OK, I'll say it

[Rich_by_the_Bay]

This is my first experience with a five figure loss on my portfolio, and it's definitely a weird feeling. I know some of you have lost six figures, but I've never experienced this kind of drubbing before. It's north of $20k now but I don't want to do the exact math. I won't leave the game plan, but it hurts nonetheless.

A good antidote is to remind yourself that when the market is way up, you don't really "own" all those gains; they'll drop sooner or later. Just like when they're way down, you are not really fully on the hook for it since they'll eventually go up. Only two days count: the day you bought them, and the day you sell them.

 

[rs0460a]

Still, the bear market could be with us, or perhaps even worse, in 2009.

Hey - that's only 174 days away ...

- Ron

 

[rs0460a]

Only two days count: the day you bought them, and the day you sell them.

Exactly! And remember that you are not going to "sell your entire portfolio" on that day (regardless if it is up or down).

You probably will sell a few profitable holdings to fund your "income bucket" on up years, and live on that "bucket" (aka "feedbag" ) on years such as this.

You didn't invest in a year - you won't withdraw in a year.

- Ron

 

[W2R]

Hey - that's only 174 days away ...

- Ron

Very true! For me, market gyrations are trickier to predict than a roulette wheel, though. We could be at 7000 or 15000 in another six months, or still at 11000.

 

[Alan]

Very true! For me, market gyrations are trickier to predict than a roulette wheel, though. We could be at 7000 or 15000 in another six months, or still at 11000.

It's at 11,000 already Must be another down day then I suppose.

 

[windsurf]

My job, medical defense and product liability attorney, was very stressful. A mistake could cost a client millions and expose me and my partners to liability. Mistakes could not happen. I could have stayed in another five or eight years until my mid sixties and banked another few hundred thousand dollars. I wouldn't trade the stress and some of the (so far) healthiest (less stress, more balance) years of my adult life for more cushion when I'm 85.

 

[mb]

I'm glad I haven't made the commitment to fully retire yet.

I'm glad I still have a business going......mmmmmm.....and a job that provides enough cash flow to keep me afloat.

One of the benefits of staying semi-retired is to be able to test the ER waters while still having the ability to ramp up the earned income if needed.

Watch out. The RE gods may take away your magic FIRE decoder ring

 

[Westernskies]

I always try to look at the the positive regarding my investment portfolio. The best I can say is that at least it is outperforming my Real Estate holdings...

 

[Texas Proud]

A good antidote is to remind yourself that when the market is way up, you don't really "own" all those gains; they'll drop sooner or later. Just like when they're way down, you are not really fully on the hook for it since they'll eventually go up. Only two days count: the day you bought them, and the day you sell them.

Sorry to say Rich... but this is the kind of thinking that makes no sense to me.... like "you do not have a loss until you sell".... well, yes you do.. not a 'recognized loss' as such, but a loss none the less...

And you do have a gain when the market goes up... because if you could sell the stock that day and have all the money.. so it is 'real'... again, just not recognized or monitized...

I bet you don't buy a new $30K car, drive it for 10 years and think... wow, I am driving around in a car worth $30K because I have not sold it yet.... nope, it is worth less... you have a 'loss'...

But then again, I hear so many people say the same thing to justify their thinking... it must come from someplace...

The true accountant in me says you 'mark to market' every day (or every month or whatever)... and you either made money or lost money from the previous day or month....

 

[rs0460a]

The true accountant in me says you 'mark to market' every day (or every month or whatever)... and you either made money or lost money from the previous day or month....

Respectfully, I respond that you are caught in "short term" (investor) thinking.

Did I lose $$$ since January 1'st of this year? Yes!

Did I lose $$$ since I started investing 25+ years ago (allowing for inflation and my contributions)? Nope!

It's the same as that old song sung by Kenny Rodgers, "The Gambler" in which he sings:

"You never count your money when youre sittin at the table.

There'll be time enough for countin when the dealins done".

As for me? I'm still at the table ...

- Ron

 

[CuppaJoe]

A good antidote is to remind yourself that when the market is way up, you don't really "own" all those gains; they'll drop sooner or later. Just like when they're way down, you are not really fully on the hook for it since they'll eventually go up. Only two days count: the day you bought them, and the day you sell them.

That's exactly how I got through all previous bears since 1972 while in the accumulation phase. My way of thinking was to note the paper bottom line and estimate where I thought it would "hold": usually 10, 20 or 30% lower. I slept well with that kind of thinking even when I did lose 30%. I'm so conservative now that I'm out of the accumulation phase that my paper line went up somewhat yesterday but as you say I don't really own that exact amount.

 

[Rich_by_the_Bay]

Equity prices change minute to minute while the stock market is open for business. You are always winning and losing all day long. At some point you need to arbitrarily declare a benchmark: up for the day, down for the week, up for the month, up for the year, whatever. You can cry in your beer or celebrate every 3 minutes if you define your end-points that close. For an investor who is in it for the long haul, it makes little emotional sense to experience remorse or elation over very short term fluctuations.

To me it makes much more emotional sense to establish your starting and ending points with some relationship to your anticipated investing or harvesting. What you refer to as "recognized" gains may be real but unless they are exercised, they are potential and fleeting more than actual in this context.

So I think you are probably right in a bookkeeping sense, but for the posters who express a wide range of unpleasant emotional reactions to the market's gyrations, the buy and sell dates seem to be a much more user-friendly way of looking at it. And it fits real-life circumstances better, for me: I lose 20% this year on investments I plan to sell in 13 months, I'm right to be remorseful. OTOH if I plan to hold them for 20 yrs, I really shouldn't give a hoot about the bad year they just had.

Different ways of looking at the same circumstances, I guess.

 

[copyright1997reloaded]

Even though I've got a quarter mil in the market (okay, only 200k in stocks), I'm hoping for a long bear market. In my 30's, in my accumulation phase, if it stays low over the next 10 years while I keep socking money, I should be in good shape.

That is, as long as I can keep my current income...

That's the key, isn't it?

[FONT=georgia, bookman old style, palatino linotype, book antiqua, palatino, trebuchet ms, helvetica, garamond, sans-serif, arial, verdana, avante garde, century gothic, comic sans ms, times, times new roman, serif] It's a recession when your neighbor loses his job; it's a depression when you lose your own. ~Harry S. Truman
[/FONT]

 

[harley]

but this is the kind of thinking that makes no sense to me.... like "you do not have a loss until you sell".... well, yes you do.. not a 'recognized loss' as such, but a loss none the less...

And you do have a gain when the market goes up... because if you could sell the stock that day and have all the money.. so it is 'real'... again, just not recognized or monitized...

I bet you don't buy a new $30K car, drive it for 10 years and think... wow, I am driving around in a car worth $30K because I have not sold it yet.... nope, it is worth less... you have a 'loss'...

The true accountant in me says you 'mark to market' every day (or every month or whatever)... and you either made money or lost money from the previous day or month....

I have to say, I'm glad you're not my accountant. You'd have me paying capital gains taxes on stocks I haven't sold yet. And that car analogy doesn't make any sense to me. Apples and oranges.

Speaking of Apple, when I bought the stock in the early 90s at around $10, that's what I had invested. I didn't lose money when it dropped into the $4 range, because I wasn't going to sell. It did matter when I sold 2/3 of it last year at $180, because I got real money for it. And even though the remainder of it is down from that level it doesn't matter because I'm not selling anytime soon. If it goes up into BRK.A levels and I don't sell, and then comes back down to today's levels and I don't sell, I haven't gained or lost anything, except for having missed a great market timing opportunity. I miss those all the time.

Harley

 

[shotgunner]

Putting things in perspective

Since last October's high this has been a turbulent period for equities and unsettling for many many people. It stinks (I could be more vulgar) to lose money. I have just hit the magic number of seeing a 6 digit decline from the high my portfolio achieved in Oct '07. HOWEVER, as a percentage decline I am down 9.6%. Now considering the S&P was down this morning 20.8% from it's October high I feel a little better.

I don't like current events, it can be a daily concern, but I am long way from needing go from P/T to F/T work. I am going to continue evaluating my situation annually not daily.

I am comforted by having at least 8 years in cash to cover living expenses, and that could probably last 12 to 16 years with part-time work. That is a big cushion I think and it gives me comfort. Holding this much cash was part of my plan, a plan to deal with a bad case scenario.

 

[Texas Proud]

Respectfully, I respond that you are caught in "short term" (investor) thinking.

Did I lose $$$ since January 1'st of this year? Yes!

Did I lose $$$ since I started investing 25+ years ago (allowing for inflation and my contributions)? Nope!

It's the same as that old song sung by Kenny Rodgers, "The Gambler" in which he sings:

"You never count your money when youre sittin at the table.

There'll be time enough for countin when the dealins done".

As for me? I'm still at the table ...

- Ron

Uhhh, under that thinking.... you are at the table until you die... then someone else gets to count your money...

I am not saying that you need to do anything because of the ups and downs.... just that you lost 'real' dollars when the market goes down just like you make 'real' dollars when it goes up.... so no short term thinking.... but also no irrational thinking to try and hide your losses...

 

[Alan]

The true accountant in me says you 'mark to market' every day (or every month or whatever)... and you either made money or lost money from the previous day or month....

Is this what they teach in accountancy school?

In 13 years I've realized many gains when re-balancing, either selling stock funds and buying bond funds or vice-versa. The whole point of a balanced portfolio is to realize gains and avoid realizing losses. I'm about to enter the withdrawal phase and like many on this board I have built a cash cushion to minimize having to realize losses by needing to sell when they are down. Of course, if they stay down for more than 5 years then I will be losing real money.

 

[Texas Proud]

So I think you are probably right in a bookkeeping sense, but for the posters who express a wide range of unpleasant emotional reactions to the market's gyrations, the buy and sell dates seem to be a much more user-friendly way of looking at it. And it fits real-life circumstances better, for me: I lose 20% this year on investments I plan to sell in 13 months, I'm right to be remorseful. OTOH if I plan to hold them for 20 yrs, I really shouldn't give a hoot about the bad year they just had.

Different ways of looking at the same circumstances, I guess.

I am not even talking bookkeeping... as you said... if you LOSE 20% and expect to sell in 20 years... who cares... but you still 'lost' 20% no matter what kind thinking you want to do...

And we know that it is a loss because so many people are 'scared' at the loss and want to 'talk' themselves into keeping invested by saying 'it is not a loss.... it is not a loss... it is not a loss'..... sorry, it is, but if you are a long term investor... who cares...

BTW, I am down big time... but have not changed my investments excpet to put cash aside the last few months for a downpayment on a house...

 

[bamsphd]

I'm glad I haven't made the commitment to fully retire yet.

We were just 5% away from "our number" at the peak last fall.
Then the markets fell.

So I've said more than once recently, at least we hadn't retired yet. I'm quite convinced that "the worst time" financially to retire is at the start of a bear market, and the best time is at the start of a bull. So I hope to just sit tight until the bull comes around again, then leap. Hopefully, we won't console ourselves with too many luxuries in the meantime, so "our number" won't go up too much. Though paying to heat the house this past winter certainly pushed it up a little bit.

As for the side thread on mark-to-market versus only when you buy-sell. I'm definitely in the mark-to-market frequently camp. I also peel bandages off really slowly. That way sometimes the pain is so mild I hardly notice, even if it does last a long time.

When mark-to-market really hurts, I can generally console myself by comparing my cost basis with the current market value of my portfolio. Not quite the same as buy-sell, but close.

 

[Alan]

I am not even talking bookkeeping... as you said... if you LOSE 20% and expect to sell in 20 years... who cares... but you still 'lost' 20% no matter what kind thinking you want to do...

I still don't get your logic, perhaps it's just a matter of words. Suppose I want to get from a to b on a boat. There is a chance the boat may sink, or be forced to return or get blown off course, but if get there regardless of the ups and downs then I will have achieved my objective.

Same with your investments. True, I'm down 5% ytd, but year on year over the past 13 years I have made 9%/year so I can say that I am still very much on course despite the ups and downs which you call gains and losses. It's just semantics.

 

[Texas Proud]

I have to say, I'm glad you're not my accountant. You'd have me paying capital gains taxes on stocks I haven't sold yet. And that car analogy doesn't make any sense to me. Apples and oranges.

NOPE... that is the difference between your book and your taxes.... you only have to pay taxes when you sell...

The car example is the same... you are trying to justify a higher value for your stock than it really is... just like the guy who says his car is still worth what he bought it for...


Let me give another example.... my mother bought Exxon back in the early 80s... I think she paid $3500 or so... have been reinvesting the dividends the whole time... so in reality her true out of pocket is her $3500.... but her 'value' is over $140,000.... and if it dropped down to $100,000 she would have 'lost' $40,000... now, she might think... 'well, I am still ahead of what I put into the stock so I have lost nothing'.... I just can not see that kind of thinking...

 

[Texas Proud]

I still don't get your logic, perhaps it's just a matter of words. Suppose I want to get from a to b on a boat. There is a chance the boat may sink, or be forced to return or get blown off course, but if get there regardless of the ups and downs then I will have achieved my objective.

Same with your investments. True, I'm down 5% ytd, but year on year over the past 13 years I have made 9%/year so I can say that I am still very much on course despite the ups and downs which you call gains and losses. It's just semantics.

With what you say... absolutely... no semantics at all... you are still on course even though you have lost money these last 9 months... not 'it is not a loss until I sell it'...

 

[Alan]

We were just 5% away from "our number" at the peak last fall.

Do you change your "number" each year to take into account you are 1 year closer to no taxes, 1 year closer to Medicare, inflation factor etc? just curious as we don't have a "number" as such. I update the budget on what I expect we need to live on and then run claculators such as Firecalc.

 

[Alan]

Let me give another example.... my mother bought Exxon back in the early 80s... I think she paid $3500 or so... have been reinvesting the dividends the whole time... so in reality her true out of pocket is her $3500.... but her 'value' is over $140,000.... and if it dropped down to $100,000 she would have 'lost' $40,000... now, she might think... 'well, I am still ahead of what I put into the stock so I have lost nothing'.... I just can not see that kind of thinking...

That is the difference between a pessimist and an optimist, a stressful and a relaxed person. I would definitely see that example as a gain not a loss.

I know folks who one day are delighted when they say "I just made money selling a particular stock" and then are disappointed because it continued going up and so they are down in the dumps because they "lost" money because they sold too soon.

 

[samclem]

Though I understand the "accountancy" of marking to market, I don't think that mindset serves a long-term investor well. It encourages both unwarranted elation and unwarranted woe. Although the difference is primarily psychological, it can have behavioral implications. For example, an individual who truly believes that marking to market is the absolute truth will see no difference between the returns of a bond fund with a five year average maturity and a bond ladder with a five year average maturity. Same maturity, same quality= same expected returns. On the other hand, I see a big difference (even aside from repayment risk). With a bond, I know for certain what the bond will pay me each quarter and what it will be worth on the day of maturity. I can count on that money for use in funding my living expenses. With the bond fund (same maturity) I'll never know exactly what the fund will pay me, and the constancy of the available dollars is not the same.