What's your strategy to cash in on this downturn?

[thefed]

Just in the ladt 3 months or so, I've devised a new strategy for hedging my losses in this down market.


I have been buying in after every 2% or more down day. 2% down= .4% of my cash I'll buy in with, and proportional thereafter...i.e a 8% down day would equal buying in with 1.6% of cash reserves

I am only 25 and plan on 20 more years of investing. As such, I KNOW I shouldn't be too worried, but it's hard to take the emotion out of this. I've busted my butt to pay down all my debts, become self-sufficiently self employed, and begin socking away bigger and bigger portions of my income....only to see 35% of my last 7 yrs of savings disappear in this last year or so.

BUT, I have had a 50/50 cash/equities split since last october when I though things got crazy....so I'm trying to hedge my losses by buying in heavily on the way down.

What's your strategy?

 

[REWahoo]

What's your strategy?

Prayer and alcohol, and not necessarily in that order.

 

[accountingsucks]

If things get much worse (say Dow under 6000 and TSX in Canada under 8000 from around 9500 now) then we will be basically in uncharted waters. The markets are pricing in a depression and I personally do not think we will have one. As such I will be buying an ETF up here in Canada that has 2X the exposure to any up or downside in the TSX. I'm sure similar products are available in the US. In fact I would consider borrowing to increase my exposure via a HELOC as my home is paid off. In essence I'd be "doubling down". The only risk is if the market never recovers and then it would be fair to say that we would have far greater problems to worry about.

 

[ats5g]

Prayer and alcohol, and not necessarily in that order.

Start going to church. You'll get both at the same time.

 

[Bikerdude]

Prayer and alcohol, and not necessarily in that order.

First to the OP. Your doing the right thing. Keep it up.


REWahoo:

Alcohol first because I've been saying "oh my God" over and over lately and no one shows up. But when I say "I'll have another Jack" it always shows up.

 

[joesxm3]

I have been picking up a little of alternative energy and emerging market ETF's.

GEX, TAN, EEM, FAN, PWND, PIO

It has been like catching a falling knife so far but I think a 10 year hold of alternative energy will be good and I hope that emerging markets will recover faster than US.

 

[socca]

It would be great for us to use the 'crisis' as an opportunity to re-examine some of the fundamental assumptions upon which our society (and economy) are built. For example, is the assumption of an ever-expanding economy consistent with a grossly overpopulated planet with finite resources, especially when expanding economic activity leads to increasing environmental damage? What is a maximally-just and sustainable society/economic system?

It's interesting that both self-described 'conservatives' and 'liberals' both turn reflexively to the gov't to 'fix' our economy. Why isn't it capable of fixing itself without gov't intervention? What if the two tools the gov't conventionally uses to get out of recessions - monetary & fiscal stimulus - don't work? My gut-level feeling is that even if these two tools do work this time around, we are only postponing the inevitable reckoning. Our economic system is not a force of nature. It is something we have (haphazardly) created over the years to serve our needs. If the current system isn't working and is fatally flawed, we should toss it out and create a new one.

How do I benefit from this? Well, wouldn't it be great to leave a healthy, sustainable social and economic system to future generations - something that we can be proud of?

 

[bbbamI]

Alcohol first because I've been saying "oh my God" over and over lately and no one shows up. But when I say "I have another Jack" it always shows up.

Just looked...I'm almost out of Jack!

 

[clifp]

It would be great for us to use the 'crisis' as an opportunity to re-examine some of the fundamental assumptions upon which our society (and economy) are built. For example, is the assumption of an ever-expanding economy consistent with a grossly overpopulated planet with finite resources, especially when expanding economic activity leads to increasing environmental damage? What is a maximally-just and sustainable society/economic system?

My basic math shows that there is about 120 people per square mile, or roughly 230,000 sq feet to house, feed, recreate, transport each person.

We use roughly 13 terra watts of energy, a relatively small fraction of the amount that earth gets from the sun.

Why is earth grossly overpopulated?

 

[mb]

I have been buying here and there. Nothing planned or systematic. I still have a modest amount in cash.

MB

 

[Helena]

I'm debt free and have been in cash since I retired last year.
Not only have I not lost a penny, my nest egg has increased.

Now diss me for being a deflationist... as usual.

 

[Notmuchlonger]

Im fully invested now. Been buying on the decline. Who knows maybe I threw money down a hole and its never coming back Then again maybe this is a huge buying opportunity and years from now I will look like a genius.

 

[John23]

My strategy, I'm still at 0% equities. For many reasons...

-The 80's and 90's excesses still haven't been worked off.

After the credit bubble of the 20's, it took until the early 1950's for the market to break even.

After the advance in the 60's, it took 14, 16 years to break even.

The long term chart of the S&P doesn't look good. Two huge credit bubbles at the end. The S&P could go to 6 or 700.

-Commodities are in a long term up cycle. That's not good for stocks. We're maybe half way through the commodity bull market (historically they last 18-22 years).

-We still haven't really capitulated. We've had these down 600 point and 700 point days. The Dow has lost 3,000 points in 15 trading days. Down 5,700 points in a year, still the same mood on CNBC. Nothing has really changed (save for the CNBC cheerleaders getting truely scared).

It's going to take more time for things to shift. Maybe a rally in a month or two. Maybe a relief rally going into next year, but then people see that things aren't working. And we go down lower still.

 

[John23]

Another possibility...

-Stock valuations eventually get over done on the downside. The mirror of what happened on the upside.

KO and others were trading at 30 or 40 p/e at their height. At the low point of pessimism, who's to say it can't trade at 8 or 10?

The pro's were screaming..."XYZ can't be worth 50 times earnings". But then the stocks kept going up, defying expectations.

Could certainly happen on the downside. This time screaming.."but it's a steal at 12 times earnings". But the investing public doesn't buy in (too much pain). That might be a couple years out by now.

 

[W2R]

My asset allocation has shifted more than 7% from 45:55 (equities:fixed) to below 38:62. I haven't rebalanced yet and won't rebalance while the market is rapidly crashing or plummeting as it has been this week.

When the markets start to stabilize or even climb again and I feel confident that we are no longer in the middle of such a rapid crash, I will rebalance according to my plan. But, that is all.

I am not willing to take much risk and so I don't expect to make a lot of money off this. I'd be really glad if I could mitigate my losses, though. I suppose gaining enough to offset inflation would be too much to ask.

 

[riskadverse]

I doubt if I'll be able to profit from the downturn. I'm focused on limiting losses and preparing myself for the next phase which has different rules.

 

[Dawg52]

Prayer and alcohol, and not necessarily in that order.

Ditto. But you already knew that.

 

[ziggy29]

After the credit bubble of the 20's, it took until the early 1950's for the market to break even.

I've heard this a gazillion times in the last few days and it's very misleading.

With dividends reinvested, it was back to break-even in 1944. Not great, but a heck of a lot better than the 1955 claim.

Keep in mind also that if you were fortunate enough to go all-in at the bottom in 1932, an 89% drop from 1929 peak to 1932 trough means you turned $1,000 in 1932 to about $9,000 in 1944 with dividends reinvested. Doesn't seem like waiting until 1955, or even 1944, was a good idea.

 

[Running_Man]

I sold all of my stocks in 2007, particularly not liking the finance sector. I posted many times in 2007 at the time to derision on the subject.

Beginning at the end of '07 I began to add 1 percent of my portfolio to the stock market as the ultimate bottom is very hard to determine. I purchase individual stocks, I am looking for stocks with great cash flow and great credit strength. Dividends are nowhere nea thought the 1974 bottom or the 1981 bottom so do not be surprised as the risk premium is recreated in the stock market for dividends to be higher than we are used to recently.

If the market whee to fall 90 percent -- 1 percent investment at the bottom is equal to 10 percent at the top, so buying for 10 months at the bottom of a 90% decline with 10 percent of my portfolio should 1930's recur will give me the same net equity in companies as if I had invested 100 percent in equities in 2007.

In general I am in agreement with Ben Graham in keeping investments between 25-75 percent equities with 25 percent when you feel overvalued and 75 percent when cheap and 50 percent as a normal load. by the time I get to 25 percent in January 2011, I will evaluate the market to determine if a larrge purchase is warranted based on prices at that time

 

[Canadian Grunt]

I started cashing out my bonds a while ago and buying stocks with good yields. I am now 100% stocks and buying every two weeks with my free cash. In retrospect, I started buying a little early, but who knew the markets would go so low.

If the market doesn't turn in 10 years I guess this will be a bad strategy, but logic dictates that if you want to buy stocks it should be now, in the Bear, not during the recovery. I am hoping my stock yields, which are pretty good, will hedge me in a protracted bear.

No guts, no glory!

 

[ItDontMeanAThing]

I'm retiring at the end of the month - talk about poor timing. But I am prepared. I have enough in bond index funds of various durations to not have to sell any stock for 10 years. Longer if my assumption of zero social security proves to be false (I'm 54).

I do like to bottom fish. I've been searching for strong companies in sectors that have been badly beaten down. I made a small purchase of Bank of America (BAC).

 

[TromboneAl]

It would be great for us to use the 'crisis' as an opportunity to re-examine some of the fundamental assumptions upon which our society (and economy) are built. For example, is the assumption of an ever-expanding economy consistent with a grossly overpopulated planet with finite resources, especially when expanding economic activity leads to increasing environmental damage? What is a maximally-just and sustainable society/economic system?

Well put. During the great depression birth rates dropped below the replacement level for the first time in American history.

My basic math shows that there is about 120 people per square mile, or roughly 230,000 sq feet to house, feed, recreate, transport each person.

There's a lot wrong with that argument. Here's one problem:

Of the earth's 148,940,000 km² (57.5 million square miles) of land, approximately 19,824,000 km² (7.65 million square miles) are arable.[1] However, arable land is currently being lost at the rate of over 100,000 km² (38,610 square miles) per year.

 

[al_bundy]

that's why they invented greenhouses

someone came up with a crazy idea to use building roofs, docks and barges in NYC for mini-greenhouses. theory is that we can grow enough food here to feed ourselves and there won't be any use of fertilizer made up of crazy chemicals like they use in insect repellants

 

[John23]

I've heard this a gazillion times in the last few days and it's very misleading.

With dividends reinvested, it was back to break-even in 1944. Not great, but a heck of a lot better than the 1955 claim.

Keep in mind also that if you were fortunate enough to go all-in at the bottom in 1932, an 89% drop from 1929 peak to 1932 trough means you turned $1,000 in 1932 to about $9,000 in 1944 with dividends reinvested. Doesn't seem like waiting until 1955, or even 1944, was a good idea.

I think it just takes a long time to work off the excesses built up. The market in the 80's and 90's went up from a 1,000 to 11,000.

Also, in previous bear markets (in the 30's and 40's), and in the (70's to early 80's), the investing public pretty much abandoned stocks. No one went to work on Wall St, etc. There hasn't been that kind of a wash out yet.

I dont think the market here will drop by more than 50 or 60%. I hope not 89%.

In the 30's, if you bought in the middle, you were pretty much range bound. Similar with the 70's, a choppy market.

Also, there was so much "engineering" going on in the mid to late 90's (every company had that "smooth" 10-15% growth), you factor in the accounting, options expense, etc....that boom is going to look like a mirage the farther we get from it.

 

[Bimmerbill]

Doubt I'll be able to profit either. Just focused on paying off debts as fast as I can. Usually I like to shop craigslist for "deals" when the economy slows, but I'm paying off my loans etc now instead.