The market isn't as bad as it seems?

[Dawg52]

Hey, I'm definitely feeling the hurt, too! I finished college in late 2003 and have been working and investing since then. I'm not sure if I'm in the negative since I started investing, but I wouldn't be too surprised. But the way I look at it, I'm 4-5 years into my accumulation phase and I have established a fairly decent sized portfolio in spite of the downturn. In the last four to five years, I have been focusing on paying down debts (student loans, credit cards, and the mortgage). My house went up in value a decent amount. When I did my quarterly portfolio review on 9/30/2008, I was still wealthier then than I was one year earlier on 9/30/2007. After the first seven days of October, I'm not sure if I remain wealthier than I was a year ago or not though.

But you can't really focus on the day to day fluctuations in market price of your long term investments or it will drive you crazy. I know I'm investing with a multi-decade horizon, so even though the last 3 months have been ugly, it is (hopefully) not "different this time" and this will look like a blip on a ten or twenty year chart. Today I'm buying mutual funds at prices not seen since before I started really investing back in 2003-2004.

When I was young, it didn't bother me when markets went down. You should be happy to be investing at corrected rates. As a recent retiree, I'm numb. Not really pissed anymore, just numb. Hopefully one day we will all get it back.

 

[FUEGO]

When I was young, it didn't bother me when markets went down. You should be happy to be investing at corrected rates. As a recent retiree, I'm numb. Not really pissed anymore, just numb. Hopefully one day we will all get it back.

Hey, I'm happy to be getting in cheap. Undoubtedly the best thing that can happen for me long term would be to have the market go sideways to down for the next 5-10 years as I'm investing, and then start another 10-15 year bull market. As long as I can remain gainfully employed...

I have invested enough (in a 100% equities portfolio) that my losses last quarter exceeded DW's annual salary, and I'm pretty sure our YTD losses have exceeded my salary now. I was down 20.7% as of 9/30/2008, and it looks like "the market" is down another 13-14% since then, so I'm probably looking at having lost around a third of my portfolio's value this year. Come to think of it, I may have just lost the equivalent of my salary and my wife's salary YTD. Shhh... nobody tell DW!

 

[OAG]

And recently, the 2000-2002 bear market was ugly, but then look at what followed in the five year period of 2003 through 2007 (again for the S&P 500):

2000: -9.06%
2001: -12.02%
2002: -22.15%

then,

2003: +28.5%
2004: +10.74%
2005: +4.77%
2006: +15.64%
2007: +5.39%

Maybe 2008 is going to be a really bad year. 2009 might also. Maybe 2010. Or 2009 and 2010 might be more like 1975-1976 and 2003-2004. No one knows which scenario will play out though.

So if one put $X in the SM in 1990 (buy and hold) the average return for those 8 years was close to 2.5% compounded before inflation? SM investing is too difficult (for me) you would have to "work" to make a significant return above a decent CD ladder (I got an annual average 5.7% compounded APY return before inflation on FDIC CD's for that period; lots less "work"). I do not mean to gloat and this current "downturn" is devastating for too many people.

 

[Purron]

When I was young, it didn't bother me when markets went down. You should be happy to be investing at corrected rates. As a recent retiree, I'm numb. Not really pissed anymore, just numb. Hopefully one day we will all get it back.

This echos my feeling exactly Dawg54. I'm concerned this downturn is different than others in the past and being older makes it harder to take. In this case, the entire global economy is more connected and is looking simply gloomy. I've been concerned because DH and I have a fair amount of our NW in real estate - our home plus a rental. Even with the real estate market tanking, I take comfort in knowing there is value in land and property that will eventually come back. I hope so anyway

 

[Moemg]

When I was young, it didn't bother me when markets went down. You should be happy to be investing at corrected rates. As a recent retiree, I'm numb. Not really pissed anymore, just numb. Hopefully one day we will all get it back.

I'm so numb happy hour is not happy any more !

 

[FUEGO]

So if one put $X in the SM in 1990 (buy and hold) the average return for those 8 years was close to 2.5% compounded before inflation? SM investing is too difficult (for me) you would have to "work" to make a significant return above a decent CD ladder (I got an annual average 5.7% compounded APY return before inflation on FDIC CD's for that period; lots less "work"). I do not mean to gloat and this current "downturn" is devastating for too many people.

Since 1990, you would have an annual return of around 6.4% per year based on the results of the S&P 500 over the last 18 years. Plus dividends, which may be close to inflation over that period.

If you meant investing in the year 2000 and holding for 8 years, then yes, your results would not have been this good - I calculated 1.5% avg annual returns. In other words, you would have lost a slight bit (~1%) per year to inflation. My point in posting 2000 to 2007 returns was to indicate that if we are currently seeing the bottom (ie if this is 2002 or 1974), then we may be in line for some steep returns going forward. If you had investing at the end of 2002, you would be sitting on 13% per year avg annual returns through the end of 2007.

 

[OAG]

FUEGO: I see your point; and even tho I do not anticipate ever putting a $ in the SM, I sincerely hope there is a good up turn in it, and the sooner the better.

 

[Dawg52]

So if one put $X in the SM in 1990 (buy and hold) the average return for those 8 years was close to 2.5% compounded before inflation? SM investing is too difficult (for me) you would have to "work" to make a significant return above a decent CD ladder (I got an annual average 5.7% compounded APY return before inflation on FDIC CD's for that period; lots less "work"). I do not mean to gloat and this current "downturn" is devastating for too many people.

You have no idea how I wish I had followed your strategy. Glad I did on half my portfolio. Oh well, buy more Bud and hunker down. Maybe that's what Unclemick means when he says "party on".

 

[dex]

DOW down another 500+ points today. 8,000 just around the corner at the rate were going. That's a number I've seen predicted here and other sites. I just hope it stops there.

Take a look at the last time the S&p went to 800 - it took about 2.5 years to get there.

It took about 4.7 years to get back to 1,550 - the top

It look like it might take 1 year to get to 800.

I would guess it will take less than 5.5 years to get back to the 1,550. Markets that go down quickly usually rebound quickly.

If the 800 level holds it will be a strong double bottom.

PS - the charts for 1929 do not match the charts since the 2000 high.

 

[audreyh1]

[Darn it! Somehow most of my post got clobbered!]

I actually sold some bonds to bring some of my stock mutual funds into balance today. I hope I'm not jinxing things by posting here - knock on wood!!! We're at levels not only seen in Q2 of 2003, but also seen in Q3 of 1997!!!

That just seems incredible to me and it seems like a gift. There sure seem to be a lot of technical factors pushing the markets down - hedge funds bailing, people positioning themselves for a lifting of the short ban, etc. The VIX levels have been just incredible.

Sure we still might see DOW 8000 or 7500 and/or S&P 800 again. That's probably all the rebalancing bullets I'll have left though if we get there. At some point I've gotta protect my remaining bond/cash allocation.

History tells us that it takes about 60 days from a credit/financial crisis for the freak-out/panic to settle down. So by Dec 1 some of the smoke should clear.

Audrey

 

[eridanus]

(And you guys laughed when I said the Royal Bank of Scotland said we'd be down to 1050 by September, so they were a tad off and it's early October but we are at 1056 in the S&P right now.)

If RBS was so prescient, they wouldn't be in danger of failing tomorrow.

 

[ziggy29]

Someone please change the title of this thread. It lies.

 

[REWahoo]

Is that better?

 

[eridanus]

FT.com / Columnists / Tony Jackson - New panic is proof of big league crisis

"Monday’s fresh outburst of panic on global markets was final proof that as financial crises go, we are now in the big league. Comparisons with the dotcom bubble or even the Asian crisis of 1997 are inadequate. We must think of 1987 or 1929."


Aieeeee!

 

[ziggy29]

FT.com / Columnists / Tony Jackson - New panic is proof of big league crisis

"Monday’s fresh outburst of panic on global markets was final proof that as financial crises go, we are now in the big league. Comparisons with the dotcom bubble or even the Asian crisis of 1997 are inadequate. We must think of 1987 or 1929."

1987? Pfft. Many people forget that the market was UP in 1987 for the entire year. We focus on a really bad month or two, forgetting that the other 10 months were strongly higher.

I suspect 2008 is not going to finish as an "up" year. Call me crazy...

 

[tmm99]

Is this kind of stuff (huge downturn in the market like we are experiencing) calculated into firecalc?

tmm

 

[REWahoo]

Is this kind of stuff (huge downturn in the market like we are experiencing) calculated into firecalc?

tmm

FIRECalc includes all the 'stuff' that has happened in the US markets going back to 1871. This link explains how it works and how far back FIRECalc goes.

 

[harley]

So if one put $X in the SM in 1990 (buy and hold) the average return for those 8 years was close to 2.5% compounded before inflation? SM investing is too difficult (for me) you would have to "work" to make a significant return above a decent CD ladder (I got an annual average 5.7% compounded APY return before inflation on FDIC CD's for that period; lots less "work"). I do not mean to gloat and this current "downturn" is devastating for too many people.

If I read this right (and I'm curious, not criticising), you are completely in cash/CDs? If so, does that mean you have enough money to live on making just a percent or 2 above inflation? Or maybe a decent COLA pension to make up the difference?

I'm 52, married, and no pension. I hope we each live somewhere between 30 and 50 years more. I don't see any possible way to make it using cash vehicles, and I've got quite a nice chunk of money. I would really appreciate it if you could give me an overview of your retirement strategy, so I can see if there's anything there I can us. Thanks.

 

[soupcxan]

You guys aren't thinking hard enough. 1987? 1929? Bah. Our current crisis most closely approximates the panic of 1873. When CNN reports an epidemic of equine influenza, you'll know I was right.

Panic of 1873 - Wikipedia, the free encyclopedia

 

[FUEGO]

You guys aren't thinking hard enough. 1987? 1929? Bah. Our current crisis most closely approximates the panic of 1873. When CNN reports an epidemic of equine influenza, you'll know I was right.

Panic of 1873 - Wikipedia, the free encyclopedia

Hmmm... horses, the 1873 version of the automobile, got sick and ground to a halt. Sky high gas prices have caused slowdowns in how much we drive our autos today (and they make me sick! ). Particularly Ford, producer of the Mustang (a type of horse), is suffering hard in this gas crisis. It's like it is 1873 all over again!!

 

[audreyh1]

Hmmmm - there seems to be a perfect correlation between down >500 points on the DOW and a presidential debate night. Thankfully - there is only one debate left (after tonight)!

Audrey

 

[cute fuzzy bunny]

Well, if we're fortunate, inflation WILL be a problem. Because if we hit a deflationary cycle, our portfolios are *really* toast.

Why? Stocks frequently do very well during short periods of deflation. Further, our dollars would become worth more rather than suffering through inflations effects.

Hmm, stuff costs less, money is worth more, and we might get a nice return from both stocks and bonds. Whats not to like again?

 

[ziggy29]

Why? Stocks frequently do very well during short periods of deflation. Further, our dollars would become worth more rather than suffering through inflations effects.

Short period being the operative and very key phrase.

When an economy has a prolonged period of deflation, dollars buy more over time. So any discretionary purchase may be put on hold.

We already see this with some high-tech equipment like computers and LCD televisions. Some people think about buying now but if they don't *really* need it, they may decide to wait a while longer because the price keeps coming down.

A period of *prolonged* deflation would introduce that to virtually the entire economy. Any purchase that can be delayed, may well be delayed. With little being bought other than what is absolutely necessary, the economy craters even more. Deflationary death spirals like the Great Depression and the Japan mess of the 1980s-1990s worked this way.

A long period of deflation would be devastating to the U.S. Treasury as well, as its debt grows MUCH faster in real terms when there is (say) 2% deflation year after year instead of 3-4% inflation. Combine that with the Treasury's reduced ability to service the debt because of weak tax revenues caused by a poor economy and high unemployment, and it's even worse. Every obligation the government has -- debt, Social Security, pensions, you name it -- become MUCH more difficult to honor. We're unfortunately a debtor nation, and to an entity deeply in debt deflation is killer.

I know we hate inflation. But it seems to me that if it lasts for much more than a few months, deflation likely to induce the death spiral. And a long period of deflation is much more destabilizing and devastating, IMO, than a prolonged period of mildly high inflation as we thought we were having until the last couple of months.

 

[soupcxan]

Some people think about buying now but if they don't *really* need it, they may decide to wait...little being bought other than what is absolutely necessary...

For a change, maybe it would be good for people to think about whether they NEED something before they buy it (rather than just WANTING it). Does anyone really NEED a 52 inch LCD TV? Do we as a society really NEED 60 different kinds of tomato sauce at the grocery store? Half the reason we are in this mess is people confused wanting something with being able to afford it, and never even asked themselves if the desired item was really necessary.

 

[cute fuzzy bunny]

I know we hate inflation. But it seems to me that if it lasts for much more than a few months, deflation likely to induce the death spiral. And a long period of deflation is much more destabilizing and devastating, IMO, than a prolonged period of mildly high inflation as we thought we were having until the last couple of months.

We've had a few discussions about deflation. Certainly a long period of severe deflation would be a bad thing. But we havent had deflation in almost a hundred years and the conditions for a prolonged deflationary period dont seem to be evident.

Do you earnestly think that americans will go on a savings binge and hoard cash for 3-5+ years? Do you think that once the credit crunch is behind us that companies will stop spending money and start filling up their cash reserves instead? Do you think that people and companies will start feeling awkward about bankruptcies and stop declaring it, choosing instead to wallow in the holes of debt they can never hope to emerge from?

I'm not seeing it. Hole in the road, liquidity problems clear up, economy picks up a little, jobs pick up a little, market starts heading back up, a couple of years from now we'll all be laughing about being so worried that the world was going to end. And complaining that we didnt snap up equities when they were so cheap.