Recovery From a Mistake

[frayne]

I think time and experience tends to numb one of the nuances of the market. Been investing since 1975 and one more than one occasion have seen my portfolio drop six figures during a slump and have never lost a minute of sleep over it. Being older, I worry even less.

MichaelB's advice about a balanced fund make the most sense in light of your time horizon and risk tolerance.

 

[NW-Bound]

I have "lost" more than $600K a few times. The most in a day is about $80K.

 

[Vincenzo Corleone]

I'd like to thank every one of you who responded. I value every single response I received.

frayne - "whatever percentage you have in mind into a total market stock index fund, and then forget about it".

Lsbcal - "The answer we know now is ... all in is the best number. We don't know the future. My feeling is that all in is going to be the best number".

ducky911 - "lump sum in and don't ever sell again"

The money we're talking about is in an IRA. I can't/won't touch it for another 20 years. Moreover, I have read elsewhere the same thing that the above posters have eluded to - averaging in helps the psychological aspect, but lump sum outperforms over long periods; which brings me back to the saying I once heard - time IN the market is better than timING the market.

Will we have a 10% correction? Sure. Does any of us know when? A month? Six months? A year? Who knows. I won't play that game again. I'm leaning towards taking ducky911's short and to-the-point advice: "lump sum in and don't ever sell again".

It was a costly lesson, but a lesson well learned. Thanks again, everybody. Happy New Year.

 

[Free bird]

There's much worse financial mistakes than not having money in the stock market. If anyone thinks the stock market isnt going to cough up a large portion of the gains of the last 5 years they're not paying attention. I'm confident the fed & our myopian politicians are blundering toward another event that will create a stampede in the risk off direction. Then that lack of stock exposure will look like genius. Buffet carries huge amounts of cash that he takes criticism for all the time. In our so called financial system nothing is as it seems. Besides past is past. It's what you do from this point forward that counts. I really don't believe these corporations are on as solid of footing as they'd like you to believe. Profits seem to be generated from generous tax policy & product & service shrinkage.

 

[galeno]

Corporate America's profit margin is an outrageous 11%. Historically it's around 6%. Warren Buffett himself believes that 11% is unsustainable even in the short term.

I agree with Buffett. We will have 58% non-US equities and 42% USA equities starting 2014. I expect non-US stocks to continue to out-perform US stocks over the short term.

There's much worse financial mistakes than not having money in the stock market. If anyone thinks the stock market isnt going to cough up a large portion of the gains of the last 5 years they're not paying attention. I'm confident the fed & our myopian politicians are blundering toward another event that will create a stampede in the risk off direction. Then that lack of stock exposure will look like genius. Buffet carries huge amounts of cash that he takes criticism for all the time. In our so called financial system nothing is as it seems. Besides past is past. It's what you do from this point forward that counts. I really don't believe these corporations are on as solid of footing as they'd like you to believe. Profits seem to be generated from generous tax policy & product & service shrinkage.

 

[Moemg]

I have "lost" more than $600K a few times. The most in a day is about $80K.

I prefer to think of as things I could have bought with the money e.g. In 2008 & 2009 I lost a beach front condo .

 

[NW-Bound]

I prefer to think of as things I could have bought with the money e.g. In 2008 & 2009 I lost a beach front condo .

Well, did you gain it back? I did recover my "loss" and then some. Many people here did too.

How much buying/selling or rebalancing they did, I do not know, but I did unload a lot of stocks at the end of 2008, and bought back in 2009.

What I sold were material and mining stocks that did very well in 2001-2008 during Chinese economy expansion and were coming down hard and fast at the end of 2008 when copper price collapsed from $4/lb to $1.5/lb. What I bought back were not the same stocks, however.

 

[NW-Bound]

I just checked my record. In the 2003 market rout, I "lost" less than $600K, but in the 2009 Great Recession, I "lost" $700K.

The nice thing is that the 2nd time, the loss was actually a smaller percentage of the portfolio. So, I have learned a thing or two. And I also did gain quite a bit between the two recessions.

I am riding high again, and waiting for the next shoe to drop.

 

[harley]

My issue is slightly different, but the same quandary. I managed to sell out of the market almost completely in early 2008, so I avoided most of the losses. However, I never got back in, so missed most of the run up. A shame, we're well off but a second lucky timing break would have been like winning the lottery. But basically we're still about where we were before the big drop. I did finally decide to start DCA'ing back into equities earlier this year. I'm buying in quarterly and stretching it out over a two year period. So I've caught a piece of the recent run up. It's hard to do since I still think the recovery is semi bogus, but I also recognize that I don't know as much as I think I do, so the best thing for me to do is get into the market in a manner that is less painful than going all in, and then just sit on my Ass-et Allocation from that time out. Good luck with making your own decision.

 

[bmcgonig]

I think you have to distinguish between the mistake you made getting out of the market at the wrong time and the even worse mistake of taking five long years to decide to get back in. Using worries about a little country like Greece as a reason stay out of U.S. equities makes no sense to me at all. It makes me wonder how long it will be before you overreact to the next scary news headline and let it affect your investing decisions. That's why I think you're a good candidate for a balanced fund.

I remember that time. One little country like Greece could have toppled the Euro according to the talking heads. And it wasn't until Draghi came aboard and vowed to do anything it takes that everything calmed down. So I think the fears "about a little country" were real.

I mean who would have thought that the downfall of one single company like Lehman..not even a country..could destabilize the whole friggin world.

 

[Animorph]

I like the balanced fund idea. A lump sum wouldn't be too bad with that.

Otherwise, I'd lump sum back in at what you would consider a conservative AA, say 20% stocks, and then DCA up to the AA you really want.

 

[donheff]

Reading through this I thought I might find myself frozen in the OP's situation. Having sold low I would be petrified that I was now buying high and ready to rinse and repeat. For some reason the idea of a conservative balanced fund sounds less scary although I recognize that a 60/40 or 40/60 simple portfolio is not much different. Maybe it is the advantage of not seeing the equity funds out there by themselves in plain view plummeting in a downturn that makes that approach feel better.

 

[REWahoo]

For some reason the idea of a conservative balanced fund sounds less scary although I recognize that a 60/40 or 40/60 simple portfolio is not much different. Maybe it is the advantage of not seeing the equity funds out there by themselves in plain view plummeting in a downturn that makes that approach feel better.

+1

I think the fact I'm primarily invested in balanced funds (a mix of Wellesley and Wellington) is what helped me sit on my hands and resist selling back during 08/09. Had I been able to see the equity component of those funds in freefall I might be in similar shoes to the OP.

 

[panacea]

This article was written with you specifically in mind:
Missed the big market rally? Here’s what to do now. - The Washington Post

What do you think after reading it?

Good article- advice hits the nail on the head about ignoring "the sky is falling" stuff we see on TV and read in papers and magazines. It's easy sometimes to get caught up this noise that is designed to keep their viewers/readers dependent on them for ratings... and forget that our own time horizon is too long to worry about the once in a lifetime disasters that arise around the world every 3-6 months.

 

[racy]

Hi,

... I made a mistake - I let my emotions get the best of me and I moved all the money in my retirement accounts that were invested in stock mutual funds into short-term bond funds, where the money has been sitting since. In the news, all I kept hearing .....

My advice: stop listening to the news. However, if you cannot then consider the financial news from this source: The Onion - America's Finest News Source

​

 

[jesaco]

During the worst crash in 2009, I was losing about 30-35% of my investments . Really scared the heck out of me. My first thought was to sell and avoid more losses. However, Upon reviewing my portfolio, I realized all my holdings were strong companies (JNJ, GE,XOM,JPM,T among others) that will exists tens or even hundred of years, excellent equity and bond funds and a good asset allocation. I decided not to sell any of them and ride the crisis and put in more money, little by little at a time using dollar cost averaging. besides, I thought it was too late to sell and if I did sell, my paper losses would become real losses and that what was happening in 2009 would not even matter in 5-10 years. I put my faith that America will survive the crisis and would even come out stronger. stopped looking at the news and did not check my portfolio's gains/losses for months. Now, not only I recovered but with this bull market, I almost doubled based on pre crisis value.... Can't blame anyone to panic because those were unusual times. I almost did but thank God, I stayed the course. Hopefully retired in 4-5 more years...would like to do it now as based on my computations would have enough but I still like my Job and my son is still in HS...

 

[Vincenzo Corleone]

I remember that time. One little country like Greece could have toppled the Euro according to the talking heads. And it wasn't until Draghi came aboard and vowed to do anything it takes that everything calmed down. So I think the fears "about a little country" were real.

I mean who would have thought that the downfall of one single company like Lehman..not even a country..could destabilize the whole friggin world.

Exactly.

I looked back at my records. audreyh1 was correct about the talk of Greece not occurring until after the market plunged. I didn't sell at the very bottom (thankfully). I sold a couple years later in 2011, when the market recovered quite a bit, and when all this talk about Europe collapsing was in fashion, and how it could take the US down again. 2008 was still fresh in my mind, I took this talk about Europe to mean that there were still significant risks and that the worst for the US may still be yet to come.

Fortunately, I was still buying individual stocks in my taxable accounts - things like J&J, P&G, GE, etc. I got into these things before chasing yield became all the rage and did quite nicely so far. The thing is, everyone eventually got the same idea - got into these stocks because they're considered safe and raise dividends annually. Their valuations are now pretty high. And I read recently that a record amount of money has been plowed into stock mutual funds recently. Do I really want to follow the herd? Ugh...

 

[audreyh1]

Exactly.

I looked back at my records. audreyh1 was correct about the talk of Greece not occurring until after the market plunged. I didn't sell at the very bottom (thankfully). I sold a couple years later in 2011, when the market recovered quite a bit, and when all this talk about Europe collapsing was in fashion, and how it could take the US down again. 2008 was still fresh in my mind, I took this talk about Europe to mean that there were still significant risks and that the worst for the US may still be yet to come.

Fortunately, I was still buying individual stocks in my taxable accounts - things like J&J, P&G, GE, etc. I got into these things before chasing yield became all the rage and did quite nicely so far. The thing is, everyone eventually got the same idea - got into these stocks because they're considered safe and raise dividends annually. Their valuations are now pretty high. And I read recently that a record amount of money has been plowed into stock mutual funds recently. Do I really want to follow the herd? Ugh...

Well that's much better then. By 2011 the market had recovered much of the 2008/2009 plunge, so you didn't sell anywhere near the bottom.

 

[Lsbcal]

...(snip)... The thing is, everyone eventually got the same idea - got into these stocks because they're considered safe and raise dividends annually. Their valuations are now pretty high. And I read recently that a record amount of money has been plowed into stock mutual funds recently. Do I really want to follow the herd? Ugh...

I'm not a fan of buying dividend stocks but rather of looking for a value tilt to get the extra bump. That strategy takes in some of the dividend yield too.

Regarding following the herd, one never knows how the future world economy will go but there seems to be a bias towards growth. Now I wonder why that would be? If one asked this question in say 1987 about 5 years after the previous SP500 low then they would have gotten out before the 1987 crash. But the full year results for 1987 were actually up slightly. Then came the great 1990's period. I'm not saying this will happen again (unlikely to have a PE expansion) but something good could occur like a long steady upward market.

Refusing to follow an up trend might be a bit futile. If I were going to time the market, I would be wary when stocks had run up and the Fed was tightening so we had a flat yield curve. The later condition is definitely missing.

 

[Major Tom]

For some reason the idea of a conservative balanced fund sounds less scary although I recognize that a 60/40 or 40/60 simple portfolio is not much different. Maybe it is the advantage of not seeing the equity funds out there by themselves in plain view plummeting in a downturn that makes that approach feel better.

Although I have not been ER during a big downturn (which I'm sure is psychologically harder than a downturn during the accumulation phase), I tend not to look at the individual components of my portfolio anyway. It consists of just 3 index funds and a cash portion (~ 60/35/5). I log on to my Vanguard account regularly, look at the total balance, and then log out. Occasionally, I will look at individual balances and/or the AA but if the market is acting a little scary, I simply look at the overall balance. If the market is looking particularly scary, I don't log on at all.

The nice thing about simple portfolios consisting of either balanced funds or index funds is that sticking your head in the sand is often good practice

 

[Free bird]

Log on log off wax on wax off. Even caveman can do it.

 

[Koolau]

First, let me give my qualifications to speak unintelligently about this subject (selling out and not buying back in - in time.) I sold out in '75 and never really bought back in in a traditional sense until a few years before ER. I ended up with company stock over a 30 year period through my 401(k) which enabled my 2005 retirement. None of this is recommended, but it worked out for me - quite well, in fact. Then, I learned some "stuff" and bought into some indexes and balanced funds (pssst. Wellesley) But, because of my proclivities to sell out, I stayed at about 30 - 35% stocks, total. I did one other thing which I have not heard mentioned here. I bought a small stake in precious metals - less than 5%. Fortunately, I did this in the early 00's more as a crisis investment than what it has turned out to be. Bottom line, when stocks tanked in the late 2000's, my PMs kept me more or less even and let my remaining investments make a little money. True, PMs have retreated, but my stocks have appreciated.

Now, I'm not recommending this. I simply have read up on PMs as a "smoothing" investment which tend not to correlate as well with "traditional" investments. I have read that 3 - 5% is the "sweet spot" though, I'm guessing that would be in a port of 50:50 or 60:40 otherwise. Not sure. Anyway, if I have a recommendation, it would be to at least read up on this concept and see if it makes any sense to you. If not, don't do it. It has seemed to work for me as I didn't sell any stocks in the last downturn.

As always, YMMV, so do your own research.

 

[Hamlet]

He's been wrong on that for awhile now

I think it would be a good thing if US Corporate profits dropped some and wages got stronger. It might even be a good thing for the stock market.

I think the growth in revenues caused by increasing the buying power of the middle class might outstrip the drop in profit margins.

Corporate America's profit margin is an outrageous 11%. Historically it's around 6%. Warren Buffett himself believes that 11% is unsustainable even in the short term.

I agree with Buffett. We will have 58% non-US equities and 42% USA equities starting 2014. I expect non-US stocks to continue to out-perform US stocks over the short term.