This time is different!!

[jldavid47]

So, I put $100K into cash this morning. Portfolio value is 2.2 million.
I already have seven years living expense in fixed or bonds.
My idea is get “some benefit” from the market movement. I won’t find the bottom of the market to reinvest. But I don’t want to give all my gains from last year.
This will pass but it’s not containable.

That is sensible and helps contain risk. Anyone who has more than enough to retire on and stays 100% invested in the stock market at any point (not just now) is either greedy or stupid or both. Go ahead, flame away!

 

[jldavid47]

Pop Quiz: How do you make money during a bear market? Answer: Treasury Bonds

Alternate answer: Put options.



Given where interest rates are today, how much price appreciation can you really expect from treasury bonds over the long run? Answer: Not much. Past examples started from much higher interest rates.

 

[Shredder]

That is sensible and helps contain risk. Anyone who has more than enough to retire on and stays 100% invested in the stock market at any point (not just now) is either greedy or stupid or both. Go ahead, flame away!

Stupid and greedy was me in 2000, by 2008 I learned about Wellesley. A lesson that served me well.

 

[2177V]

Alternate answer: Put options.



Given where interest rates are today, how much price appreciation can you really expect from treasury bonds over the long run? Answer: Not much. Past examples started from much higher interest rates.

True....but the total fund value consist of both interest rates component and bond value component. The interest rates may even go to zero as long as the bond value goes up. You also need to look at the portfolio of VUSUX which consisted of long term bonds purchased a long time ago which mean the money manager can now sell on the secondary market at a HUGE profit to boost the value of the fund. Your answer of "Answer: Not much" is wrong because you do not understand the bond value component of the total fund value. At the end of 2020, you will see how wrong you are when you review VUSUX 2020 performance. In any case, I don't mind making 20% on treasuries while most passive investors are losing money. Afterwards I will sell VUSUX when equity prices are super low and make another 20%. 40% growth on my portfolio is better than 0% for the passive investor who has to wait for the recovery to get back to where he was. You should google "flight to quality" or "flight to safety" to get a better understand on how treasuries work. BTW the YTD performance of VUSUX is 15% while most YTD performances of S&P500 funds are now negative.

 

[OldShooter]

... I don't mind making 20% on treasuries while most passive investors are losing money. Afterwards I will sell VUSUX when equity prices are super low and make another 20%. 40% growth on my portfolio is better than 0% for the passive investor who has to wait for the recovery to get back to where he was...

Just out of curiosity, what is your actual historical experience with this strategy and with how much money?

 

[Joylush]

Best piece of advice, or one of them anyway was a comment I read which said:

The best time to invest is when it makes you sick to you stomach.

Personally I’ve never been one to follow the crowd. If everyone is buying it’s time to sell. If everyone is selling, it’s time to buy.

P.S. Right now I’m selling houses

 

[harley]

In any case, I don't mind making 20% on treasuries while most passive investors are losing money. Afterwards I will sell VUSUX when equity prices are super low and make another 20%. 40% growth on my portfolio is better than 0% for the passive investor who has to wait for the recovery to get back to where he was.

Of course that's better, but how do you do it? That's what professional money managers and investors haven't been able to do historically. I do think it's comparatively easier to get out ahead of a big drop, because its not that hard to see when a market is overheated. But most people get out way too early and miss a big run up, then get back in, then get out after the drop has already happened, and don't get back in in time to catch the big run up after the drop.

If you can do that and do it consistently, you should be rolling in money. You make it sound easy, which it is in theory.

 

[Ed_The_Gypsy]

Stupid and greedy was me in 2000, by 2008 I learned about Wellesley. A lesson that served me well.

I admit to being both stupid (ask the moderators) and greedy.
I have never been able to match the performance of Wellington (NAV+dividends). And so it goes.

 

[Ed_The_Gypsy]

"Good judgment comes from experience. Experience comes from bad judgement."

I saw this years ago in a Ziggy cartoon. I had it framed and on my wall at work for many years.

 

[2177V]

Just out of curiosity, what is your actual historical experience with this strategy and with how much money?

No historical experience with this strategy. This is because when I was young and aggressive, I was 100% equities because a 60/40 portfolio did not make sense to me when you are young. Like most investors, I went thru both the bull markets and bear markets.

However, I discovered that I picked up a lot of knowledge during a bear market.....more so than a bull market. A lot of people never learned anything during a bear market...but I did. Part of my personality is to learn. I was mostly a passive investor but I started using 10% of my portfolio as an active investor so my portfolio was 90% passive and 10% active. I again acquired more knowledge and experience buying on the dips, etc but I never used more than 10% of my portfolio. With my portfolio 90% passive/10% active, am I a passive investor or an active investor?

As I got near retirement, I reluctantly went into the traditional 60/40 portfolio simply because a 60/40 portfolio made sense to me since I needed the liquidity. You really do not need liquidity when you are young because your paychecks acts as your liquid assets. This explain why I was 100% equities. After I retired in a 60/40 portfolio and gotten older, I realized that if I avoided even one or two bear markets, this will make a HUGE difference in my portfolio. My current strategy is focused on that one objective.

I was always familiar with treasuries. I started studying treasuries from a historical prospective. Example: The VUSUX performance in 2011 during the European Debt Crisis and in 2008 during the last recession

2011 25.11% Capital Return + 4.31% Interest Return = 29.41% total return

2008 17.31% Capital Return + 5.38% Interest Return = 22.6% total return

In 2011, treasuries yield went to 0.09% ....but why did VUSUX interest return 4.31%? Answer: VUSUX portfolio consisted of long term bonds purchased a long time ago earning an average of 4.31% When you own a 30 years bond of 4%, the interest does NOT drop to 0.09%. It only affects new buyers of treasuries.

Why did the treasuries capital return went to 25.11% and 17.31% in 2011 and 2008? Answer: Everyone panicked and shifted from stocks and demanded treasuries to avoid loss. This is a supply and demand situation. This means people who now own treasuries at 4% will see the value of their 4% bonds goes up because who wants to buy bonds at 1% when treasuries at 4% are more valuable.

I can't guarantee I will make 20% in treasuries and later another 20% in stock when I rotate from treasuries to super cheap equities. However, the historical patterns of treasuries cited above put me in a good position. Investors should learn about treasuries as a tool in dealing with bear markets. People may criticize this post...but I am OK with that since my portfolio performance is now a +15% YTD. This is the very first time that I departed from my 10% active trading restriction to "all in" with treasuries because of my convictions.

 

[copyright1997reloaded]

Just out of curiosity, what is your actual historical experience with this strategy and with how much money?

Or, as Mike Tyson so elegantly stated: "Everyone has a plan until they are punched in the mouth".

 

[OldShooter]

No historical experience with this strategy...

Got it.

The wonderful thing about backtesting is that it is easy to be a winner.

 

[MRG]

Got it.

The wonderful thing about backtesting is that it is easy to be a winner.

Look at the thread title.

 

[2177V]

Of course that's better, but how do you do it? That's what professional money managers and investors haven't been able to do historically. I do think it's comparatively easier to get out ahead of a big drop, because its not that hard to see when a market is overheated. But most people get out way too early and miss a big run up, then get back in, then get out after the drop has already happened, and don't get back in in time to catch the big run up after the drop.

If you can do that and do it consistently, you should be rolling in money. You make it sound easy, which it is in theory.

You only have to avoid a bear market one time to make a difference in your portfolio. Going from 60/40 to 100% treasuries is not something I do regularly. Let me list the reasons for this single decision:

1. We were at a historical bull market and I do not believe a bull market will last forever.
2. The yield curve inverted in 2019. A yield curve inversion is a reliable predictor of recession.
3. Our US debt has grown significantly and there is a possibility that the recent US economic growth was debt based. In other words, if it was not for government spending more than the government revenues, the private sector economy would be in recession.
4. The LEI were trending downward EXCEPT for jobs and consumers spending. I was not comfortable with this because consumers spending is finicky and corporations has a habit of layouts in a downturn.
5. Jeffrey Gundlach (Bond King) recommended that investors should be in an "asset preservation" mode in 2019. Jeffrey went from a drummer in a band to $2 billion net worth so he must be doing something right.
6. I had made enough money over the years so that I will be comfortable. I wanted to protect that life style. I was under no pressure to stay invested.
7. I was familiar with treasuries and I knew if the stock market crashes, the price of treasuries would soar. If it did not crash, my risk was under performance compared to equities.
8. The reward/risk factor was high. Relatively high reward and low risk.

In summary, it is based on a personal decision on my part. There is no magic ball that will tell you to do this or not. I depended on my convictions, a hunch or whatever you want to call it. I do admit "luck" may be a factor. However, I rather be lucky than good.

 

[ownyourfuture]

Yes.

There are those who try to (in some sense) time the market (I am in that camp but only in a tame way

I'm in the same camp. Based on nothing more than a gut feeling, I bought 400 shares VXX on December 20th. Looked like a real fool for a while, & almost sold a couple different times. Looked away & it worked out well. Sold 1/2 today & recouped my entire cost basis +

The 400 shares were only around 3.00% of my Fidelity portfolio, so I've still lost plenty over the past month.

I'll file it in the 'dumb luck' folder & count my blessings

 

[pb4uski]

I went into 3.0% and 3.5% 5-year CDs in mid 2019. BND is spanking me because of the decline in interest rates since then but I keep telling myself that my day will come when rates rise.

 

[2177V]

Got it.

The wonderful thing about backtesting is that it is easy to be a winner.

I will probably try to do this again in the future since I will have some historical experience from 2020.

 

[ER Eddie]

Up, down, up, down.

I really should stop watching the bouncing ball. It's making my tum tum queasy.

 

[ugeauxgirl]

Got it.

The wonderful thing about backtesting is that it is easy to be a winner.

+1. Been through a lot of down markets. What works in one will not necessarily work in another. Be careful of over confidence in your skill set.

 

[ugeauxgirl]

Best piece of advice, or one of them anyway was a comment I read which said:

The best time to invest is when it makes you sick to you stomach.

Personally I’ve never been one to follow the crowd. If everyone is buying it’s time to sell. If everyone is selling, it’s time to buy.

P.S. Right now I’m selling houses

+1. The best investments I've ever bought have been the ones where my stomach was churning so much I could hardly press the button.

 

[teejayevans]

Whether you are 100% equities or 100% treasuries, you’re not an investor, you’re a gambler.

 

[2177V]

Whether you are 100% equities or 100% treasuries, you’re not an investor, you’re a gambler.

Yes, I have been called that before. I am proud of that label. As of today, VUSUX (LT Tresuries) YTD performance is +22.6% while VFIAX (S&P500) is -7.68%. A difference of 30% on my portfolio.

However, I am on guard for a reversal where investors pull money out of treasuries and back into equities (Flight from quality).

I have just re-allocated my 100% treasuries portfolio to 10% equities/90% treasuries portfolio as part of my plan. I can't guess when the bottom will occur so I decided to adopt a systematic turnover to equities. 20% decline = 20%/80% portfolio, 40% decline = 40%/60% portfolio. Since I have avoided the initial loss, this means I will profit from the recovery by buying equities at depressed prices.

Life is good when you are ahead of the curve. Don't try this at home... because you need the experience, knowledge and courage to do this.

 

[ownyourfuture]

Yes, I have been called that before. I am proud of that label. As of today, VUSUX (LT Tresuries) YTD performance is +22.6% while VFIAX (S&P500) is -7.68%. A difference of 30% on my portfolio.

You've done very well, congrats!
Whenever the markets are acting like they have lately, I think of this commercial.

 

[harley]

You only have to avoid a bear market one time to make a difference in your portfolio.

Well, I managed to take $1.25M out of the equity market in 2007 and put it into cash. But by not being able to decide when to get back in I pretty much broke even or even lost a little over the next 5 years. So no, you have to be right at least twice.

But best of luck to you. Maybe you're the next Jeffrey Gundlach, and we'll all be able to say we knew you when. But I won't hold my breath. It will be interesting to see what you're posting in 5 years or so.

Edit: I've played sax/woodwinds in a few bands. Didn't help my investing as far as I can tell.

 

[OldShooter]

Whether you are 100% equities or 100% treasuries, you’re not an investor, you’re a gambler.

You're also a gambler every time you climb into your car and every time you buy lettuce. Your point is?