Little faith in the market now

[Spanky]

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"Why not 100% stocks guys!"

Answer: do not have the stomach for the volatility.

[Dawg52]

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Originally Posted by REWahoo When you start replying to yourself online - in the same post - it might be time to seek some professional help. Unclemick will be along shortly to counsel you.

He pulls for the Saints. Enough said.

[lazygood4nothinbum]

a system based upon faith & confidence, huh? how odd that the more i study spirituality, the more i can demystify it, but the more i study finance, the more mystical it becomes.

pssst: this is just a crapshoot.

[unclemick]

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Originally Posted by Dawg54 He pulls for the Saints. Enough said.

Hey - at least they made the second half look better - before they lost in overtime. Barring miracles - it's wait til next year time again.

So next week - it's outta here - found some friends to visit south of Tucson and bum around with over over the Holidays - at least til we tire of Arizona - possibly a short stint into Mexico.

Technically speaking - that makes me a pessimist since we're spending SWR money in old age - instead of honking expenses down really cheap to buy more stocks - even though they're on sale.

heh heh heh - plus not getting any younger. .

[Nords]

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Originally Posted by Notmuchlonger One thing Ive noticed on the various message boards. You don't see that beauty of a question. "Why not 100% stocks guys!"

Well, above 92% stocks we wouldn't have two years' SWR for living expenses to ride out Spanky's breathaking volatility. Hypothetically, by the time we'd have to touch any of these shares, our kid would be in college and we'd be in our 50s and a bunch of other things would probably have changed in our lives & families that would make this market crisis pale by comparison. But right now we have time every day to focus on the market so that's what we do to ourselves.

As for upward volatility-- again nobody complains about that, either.

Nice thing about this market is that the (remaining) companies who played good defense for the last few years really shine now. Makes it a lot easier to figure out who's been finagling their financial reports and who's been talking to bankruptcy lawyers.

I don't know how I feel about paper losses. When we had paper gains, I wouldn't have spent the money anyway and its stewardship would have become an issue. I'm pretty sure that I would've invested it with less analysis and much less wisely than I am now. Even now spouse and I are struggling to determine the difference between "take some off the table" and "stay diversified". Taking dividends in cash and reinvesting them more judiciously seems to be a good compromise.

So as Rich says, these types of markets teach a very painful lesson that's better learned while we're young(er). Imagine if we were having this discussion 30 years from now with Dawg84...

[Dawg52]

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Originally Posted by Nords So as Rich says, these types of markets teach a very painful lesson that's better learned while we're young(er). Imagine if we were having this discussion 30 years from now with Dawg84...

I would be begging Rich to perform a Dr. Kevorkian procedure on me. Where are my meds?

[Gone4Good]

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Originally Posted by mark500 Recently, I have lost a lot of faith in the market. Not related to the stock market losses per se. I knew the market could drop 45% at some point and had planned by portfolio to withstand a severe bear market, with a tolerable hair cut.

It doesn't sound like you were REALLY prepared for a 45% drop in the stock market even though you knew it could happen.

As Fred Schwed said in "Where are the Customers' Yachts":

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There are certain things that can not be explained to a virgin by either words or pictures. Nor can any description I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.

There is a difference between knowing you can lose half of your money, and actually losing half of your money. I'd posit that your lost faith in the market has nothing to do with speculators, or CDS contracts, or Mortgage Backed Securities, or "over paid" CEO's, but rather the unpleasant truth that the risk that drives stock returns is not abstract, but real. And painful in its application. The reason stocks outperform bonds over the long-term is because they can be extremely painful to own in the short-term. This is not new, and it won't go away or change until stocks stop earning excess returns.

[ziggy29]

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Originally Posted by . . . Yrs to Go IThere is a difference between knowing you can lose half of your money, and actually losing half of your money. I'd posit that your lost faith in the market has nothing to do with speculators, or CDS contracts, or Mortgage Backed Securities, or "over paid" CEO's, but rather the unpleasant truth that the risk that drives stock returns is not abstract, but real. And painful in its application. The reason stocks outperform bonds over the long-term is because they can be extremely painful to own in the short-term. This is not new, and it won't go away or change until stocks stop earning excess returns.

When all is said and done, I think a LOT of people will be reassessing their risk tolerances and their asset allocations as a result of this one. While many people aren't going to ratchet their equity allocations down *now* (that means selling low), I suspect when there's a bit more of a recovery a lot of investors will adjust their AA.

I know I've been around 70/30, and before I did some rebalancing I was around 55/45. And now that I think about it, 55/45 is probably where I'll move to long-term... but only after the markets recover a decent chunk of their losses, however long that may take.

As you say, it's one thing to take some online test about your risk tolerance ("How much could the market drop before you'd become uncomfortable with investing in stocks?") -- and quite another to LIVE a 30-40% loss (or more, potentially).

[Gone4Good]

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Originally Posted by ziggy29 When all is said and done, I think a LOT of people will be reassessing their risk tolerances and their asset allocations as a result of this one.

This is undoubtedly true, and good, and soon to be forgotten during the next bull market run.

There is also another less obvious lesson here that argues for conservatism. The "safe" withdrawal rate on which most of us hope to rely is not necessarily a "pleasant" withdrawal rate. Many of the "safe" scenarios include long stretches of double digit withdrawals. Only after the fact can we determine a withdrawal strategy that would have been "safe". But imagine trying to live through it in real time without the benefit of 20/20 hindsight. Not many of us look forward to a future where we withdraw 15% from our portfolios while desperately hoping that both the market improves and we die on schedule.

[Midpack]

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Originally Posted by ziggy29 When all is said and done, I think a LOT of people will be reassessing their risk tolerances and their asset allocations as a result of this one. While many people aren't going to ratchet their equity allocations down *now* (that means selling low), I suspect when there's a bit more of a recovery a lot of investors will adjust their AA.

Count me in that camp. I was 100% stocks less than 5 years ago, but I've been 80/20 to 75/25 for several years thanks mostly to The Four Pillars. I'm still 75/25, but 60/40 is probably where I will end up when I start retirement if not sooner.

I will admit that I remember when I thought people at 60/40 were idiots. Now I know I was the idiot, saved by luck and Dr. Bernstein.

'Too soon old, too late smart...'

[headingout]

Agreed, Rich. My grandparents with the mattress mentality don't seem so odd anymore. I was a conservative investor to begin with, and this market has ended up making me even more conservative: probably lowering my target stock AA 5-10%. Why? I don't think it's the decline as much as the unexpected way it has happened -- all asset types going down amid a circus of financial/political/legal manipulation, calling the entire system into question.

[ziggy29]

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Originally Posted by headingout I don't think it's the decline as much as the unexpected way it has happened -- all asset types going down amid a circus of financial/political/legal manipulation, calling the entire system into question.

I think the fact that basically all equity asset classes crashed together with nearly 100% correlation is the key for me. (And even bonds that aren't Treasuries dropped along with stocks, just not as much.) Prudent AA (or MPT or whatever you want to call it) worked magnificently in 2000-02 and made it easy to stay heavily invested. It has failed miserably in the crash of '08; if it's an equity, it got torched.

I think I've learned that maybe I leaned too heavily on the non-correlation of equity asset classes after the good fortune of barely being hit in '00-'02. And experiencing now -- first hand and with real money -- that equity asset classes can and do collapse together with a correlation approaching unity, maybe 70% equities is a bit strong for my stomach.

[lazygood4nothinbum]

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Originally Posted by . . . Yrs to Go There is a difference between knowing you can lose half of your money, and actually losing half of your money

i haven't lost faith in markets. i think they are still the same crapshoot i thought originally. what i have lost faith in is money. while i suspected this system was all smoke and mirrors, now i have proofs previously missing. anything that can disappear before your eyes was never there in the first place.

i'm quite certain that once all the smoke and mirrors are put back into place that all the rules of the craps table will come back into play, at least until another mirror cracks.

it isn't that money was ever my religion to lose faith in, but just like i was born into a jewish household though haven't been to temple since barmitzva, i was born into a capitalist system but i never bought into money, only now i know why.

whether or not i believe or have faith in a thing doesn't seem to matter much. like life, these things come into being all on their own. one minute you have a friend and the next minute your friend is dead. things only exist while they exist and then they return to nothing as if they never were. anything that is not now never was. so even to believe that a thing exists, while it exists, relies upon faith. your money fades to memory and then your memory fades to what is left you today. you dream of tomorrow but it is yesterday that was your dream. all you have is today, your waking day, all you have is your faith.

[unclemick]

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Originally Posted by Notmuchlonger One thing Ive noticed on the various message boards. You don't see that beauty of a question. "Why not 100% stocks guys!"

Hmmm - I think I got maybe one vote over at the Bogleheads when I mentioned now's the time to suck it up and buy:

Vanguard Total World Stock Index plus whatever walking around money in your local currency you needed.

Buy low seems to be an exceedingly difficult concept to grasp.

heh heh heh - crap - then you get old / put your age in bonds or select a lifecycle fund - and have to go spend the money - your can't take it with you and it's gonna take the Saint's 'forever' to make to the Superbowl. Man if I knew I was gonna live to 85 instead of 84.6 like I caclulated then I'd be all over stocks instead of going to Arizona/Mexico to spend some SWR money before the end of the year. .

[Bikerdude]

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Originally Posted by Rich_in_Tampa It would take quite a few years to calm the minds of those who went through that period, and I suspect the same will apply to the Crash of 2008.

It is this exact sentiment and the subsequent posts that convince me that a market rebound to previous highs will be a long painful slog.

[Dennis]

Well , guess so, but Not for me.. My Investement Firm moved alot (75%) into some newer bonds with FIDO , One is Up some 18%> FLBIX, VUSTX + 17.5%, & FIBIX + 14%..and sold a bear fund UXPIX last month and glad they did... they took me from a 40/60 to a 25/75 Port going into this yr and is doing just fine. They told me they will be moving back in to Equities & a Bull Fund Soon.. They earned their Keep again.

as for the Working Class? I think Obama Is right in getting their $ out of those #401k/#403's, etc con games of Load funds and loosing peoples $ and into The SS system and double their SS in return..Most would be far better off ..Maybe this Time will finally prove to those people they are out of their Relm and should Not be investing such Important Savings.. And as Jack Boggle Said.. Too many Con men in the game now..Manipulating the markets..ETF's and Leverage/Hedge and Shorting has ruined the business of stablitly..It's a Traders game now..and only for top Pro's..

But My $ to pay my bills is getting Low, down to only 2 yrs left.. Market better Recover soon...

[brewer12345]

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Originally Posted by Dennis as for the Working Class? I think Obama Is right in getting their $ out of those #401k/#403's, etc con games of Load funds and loosing peoples $ and into The SS system and double their SS in return..Most would be far better off ..Maybe this Time will finally prove to those people they are out of their Relm and should Not be investing such Important Savings..

So this puts us down two potential roads. One is "da, tovarisch" and the other is to hand your savings over to a "professional" (like Bernie Madoff). Sounds like a great future to me...

[Dawg52]

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Originally Posted by brewer12345 So this puts us down two potential roads. One is "da, tovarisch" and the other is to hand your savings over to a "professional" (like Bernie Madoff). Sounds like a great future to me...

Boy, old Bernie has screwed up a lot of lives. CD's looking better and better baby!

[lawman]

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Originally Posted by lazygood4nothinbum i haven't lost faith in markets. i think they are still the same crapshoot i thought originally. what i have lost faith in is money. while i suspected this system was all smoke and mirrors, now i have proofs previously missing. anything that can disappear before your eyes was never there in the first place. i'm quite certain that once all the smoke and mirrors are put back into place that all the rules of the craps table will come back into play, at least until another mirror cracks. it isn't that money was ever my religion to lose faith in, but just like i was born into a jewish household though haven't been to temple since barmitzva, i was born into a capitalist system but i never bought into money, only now i know why. whether or not i believe or have faith in a thing doesn't seem to matter much. like life, these things come into being all on their own. one minute you have a friend and the next minute your friend is dead. things only exist while they exist and then they return to nothing as if they never were. anything that is not now never was. so even to believe that a thing exists, while it exists, relies upon faith. your money fades to memory and then your memory fades to what is left you today. you dream of tomorrow but it is yesterday that was your dream. all you have is today, your waking day, all you have is your faith.

Man, that's pretty good stuff!

[W2R]

"Faith" is really the operative word. It is really hard to predict what is going to happen in the future. Sure, we have/had "faith" that future market behavior would fall within some expectations based on past market behavior. I think the market events of the past few months have caused many of us to doubt that premise.

I, for one, had faith that more asset classes would resist a generalized plummet of equities, but I sure haven't seen that in my portfolio. Everything there has dropped, other than MM and my good ol' TSP G-Fund.

But then, what can we do? It is easier to have faith than to figure that one out. So, I bury my head in the sand and have faith that the market will recover somehow and in the long term will provide us with increases that exceed inflation. My faith is shaken but there is little I can do about it.

If I were young, sufficiently hard-hearted, and "handy", I would buy rental properties since people have to live somewhere. But I have none of these qualities, and I would not be good at that.