What would you do if Crystal Ball showed long term market drop of 30% next week

[bobandsherry]

Quote:

Originally Posted by calmloki Guess I'm just dense, but this seems like a worthwhile thing to ponder. We are up a fair bit in the market and I can easily imagine a 30% drop. If we sell now we pay 15% taxes to the feds and a chunk to the state. Then we have say 80% of our profit left and we... do what with it? Nobody with a better answer than leave the money in the market and wait for a rally (inevitable saith the faithful)?

Truth be told, my question stemmed from discussion I was having with a few friends of mine last night. In general the discussion was "experts" calling for market correction and what would people do in response (basically once it happens it's in theory too late so might as well just ride it out). But then it turned to if you knew in advance that market correction was coming what would you do. In summary, even with advanced knowledge there's no a lot someone can do as you don't know why the market is correcting, national, international, political, economic, etc. So anything you do could be step in wrong direction. So if one has advance knowledge and can't come up with a good plan with advance knowledge, then reacting to the experts on their advice that the market is going to correct is really just an effort in frustration too.

In the end people thought holding cash was silly, putting money into CD still not worthwhile as rates would remain under pressure. Seemed people though getting into gold was good as most likely a drop would be from something stupid going on in the political world and gold is safe. But one guy held onto Bitcoin as where he'd dump his investments, uncertainty in the world would continue to drive up Bitcoin.

The discussion last night was influenced by beers and cocktails, just curious what people not under the influence would think. Again, silly premise, but no sillier than what the experts keep spewing forth every day as they talk about "markets hitting new highs and ready for correction soon".

Enjoy the day.

[lwp2017]

I already made my crystal ball moves in July. Changed asset allocation from 80/20 to 45/55.

Sure I missed some big gains last three months.
But I am very satisfied that I locked in some significant profits.

[RenoJay]

Quote:

Originally Posted by lwp2017 I already made my crystal ball moves in July. Changed asset allocation from 80/20 to 45/55. Sure I missed some big gains last three months. But I am very satisfied that I locked in some significant profits.

My crystal balls says you’ll look like a genius in a few years for a well-timed move. I’ve gone from pretty much same AA to same AA as you, but over a period of years, not all at once.

[BreathFree]

Pinky: Gee, Brain. What are we going to do tonight?

The Brain: The same thing we do every night, Pinky. Try to take over the world.

[truenorth418]

I would go into my portfolio tracking spreadsheet to see if this would trip a rebalancing band if so what purchases I would need to make to rebalance.

You said what would we do if we knew the market was going to go down 30%. You did not indicate how quickly it would recover.

[Midpack]

No such thing as a useful crystal ball, so no answer...

[mickeyd]

I would send Crystal Ball back to the factory (if still under warranty) as it is clearly malfunctioning.

[FUEGO]

Buy a boatload of cheap, out of the money put options that expire just after next week. Then lease my crystal ball to Bloomberg who would undoubtedly be better at marketing it through their terminal subscriptions.

[bobandsherry]

Quote:

Originally Posted by truenorth418 I would go into my portfolio tracking spreadsheet to see if this would trip a rebalancing band if so what purchases I would need to make to rebalance. You said what would we do if we knew the market was going to go down 30%. You did not indicate how quickly it would recover.

Actually, I did - 2 years+.

[DawgMan]

Quote:

Originally Posted by lwp2017 I already made my crystal ball moves in July. Changed asset allocation from 80/20 to 45/55. Sure I missed some big gains last three months. But I am very satisfied that I locked in some significant profits.

So here here lies the tension...

Smart part of your brain says “stay with your planned AA”, “don’t panick, you have seen how markets come back... like after 2007”.

Impulsive/greedy/fearfull brain says “it’s coming, cash out and wait to buy back in after a big drop” aka “market timer”.

So this begs the question... are you adjusting your AA as effectively a market timing strategy or is this your new AA due to long term strategic planning?

Despite my own crystal ball saying we are due for a sizable correction since the beginning of the year, I have stayed the course with my previously set long term AA of 60/40. None the less, my market timing itch feels like it needs scratching every day these days. Part of me sees the logic in dropping my AA to more conservative levels, but then the question is always when do you ratchet back up... back to my market timer brain.

[Ronstar]

If the crystal ball yielded solid info as to the beginning and end of the drop, I'd go to cash in my IRA and buy puts with my taxable $. But I tried market timing during Y2K and missed out on +100k $ because I mis-timed the end of the drop. So I'd have to be 100% assured that the crystal ball was correct or else I'd just ride it out with my current AA.

[Dash man]

If the crystal ball were accurate, forget the market. I’ll find the upcoming lottery winning numbers and spend $5/week for a large return.

[flintnational]

In this order:

1) Sell the crystal ball to the highest bidder
2) Invest the proceeds into my current AA
3) Re-balance annually to buy cheaper shares in a declining market
3) Remind myself that reinvested dividends are also buying cheap shares
4) Stay the course and wait for the market to recover


FN

[bobandsherry]

Quote:

Originally Posted by Dash man If the crystal ball were accurate, forget the market. I’ll find the upcoming lottery winning numbers and spend $5/week for a large return.

The crystal ball was one time use and only for the forward view of the market. No lottery numbers, that would just be cheating, and where's the fun in that?

[jetpack]

Sell all my stocks and buy up SPXU (-3x s&p) Double my holdings in a week. Big tax bill though.

[bobandsherry]

Quote:

Originally Posted by lwp2017 I already made my crystal ball moves in July. Changed asset allocation from 80/20 to 45/55. Sure I missed some big gains last three months. But I am very satisfied that I locked in some significant profits.

It's all about timing, and they say most people won't time things right.

Someone who made the move a year ago missed a lot in the gains. Comparing Vanguard total bond fund (VBMFX) to S&P, over the last year VBMFX is about 2% loss while S&P is 20% gain and DOW and NASDAQ up almost 28%. Effectively, someone who made the move a year ago has already realized the value of a 8-14% market correction in their portfolio. Trying to time when to get in could cause them another 8-14% in their portfolio. So trying to time the market could still effectively cost you a 'market correction' in your portfolio.

[jollystomper]

If it were a real crystal ball it would also tell me when the market would recover its losses. So I would do nothing.

A long term 30% drop with my AA is less than a 15% loss, and dividends are still coming in. I can weather that fine.

[Rianne]

Buy.

[bclover]

Quote:

Originally Posted by travelover I have an asset allocation and I stick with it. Worked in the last crash and I expect it to work in the next one.

+1

Quote:

Originally Posted by REWahoo I'd market the services of my crystal ball to the masses and make a bundle as a market guru.

me too!

[dallas27]

Quote:

Originally Posted by bobandsherry Curious... what would you do with your investment portfolio if you had a crystal ball and could see a long term (2+ years) drop in the market of 30% in the next week? What would be your flight to safety? Gold? Bitcoin? CD's? Cash? Specific stocks that fair well in market downturn? Do you already have a plan in mind or just fly by seat of your pants?

Why would you need safety? If you knew the future direction of any asset, you make the biggest derivative leverage bet you can and collect your reward afterward.