Sleeping Well in this crazy market?

[Darryl]

Used 10% of my cash to buy small cap today. Not the most aggressive move but heh. Slept fine last night.

 

[CuppaJoe]

Cycling Investor's approach is that of the Norwegian widow. Own dividend paying stocks and live off of the dividends.

This approach may work well except in severe business downturns where earnings and dividends get severly reduced. Also a diversified portfolio with a SWR would allow for larger distributions and hence a better (in some ways) retirement. The diversified portfolio also would fair better during the severe downturn.

Still, if it works for you go for it.

Call me "Chicken Little." I keep remembering the chorus here (including myself) who have suggested that the media and govt. are encouraging Baby Boomers to put off retirement. A severe drop in stock prices might easily do that. And what might cause that? I will stop here to avoid getting too political and bringing up the P word (PNAC).

 

[CyclingInvestor]

Can you be more specific?

I follow a set of about 30 stocks that have long term records of increasing earnings
and dividends, reasonable debt levels, good capital allocation records, and good
managements (all IMO, of course). I then use a fairly simple valuation equation
on these stocks to get a single # which represents how much I expect them to pay
in dividends over the long term..I own the best valued 5-16 stocks out of the 30 at
any one time, trading out of stocks when one of the non-owned stocks becomes
a better value than an owned one. I stay 100% invested. All of this means is that I like
big market swings - since most stocks react unevenly, it gives me a change to trade
up to bigger future dividend flows. I have pursued this strategy since 1993.

At the moment I own KIM, GGP, PLD, VNO, WRE, JNJ. My only transaction
in the last month was to sell PG Thursday and buy more REITs when their
recent plunge made several of them more highly rated than PG. They provide
me with a dividend flow more than sufficient to live on.

 

[Bikerdude]

Eat, drink and be merry and don't sweat the small stuff. This is small stuff. Now having said that, 30 to 40% down for 3+ years would get my attention.

Live more, worry less.

 

[Hillbilly]

Ol' Ben

Being new to the FI I was wondering if anyone else has been loosing a little sleep over the current market downturn?

Went out back to my library (a.k.a. shed) and dug out "The Intelligent Investor" by Mr Graham yesterday evening. Turned over to read chapter 8 "The Investor and Market Fluctuations". Got over to the paragraph that read,

"That a man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment."

I woke up two hours later in the recliner and put the book back in the library.

Thanks Ben!

 

[Bikerdude]

"That a man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment."

I woke up two hours later in the recliner and put the book back in the library.

 

[wildcat]

Went out back to my library (a.k.a. shed) and dug out "The Intelligent Investor" by Mr Graham yesterday evening. Turned over to read chapter 8 "The Investor and Market Fluctuations". Got over to the paragraph that read,

"That a man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment."

I woke up two hours later in the recliner and put the book back in the library.

Thanks Ben!

That's hilarious. Your post reminded of the movie 'About Schmidt' when Jack Nicholson's wife passed away. He looked distraught about it and then takes like a 2 week long nap.

 

[Sam]

Went out back to my library (a.k.a. shed) and dug out "The Intelligent Investor" by Mr Graham yesterday evening. Turned over to read chapter 8 "The Investor and Market Fluctuations". Got over to the paragraph that read,

"That a man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment."

I woke up two hours later in the recliner and put the book back in the library.

Thanks Ben!

OK, I admit. I don't understand this. Judging by the previous 2 responses, this is supposed to be funny.

Anyone care to shed some light?

 

[wildcat]

Humor is in the eye of the beholder.

 

[audreyh1]

This was indeed a good example of why it can help to have a year or two of cash on hand to cover living expenses. It does help to know you have time to recover and/or adjust.

Audrey

 

[Bikerdude]

Anyone care to shed some light?

Live more, worry less.

 

[cyclone6]

Sleeping alright. Not because I think things are OK, just because of how I'm positioned...

Check out these two stock quotes from today:

AHM
MTG

And watch the action on these stocks tomorrow. This mortgage/housing situation is not a joke, and not going away. AHM is halted - probably bankrupt. MTG only has 500 mil to write down. Last week was not an abberation, just the market slowly coming to the realization that there are major problems. Structural imbalances that cannot, long-term, be maintained.

I made money last week...a nice amount actually. Thats because I'm mostly cash, with about 25% split between HSGFX (a long/short fund) and BEGBX (international stocks)...so I make money when the market and dollar fall. The rest is in cash and bonds. Even when the market does retrace to some point that seems reasonable, I'm not planning on going over 45-50% stocks. Simply inflation protection.

(So no bashing me for not saying what I'm doing...)

Invest as you will, but I don't buy all the "theres never a bad time to get into the market" or "I'm in it for the long run". When you are getting ready to retire, as I am, timing is damn near everything. Throw a lump sum in at the wrong time, and a return to work is a very real possibility.

And that makes me grumpy to even think about.

 

[megacorp-firee]

Retiring 30 days ago and seeing the market gyrate twice since, ... with pension (yet to see a check though ), dividends and interest from preferreds and other income producing investments, and CD's that fill the gap (3 years worth). I am sleeping fine. I did take some 'cash' (stable value fund) in 401K and moved that to S&P 500 today, taking advantage of the drop. I may be a little early or a little late ... but I am not smart enough to call the tops or bottoms. Just trying to be on the right side once in a while.

 

[yona]

The drop last week was the 3rd one this year (at least in HK).
These things happen EVERY YEAR, so it is very important to be mentally ready. If you plan to invest in the stock market in the next 30 years or so, you need to know that a big drop of more than 20% is not a question of "if" but "when". And there is even a chance of 50% or more drop in one year.

Being mentally prepared is the key.

I am with CyclingInvestor on this one - I will live on the dividends, which means less worries for me.

 

[JohnEyles]

I will live on the dividends ...

My philosophy, too, is to have enough cash in money markets, CDs,
etc to live on for X years or so. However, the taxable portion of
my portfolio is generating $10-15K in dividends annually. So I've
sized this cash reserve as annual expenses MINUS the dividends
(TIMES the number of years).

Is this reasonable ? Dumb question I guess, but in the event of a
BIG correction (10% or more) how much should I expect this dividend
stream will shrink ??

 

[haha]

My philosophy, too, is to have enough cash in money markets, CDs,
etc to live on for X years or so. However, the taxable portion of
my portfolio is generating $10-15K in dividends annually. So I've
sized this cash reserve as annual expenses MINUS the dividends
(TIMES the number of years).

Is this reasonable ? Dumb question I guess, but in the event of a
BIG correction (10% or more) how much should I expect this dividend
stream will shrink ??

No event that would only produce a 10% fall would likely have any effect at all on your dividends. Remember we had quite near to a 10%er in Feb of this year.

Incidentally, I prefer to use the word drop, or fall, rather than correction. Correction is eupho-speak created by the brokerage industry. What is being corrected? My net worth being returned to its normal pitiful state?

Ha

 

[loosechickens]

Well, we just live on the income stream of dividends and interest, and also have about two years of living expenses with no changes in expenditures in cash, so we sleep well all the time.

We've been stashing our extra unused dividends in an online savings account, and that's almost up to a year's expenses now as well, so let the markets do what they may, and we'll hardly notice.

And if the whole thing collapses? We'll be fine then as well. We've lived with little money and a lot of money, and either way, life goes on.

LooseChickens

 

[haha]

American Home Mortgage plummeted $9.43, or 90 percent, to $1.04. The lender, whose shares stopped trading at $10.47 yesterday after it disclosed a cash shortage, has been cut off from credit and didn't have money yesterday to make $300 million of mortgages it had already agreed to provide, the Melville, New York-based company said today in a statement.

Well I guess that qualifies as a meaningful drop. What were stockholders in this company thinking yesterday at 3:59 PM?

 

[audreyh1]

There is clearly some manipulation that can happen in the last 30 minutes that can drive the DOW down 150 points into the close.

I know that companies are not allowed to buy back their own company stock during the last 30 minutes of trading.

I know that the "uptick" rules have been dropped and that apparently makes it easier for shorting via futures to push the averages down. Don't understand the mechanism.

I've been reading that buyers can't "get in" during the furious futures-driven drops. I don't really understand this either.

However, I strongly suspect this new volatility and end of day behavior is related to rules changes and few specialists left on the NY stock exchange.

Welcome to the future!

Audrey

 

[Tadpole]

American Home Mortgage plummeted $9.43, or 90 percent, to $1.04. The lender, whose shares stopped trading at $10.47 yesterday after it disclosed a cash shortage, has been cut off from credit and didn't have money yesterday to make $300 million of mortgages it had already agreed to provide, the Melville, New York-based company said today in a statement.

Well I guess that qualifies as a meaningful drop. What were stockholders in this company thinking yesterday at 3:59 PM?

What indeed? Now I have another question, if you know the answer. AHM was the "10th largest". How many between 1 and 10 do we have to go?

 

[CuppaJoe]

There is clearly some manipulation that can happen in the last 30 minutes that can drive the DOW down 150 points into the close.
Audrey

I have no idea what I'm talking about (trust me on this one): I did sell some index fund shares today; of course, they give me the COB price, does that kind of selling have any effect?

 

[Running_Man]

Went out back to my library (a.k.a. shed) and dug out "The Intelligent Investor" by Mr Graham yesterday evening. Turned over to read chapter 8 "The Investor and Market Fluctuations". Got over to the paragraph that read,

"That a man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment."

I woke up two hours later in the recliner and put the book back in the library.

Thanks Ben!

Does this apply to owners of American Home Mortgage Corp as well? With one billion in mortgages that were approved for home sales being rescinded IN THE LAST TWO DAYS!!! what is the effect on the economy as these sales are reversed?

 

[2soon2tell]

It depends on how much cash the fund has and whether they have to sell stocks to fund redemptions.

2soon

 

[Nords]

When you are getting ready to retire, as I am, timing is damn near everything. Throw a lump sum in at the wrong time, and a return to work is a very real possibility.

If a timing mishap could push the ER portfolio over a cliff, then it's probably best to keep working another year or two or at least cut back to part time.

Everyone could've retired over a decade ago if they'd put their entire portfolio in Apple, Microsoft, & Intel. But setting themselves up for single-stock failures like that would've been pretty miserable in 2001-2002...

 

[teejayevans]

Does this apply to owners of American Home Mortgage Corp as well? With one billion in mortgages that were approved for home sales being rescinded IN THE LAST TWO DAYS!!! what is the effect on the economy as these sales are reversed?

Assuming an average mortgage amount of $200,000, thats 5000 mortgages.
With an assume rate of about 500000 homes, condos, etc per month, thats
1%, not a huge deal, but certainly will make Aug/Sept numbers look worst
because buyers will need to find new financing.
TJ