market to crash again, down by 35% (S&P 600) by year end, Gary Schilling

[Gone4Good]

My last stock purchase was March 2, 2009. I thought I'd be buying more the last few months but the size of this rally has kept me on the sidelines. Besides, the rally has done a pretty good job of rebalancing my portfolio all on its own.

I'm waiting for the big pull back because I've got some more "buying low" to do. Here's hoping I have to wait a long time.

Bull markets last for years. If I miss the beginning of it to possibly avoid a big 30% loss . . .

Well the market (SPX) is up 41% since its March low. You may have avoided a 30% loss, buy you're still 30% poorer than you would have been had you bought stocks earlier this year.

 

[Helena]

Many months ago I heard two different financial experts
say there was a stock market rally coming this summer...
and it will fool a lot of people into thinking the economic
crisis is over... but it is only the eye of the hurricane...
they advised to sell what you need to sell while you can...
during the summer rally.



~

 

[ziggy29]

Looks like the bears have awakened from hibernation...

 

[bbbamI]

Looks like the bears have awakened from hibernation...

I love Yogi and Boo Boo....

 

[NW-Bound]

No, there are always some bears around.

In another thread, I reported how some investment firms like Goldman Sachs went bullish. I think Credit Suisse also did. On the other hand Morgan Stanley said to sell into the rally.

Now, Morgan Stanley just had a really bad quarter, while GS did well. I wonder if their own performance would affect their respective outlook.

 

[ziggy29]

GS has made a lot more correct calls on market movement than just about any of the investment bankers. Makes you wonder, given the ties some in the Treasury have had to Goldman...

 

[audreyh1]

Bull markets last for years. If I miss the beginning of it to possibly avoid a big 30% loss, then it is well worth it. And I'd be buying relatively low compared to where the market is going to go.

The kind of long term multi-year bull market you are talking about probably won't commence until 2017, if these 18-20 year bull-bear cycles have any merit.

In the meantime, the market can easily go up 50% or more from the lows, then crash again, over and over.

If you rebalance periodically, you can still have your portfolio grow even in the face of a roller coaster market. That's the only way I know how to invest in the kind of environment we are probably in right now — a mutli-year bear market with strong "bear-market" rallies followed by deep corrections.

I don't think anyone is able to recognize for sure when one of those multi-year bull markets has started. I think you are much more likely to get sucked in at the top if you wait for the rally to become "well-established".

Audrey

 

[NW-Bound]

If you rebalance periodically, you can still have your portfolio grow even in the face of a roller coaster market. That's the only way I know how to invest in the kind of environment we are probably in right now — a mutli-year bear market with strong "bear-market" rallies followed by deep corrections.

I don't think anyone is able to recognize for sure when one of those multi-year bull markets has started. I think you are much more likely to get sucked in at the top if you wait for one.

Audrey

Ding ding ding...

I always take the middle of the road, never 100% out nor 100% in. My stock AA varies from 80% in 2007 (due to the stock rising) to less than 40% in 2008 when I sold (and also due to stock dropping).

Trying to shoot for 100% right may lead you to being 100% wrong. I can live well being only 50% right, thank you.

 

[FinanceDude]

Rebalance now..........harvest gains.........

 

[ziggy29]

I don't think anyone is able to recognize for sure when one of those multi-year bull markets has started. I think you are much more likely to get sucked in at the top if you wait for the rally to become "well-established".

Methinks the lady doth speaketh the truth.

 

[NW-Bound]

Rebalance now..........harvest gains.........

Tell that to someone holding CDs...


Seriously, as I hold many stocks, I have tried to play sector rotations to go from red-hot ones to the cooler ones that are late to the party.

 

[Helena]

Looks like the bears have awakened from hibernation...

I was warned about posting here because I had been
questioning the buy and hold philosophy and had been
advocating a non-equity position before stocks crashed.
When I was proven right, I became persona non grata here.

I am back again.. briefly.. to post what I posted above...
about selling what you need to sell during this eye of the
hurricane [summer rally]. Just another word to the wise.



~

 

[FIREd]

I was warned about posting here because I had been
questioning the buy and hold philosophy and had been
advocating a non-equity position before stocks crashed.
When I was proven right, I became persona non grata here.




~

Well, last time you posted that buy and hold was dead was on 11/12/2008. My buy and hold portfolio is up almost 16% since then. So perhaps we shouldn't stick a fork in it just yet...

 

[audreyh1]

Even though we avoided a depression (whew!) are coming out of a very nasty recession (yes, we are or will be by the end of the summer), the subsequent economic recovery is likely to be very sub-par. I can see the market rallying strongly (and maybe that is what is happening now) as the evidence of end-of-recession mounts. And then selling off when the weakness of the recovery becomes apparent and investors become disappointed and disillusioned.

Anyway, that is what I think is going to happen this year.

Regardless of my opinions or attempts at prognostication, I practice periodic rebalancing of my asset allocation as the market goes though its cycles. In other words, my predictions have no influence on my investing behavior.

Audrey

 

[Helena]

Well, last time you posted that buy and hold was dead was on 11/12/2008.

Why don't you post the dates of all the other times before that ?


Here are a couple... the entire topic here is interesting.

http://www.early-retirement.org/forums/showpost.php?p=675206&postcount=11

http://www.early-retirement.org/forums/showpost.php?p=675259&postcount=27


~

 

[FIREd]

Why don't you post the dates of all the other times before that ?


~

Because I have other (better) things to do

 

[ziggy29]

That stuff about past performance being no indication of future results is coming to mind. Whether someone was "right" or "wrong" in the past has no bearing on what will happen in the future...

 

[haha]

Helena made a good call. It may only represent a stance, which will sometimes be good, sometimes not. As far as I know she didn't post a method by which she arrived at this position.

Many of the others are sure that their stance is better than Helena's- why I am not certain. Helena obviously has more of the money that she had on July 23, 208 than those of us with more pro-stock views have.

To me this market is pure speculation, and most of the bullish arguments are pure wishful thinking. Only 4 months ago many people here were on the verge of throwing in the towel, now many are bullish. Yet the S&P is more than 1/3 higher. Are business and credit conditions more than 1/3 better? Or was the market wrong then; or is the market wrong now? And if we are indexers, thus implicitly relying on an effecient market, how is it that the market can be so wrong?

Same for bearish arguments. They may make more sense on the surface to some of us, but then why is the market powering upward?

Or are we mostly sheeple, unable to step back from whichever way the crowd is stampeding most recently?

Only the Shadow knows.

Ha

 

[Martha]

Some were right, many were wrong. What people don't like is harping on it or gloating when you happen to be right. Now when people explain thoroughly why they make certain decision it might be helpful. For example, a couple have said in this thread that the market has gone way up it is time to take some money off the table. No explanation for their position. I suppose there could be some sense to that using the concept of regression to the mean. But it is so hard to know when and making a mistake has its consequences. Markets go up suddenly and down suddenly. Missing that up costs you big.

So I am with Audrey on strategy. Helena was very lucky but she does have the issue of when to go back in. Maybe she is rich enough that she never has to.

 

[dex]

Even though we avoided a depression (whew!) are coming out of a very nasty recession (yes, we are or will be by the end of the summer), the subsequent economic recovery is likely to be very sub-par. I can see the market rallying strongly (and maybe that is what is happening now) as the evidence of end-of-recession mounts. And then selling off when the weakness of the recovery becomes apparent and investors become disappointed and disillusioned.

Anyway, that is what I think is going to happen this year.

Regardless of my opinions or attempts at prognostication, I practice periodic rebalancing of my asset allocation as the market goes though its cycles. In other words, my predictions have no influence on my investing behavior.

Audrey

I have a similar view.
I'm guessing 4th qtr 2010 is the time frame for a large decline and then a sustainded bull from there.

 

[ziggy29]

Some were right, many were wrong. What people don't like is harping on it or gloating when you happen to be right.

Agreed. It's one thing, whether through luck, prescience or due diligence, to be right. It's another to come up to people licking their wounds and keep pouring salt into those wounds by reminding them that they screwed up.

In late 2007, I was at around a 70/30 allocation. By November 2008 I was down to around 55/45 before a rebalancing to 60/40. In the bottom in early March I was back down to 56/44 and have now returned to 64/36.

Since my new target is 60/40, I think some of my equity asset classes may need to have a little taken off the table in a rebalancing. I think I'll crunch those numbers tonight. The recent swoon taught me that (a) my risk tolerance isn't quite what I thought it was, and (b) After playing a lot with FIREcalc I learned I don't really need to take as much risk as I was taking, hence the reduction from 70/30 to 60/40 as a target.

 

[ERD50]

Only 4 months ago many people here were on the verge of throwing in the towel, now many are bullish. Yet the S&P is more than 1/3 higher. Are business and credit conditions more than 1/3 better? Or was the market wrong then; or is the market wrong now? And if we are indexers, thus implicitly relying on an effecient market, how is it that the market can be so wrong?

Well, I think it is time I take a close look at my AA and see if any re-balancing is in order. This has been quite a run up.

-ERD50

 

[NW-Bound]

The market goes crazy on the way up, and also on the way down. Are we at nose-bleed valuation now? Same as many others, I don't think so.

About market "efficiency", as I own and like to watch individual stocks, I have seen absurd prices at both the top and bottom that made me dizzy. The 2-to-1 move of the index is nothing compared to individual stocks that move 5-to-1. I am not even talking about stocks like Bear Stearns or Lehman that deserved their fate. It is fascinating to watch, though I am not a day trader.

About investor's sentiment, it has always been true that we tend to remember the most recent experience. In 2007, being used to seeing stocks at such high values, we wouldn't believe that many would soon drop to 1/2, 1/5, or even 1/10 of their high water mark. Some were true bubbles that deserved to be popped. I owned such tech stocks in 2000. But so many "innocent" stocks got crushed in the process. Market efficiency? Hah! Then, after the market has suffered an unbelievable drop, we get scared when it recovers a bit.

About following the herd, for every seller at the March bottom, there is a buyer. Some of us were lucky or gutsy, should I say, to be among the buyers.

The future will tell if the time to sell is now. However, I am not selling, except for individual stocks that I think are getting too far ahead from the pack.

I'd like to add that I always try to keep a sense of humor. Despite my disagreement with Buffet on a few political things, I like his ability to crack jokes in the midst of an economic maelstrom. You might say he was rich enough to laugh through all this, but remember that a few other billionaires got wiped out due to their greediness, while Buffet's conservatism allowed him to survive anything. And Buffet was not always this rich.

 

[haha]

Some were right, many were wrong. What people don't like is harping on it or gloating when you happen to be right.

It is not a behavior calculated to make friends, that is for sure. Yet there is value in it- for example, if we hear this and think "Oh why was I so exposed?" then we have learned something. We have learned that we had grown too exposed to abrupt down movements for our own good. I think the concept of risk tolerance is flawed. The risk we assume should be the lower of what we could handle psychologically if we imagine very negative circumstances, and what our actual lifestyle and financial circumstances could accommodate. Some of us are very fearful of $ losses, so we should not invest in things with high variability or risk of loss. Others actually are drawn to risk- but that doesn't mean that we can afford it. I for example- people talk about cutting back under adversity, but it would hard for me to fund my life on less than $40,000 after tax. I sometimes realize that I like risk, so I try to throttle that back if I can because my actual circumstances, post divorce and long retired and without a pension, basically mean that I would be in deep .... if I truly lost a hunk, and income went down at the same time.

The board as a whole has a conventional and bullish leaning. Although a "he-he I told you so" post it is annoying, these can actually help to balance the overall tendency to "Whee!"

Six months ago the board was full of references to Milevsky and others who believe that there is little or no place for stocks in a retiree’s financial plan. But when the market heads back up, many of us (definitely including me) are likely to think, "What was the big deal? I'll probably have it all back in a few more months."

Ha

 

[Orchidflower]

Helena, don't be discouraged. I posted once that a lady financial strategist on Squawk Box said this period would be just like 1932-37 and got creamed. 1932-37 was a "W" shaped period. I tend to stick with it. We'll see...we'll see. One of us on this board HAS to be right, so we will eventually find out which one of us is...in the future.