The Inevitable 10% Correction

[EastWest Gal]

Quote:

Originally Posted by Major Tom Being a long-term holder of passive index funds, my "strategy" mainly involves not checking my balance on days like this, and waiting until we've had a few up days before checking again. Hopefully we'll actually have a few up days, or I'll have to brace myself before logging in

Glad to know someone else uses my coping strategy. And everyone else on this thread sees it as a buying opportunity. I'm sitting this one out. Just starting ER and I don't have the courage to buy stocks right now.

[NW-Bound]

Quote:

Originally Posted by project2501 ... Sure it's timing, and looked at as a no no...

Timing, schtiming, or rebalancing... Who cares if you make money, which is the most important thing. If one screws up and buys high/sells low, then it's bad, else it's good.

A successful market timer who sells high and buys low acts as a market rebalancer, without whose restoring action the market fluctuations would be even higher. Even if I do not buy now, I applaud and will cheer on those who step up to buy. And while I did not sell earlier, I appreciated those who sold, which would keep a bubble from forming.

[robnplunder]

I am hoping for a decisive correction. I want to see mass capitulation. I want to see grown men cry. That's my cue to time this market.

[ejman]

A big problem of having a wide rebalancing band is that one misses all the fun and excitement, "don't just stand there, do something!" Before all the current (modest) mayhem I was sitting at equities at 54.1% wondering what I would sell if they hit my upper limit of 55%. Then I just checked and with all the fun of the last few days equities are at 52.4%. Jezz, nothing to do until they get to to the lower limit of 45%. You timing guys have all the fun!

[Walt34]

Quote:

Originally Posted by robnplunder I am hoping for a decisive correction. I want to see mass capitulation. I want to see grown men cry. That's my cue to time this market.

Wait until stock brokers start jumping out of buildings?

[audreyh1]

Quote:

Originally Posted by ejman A big problem of having a wide rebalancing band is that one misses all the fun and excitement, "don't just stand there, do something!" Before all the current (modest) mayhem I was sitting at equities at 54.1% wondering what I would sell if they hit my upper limit of 55%. Then I just checked and with all the fun of the last few days equities are at 52.4%. Jezz, nothing to do until they get to to the lower limit of 45%. You timing guys have all the fun!

As many times as I caught that falling knife in 2008, I'm happy to have wider bands now.

But I always end up doing some rebalancing in Jan anyway when I withdraw.

[audreyh1]

Quote:

Originally Posted by Walt34 Wait until stock brokers start jumping out of buildings?

That requires a crash, I believe

[NW-Bound]

Quote:

Originally Posted by robnplunder I am hoping for a decisive correction. I want to see mass capitulation. I want to see grown men cry. That's my cue to time this market.

You were not here on this forum in the 2008-2009 time frame. Much wailing and teeth gnashing here then... Some capitulated, sold, then were not heard from again. Some bought low, but the wrong stock.

It was an exciting time.

Quote:

Originally Posted by ejman A big problem of having a wide rebalancing band is that one misses all the fun and excitement, "don't just stand there, do something!" Before all the current (modest) mayhem I was sitting at equities at 54.1% wondering what I would sell if they hit my upper limit of 55%. Then I just checked and with all the fun of the last few days equities are at 52.4%. Jezz, nothing to do until they get to to the lower limit of 45%. You timing guys have all the fun!

What fun? Just a bitty correction so far, so I have not done much but to harvest a bit of loss, which will allow me to do a larger Roth conversion.

A 20 or 30+% drop, now that will get one's heart pumping, neck hair raising, eyes dilated, palms sweaty...


PS. All the recent excitement over the little market movements so far shows me how people have short memories, how they quickly become complacent after a smooooth ride. There's nothing like a welcome correction to shake their shoulders and get them to sit up. Long live market corrections!

[audreyh1]

I agree that this is lose enough to count as the minimum correction (10%). And it was way, way overdue. It's good to occasionally shake out the weak hand, and serve the speculators and hedge funds some pain.

That was a pretty good whoosh and recover on high volume yesterday, and even a good retest today (got down to 1825 I believe). But these things usually take weeks to sort out even after things seem to settle down, and so I would expect a slower, gentler drift down to test the lows again, or even go lower.

So it could still end up being a stronger correction. Until we are out of October, I don't think we have any idea if we are close to done.

We'd have to do a quite a bit worse for me to reach my triggers and rebalance before Jan.

[NW-Bound]

I am not buying now because I did not sell some earlier to get more cash, else I would start to nibble.

It is wrong to say that a market timer must successfully get out at the top and to get in at the bottom. If my sell/buy results in me having more money or shares than "buy-and-hold", or "buy-and-mechanically-rebalance", I consider it a success.

[ejman]

Quote:

Originally Posted by audreyh1 As many times as I caught that falling knife in 2008, I'm happy to have wider bands now. But I always end up doing some rebalancing in Jan anyway when I withdraw.

Yup, that particular one tested everyone unless they had such tremendously wide bands that rebalancing was out of the question even then. It is nonetheless very difficult to move into equities when the sky really is falling...

[NW-Bound]

Setting a wider band for rebalancing means you think that lets you buy closer to the "bottom", which is a form of market timing because you do have a certain expectation.

PS. Basically, we all understand the risk/reward trade-off of investments, and that includes every asset, just not stocks. Rebalancers or market timers both believe the risk/reward trade-off of investments change with price, but they act on that price movement with different mechanisms.

[kgtest]

Quote:

Originally Posted by brewer12345 I was thinking something similar. I noticed that even on an ugly day like today a few of the more badly battered things I own or watch are starting to move up. This also looks like a day to collect profits on treasuries. I liquidated much of a stake in a leveraged treasury ETF today.

I forgot to put my hands in the air for that drop... I never stopped DCA'ing...although I am not going to lie, human instinct did rear its ugly head. I wouldn't mind if energy rebounded as well but that is unlikely. Either way I kept my hands inside the ride for that one.

[Hamlet]

Ebola and ISIS are sideshows from an investment standpoint. They aren't going to affect corporate earnings.

The big worry I have is Europe and the Ukraine situation. We have a nuclear power that seems willing to burn the world down. That worries me.

It also still seems possible (say 30% chance) that the Euro will end up failing.

But those were both worries a year ago.

Quote:

Originally Posted by brewer12345 The laughable thing is that even as everyone is selling and running around with their hair on fire, unemployment claims just came in at a 14 year low, industrial production spiked, and capacity utilization is now at 79.3% - just a hair shy of the 80% and up level that typically starts sparking heavy capex spending. Sounds terrible, doesn't it?

[audreyh1]

Quote:

Originally Posted by NW-Bound Setting a wider band for rebalancing means you think that lets you buy closer to the "bottom", which is a form of market timing because you do have a certain expectation. PS. Basically, we all understand the risk/reward trade-off of investments, and that includes every asset, just not stocks. Rebalancers or market timers both believe the risk/reward trade-off of investments change with price, but they act on that price movement with different mechanisms.

Not really. It just means you don't rebalance unless it's a very strong correction or bear market.

[audreyh1]

Quote:

Originally Posted by Hamlet Ebola and ISIS are sideshows from an investment standpoint. They aren't going to affect corporate earnings. The big worry I have is Europe and the Ukraine situation. We have a nuclear power that seems willing to burn the world down. That worries me. It also still seems possible (say 30% chance) that the Euro will end up failing. But those were both worries a year ago.

Actually, I don't think Ebola is a sideshow from an investment standpoint if we don't stop it outside of the handful of African countries right away. When people stop traveling out of fear, shutting schools down, etc., it causes an economic slowdown. SARS had a strong enough market effect.

[ejman]

Quote:

Originally Posted by NW-Bound Setting a wider band for rebalancing means you think that lets you buy closer to the "bottom", which is a form of market timing because you do have a certain expectation. PS. Basically, we all understand the risk/reward trade-off of investments, and that includes every asset, just not stocks. Rebalancers or market timers both believe the risk/reward trade-off of investments change with price, but they act on that price movement with different mechanisms.

Guilty as charged. I'm always hopping my rebalancing band will let me catch close to the "top" but what actually happens in practice is that I end up rebalancing way before the top is reached because optimism in the market seem to be unbounded (until something happens...). I think a lot more fishers show up at the pond on the pessimist side unless the sky really is falling.

[robnplunder]

Quote:

Originally Posted by Hamlet Ebola and ISIS are sideshows from an investment standpoint. They aren't going to affect corporate earnings.

Actually, IMO, Ebola if it spreads can effect corporate earning big time. People tend to stop doing what they normally do, starting with traveling - airlines and travel related companies will get hit. People stop going to crowded places - retail & service businesses will get hit. More dominos will fall. One of the African nation most impacted by Ebola is already seeing this and they fear that their economy will collapse. Given that Ebola can spread exponentially if unchecked, it can make the first domino to fall for the global economy.

[NW-Bound]

Quote:

Originally Posted by audreyh1 Not really. It just means you don't rebalance unless it's a very strong correction or bear market.

Most people rebalance because they want to maximize gains, or in other words to buy low/sell high, although for secular bull markets like the period of 1983-2000 the rebalancing reduced performance.

Some rebalancers say they do that to reduce volatility of their portfolio, but I think we all secretly hope to get more money. They could have put it all on CDs, which have no volatility but no gain either.

Or, why not just look away, and not follow the news or any forum? Historically, you would do OK doing nothing.

Nah! I say we are all greedy and think our own chosen method will get us more money. I am never afraid to say that I like money, even though I may not need more.

Quote:

Originally Posted by ejman Guilty as charged. I'm always hopping my rebalancing band will let me catch close to the "top" but what actually happens in practice is that I end up rebalancing way before the top is reached because optimism in the market seem to be unbounded (until something happens...). I think a lot more fishers show up at the pond on the pessimist side unless the sky really is falling.

Again, if "suboptimal" rebalancing or market timing gets me more money than doing nothing, I feel content enough. Nothing will get you all out at the top, then all in at the bottom, except luck.

[clifp]

There is a poker saying "Its always better to be lucky than good." Man have I been lucky. I put 1/2 the money I took off the table a few weeks ago while the DOW was down 400 yesterday.

I have hard and fast rule that I don't write options unless I can get 10% annualized return for slightly out of money calls or puts. With the VIX down in the 10-13 range for most of the year, I pretty much stopped writing options.

Now with VIX at 25 it was easy hit that criteria. If the corrections continues to S&P 1700, my put options will be exercised in Dec. If not I make a 10% annualized return.

The options premiums I picked up for a couple of individual stocks were crazy high.