, but it is higher than it was last year at Dow 14,000. There is no certainty, only probability.

I like this kind of discussions, as long as nobody takes offense, or gets hot under the collar, like some past threads on individual stocks or MF analysis. Time will tell us.

But no matter what happens, I will try not to be vindictive if I turn out to be right, nor regretful if I turn out to be wrong. I am holding the AA that I feel most comfortable with at this point. It's good that we all log our current feeling down now, so later we would not say "woulda, shoulda".

[NW-Bound]

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Originally Posted by Moemg I've cut back on my travelling but now I'm rethinking that because I'd rather go now while I'm still able to enjoy it.

Madam, you must have been following the thread on longevity?

[youbet]

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Originally Posted by haha So far this time around I made one clear mistake- I underestimated how far down many excellent companies might go.

That would be me too........

I haven't done much through all this.... mostly just sitting tight. But the few changes I did make all involved thinking I was looking at a real bargain only to see it fall further down.

[youbet]

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Originally Posted by Moemg I do not feel good about my balance but it is what it is . When I retired I had a lot of surplus built into my budget so my lifestyle will not change . I've cut back on my travelling but now I'm rethinking that because I'd rather go now while I'm still able to enjoy it.

Same dilemma here. We've shuffled things around so we're good to go in regard to covering our normal day-to-day budget for the next year or two with cash + int + divs. But we've pushed out some home improvements, travel and things like that. Now we're wondering if that isn't a mistake since, at 61, we may not enjoy those things as much if we wait too long. So we're also rethinking that decision.

[Moemg]

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Originally Posted by youbet So we're also rethinking that decision.

Me too , I have a surplus from this year that I could either remodel a bathroom or go on an expensive trip . The practical me says bathroom but the other me says trip .We will see who wins . Maybe a compromise mini bathroom makeover and domestic trip ?

[youbet]

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Originally Posted by Moemg Maybe a compromise mini bathroom makeover and domestic trip ?

Same kind of thoughts here. We've been in our home 30+ yrs and while we've redone the baths and kitchen, the LR and DR are original, even the carpet. We're thinking instead of a complete re-do, just pull the old carpet and have the hardwood floors underneath refinished and fresh paint on the walls/ceilings. Then, look at window treatments and furniture the next year.

For vacations, maybe substitute less expensive drive-in fishing/paddling trips for fly-in.

Going to no remodeling and no vacations is starting to seem too exteme. Of course, watch me change my mind about that if the market takes a big drop next week!

[clifp]

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Originally Posted by Oldbabe I wonder why so many rely on the adage: the market bottoms when the hysteria gets manic. Who came up with that? Why do you believe it unequivicably? I know that people behave predictably and perhaps behavioral economics plays into this theory.

I and many long-term investors are less concerned with the possibility of lower prices in the future, than our believe that today's prices represent extraordinary value. The risk of missing out on the sale of equities by remaining on the sidelines is quite large. We have already seen 10% bear market rallies, there probably won't be neon sign flashing. "Bull Market has arrived", instead stocks will continue to go up and I fully expect to see 50% increase in year similar to what was experienced into 1930s. Of course when this occurs is anybody's guess.

However, lets stop discussing price and start discussing value. I think the biggest problem people have in the market is they confuse the price of stock(s) with their value.

Imagine you are a person who really loves to decorate the house for Christmas. Most years you purchase a few new decorations to replace those that are broken, old, or just because you like them. Now most years you know that the week after Xmas stuff is sold for 30% discount, and if you wait until mid Jan there is very short sale for 50% off although often the good stuff has already sold out. The first question is
the value of Christmas decoration lower Dec 26 than it is today? Now your initial thought maybe no the value is the same just the price is lower. But actually a Christmas decoration purchased after Xmas is less valuable than one purchased before. It is pretty useless for one year, and during the next year your circumstance could change. You could move to a different place, marry somebody with the world greatest Xmas decoration collection, or simply decide that you hate decorating for Xmas. The money also could be in your bank earning interest rather than the retailers shop. However since Xmas decoration can easily last for 10 or 20 years waiting a one year to use it is a small loss of utility. Thus buying Xmas decoration after Dec 25 is a better value .

You decide that are willing to wait for 30% sale right after Xmas, but generally don't hold out for the 50% clearance sales for a variety of reasons. So what happens if this year retailers skip the 30% sale and go straight to the 50% discount. If it was me I'd happily spend the entire Xmas decoration budget immediately, I'd even toy with spending next years budget. I wouldn't worry too much about that maybe in Mid Jan we see 70-75% sale. You know that prices will be double next Dec and I hate to miss out on this sale.

Now back to stocks. First an observation; lets say you own 1000 Spiders (the S&P 500 ETF) you still own the same percentage of the biggest 500 corporations in America and doesn't really matter if you paid $50 a share back in March, 1995, or $150 last Dec or Friday at $88. Your ownerships entitles you to a share of the profits of these companies for the next 10,20,30... years. (In my case I most interested in dividends) Is the absolute value of your 1000 shares lower now back than in Dec 07? Certainly, 2008 earning and the prospect for earnings in 2009 look a lot worse now than they did back in 2007 and dividend payments have dropped by a few percent. Is the absolute value of your share worth now more than back in 1995?. Yes definitely, lets compare some statistics
3/95 GDP 7.3 Trillion 9/08 GDP 14.4 Trillion
SPY quarterly dividends 3/95 $.268 9/08 .69
The USA's GDP has almost doubled, and dividend payments (primarily because corporations have become more profitable over the last 10-20 years) has gone up 150%.

Hence it is clear that your 1,000 shares are more valuable than they were in 1995, and less valuable than they were last Dec. Of course the stock market is based on relative pricing and here the situation is tricky. By most measure whether you value the stock market at a Macro level (Stock Market vs GDP, stock market vs replacement cost) or at the micro level of individual stocks (P/E, dividend yield, Price to Sales Ratio, historical levels) it looks really cheap.

I look at stocks now just as after Xmas sales on Christmas decoration sure they worth less now than before Xmas, but the price discount is so large it worth the risk the future will be different. The stocks and funds I own have intrinsic value, sure panic-struck people may decide to unload them cause they need cash or fear if they don't sell now they will be force to sell cheaper tomorrow. I can't predict when Christmas for stocks will come only that Santa isn't dead

Finally, I'll mention the practical situation. My portfolio like many people is down 40%, if I sold everything and bought US 10 year bonds at 2.5% my income will have dropped to a level which why isn't exactly eating cat food is pretty frugal. It isn't like I am going to Vegas and putting everything on Hard 8. I am holding stocks like Intel, Wells Fargo, Johnson and Johnson, 3M, General Electric, as well domestic and international index funds. They all are paying more than government bonds and most more than CDs.

[Zoocat]

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Originally Posted by haha What you probably should not do is change to a more conservative plan because equity quotes are down. Ha

Done that already.

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Originally Posted by haha I guess one exception might be if you know you could still survive on whatever you still have, and you have no faith that you could hang on until your networth recovers. I would do almost anything to avoid being caught in this position. Ha

Not quite sure what you mean here. But I do believe I can survive on what I have left, but if the market continues to tank or sputter along malingering in a weak recovery, reverse compounding might really do a number on my networth.

[Zoocat]

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Originally Posted by clifp However, lets stop discussing price and start discussing value. I think the biggest problem people have in the market is they confuse the price of stock(s) with their value..

I think people who question the value may be using both their left AND right brains in the context of all the lies and misrepresentations we have been witness to as the economy has been melting down.

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Originally Posted by clifp Thus buying Xmas decoration after Dec 25 is a better value

Except in the event that you learn that there is no benevolent Santa after all, that he is in fact like the wizard of OZ just a devious little man behind a curtain pulling levers and waving his hands around pretending that he has everything under control (ex., Moody's, Standard & Poor's, et al).

I realize that we are not having the same conversation here.

[Geoffrey]

Some here are concerned about the risk of missing out on the market rebounding, others are more concerned about the risk of the market taking another leg down. I suppose I fall more into the later camp. I don't claim to be a market expert, but I still haven't seen anything I would characterize as "capitulation" and I tend to believe in the theory that markets overshoot on the way up, and overshoot on the way down. Finally, the average length of a bear market is 18 months, and the three worst bears lasted 31, 34, and 37 months respectively. In my view, this bear is not so "long in tooth" that I'd feel comfortable calling its demise. As far as "value" is concerned, that's something difficult to evaluate. If you believe that once the current crisis fades that consumers will resume spending as before, then good times indeed lie ahead. However, I'm not so sanguine about the consumer's ability to spend (too much debt, no housing ATMs, creditors have been burnt, too much money has evaporated, etc.).

For what it's worth, I rather expect to see the market make a new low before it starts to consistently move north. As far as missing the ride up, I suppose I'm not as worried as others because I don't expect a V-shaped recovery this time -- thus, there should be ample time to join the party.