Time to seriously consider getting defensive?

[M Paquette]

I'm pretty sure nobody knows nuthin...

But hey, who knows? I do know that my personal investment plan calls for me to check my asset allocation annually, so next year I might even be rebalancing in spite of the broad bands I set up.

So it goes, so it goes...

[NW-Bound]

But they say that historically the market has proven the majority of people wrong.

So, why can't we take a poll and do the reverse of what most people think?

Oh, I forgot that they already called it the contrarian viewpoint. Now, whom should I be contrarian to? I mean the big majority out there, not just the people in this forum.

[foxfirev5]

Just got back from a long weekend at the lake. In a cost cutting move we got another 6 month intro rate for basic plus cable at our lake house - $19 /month. I realized we don't get CNBC or any financial news - perfect, never missed it a bit. Further bonus, no HGTV, which will help keep my DW's endless home improvement ideas in check.

[ESRwannabe]

My portfolio is built to generate income. So fluctuations in share price are not much of a concern. What I focus on is the true health of the assets. For example looking at the financial health of the individual company's stock that I own.

Fluctuations in share price often have little to do with the true fundamentals of a company. The share price could be down because the entire stock market went down, or that sector went down. It doesn't necessarily have anything to do with the actual health of the company.

Anyway I find that my method of investing frees me from the roller coaster that is asset prices. So, no I am not trying to time the market. I'm not selling off stock in companies that are perfectly fine just because the overall stock market may be over priced.

Many many years down the road when I began to take withdrawals I will do so by spending the income that my assets throw off. So there again I will not be beholden to irrational market prices.

Some people say that owning individual stocks is too risky. I don't see it that way. I actually know and understand what I own. Most people own financial instruments and have no idea what they really own.

I find it a lot easier to think rationally about companies than I do financial instruments.

[Options]

Quote:

Originally Posted by CaliforniaMan I guess I don't get peoples fascination with this kind of "news" article. You think the author Brett Arends really spent a lot of time with this? Or just had to churn out another article to meet his deadline. IMO, just a list of obvious factoids that will not help anyone in any way other than Fidelity who can use it to drive people to their advisers. Every day there will be another article like this. We don't often hear the Vanguard reports repeated in the media. They are always something like, we don't have any idea where the market is headed, just keep a balanced portfolio with an AA you are comfortable with. Hard to make up a newsy story everyday with this. So tomorrow, next week, next month, guess what, there will be more articles like this spouting off obvious factoids and "analysis". I suspect they will be as helpful to people in the future as they have been in the past.

+1
Very well said.

[inquisitive]

Quote:

Originally Posted by NW-Bound But they say that historically the market has proven the majority of people wrong. So, why can't we take a poll and do the reverse of what most people think? Oh, I forgot that they already called it the contrarian viewpoint. Now, whom should I be contrarian to? I mean the big majority out there, not just the people in this forum.

I think this is a very viable strategy. I just haven't determined where to find a poll that would be representative of the population. Investor sentiment was overwhelming positive in the late 90s and leading up to the housing crash. People were incredibly bearish in 2008. If one could set up some parameters it would be a nice signal to get in and out of the market.

[Lsbcal]

When the yield curve inverts it's generally signaling a market decline. There was a Fed paper on this.

We are in an exactly opposite state now with a steep yield curve.

[NW-Bound]

I was making that post as a rhetoric.

There are already many relevant polls, and I am sure we all have heard of them. They include polls on consumer sentiment, investor sentiment, etc..., and cash flows in/out of MFs, etc... The problem is that they are often contradictory signals, and it has been said that people polled say one thing, but actually do the reverse. For example, the consumer said he/she was scared, but retail stores continued to rack up sales.

So, there are already plenty of info along with measurements such as shipping indices, prices of commodities, unemployment data, housing starts, etc... but one must compile and come up with a conclusion of his own. And that's the hard part.

[inquisitive]

And I was (and am) serious. Polls are only contradictory because they sample different populations and are worded differently. I don't look at a lot of data, like the the measurements you've mentioned, but if I knew of a nationally representative poll that measured consumer, or investor, sentiment regarding the stock market, I would absolutely act on it. I've seen polls on investor websites and on Yahoo, but nothing I would really use. The majority are definitely wrong when it comes to the stock market.

[NW-Bound]

Quote:

Originally Posted by inquisitive ... if I knew of a nationally representative poll that measured consumer, or investor, sentiment regarding the stock market, I would absolutely act on it. I've seen polls on investor websites and on Yahoo, but nothing I would really use. The majority are definitely wrong when it comes to the stock market.

I do not know of an overriding investor sentiment poll, but there are many fragmented polls. Perhaps one can tabulate them to find a majority consensus to act against.

Here's one for example (it is neutral right now): Sentiment Survey | AAII: The American Association of Individual Investors.

[robnplunder]

Forget the poll and flip a coin. If it's head, get out of the market. If it's tail, go all in on equity. It if lands and stands on its side, don't do anything. I guarantee that you will be right 50% in the long run. That's better than a broken clock which gets it right only twice a day.

[CaliforniaMan]

The stock price IS the poll!

[CaliforniaMan]

Another thought, have you ever heard anyone profess to be anything other than a contrarian with regard the market? "Oh no, I just follow the herd" (or Maybe better, I follow the heard)

[NW-Bound]

I want to be leading the herd. How do I do that?

Or if I follow the herd from a long distance, then will I be in the right phase again? Or at least stay back enough to see them go off the cliff?

Man, this is not at all easy.

[Mulligan]

A perfect example of a no-nothing is myself. I always dread my yearly Roth contribution time as I always want to be "cute" (it never works, so why I keep doing it I have no idea) and wait for a quick 10% correction and buy on the dip. Well of course I miss a couple of small chances and then throw in the towel in March by putting it all into intermediate bond fund expecting to lose less there than the market would. Well I happen to look yesterday and the darn thing is up several percent in just a few months, and of course the market is higher also. I would have never guessed that. Of course this doesn't solve the problem that this money is meant to be in stocks not bonds. Still waiting for that correction! All the while I keep putting $500 a month DCA into Total Stock and don't even worry about that for some reason.


Sent from my iPad using Tapatalk

[robnplunder]

Quote:

Originally Posted by NW-Bound I want to be leading the herd. How do I do that? Or if I follow the herd from a long distance, then will I be in the right phase again? Or at least stay back enough to see them go off the cliff? Man, this is not at all easy.

Bulls can be herded. Bears will eat you for lunch. It's silly Wednesday (saw a post by a 20 year wanting to retire in 2 years with forex trading).

[NW-Bound]

Quote:

Originally Posted by CaliforniaMan The stock price IS the poll!

Yes. Then, the time to sell can't be too far away.

I have also noticed that there are more and more new posters joining, and many plan to retire soon. More and more people are announcing new financial milestones being reached. Heck, even a guy like me who stopped working 2 years ago keeps setting new highs. Call me a pessimist, but I do not like this. People are just too darn happy. I have seen this before. Life cannot be rosy all the time.

I am going to wait a little more though, and will start to write more covered calls to hedge. That is to give time for the herd to catch up. I do not want to get all out of the market, nor think that's the right thing to do.

[Lsbcal]

Quote:

Originally Posted by NW-Bound Yes. Then, the time to sell can't be too far away. I have also noticed that there are more and more new posters joining, and many plan to retire soon. More and more people announcing new milestones being reached. Heck, even a guy like me who stopped working 2 years ago keeps setting new highs. Call me pessimist, but I do not like this. People are just too darn happy. Life cannot be rosy all the time. ....

One might have gotten out a bit too soon in the 1990's with these observations.

[ejman]

I really don't understand all the angst on this topic.

1) Have an asset allocation you are comfortable with.

2) if the AA drifts outside your rebalancing parameters, rebalance.

3) If the AA hasn't drifted outside your rebalancing parameters, do nothing.

The above approach has worked just fine for me thru the crashes/bears of 1987, 1990,1994, 2000-2002, 2008.

Dunno, sometimes we overthink things.

[NW-Bound]

Quote:

Originally Posted by Lsbcal One might have gotten out a bit too soon in the 1990's with these observations.

Yes, that too. I remember when the bears accepted defeat being the time the market peaked. Everybody got stocks, there were no new buyers.

Later, I remember the same thing about the housing bubble. You can't lose with houses, they all said.