Apologizing in Advance: But Help!

[ZMAN]

Let me aplogize in advance for this request for help. As you see I do not post often.

In 01 I lost my resolve and bailed my 401k at the very bottom. DW, well employed at that time, and not paying attention to me, did nothing and did well (at least until the current meltdown).

DW (56) is no longer employed and I at 58 have a new law practice as of 10/1 (good timing!).

Now we are getting shakier and shakier. I am ready to do a few clicks at Vanguard and bail on all or much of our stock funds. I don't want to see it all go as the DOW slips to 0. We can afford to sit but we are just sick over it all, as I know all of you are as well.

All of your posts show such strength and power. Please save me from myself and my panic!

Thanks so much,

Zman

[LOL!]

Send me all your money. Do not wait for Dow to go to zero. I promise to take good care of it. Thank youl.

[Zoocat]

Not sure why you are asking for advice on this forum. I suggest you start reading some investment websites and make your own decision. Some advisors and investors are saying we may have another bear rally. That would be a good time to sell some of your investments if you really don't feel that you can tolerate this roller coaster ride.

I'm sure that others on this forum will be able to point you to some websites on investing.

[Dawg52]

I wish I could calm you down but no one knows what the next couple of years will bring. Lot's of people think this is a buying opportunity of a lifetime. Lot's think we are in for a rugged stretch like Japan's last 20 years. All I can tell you is I'm holding, right or wrong.

Let me just say it helps to be somewhat medicated.

[dex]

I think I am safe in saying:
Many on this board are buy and holders.
Do not know where it bottom is on this market.
Think the market will rebound at some point - don't know when
There could be a sharp upturn and could be missed if sell here with the idea to get back in later.
Long term the market should be OK
Intermediate term it could be choppy.

We all are in our caves with similar feelings to yours.

Before selling I would suggest:
Computing your monthly nut and how many months you can survive on your cash reserves and other income before selling on Monday.

Also, you don't have to sell everything now only an amount to get you through a X number of months.

[samclem]

You are working. How long will it be before you actually need to sell these shares?

Try not to view your account as a pile of money that is getting smaller. That isn't what it really is. It is a set number of shares. The value of each of these shares gets larger and smaller based on the whim of the market, but the overall trend over many years is for the value of these shares to rise. They will rise again in the future, and will eventually exceed the price you paid for them. If you sell them, you'll be repeating what you did last time--selling when the market is down. Sure, it might go down farther. But, if you paid an average of 15 bucks for each share, you haven't lost anything until you sell them for less than 15 bucks.

How long do these market downturns generally last? How low do they usualy go? Take a look at this link and you might be surprised.

In part:

Quote:

From the table below one could see that the average duration of bear markets has been about 18 months since the great depression. Since 1956 however the average duration of bear markets has been about fourteen months. The average decline since 1929 has been 38.2% versus 31.8% since 1956.

We've been in the present bear market for about 4 months.

Many will say things are infinitley worse this time, that the future is bleak, that everything is faling apart. Based on all this negativity, it's easy to see why prices are way down. Are stocks less risky now, or when thety were priced 30% higher?

Hang in there.

[ZMAN]

Wonderful and thanks. I actually feel better already.
And of course a bit of xanny always soothes out the rough parts.
I have said this before: You guys are the best!
Zman

[Gone4Good]

Quote:

Originally Posted by ZMAN I don't want to see it all go as the DOW slips to 0. We can afford to sit but we are just sick over it all, as I know all of you are as well.

1) The entire market will not go to zero. Hang in there.

2) You've learned important information about your own tolerance for market volatility. I'd hang tough for now, but once the market recovers it will be time to think about employing a more conservative asset allocation.

[Rich_by_the_Bay]

You have what Scott Burns calls human capital - the ability to work. Count your blessings.

In your shoes, I'd just sit tight with your investments and earn your way out of it. May take a few years, not in your control. I and many others have had to re-assess just how long they will need to work before retiring, but that sure beats having just retired on a short leash, and now seeing your nest-egg go down by 20-40%.

Relax, accept working as necessary, and have fun in your time off.

[clifp]

Zman to amplify on what SamClem said stop thinking about your stocks fund as a piece of paper that who's price goes up and down more or less at random, and now only seem to go down rapidly. Instead think of them like owning a paid off rental property.

I don't own rental property, but if I did I probably would have been tempted to sell a couple of years ago. However, in reality I would probably have simply collected my rent check partly cause I'm lazy and mostly because I would have had to find something else to buy. In hindsight, I would have been smart to sell, but without the benefit of a time machine. I am out of luck. Housing prices have dropped 20-40% depending on where one lives but rents have remained reasonably stable in most places. Assuming I've got a long time tenant who pays promptly and doesn't ask for much. Does the drop in housing prices effect m?. Not really, I probably can't get away with raising rents this year without risking the tenant leaving but other than that no impact. I certainly wouldn't be tempted to sell because I know that the rent I can charge in a few years is higher than the rent I am getting today.


Assuming you own something like the Vanguard S&P 500 fund or total stock market in your 401K/IRA, what you really own is share in the future profits of virtually every major company in the country. Its worth stepping back and considering what this really means.

A million people buy a Starbuck's coffee, you earn a $1, A million people buy a PC your share of Microsoft profits is $20, Intel $15, HP $6 and Dell's $5. A million people go to an ExxonMobil gas station and fill the tank up you earn $3. Now because we are in a recession the number of people buying coffee, PCs,and filling their gas tank is going to go down, and the actual profit the companies earn is going to decline even more.

But the 40% market drop is saying that the number of goods and services purchased not only this year and next year (but in 2011,2012, 2020... 2099) is going to drop by a large percentage, and the profits earned is going to dropped by 40%. I for one don't think that Apple's, Exxon Mobil, General Electric, and Proctor & Gamble, is going to be making 40% less profit in 2011 than they are today. Do you? Regardless of the current price of your 401K you are entitled to the same share of the profits as you were last Oct, probably even more due to the reinvestment of dividends.

You still own the same rental property, sure it is better for your mental health to hear wonderful tales of the property across the street going for a fantastic sum, but since you really don't need to sell. It has a minimal impact on your life. The same is true for your 401K and investments.

If you were younger, I'd say you should be dancing in the streets at the opportunity to buy more stock in this mother of all after Xmas sales, but at our age. Don't panic and read Warren Buffett's words

[FIREd]

I agree with Clifp and others.

When you buy a stock, you acquire part-ownership of a company, something far more tangible than cash. Do you think that people will stop buying their Lipitor and Nexium? Do you think people will stop using soap and toilet paper? Do you think people will stop drinking beer, coffee and soda? Do you think people will stop eating? I don't think so. Think about it, what's cash? A piece of paper with a number printed on it but no intrinsic value. When you own stocks, you actually own something real.

I may not be dancing in the streets, but I am buying more stocks. I can buy equities right now at prices I have never seen before and they pay dividends I could only dream of a few years ago. So I am out buying yields right now, loading up on stocks that will eventually give me the income I need to retire on.

But I know that the ride is not easy, for me included. Despite some good deals out there, it is not easy to see my portfolio shrink. My MIL is close to capitulation I think. She has lost about 24% since last October and she can't bear watching the losses. I have a feeling that she'll be on the phone next week asking me to help her sell everything (she is not internet savvy, so she needs me to look over her shoulder to make sure she doesn't screw up). She will put all of her money in a money market fund earning less than 2% and the money won't be covered by the government guarantee program. And when the market recovers she will laments about her accounts not growing while overenthusiastic talking heads will be yapping about market recovery on CNBC. But, it's her money and ultimately it's her sanity at stake and I will do what she asks me to even if I think she is making a mistake.

[kyounge1956]

Hi ZMan,
I'm reading The Intelligent Asset Allocator, in an effort to improve my understanding of investing. I found the words of author William Bernstein, quoting John Maynard Keynes, quite heartening amid my anxieties about the dropping market and trying to decide what, if anything, to do in response:

Quote:

The plain fact of the matter is that no investor, no matter how skilled, ever avoids bone-crushing losses at times, even when undertaking the most prudent market risks. All investors, novice or experienced, are well served by the words of John Maynard Keynes: "I do not feel that selling at very low prices is a remedy for having failed to sell at high ones...I feel no shame at being found owning a share when the bottom of the market comes. I do not think it is the business, far less the duty, of an institutional or any serious investor to be constantly considering whether he should cut and run on a failing market, or feel himself to blame if shares depreciate on his hands. I would go much further than that. I would say that it is from time to time the duty of the serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself. An investor is aiming, or should be aiming, primarily at long period results, and should be solely judged by those. The fact of holding shares which have fallen in a general decline of the market proves nothing and should not be a subject of reproach."

Courage!

[Dawg52]

Quote:

Originally Posted by . . . Yrs to Go 2) You've learned important information about your own tolerance for market volatility. I'd hang tough for now, but once the market recovers it will be time to think about employing a more conservative asset allocation.

This hits the nail on the head for me. Exactly what I'm doing and plan to do.

[Texarkandy]

If I still had money in the stock market right now I'd leave it there.

[utrecht]

"In 01 I lost my resolve and bailed my 401k at the very bottom. DW, well employed at that time, and not paying attention to me, did nothing and did well (at least until the current meltdown). "

If you sit back and take a rational look at the situation you will see that if you sell you will be making the same mistake twice.

[Gumby]

Benjamin Graham, in The Intelligent Investor, tells you to imagine that you are the minority holder of a private business. Every day, the majority partner, Mr. Market, tells you what he thinks your share of the business is worth and offers to buy it from you at that price. Mr. Market, unfortunately, is manic depressive. Some days, he lets his enthusiasm run away with him and offers you an outrageously high price. Some days, he is despondent and fearful and offers you almost nothing.

Graham asks "are you going to let Mr. Market's daily communication determine your view of the value of the enterprise?" The answer is, of course, that you should have your own view of the value and act on that, not the crazed rantings of Mr. Market. If Mr. Market is willing to pay far more than your interest in the business is worth, you should sell it to him. On the other hand, if Mr. Market has abandoned all hope and will only buy for a farthing, then you would be a fool to sell.

The point is that it is your option, and a decision you should make based on your independent view of the value of your shares. The current market is completely irrational in many ways. For example, I currently own shares in a basic industrial materials company that has more cash per share (even after accelerating and paying off all debt) than the current share price. Valuing all the reserves of the company and its future earnings at a negative number is simply idiotic. So even though I am down substantially from where I bought, I would be a fool to sell now.

I think we are going to see continued irrationally low prices for at least a short time due to two things. First, hedge funds received unprecedented requests for withdrawal at the end of September. In order to meet those demands, they must sell shares to raise cash. They, unlike you, do not have the luxury of holding until the market turns. Second, the recent market problems have spooked many people, who are selling at any price and moving to cash (at just the wrong time I would say). Until this selling pressure abates, the market will be irrationally low.

Fortunately, I am still employed and don't need to sell assets. So I am sitting tight. You might think about doing the same.

[REWahoo]

ZMAN, I thought this Jonathan Burton article offered an interesting view of why selling out now is the wrong thing to do - in particular this:

...market recoveries typically start strong. The average return for stocks in the 12 months following the end of a bear market is 45%, but if you sat out the first six months of the rally in cash, that 12-month return becomes just 12%, according to a Charles Schwab & Co. study.

"A lot of the recovery tends to occur in the first few months," said Mark Riepe, head of the Schwab Center for Financial Research. "If you wait until the all-clear sign to get back in, you'll have missed out on a lot of the gain."

To sell or not to sell

[haha]

Quote:

Originally Posted by REWahoo ZMAN, I thought this Jonathan Burton article offered an interesting view of why selling out now is the wrong thing to do To sell or not to sell

For those who are financially or psychologically crippled by the recent events the only course may be to sell to preserve what is left. Some hedge fund operators claim to be doing this. However, they may be lying to mask forced selling due to redemptions.

It takes nerve to press on, but for most of us, now is the time to be invested, if we ever plan to be invested.

ha

[free4now]

Quote:

Originally Posted by REWahoo "A lot of the recovery tends to occur in the first few months," said Mark Riepe, head of the Schwab Center for Financial Research. "If you wait until the all-clear sign to get back in, you'll have missed out on a lot of the gain." To sell or not to sell

I thought that was a good article, and I'm following the advice of staying put in my 65/35 portfolio. But I was surprised at how consistently the comments to that article put down the buy and hold advise; the great majority of commenters said they thought buy and hold was for losers. Then again that's on CBS Marketwatch, which is probably filled with newbies who are only now getting interested in trading now that their 401ks are down.

[free4now]

Upon reflection, I think it's good to know that there are so many people out there who believe in panic selling. That helps me to understand that a significant part of this downturn is simply fear based. Whether the fears are correct or not is another question, but it's becoming clear that this drop in value is being driven by emotions and forced selling more than fundamentals.