What am I missing?

[BoodaGazelle]

Yesterday, I looked at my Fidelity balances for the past year. My overall balance (50/50 AA) was about the same as it was this time in 2019. And it was about the same as it was when I FIRE’d in 2017, despite a yearly W/D amount of around $60K.

Now I attribute this to the wild rise in the S&P over much of that period, so I am pretty sanguine about this state of affairs. I look at stocks in much the same way as I look at my house. It’s fun to look at and speculate about the price, especially when it is up, but it *never* matters until I have to sell.

Does this make sense to look at it this way?

 

[gauss]

I don't tend to look at balances when I am down over 5-10%. I just wait it out until it looks we may be making new highs again soon.

-gauss

 

[VanWinkle]

That is an optimistic way to look at your balance. I tend to agree with your thinking. What would the balance be had I just bought 2% CDs 5 years ago?
Even with the market down now, I am still ahead of the balance I would have had with CDs. I also look at my balance to Tax Loss Harvest and have managed to harvest about 30,000 in Tax relief this year.

 

[RunningBum]

I don't think you can turn a blind eye. If your balance continues to decline and not recover for an extended time, you're going to have to adjust your spending, or find another way to generate income. I prefer to check periodically and start making small spending adjustments sooner rather than later. Using VPW as my withdrawal method is one way to do that. I've already looked at what my withdrawal rate next year would look like if my balance stays where it is now, and I'm ok with it, but I'm not going to do any large discretionary spending this year in case it drops more.

 

[RunningBum]

In other words, it doesn't matter what your balance is until you sell if your plan holds together. But if it breaks, it's a whole lot easier to fix earlier than later.

 

[BoodaGazelle]

RunningBum...
I have enough $ in my non-protected accounts to live another 2-3 years. Then, I have 50% of my IRA monies in bonds or cash... I am trying to follow the general lead of many here given my age, that I would not have to sell *any* stock in my entire portfolio for many years if the markets stayed down that long. Of my 50% in stocks, I would hazard a guess that at least half is in S&P or Total Market index funds. So I have tried to set up my investments for minimal attention, even given events as serious and potentially long-term as we are now experiencing.

 

[Freedom56]

Keep in mind we have entered a bear market like none before. Never in modern history have we stopped 90% of the economy. Wall Street would like you to believe that it can turn on like a switch but the reality is it won't happen that fast. Many businesses will shutter completely and only the strong will survive. The energy sector is getting wiped out and the one's that survive will be cannibalizing each other. The retail apocalypse just accelerated to the point where very few will open up on the other side. Think of how that will impact malls. You can't keep printing money forever. Two thirds of the population in this country were living paycheck to paycheck and credit card balances were at an all time high. This event has caused a serious reset in their lives. I believe we are entering a protracted secular bear market with many strong counter trend rallies but the overall direction will be down.

 

[OldShooter]

... I look at stocks in much the same way as I look at my house. It’s fun to look at and speculate about the price, especially when it is up, but it *never* matters until I have to sell.

Does this make sense to look at it this way?

Yes. Absolutely.

My metaphor is those television screens in some restaurants, silently displaying people running around, usually with some kind of ball. They are distracting enough that I tend to look at them a bit, but I usually don't know who the people are or what is happening with the ball. That doesn't bother me a bit.

Here is the graphic I use in my Adult-Ed investing class as we discuss how to handle market turbulence:

​

 

[OldShooter]

Keep in mind we have entered a bear market like none before. Never in modern history have we stopped 90% of the economy. Wall Street would like you to believe that it can turn on like a switch but the reality is it won't happen that fast. Many businesses will shutter completely and only the strong will survive. The energy sector is getting wiped out and the one's that survive will be cannibalizing each other. The retail apocalypse just accelerated to the point where very few will open up on the other side. Think of how that will impact malls. You can't keep printing money forever. Two thirds of the population in this country were living paycheck to paycheck and credit card balances were at an all time high. This event has caused a serious reset in their lives. I believe we are entering a protracted secular bear market with many strong counter trend rallies but the overall direction will be down.

Yup. One of the thousands and thousands of predictions out there, complete with overstatement and a dose of conspiracy theory. A few of those predictions will turn out to be right. If only we knew in advance which ones!

 

[WyomingLife]

Yup. One of the thousands and thousands of predictions out there, complete with overstatement and a dose of conspiracy theory. A few of those predictions will turn out to be right. If only we knew in advance which ones!

+1

Though I would revise to read: "A few of those predictions may turn out to be right."

If I could tell the future, I'd be in Vegas tomorrow.

 

[Freedom56]

Yup. One of the thousands and thousands of predictions out there, complete with overstatement and a dose of conspiracy theory. A few of those predictions will turn out to be right. If only we knew in advance which ones!

Well when you own 3 homes free and clear, are 100% debt free, and have a $14M portfolio, then talk. It would be horribly irresponsible to allow 25% declines in a large portfolio. "Adult Ed investing class"? What a joke! Start with economics 101.

 

[OldShooter]

Well when you own 3 homes free and clear, are 100% debt free, and have a $14M portfolio, then talk. It would be horribly irresponsible to allow 25% declines in a large portfolio. "Adult Ed investing class"? What at joke!

Oh. I mentioned "overstatement" and "conspiracy." Sorry, forgot to mention "humility."

The psychologists tell us that those who know the least about a subject are the most self-confident in their knowledge. Nassim Taleb points out the dangers of someone getting lucky and, from that, concluding that they are a genius.

 

[Sunset]

Keep in mind we have entered a bear market like none before. Never in modern history have we stopped 90% of the economy. Wall Street would like you to believe that it can turn on like a switch but the reality is it won't happen that fast. Many businesses will shutter completely and only the strong will survive. The energy sector is getting wiped out and the one's that survive will be cannibalizing each other. The retail apocalypse just accelerated to the point where very few will open up on the other side. Think of how that will impact malls. You can't keep printing money forever. Two thirds of the population in this country were living paycheck to paycheck and credit card balances were at an all time high. This event has caused a serious reset in their lives. I believe we are entering a protracted secular bear market with many strong counter trend rallies but the overall direction will be down.

I appreciate your various views and explanations.
Perhaps you will be right, and of course I hope you are wrong, but it is still food for thought.

 

[Freedom56]

Oh. I mentioned "overstatement" and "conspiracy." Sorry, forgot to mention "humility."

The psychologists tell us that those who know the least about a subject are the most self-confident in their knowledge. Nassim Taleb points out the dangers of someone getting lucky and, from that, concluding that they are a genius.

OMG, you are referencing Nassim Taleb (Mr. Black Swan), who the other day was quoted saying:

"Taleb Says Portfolios to ‘Blow Up’ Without Tail Hedges"

“If you don’t have tail insurance, you don’t have a portfolio. Your portfolio is going to blow up.”

https://www.bloomberg.com/news/arti...?utm_source=google&utm_medium=bd&cmpId=google

 

[ER Eddie]

Yesterday, I looked at my Fidelity balances for the past year. My overall balance (50/50 AA) was about the same as it was this time in 2019. And it was about the same as it was when I FIRE’d in 2017, despite a yearly W/D amount of around $60K.

Now I attribute this to the wild rise in the S&P over much of that period, so I am pretty sanguine about this state of affairs. I look at stocks in much the same way as I look at my house. It’s fun to look at and speculate about the price, especially when it is up, but it *never* matters until I have to sell.

Does this make sense to look at it this way?

Yup, makes perfect sense to me. You've done well if your overall balance is no different than it was a year ago. I'm down a bit (not too much, maybe 50K-100K).

And yeah, none of this ever really matters until you sell. I'm getting by on dividends plus a small pension, so I don't have to sell anything. Yet. I have enough cash to cover any shortfall in the dividends, so I'll be okay.

 

[OldShooter]

OMG, you are referencing Nassim Taleb (Mr. Black Swan), who the other day was quoted saying:

"Taleb Says Portfolios to ‘Blow Up’ Without Tail Hedges"

“If you don’t have tail insurance, you don’t have a portfolio. Your portfolio is going to blow up.”

https://www.bloomberg.com/news/arti...?utm_source=google&utm_medium=bd&cmpId=google

I don't know what your point is; this is not exactly news. You can read it in the original, "The Black Swan," published about 15 years ago.

 

[P.S.]

Oh. I mentioned "overstatement" and "conspiracy." Sorry, forgot to mention "humility."

The psychologists tell us that those who know the least about a subject are the most self-confident in their knowledge. Nassim Taleb points out the dangers of someone getting lucky and, from that, concluding that they are a genius.

OS,
I am sure F56 can well enough defend himself, but I appreciate hearing others’ thoughts and analysis. You may consider it “conspiracy,” but that is only your opinion. Time may prove you correct, but until then, it is opinion.

Why do we gather here on ER.org? Presumably b/c we are trying to better understand the present situation and peer into the future. We all get that a teacher in Econ can be exceptionally versed in finance past. But how does that translate into why we are here and peering into the future? Just to say “oh, crystal ball!!” regarding the future? And mock anyone who tries to guess an analysis?

If we only cared about the past, we don’t need ER.org. The public library and Hoopla have plenty of texts on that. It might be “lucky” or even 10,000x in a row “lucky”, but if someone has homes in Lausanne, SoCal, SE FL and an 8 digit portfolio, I have something I can learn from that person. And even if it were apartments in Buffalo, Detroit, Toledo w/ $500k, I still have something to learn.

Unfortunately, the disdain and mockery of others is palpable on multiple threads. I would rather hear 1,000 opinions and think for myself, than to have someone filter them. Thank you.

 

[OldShooter]

OS,
I am sure F56 can well enough defend himself, but I appreciate hearing others’ thoughts and analysis. You may consider it “conspiracy,” but that is only your opinion. Time may prove you correct, but until then, it is opinion.

Why do we gather here on ER.org? Presumably b/c we are trying to better understand the present situation and peer into the future. We all get that a teacher in Econ can be exceptionally versed in finance past. But how does that translate into why we are here and peering into the future? Just to say “oh, crystal ball!!” regarding the future? And mock anyone who tries to guess an analysis?

If we only cared about the past, we don’t need ER.org. The public library and Hoopla have plenty of texts on that. It might be “lucky” or even 10,000x in a row “lucky”, but if someone has homes in Lausanne, SoCal, SE FL and an 8 digit portfolio, I have something I can learn from that person. And even if it were apartments in Buffalo, Detroit, Toledo w/ $500k, I still have something to learn.

Unfortunately, the disdain and mockery of others is palpable on multiple threads. I would rather hear 1,000 opinions and think for myself, than to have someone filter them. Thank you.

I don't disagree in principle, but some opinions get to be a bit over the top. Like exaggeration: "we stopped 90% of the economy" and conspiracy theories like "Wall Street would like you to believe ..." Thoughtful people do not write that kind of stuff. Then there is "Well when you own 3 homes free and clear, are 100% debt free, and have a $14M portfolio, then talk." I don't react well to that kind of bluster. Sorry.

Regarding any general comments on crystal balls andlooking forward, I encourage you to read Nate Silver's "the signal and the noise," particularly the material on economic forecasting. It's a little tougher read, but Nassim Taleb's "The Black Swan" includes quite a bit of discussion about the failures of inductive reasoning in forecasting. "Taleb's Turkey" illustrates: https://www.businessinsider.com/nassim-talebs-black-swan-thanksgiving-turkey-2014-11

 

[Freedom56]

OS,
I am sure F56 can well enough defend himself, but I appreciate hearing others’ thoughts and analysis. You may consider it “conspiracy,” but that is only your opinion. Time may prove you correct, but until then, it is opinion.

Why do we gather here on ER.org? Presumably b/c we are trying to better understand the present situation and peer into the future. We all get that a teacher in Econ can be exceptionally versed in finance past. But how does that translate into why we are here and peering into the future? Just to say “oh, crystal ball!!” regarding the future? And mock anyone who tries to guess an analysis?

If we only cared about the past, we don’t need ER.org. The public library and Hoopla have plenty of texts on that. It might be “lucky” or even 10,000x in a row “lucky”, but if someone has homes in Lausanne, SoCal, SE FL and an 8 digit portfolio, I have something I can learn from that person. And even if it were apartments in Buffalo, Detroit, Toledo w/ $500k, I still have something to learn.

Unfortunately, the disdain and mockery of others is palpable on multiple threads. I would rather hear 1,000 opinions and think for myself, than to have someone filter them. Thank you.

Yes this is a forum to exchange ideas. Consider what my past statements were regrading the economy.

On February 27,2018 I posted this.

My take on interest rates:

Short term rates will rise and the yield curve will continue to flatten and eventually invert signalling a recession. It's not a matter of if, but when. There is far too much debt out there for long term rates to move up meaningfully. Banks margins are being squeezed by a flattening yield curve and large defaults in commercial loans. The regional banks are will be impacted the most. It's a matter of time before banks start selling off. There are far too many stores, malls, and chain restaurants in this country. The retail sector is going to go through more pain than anticipated and as the year progresses will become more apparent. Remember, the market is driven by fund flows (supply and demand) in the near term and can behave very irrationally near market tops. This was the case in late 1999 and also 2007. Many sectors are already in a deep bear market - retail, REITS, energy, and some industrial stocks. If you hold individual bonds and notes to maturity, you can ride out this interest rate cycle. If you own bond funds, you are exposed to market risk and will suffer capital losses.

I sold all my perpetual preferred stocks and long duration notes off in December since they were trading at a high premium and the capital gain covers the next two years of dividend income from those securities for the next two years. I hold a lot of cash now and corporate notes with maturities from 2019 though 2028. I plan to hold those through maturity and they will provide my income stream. High investment grade notes (A and up) and bonds are grossly overpriced and have started to correct.

Any short term interest spike will cause a sell-off of bond and preferred stock funds into a fairly illiquid bond market which will cause some significant price swings in individual note and bond issues. That is the best time to buy notes, bonds and preferred stocks - when the passive funds are liquidating.

I got a lot of comments back, some agreed with my assessment, others dismissed them. Rates did invert as I predicted, but go back to this statement I made over two years ago:

Many sectors are already in a deep bear market - retail, REITS, energy, and some industrial stocks.

Those sectors I mentioned have been virtually wiped out. We all express our opinions, but the economy and markets are something I do take time to understand and have been doing so for over 30 years now. I'm a fixed income investor and I assess risk based on industry fundamentals, company free cash flow, leverage, and interest rate coverage. These are things many people don't care about but they impact my investment decisions.

I started buying again in November/December 2018 and then sold out many of my holdings in April 2019. I started buying again during this plunge. But my sector focus is even more narrow. This bear market is very different from the one's in the past.

 

[MichaelB]

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