OK..did that, but still don't see how the math works out with the strategy being suggested.
Sounds like in general you're taking the "bail when all signs point to things going splat" approach, but have you actually BACKTESTED that strategy? If so, how did it work out in terms of actual returns?
You can spin numbers anyway you want:
Example:
S&P500 was 861 on or about Jan 2003.
S&P500 was 1552 on or about July 2007 before the bear market.
S&P500 was 1241 (or a 20% drop) on or about Sep 2008
S&P500 was 815 on or about Feb 2009 when it reached bottom.
Remember my time horizon is now and not later. I do not intend to re-enter. This means I do not have to guess on going back in.
Based on 861 on Jan 2003, there was a total gain of 80% on July 2007
Based on 861 on Jan 2003, there was a total gain of 44% on Sep 2008
Based on 861 on Jan 2003, there was a total loss of 5% on Feb 2009
On the other hand, if you wait long enough after Feb 2009, your total gain will exceed my total gain of 44% when I bailed out. However, I do not have time to wait in my case. Your time horizon situation is likely completely different from mine. Therefore it is like comparing apples and oranges.
In the extreme example: If your doctor told you that you have 2 years to live, your time horizon has just changed. Would you change your strategy?
My time horizon is now. However, I can't cash out 100% of my portfolio due to taxes that I have to pay. Therefore I am 25%/75% while I conduct an accelerated withdrawal plan without pushing me into a higher tax bracket. I have 25% in stock because in the worst case, if I do nothing and if there is a bear market resulting in a 50% market loss then this translate into a 12.5% loss on my portfolio. 12.5% loss is my risk tolerance. However, if I bail out sooner, then my loss will be less than 12.5%.
I plan for the worst and I hope for the best. This is what this issue is all about.
I never suggested that my strategy is applicable to anyone else. If I did, then that is a mistake on my part. Time horizons and Risk tolerances changes everything.