Correction Imminent?

[brewer12345]

My comment was not about asset allocation, but to address the point, previously, for some people in the accumulative phase, a bear market may be a buying opportunity, but that is not true for many who are in ER.

The hell it isn't true! Stocks plunge, other stuff in your portfolio stays flattish or actually goes up: buying opportunity! Sell the stuff that did better (on the margin at least) and buy more of what plunged. Voila, buying opportunity for the retired.

Of course, if you don't want to hold a well diversified portfolio you can always check out some of the squirrel recipes I have posted in the ER Forum Cookbook thread...

 

[audreyh1]

I also took advantage of the big corrections and bought at those times, but that was when I was working. For most people in ER, they do not have free cash waiting on the sideline to put in, and the bear roam is not longer a buying opportunity but a stress test of your reserve. ( Hence that thread of how much cash to hold is useful, so you can ride out the bear market instead of selling in that environment to a Gen Xer, who then boasts how he benefited by buying at a discount.)

I was ER'd in 1999, which meant I got through the dot-com bust, (there was also a 2002 credit crisis which caused the worst of the 2002 bear), 9/11, the 2008 market meltdown and financial crisis, and the recent European panics. Cash is part of my asset allocation, and during those times that some of it was deployed to buy depressed assets. There is no reason that ER folks can't take advantage of buying opportunities.

 

[REWahoo]

I also took advantage of the big corrections and bought at those times, but that was when I was working. For most people in ER, they do not have free cash waiting on the sideline to put in, and the bear roam is not longer a buying opportunity but a stress test of your reserve. ( Hence that thread of how much cash to hold is useful, so you can ride out the bear market instead of selling in that environment to a Gen Xer, who then boasts how he benefited by buying at a discount.)

I understand completely. I retired in 2005 and 'enjoyed' the stress test of 2008 from the no-longer-have-a-job side. It wasn't pleasant but those of us who had a couple of years of cash, who didn't panic and who didn't sell came through OK.

I'm expecting to hear 'next time will be different', and for all I know it could be. But I'm not willing to bet against history and I plan on maintaining my AA for the foreseeable future. I'm not smart enough to know whether I should zig or zag so I'll hold what I've got - and keep an eye out for asteroids.

 

[rembrandt]

You ever wonder why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered.

 

[REWahoo]

You ever wonder why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered.

And that applies to this discussion...how?

 

[bondi688]

The hell it isn't true! Stocks plunge, other stuff in your portfolio stays flattish or actually goes up: buying opportunity! Sell the stuff that did better (on the margin at least) and buy more of what plunged. Voila, buying opportunity for the retired.

Of course, if you don't want to hold a well diversified portfolio you can always check out some of the squirrel recipes I have posted in the ER Forum Cookbook thread...

I guess "catching a falling knife" must never be true. I admire your sense of omnipotence in stock picking.

 

[audreyh1]

And that applies to this discussion...how?

Do you think it's one of those programs that randomly generate pithy sayings? Sayings that appear to be clever or profound on the surface but upon closer examination are found to be nonsensical? This one seems to have a definite financial spin.

 

[rembrandt]

The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of it's forms - greed for life, for money, for love, knowledge - has marked the upward surge of mankind, and greed - you mark my words - will not only save Teldar Paper but that other malfunctioning corporation called the USA. Thank you. Gordon Gekko

 

[brewer12345]

You ever wonder why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered.

Hahahaha! Good one! How about <insert cliche #1602>? Isn't that hysterical?

 

[audreyh1]

The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of it's forms - greed for life, for money, for love, knowledge - has marked the upward surge of mankind, and greed - you mark my words - will not only save Teldar Paper but that other malfunctioning corporation called the USA. Thank you. Gordon Gekko

Hey, wow, generates speeches too! Impressive!

Oh, wait, I think that was lifted from a movie.....

 

[brewer12345]

I guess "catching a falling knife" must never be true. I admire your sense of omnipotence in stock picking.

Nope, I make mistakes with depressing regularity. I was actually talking about an index portfolio, however.

 

[rembrandt]

Please get a grip. You are wound too tight. Don't take the world seriously, or you surely will get burned.

 

[bondi688]

Nope, I make mistakes with depressing regularity. I was actually talking about an index portfolio, however.

I am not disagreeing with you at all. I am also for investing for the long term, I hold index funds and some active-managed funds like Wellington and Wellesley. I am not smart enough to be a market timer. My original point was " do not to take the latest bull run as the norm for the future ", there will be corrections and secular bear markets, asset allocation, flexibility and an adequate cushion to ride out the bad time are important.

 

[brewer12345]

My original point was " do not to take the latest bull run as the norm for the future ", there will be corrections and secular bear markets, asset allocation, flexibility and an adequate cushion to ride out the bad time are important.

Sounds reasonable to me.

 

[rembrandt]

Program

Hey, wow, generates speeches too! Impressive!

Oh, wait, I think that was lifted from a movie.....

This program generates quotes for people with no sense of humor.

 

[RonBoyd]

Perpetually Out of Step

Mutual fund flows suggest that investors are finally returning to equities, after selling in droves over the past several years. This article summarizes the issue:

From April 2009 through now, mutual-fund investors sold a quarter trillion dollars in stock funds, according to recent data from the Investment Company Institute.
Ironically, that selloff coincided with a period of stellar performance in stocks—when the Dow Jones Industrial Average jumped more than 60%.
​

Ouch. Mutual fund investors have been busily pulling money out of equities even as the market has risen 60%. And now investors are returning to the equity market and buying shares at a hefty premium to what they could have purchased them for if they had invested consistently over the last several years.

 

[brewer12345]

The retail rubes are always a day late and a dollar short. I will be quite happy to sell equities to them in the future at inflated prices.

 

[rembrandt]

Retail Investors

Perpetually Out of Step

And your point is that now that everyone is buying stocks, now is the time to get out?

 

[brewer12345]

And your point is that now that everyone is buying stocks, now is the time to get out?

Nope, the point is that retail investors are unfortunately their own worst enemies. They freak out and sell en masse (at exactly the worst moment) and they do the same when they finally decide that maybe the water is calm and decide to jump into the pool (long after the smart money has gotten long).

 

[rembrandt]

Current Environment

Nope, the point is that retail investors are unfortunately their own worst enemies. They freak out and sell en masse (at exactly the worst moment) and they do the same when they finally decide that maybe the water is calm and decide to jump into the pool (long after the smart money has gotten long).

So, what do you think about investing in the current environment?

 

[brewer12345]

So, what do you think about investing in the current environment?

I am a dirty bottom fisher/deep value investor by nature. I always go for the unconsidered trifle (which probably explains my delight in squirrel hunting in a state where everyone is after deer, antelope, elk, etc.). There are a few obvious values out there (and I have bought plenty of the names that are cheap), but pickings are getting slim. The junk market is unattractive, so I will let what I own get called and deploy the funds elsewhere. On the bright side, if credit spreads keep tightening aggressively it will foster an upward repricing of equities as the LBO shops and aggressive corporate acquirers use cheap leverage to do their thing. Obviously high grade fixed income is foolishly expensive.

Macro-wise the environment is OK and improving. That means that we should see good results for equities and commodities and I expect cyclical equities will do real well.

 

[RonBoyd]

So, what do you think about investing in the current environment?

I repeat:

A physicist, chemist and economist are stranded and starving on an island. A can of soup washes ashore. The physicist proposes to smash it open with a rock. The chemist suggests building a fire and heating the can first. The economist says: "Assume we have a can-opener ..."

Or, if they're thrown down a well: "Assume we have a ladder."

The great economic historian Peter Temin tells another in his latest book, "The Roman Market Economy":

An economist meets a colleague on campus who asks, "How are your children?" "Compared to what?" the economist replies.
​

 

[RonBoyd]

Today, I was "catching up" on my reading and thought these two articles (well, it is kind of a part 1/part 2 but isn't identified as such.) would fit in here:

Investors’ 10 Most Common Behavioral Biases

Top Ten Ways to Deal with Behavioral Biases

In other words, if we believe something to be true, we quite naturally assume that those who disagree have some sort of problem.

In his 1974 Cal Tech commencement address, the great physicist Richard Feynman talked about the scientific method — a careful and consistent process designed to root out error – as the best means to achieve progress. Even so, notice what he emphasizes: “The first principle is that you must not fool yourself–and you are the easiest person to fool.”

No matter how good our process is, we need also to assume that we have made errors and set out actively to find them by testing and confirming everything possible. Once we have decided that a given view is correct or committed to a particular course, confirmation bias has a tendency to take over. Planning to be lucky and believing that psychological realities don’t apply to us is a lovely (if arrogant) thought. But it’s not remotely realistic. Keep testing and looking for ways that you’re wrong.

I often refer to myself as a recovering attorney, and there is a great deal about the practice of law that is frustrating and silly. But one excellent technique I learned from my time in that profession is to argue the other side’s case. Understanding and even appreciating a contrary point of view is helpful to our own thinking and can provide a good check on the coherence of our own viewpoints. Understanding and seeking support for the opposition’s best arguments is a powerful learning tool. We might even decide that – gasp – mistakes were made (almost surely by someone else, of course).

arrogance and certainty are frequent enemies of continued investment success. Your accountability partners can and should help here, of course. Spouses are especially expert at promoting humility.

 

[audreyh1]

Apparently the massive inflows into equities story is not true - maybe a week made all the difference. I don't have a reference yet.

 

[MichaelB]

Today, I was "catching up" on my reading and thought these two articles (well, it is kind of a part 1/part 2 but isn't identified as such.) would fit in here:

Nice link and an excellent reminder.

Apparently the massive inflows into equities story is not true - maybe a week made all the difference. I don't have a reference yet.

This past December was especially unusual with all the dividends and compensation pulled ahead, so I am reluctant to jumps to any conclusions based on any month to month or year to year data. Right now the economy is chugging along and the radar screens are free of icebergs.