Some perspective

[newporttony]

Hi; new to the forum and hoping to get some perspective from more seasoned investors.

While I did live through the collapse of the dot com bubble, I don't recall the media hyperbole being as over the top as it is now. Lots of comparisons to the 1930s and inferences that "it is different this time".

Would love to hear from folks who have experienced previous bear markets--is the media doom and gloom just part of the process or is it more pronounced now?

 

[Rich_by_the_Bay]

Seems about the same to me as in 2002.

Wiki defines one ingredient of a bear market to be "marked pessimism" or words to that effect, so it is part and parcel of the event to hear lots of Chicken Little noises.s

 

[RockOn]

Hi; new to the forum and hoping to get some perspective from more seasoned investors.

While I did live through the collapse of the dot com bubble, I don't recall the media hyperbole being as over the top as it is now. Lots of comparisons to the 1930s and inferences that "it is different this time".

Would love to hear from folks who have experienced previous bear markets--is the media doom and gloom just part of the process or is it more pronounced now?

I think the diffference between now and the dot.com event is that it is not sleazy no earnings techies falling this time. Bank of America, Citibank, Bear Stearns, Lehman Bros, General Motors, General Electric, Phizer, look at the charts of some of these former Blue Chips, it's getting a little worrisome out there. I learned from past research that the Blue Chips are usually the last to fall at the end of a bear market. So maybe........

 

[Marquette]

Well, if it's like 1930 then it's not different this time. Rather, it's just like before. I believe most everyone survived then too.

 

[Rustic23]

It's and election year!

 

[Notmuchlonger]

This time its different.

 

[brewer12345]

Reminds me of 1992. If I wanted to scare myself, I would say it is reminiscent of the 1970s. But we are a lot less oil-dependent than we were back then.

For perspective, even oil companies were crushed today on a day when crude hit a new record. That suggests to me that everthing is being sold regardless of rice or value. Usually such idiocy does not last for long.

 

[Nords]

This time its different.

But... but... but... what if this time it's really really different?!?

 

[W2R]

I remember the collapse of the dot-com bubble. Although I didn't have much invested then, it seemed a lot worse to me at the time than our present economic woes. During the collapse of the dot-com bubble, people at my work would talk about the market and their TSP in hushed tones. I remember people telling me to watch what I said around this or that person, because he/she had a severe loss in the market and was despondent.

The people at my work are mostly the same, but the atmosphere now is much calmer. People talk about the weather or the election or the price of gas, not the market so much. When I ask them about it, a few people are saying that they don't know but they are disgusted and they might or might not have to delay retirement a little. There is not the same sense of panic/doom as before.

Like others, I think the media are hyping this a little, probably because it is a political issue. I am hoping it will be mostly resolved during the first years of the new Presidency.

 

[CitricAcid]

From what I remember, the .com crash was far more pronounced. The reason I feel it was more pronounced was because the success before the crash was FAR FAR FAR more pronounced and hyped than the 5-year growth between 2003-2007 that we had. Amazon, Cisco, Yahoo!, AOL-Time Warner, Sun Microsystems, Apple, Microsoft, Ebay, buy.com, excite@home (OK, I had to) were all being passed off every single day as the greatest business models ever invented. IPOs were going up 100% within hours of their debut with no rhyme or reason. The mass hysteria before the collapse then was far more ridiculous than it was in 2007, and way worse than the housing bubble even though the housing bubble could be considered more pronounced.

Traditional business model analyses were being scrapped because they could not describe how these internet businesses were soaring in stock price. They borrowed billions of dollars and felt that since they had a website it would turn into earnings... eventually their debt and overstated growth plans (see Sun, pets.com, even AOL) were their downfall.

What is the same or different this time? The same hysteria, to a lesser extent, gripped the market before the fall. This is most clearly seen in the housing market. Traditional mortgage and debt plans were being scrapped because they could not describe the meteoric rise in housing prices as negative amortization, ARMs and interest only loans became the norm not the exception. Eventually, all the debt taken by the consumers fell down upon them as it did not turn into earnings for the banks which had a ripple effect through the economy. I do NOT think this is different, and also think that this stagnation in the economy is less devastating and pronounced as the 2001-2002 one.

 

[ikubak]

The downturn in the market during from the dotcom bubble lasted from 2000 to 2002. It was a long grinding fall that seemed like it just wouldn't stop. I remember Paul Harvey on the radio saying that he still had faith in America and he was buying despite the bad market.

I think the difference between now and then is that we would need to suffer another year and a few months of this to match what happened back then. Also, I don't hear nearly as many people talking about the market. I think the 2000-2003 period convinced a lot of people that the market wasn't where they wanted to be (real estate! now there is a sure thing!)

 

[ziggy29]

I do NOT think this is different, and also think that this stagnation in the economy is less devastating and pronounced as the 2001-2002 one.

One big difference -- at least for investors -- is that there is virtually no "refuge" for your money (at least among conventional equities).

In 2001-02, there were safe havens. Small caps were UP. REITs were UP. Emerging markets were mostly UP. International stocks in general were not down nearly as much as U.S. large cap. So someone who diversified across all of these classes didn't see much carnage. I was only down 7% in 2001 and 2002 combined (despite more than a 30% loss in the S&P), and (eek) looking at current balances I'm down 8% YTD here and 13% since October. That's because outside of hedges against inflation and the weakening dollar, none of the conventional equity classes are escaping. Even diversification hasn't been *too* helpful other than the portion that may be in high-quality bonds.

I suspect that may be part of the reason why it *feels* worse to some investors.

 

[CitricAcid]

One big difference -- at least for investors -- is that there is virtually no "refuge" for your money (at least among conventional equities).

In 2001-02, there were safe havens. Small caps were UP. REITs were UP. Emerging markets were mostly UP. International stocks in general were not down nearly as much as U.S. large cap. So someone who diversified across all of these classes didn't see much carnage. I was only down 7% in 2001 and 2002 combined (despite more than a 30% loss in the S&P), and (eek) looking at current balances I'm down 8% YTD here and 13% since October. That's because outside of hedges against inflation and the weakening dollar, none of the conventional equity classes are escaping. Even diversification hasn't been *too* helpful other than the portion that may be in high-quality bonds.

I suspect that may be part of the reason why it *feels* worse to some investors.

Commodities, my friend, commodities.

 

[ziggy29]

Commodities, my friend, commodities.

That's why I said "That's because outside of hedges against inflation and the weakening dollar, none of the conventional equity classes are escaping." That was a nod to commodities.

But many people aren't allocated to them, and indeed, I doubt a heck of a lot of 401K plans have funds devoted to them.

 

[CitricAcid]

That's why I said "That's because outside of hedges against inflation and the weakening dollar, none of the conventional equity classes are escaping." That was a nod to commodities.

But many people aren't allocated to them, and indeed, I doubt a heck of a lot of 401K plans have funds devoted to them.

Touche, but if you had 5-10% of your portfolio in something that went up 50%, it could have mitigated the 8% fall to something like 5%. I agree it makes a more depressing overall market sentiment, but the fact that some people were making money off of small-cap, international, etc. did not help the millions of investors who lost jobs/fortunes/401ks to the tech collapse. I just somehow feel this isn't quite as bad (except a lot of people own houses )

 

[W2R]

Touche, but if you had 5-10% of your portfolio in something that went up 50%, it could have mitigated the 8% fall to something like 5%. I agree it makes a more depressing overall market sentiment, but the fact that some people were making money off of small-cap, international, etc. did not help the millions of investors who lost jobs/fortunes/401ks to the tech collapse. I just somehow feel this isn't quite as bad (except a lot of people own houses )

Food for thought, and I see your point. Musing on....I would expect it is pretty bad in small, localized regions where the housing bubble was huge and people commonly took out ARM's to buy houses 50-100 miles from work (which were all they could afford). Now they are upside-down on their mortgages, their ARM's are re-setting, and gas prices are eating them alive.

I really feel for those people. So many of the rest of us are getting through this relatively easily by comparison.

 

[Bestwifeever]

Hi; new to the forum and hoping to get some perspective from more seasoned investors.

While I did live through the collapse of the dot com bubble, I don't recall the media hyperbole being as over the top as it is now. Lots of comparisons to the 1930s and inferences that "it is different this time".

Would love to hear from folks who have experienced previous bear markets--is the media doom and gloom just part of the process or is it more pronounced now?

For what it's worth, it seems to me the media airtime was focused more on September 11 and its aftereffects in 2002. Now they are filling that airspace with market coverage. That doesn't mean this time things are or will be the same (or different). I do remember not feeling worried back then (even though our two children were getting into the real world of work) because we weren't affected too much by the bear market. We are still not in too bad of shape personally (down 5 percent YTD) but this time I'm contributing some worry time.

But I almost feel some relief that the bear is here--it seems we have been waiting for that shoe to drop ever since October's highs, in a weird way. Now we can deal with it.

 

[rogersteciak]

I wasn't alive during the 1930s or 1940s, but from what I've read about that era, times were much bleaker then than they are now. The basic survival of western civilization (or at least the capitalistic democracies) was in serious doubt in 1940, for example, and investors didn't fare very well at the time (although it turned out in hindsight to be a great buying opportunity for those living in the right countries).

If there is anything that's "different this time," it's the fact that the economic activity is starting to shift to the emerging economies of the world. One guest on Wealthtrack.com a few months ago referred to this trend as "the '70s all over again," but he was referring to the 1870s (which was the time when the United States was the emerging economy to Europe being the established "developed world").

There are many trends in play (e.g., emerging and frontier economies are growing, while developed economies are graying and retiring) that may last for the next few decades. The media is probably hyping the situation (I don't know, since I don't watch the news) because it is probably worse than what many people alive today have experienced in their lifetimes. But it's probably not as bad as it's ever been before in history.

It's probably a good time to think things through carefully before making any changes to one's investment portfolio (i.e., don't react to the latest headlines, but think long term and globally). Reacting emotionally to news will likely leave prople worse off than before.

 

[ziggy29]

The media is probably hyping the situation

Never. That doesn't happen.

 

[Notmuchlonger]

But... but... but... what if this time it's really really different?!?

Im frozen with fear so I do nothing. Im like the captain going down with the ship.

 

[ziggy29]

Im frozen with fear so I do nothing. Im like the captain going down with the ship.

Or the deer in the headlights.

 

[Notmuchlonger]

Or the deer in the headlights.

Oooo or a [-]cow[/-] bull going to slaughter!

 

[Leonidas]

We've had this discussion before and this was my take a couple of years ago http://www.early-retirement.org/forums/showpost.php?p=438827&postcount=5

If you are a trader, you have to look at the markets, but there are a lot of followers out there and darn few leaders. If you look to the market to tell you something other than what it has already done, you're looking in the wrong place. Lot's of people are prognosticating, but nobody knows what's going to happen.

When it's all over, there will be plenty of people pulling out charts and pointing to specific events and saying "See, right here, that's where it all started!"

But how many of them saw any of these coming? List of stock market crashes - Wikipedia, the free encyclopedia

1987 smacked me pretty hard and my freaking out meter was pegged until I talked to someone who gave me good advice. After that the rest of them really didn't bother me until the dot-com thing. In fact, I guess I completely missed whatever happened in 1992 that Brewer referenced. Of course '92 was a year of 80+ hour workweeks and I don't think I even opened any of my statements until 93 or 94.

As for 2000, you could see the dot com bust coming from a long way off, and it only got me because all the tech stuff drug the rest of the market down with it. I didn't freak out, I was just disappointed with myself that I didn't recognize how it would affect my non-tech portfolio and take some profits while it was all up.

I have done some shorter term trading with a small percentage of my portfolio. But only with money that is not vital to what I need to live on in the future. If I hit it big then I get to take a nicer trip, or buy a nicer car, or whatever. If it craps out, I won't be eating dinner from the free sample trays at the grocery store. But that's more like playing with the market than investing.

If I had to make a bullet list of what I've learned from all of these fun events it would look something like this:

• The absolute minimum time horizon I should have for my investments is five years.
• Longer time horizons work much better. I prefer ten years out and farther.
• Any money I want to spend from my investments in the next five years should be in cash, today.
• The traders and the financial media have an outlook that varies from this afternoon to about 18 months out.
• Pay attention to what the traders and the financial media talk about, but don't confuse your time horizon with theirs. Therein lies a quicksand of madness.
• Good companies in good industries that make a profit, aren't burdened with a lot of debt, have a decent market share and have sane management that isn't doing stupid things are the places I want to have my long-term money.
• Watch to see where the herd is going, but don't blindly follow.
• If everyone is talking about a certain sector, and everyone is throwing money at that sector, run away as fast as possible. Unless you want to take the chance that you'll be an owner when it goes to hell - because it will tank eventually.
• Anybody who says "this is different" is wrong.
• Anybody who says "this is the way to riches without risk or effort" is wrong.
• Investing in anything that you can't explain how it makes money, in less than 5-minutes, is dumb.

 

[statsman]

If I had to make a bullet list of what I've learned from all of these fun events it would look something like this:

• The absolute minimum time horizon I should have for my investments is five years.
• Longer time horizons work much better. I prefer ten years out and farther.
• Any money I want to spend from my investments in the next five years should be in cash, today.

Okay, what if you are 6 years from an early retirement? Assume that 50-60% of your income needs at the beginning of retirement will come from your investments. Also assume that if push came to shove, you could work 2-3 years more.

 

[ladelfina]

Worse, what if you are 5 years INTO an early retirement?
With 100% of income needs from portfolio.
Like me.*

I appreciate Leonidas' points except that I have to agree with ziggy29: this IS different because diversification is not helping as much as it traditionally has. This time I see bigger, more systemic problems than mere misallocation.

*Rhetorical question. I will probably un-retire and take up something like teaching English freelance.