Remember the basics....don’t panic

[jazz4cash]

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Originally Posted by Toddtheformeraccountant We have to all remind ourselves that, in the area of long-term financial independence, we should expect bear markets like this every 10 years or so, and an even worse one every 30 years or so. So don’t panic, clutch your pearls, or lose sleep when it does happen. Instead of thinking you can time the market, keep a reasonable asset allocation, and relax, and don’t let the current circumstances dissuade you from your long-term goals and asset allocation. Continue to spend less than you earn, and save the difference. You’ll be fine. That is all!

No, not like this.

[RunningBum]

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Originally Posted by Running_Man You have a tremendous opportunity to get out of the market now not too far off of the top, If anyone thinks this is like anything in American history I think you have not looked at American history, it is worse than 1929 and in 1929-1932 the market sank 80% the stock market will fall further than that, and any money you obtain by selling on Monday will be money to invest in the future, that is not panicking that is rational behavior.After the market falls 30-40% you will be powerless to make moves as the market will have moved you to a lower stock allocation. I really wish people would stop and think what individuals and companies are going to have to do over the coming year.

Why will you be powerless to make moves later but you are suggesting people change their stock allocation now?

[Running_Man]

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Originally Posted by RunningBum Why will you be powerless to make moves later but you are suggesting people change their stock allocation now?

Right now the market is where it was in September of last year. 30% down and we are back where we were in 2017 a 75/25 stock portfolio becomes a 52/25 stock portfolio 60/40 becomes 42/40 assuming bonds hold even. So your portfolio will already be at a more conservative level than it was at the top.

Transferring 30 % now on a million dollar portfolio would mean selling 250K of stocks to get to 50/50, but that opportunity will be lost with a 30% decline.

Keep in mind, the oil market, one of the largest and most fluid, fell 38% overnight and is now down 82% on the year and the value of the oil industry on January 1st was about 4 trillion dollars. MEanwhile Canadian Select Western Oil turned negative
https://twitter.com/CBCAlerts/status...150721/photo/1

Pick another time in history when oil fell 38 percent in one day. Or the value fell below zero

[Running_Man]

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Originally Posted by vipertom1970 Should I load up more ammo ?

No but you may want to sell your VTI here

[Running_Man]

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Originally Posted by UnrealizedPotential So Running_Man, I am curious, have you sold all of your stock holdings? Are you 100% in cash today? If not, are you going to sell all your stocks today and go 100% cash?

If you look at my signature you will get the answer you seek. I am not 100% cash though, I have an allocation to some long term bonds still though I have been selling those as rates approach zero and I have a healthy allocation to precious metals (less than 10% but more than 5%).

[UnrealizedPotential]

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Originally Posted by Running_Man If you look at my signature you will get the answer you seek. I am not 100% cash though, I have an allocation to some long term bonds still though I have been selling those as rates approach zero and I have a healthy allocation to precious metals (less than 10% but more than 5%).

Alright , fair enough. I do not have any idea where the market goes from here, so I am holding tight to my current AA -50/43/7.

[RunningBum]

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Originally Posted by RunningBum Why will you be powerless to make moves later but you are suggesting people change their stock allocation now?

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Originally Posted by Running_Man Right now the market is where it was in September of last year. 30% down and we are back where we were in 2017 a 75/25 stock portfolio becomes a 52/25 stock portfolio 60/40 becomes 42/40 assuming bonds hold even. So your portfolio will already be at a more conservative level than it was at the top. Transferring 30 % now on a million dollar portfolio would mean selling 250K of stocks to get to 50/50, but that opportunity will be lost with a 30% decline.

It would probably be foolish to sell after another 30% decline, but no one is "powerless" to sell at any time. It would just be a further AA adjustment to the adjustment you are proposing.

For all you and I know it may be foolish to sell after the decline we've had this year. Maybe not, but neither of us can be certain. One of us may think they are certain, but they cannot be.

[Markola]

Good thing we’re not panicking on this string saying “...don’t panic.”

[targatom2019]

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Originally Posted by Running_Man No but you may want to sell your VTI here

and pay close to 300K in long term capital gains ? no thank you.

[Running_Man]

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Originally Posted by Markola Good thing we’re not panicking on this string saying “...don’t panic.”

No one is panicking, the only one who said to consider selling is me, pretty much the prevailing view is this is no big deal over time you have to make money and you’ll lose out if you sell. Panic will happen after the market drops a sufficient amount to make people concerned about their chances in a long term retirement, this happened around December in 2008. 18,000 was a major drop but nothing in the scheme of things. You have to have a very optimistic view of the world or stocks, to think that as of today, the market is as good as it was in September of 2019. On CNBC today I heard an analyst state that since the economy was going to be so bad for so long long term rates will be zero meaning a multiple of 22-25 should be used on the S&P500 and he forsees 2021 earnings rising 40% from 2020 back to the previous earnings level of 2019 of 140 so 2800 to 3500 is the solid basis of the SP500.

When a major commodity in the world can drop 100% in a day, to say “we’ve seen this all before” is befuddling to me.

[WyomingLife]

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Originally Posted by Running_Man No one is panicking, the only one who said to consider selling is me, pretty much the prevailing view is this is no big deal over time you have to make money and you’ll lose out if you sell. Panic will happen after the market drops a sufficient amount to make people concerned about their chances in a long term retirement, this happened around December in 2008. 18,000 was a major drop but nothing in the scheme of things. You have to have a very optimistic view of the world or stocks, to think that as of today, the market is as good as it was in September of 2019. On CNBC today I heard an analyst state that since the economy was going to be so bad for so long long term rates will be zero meaning a multiple of 22-25 should be used on the S&P500 and he forsees 2021 earnings rising 40% from 2020 back to the previous earnings level of 2019 of 140 so 2800 to 3500 is the solid basis of the SP500. When a major commodity in the world can drop 100% in a day, to say “we’ve seen this all before” is befuddling to me.

Commodity price booms and busts are not uncommon:

"Commodity markets occasionally exhibit broadly based massive booms and busts. These events affect the poor's ability to purchase the most basic necessities such as food and energy, and they often cause political unrest. Prominent riots generated by commodity price spikes include the Peterloo Massacre in Manchester, England, in 1819; the Southern U.S. bread riots in 1863; and unrest in Haiti, West Africa, and South Asia in 2008. Commodity booms and busts thus resonate with the populace and affect social welfare in a way that other asset price spikes do not." Carter, C. et al. "Commodity Booms and Busts," Annual Review of Resource Economics, Vol. 3:87-118 (Oct. 2011) (available at https://www.annualreviews.org/doi/fu....012809.104220).

There are many other references in the literature.

The current situation regarding crude oil also falls amidst Paris Agreement-esque discussions of decarbonizing fossil fuels. EV's, for example, are gaining market share (or at least they were pre-Pandemic). So there are confounding factors related to potential stranded assets and the like.

It is human nature to judge an event or occurrence through the lens of one's existence, which is by nature a very narrow aperture and dramatically time-limited in scope. That isn't criticism of anybody, it just is what it is.

So while I'm glad I don't work for a major o&g company with job-related stresses, today was just another day in the commodity markets for one who takes the long view. I'm certainly not chopping up all my furniture tonight for firewood in case economic collapse occurs tomorrow. I'm also pretty sure that when I go to gas up my pickup truck tomorrow to travel some great distance to the Walmart for provisions, gas will still be for sale -- and I will get a great price.

And if the measure of economic calamity is the market is back where it was in September 2019, I don't think any of us has had a bad day yet.

[jollystomper]

The sad thing for us is, the ones who will be most impacted by the market fall are not DW and me, but (a) our heirs, as we will not be leaving them as much as we had at market peak, and (b), those we provide with charity and gifts, since if we need to belt tighten those are large expenses that are easiest to cut. We anticipated bear markets in our retirement planning. While we are not jumping for joy at the market "bargains" some may see, we are not panicking and are still enjoying retirement.

[USGrant1962]

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Originally Posted by Running_Man Right now the market is where it was in September of last year. 30% down and we are back where we were in 2017 a 75/25 stock portfolio becomes a 52/25 stock portfolio 60/40 becomes 42/40 assuming bonds hold even. So your portfolio will already be at a more conservative level than it was at the top. ...

What the heck does 52/25 mean? The answer is 66.7/32.3%. Not good but don't exaggerate.

[Bir48die]

Whew! I can sleep now.

[Running_Man]

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Originally Posted by USGrant1962 What the heck does 52/25 mean? The answer is 66.7/32.3%. Not good but don't exaggerate.

I think my answer was exactly right, as is yours

[Markola]

It’s just different investing world views at play here, tortoise vs. hare, ant vs. grasshopper, three little pigs. It’s a Rudyard Kipling moment (“If you can keep your head while, all around, other people are losing theirs...”). I’ve been building my little brick house for many years made of index funds with exposure to 28,000 securities all around the world, half bonds, half stocks. It was built to weather storms and I’m curious to see how it performs. I really could care less about a few oil stocks. It seems like we’re always either awash in the stuff or absolutely certain to run out of it.

I decided to get a few percentage points more conservative after this stock bounce back the last couple of weeks with a particular account I might need to access over the next 1-3 years if I lose my j*b, but I’m generally hunkering down with my asset allocation and am bracing to ride out the storm. I feel that it is about to howl out there but it just doesn’t make sense to me to SELL NOW!!

[Running_Man]

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Originally Posted by RunningBum It would probably be foolish to sell after another 30% decline, but no one is "powerless" to sell at any time. It would just be a further AA adjustment to the adjustment you are proposing. For all you and I know it may be foolish to sell after the decline we've had this year. Maybe not, but neither of us can be certain. One of us may think they are certain, but they cannot be.

Certainty is never possible, the only thing one can do is play probabilities. Now most individuals with investment portfolios have been conditioned by herd behavior that it is always bad to sell as markets always make a new high, that is all we have seen in our lifetime.

We are not Germans who by in the 40 years by 1946 had seen two 99% drops in the stock markets, two world wars, a halt on government pensions twice leading to a population far more risk adverse than Americans. We have seen 40 years of continual new highs no matter what the economic problem, and we are conditioned this is always so.

Both investment styles result in long term experience determining belief in investment outcomes and a suspension of rational evaluation of risk and reward. Risk is extremely high, 6 percent of all mortgages in America are now suspended.http://https://www.cnn.com/2020/04/2...rus/index.html during the 2008 housing crisis the ratio got up to just over five percent, we already are exceeding the housing issue of 2008 and we are just getting started.

We will see over the next years if the present situation deserves a positive outlook and the allocation to stocks as an investment thesis and buyers flood into the stock market with their funds for the future.

[Ed_The_Gypsy]

Oh, can't we panic a little bit? 🤨

We are not selling anything. We are cancelling major purchases, though.

I am guessing that the markets for real estate and vehicles will tank shortly. If so, real estate may not recover in my lifetime. Good thing we like our place.

[daylatedollarshort]

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Originally Posted by Running_Man You have a tremendous opportunity to get out of the market now not too far off of the top, If anyone thinks this is like anything in American history I think you have not looked at American history, it is worse than 1929 and in 1929-1932 the market sank 80% the stock market will fall further than that, and any money you obtain by selling on Monday will be money to invest in the future, that is not panicking that is rational behavior.After the market falls 30-40% you will be powerless to make moves as the market will have moved you to a lower stock allocation. I really wish people would stop and think what individuals and companies are going to have to do over the coming year.

We sold most of our stocks on one of the bounces. I tend to agree what you describe seems like the most likely scenario. Most unemployment projections are what we had in the Great Depression, if not higher, and they did not have a pandemic to deal with as well.

[Perryinva]

So there is an advantage to having most all equities ownership in retirement accounts I hadn’t considered No capital gains to worry about. No loss harvesting either, but I can live with that trade. Since that is my current placements, I had not thought of that consequence of retreating to a safer position. It certainly makes more sense to me now, to stick to your guns when faced with that, and why it would be considered more a panic reaction instead of a prudent move.

This thread matches my rebalancing question/pondering thread. It really is just a different view of anticipated future and current risk & as to what the objective & timeline is and ones faith in their long term AA. The only difference is some view this as still “this time it isn’t different” and in time, all will be well while others are viewing it as “it is” and are too uncertain of how long it will take. I am learning a lot about myself as well as others reasons. Better now than closer to the end.