Did anyone's financial advisor see this coming?

[ERD50]

Does not matter. Winners win. Losers lose. ...

I really do not understand passive investors.

.... but passive investors ignored these trends. ...

So I have a question. Say the current upswing in the market turns out to be legit, and the Dow is heading back up toward $29K. I'm not saying I think it will, but just say it is. Where do you start getting back in? You've already missed an approximate 30% increase. And you don't know if the market is going to crash again (likely) or if it's going to continue on up (possible). When do you start buying in?

... . So when are you going to start buying? I wouldn't blame you if you waited, expecting worse to come. But you could be wrong, and at what point do you get back into the game? If you wait too long you could actually come out behind a B&H investor. Or you could break even like I did, only with a lot more drama in the process. With the freaking market, you just never know.

harley covered it well. It has nothing to do with passive investors ignoring anything. We are aware that market timing takes two steps, getting out, and getting back in.

You might get it right, you might not. It's a choice, not ignorance.

-ERD50

 

[OldShooter]

... Winners win. Losers lose. My portfolio is now up about 15% YTD 2020 because ...

You got lucky.

... I expect my portfolio will be up about 30% during this bear market after I buy equities to restore my 60/40 portfolios.

and from getting lucky, you have concluded that you are a genius who can see the future accurately.

Don't feel bad. There is a lot of that going around. Try Nassim Taleb's "Fooled by Randomness" for a good read.

And, hey, you might be a genius. From a sample size of one, no one can tell.

 

[2177V]

Where do you start getting back in? You've already missed an approximate 30% increase. And you don't know if the market is going to crash again (likely) or if it's going to continue on up (possible). When do you start buying in?

So when are you going to start buying? I wouldn't blame you if you waited, expecting worse to come. But you could be wrong, and at what point do you get back into the game? If you wait too long you could actually come out behind a B&H investor. Or you could break even like I did, only with a lot more drama in the process. With the freaking market, you just never know.

When the yield curve inverted last year, I knew that investing in treasuries would be a good move since the yield were dropping. As you know, "yields and price moves in opposite direction". Hence I reallocated my entire 60/40 portfolio to 100% treasuries in 2019. The 1 year performance of VUSUX was +31% and the YTD performance was +20.86% so I did pretty good compared if I had stayed with my 60/40 portfolio.

After the crash, I already have the following system: 10% drop = 10% reallocation back into equities, 20% drop = 20% reallocation. 30% drop =30% reallocation, etc As you know, the market dropped about 32% a few weeks ago, so I am now 30% equities/70% treasuries. No guessing the bottom, no understanding which way the market is going, just a systematic plan.

I like where I am at: 30% equities which I already purchased in 10% portfolio increments at a discount of 10%, 20% and 30%. plus 70% treasuries which historically made money if there is increased fear in the market and there is a "flight to quality". In other words, my 30% equities portion makes money when the market goes up in the long term. My 70% treasuries make money when the market goes down in the short term.

When I reallocated to 100% treasuries in 2019, people would characterize this as market timing. However, I call it reallocation to an "asset preservation portfolio" as recommended by Jeffrey Gundlach, the Bond King, who went from $0 net worth to $2B net worth. Not many people FULLY understand (1) treasuries, (2) flight to quality, (3) asset preservation portfolios and (4) the fact that yields and prices moves in opposite direction and how to use these four principles to their advantage.

 

[Dtail]

When the yield curve inverted last year, I knew that investing in treasuries would be a good move since the yield were dropping. As you know, "yields and price moves in opposite direction". Hence I reallocated my entire 60/40 portfolio to 100% treasuries in 2019. The 1 year performance of VUSUX was +31% and the YTD performance was +20.86% so I did pretty good compared if I had stayed with my 60/40 portfolio.

After the crash, I already have the following system: 10% drop = 10% reallocation back into equities, 20% drop = 20% reallocation. 30% drop =30% reallocation, etc As you know, the market dropped about 32% a few weeks ago, so I am now 30% equities/70% treasuries. No guessing the bottom, no understanding which way the market is going, just a systematic plan.

I like where I am at: 30% equities which I already purchased in 10% portfolio increments at a discount of 10%, 20% and 30%. plus 70% treasuries which historically made money if there is increased fear in the market and there is a "flight to quality". In other words, my 30% equities portion makes money when the market goes up in the long term. My 70% treasuries make money when the market goes down in the short term.

When I reallocated to 100% treasuries in 2019, people would characterize this as market timing. However, I call it reallocation to an "asset preservation portfolio" as recommended by Jeffrey Gundlach, the Bond King, who went from $0 net worth to $2B net worth. Not many people FULLY understand (1) treasuries, (2) flight to quality, (3) asset preservation portfolios and (4) the fact that yields and prices moves in opposite direction and how to use these four principles to their advantage.

A different question and not a negative one.
Now that Treasuries are getting closer to negative yields, down the short term road how much income can one extract out of treasuries since we didn't start this time from 6% yields.

 

[2177V]

Let's supposed 10 years from now after the bear market and bull market cycle, we get a new virus with these same inflection rates and the stock market has yet to crash, will passive investors go into a capital preservation portfolio? ...or will they disregard this experience from 2020 and let it happen because being a passive investor is in their DNA?

Nobody answered my question above on whether they will learn from the 2020 experience.

If, in the year 2030, Will you continued to be a passive investor even if a new COVID30 virus start to spread in the USA, the stock market has had a 8 years bull market and is at an all time high but has not crash yet...what do you do?

Since no one addressed my question, I will assume the passive investors will do NOTHING. I am just glad that I am DIFFERENT.

 

[2177V]

A different question and not a negative one.
Now that Treasuries are getting closer to negative yields, down the short term road how much income can one extract out of treasuries since we didn't start this time from 6% yields.

Excellent question. You need to click the following link:

https://investor.vanguard.com/mutual-funds/profile/performance/vusux/cumulative-returns

Note the total return consists of capital returns and income returns. All I care is the total return. If the income return is zero due to 0% interest rates but the capital return in 10% due to high demand for treasures bc of "flight to quality", the total return is 10%. You also need to click the following link:

https://www.thebalance.com/what-is-the-flight-to-quality-416873

If you look at the 2020 1st quarter return in the first link, the performance is still +20.86%...even though the yield of treasuries are at the historical low and may approach zero. Too many people are focused on the income return while I focus on the capital and total return.

Second point: Just because the treasuries yield goes to zero, that does not mean all the existing treasuries of VUSUX goes to zero. It only affects "new" buyers of treasuries. If you look at the portfolio of VUSUX, most of the LT treasuries were purchased years ago at around 1.2%.

An existing treasury bond at 1.2% is worth more than a new treasury bond at 0%. This causes the capital return of the total return to go up while the interest return to go down. Not many investors FULLY understand treasuries. For example, During bad times, some people reallocate to 100% cash instead of 100% treasuries like I did. Cash has zero returns while VUSUX just earned +20.86% in the 1st quarter 2020.

Currently, High unemployment translate to losses in the travel industry, the hotel industry, restuarant industry, mortgage industry, etc and the government cannot bail everyone out. Case in point: The government did not bail out Lehman Brothers so I expect the government will let certain companies to go under. When that happens, there will be another flight to quality and "possibly" another +20% quarterly performance for VUSUX

 

[Dtail]

Excellent question. You need to click the following link:

https://investor.vanguard.com/mutual-funds/profile/performance/vusux/cumulative-returns

Note the total return consists of capital returns and income returns. All I care is the total return. If the income return is zero due to 0% interest rates but the capital return in 10% due to high demand for treasures bc of "flight to quality", the total return is 10%. You also need to click the following link:

https://www.thebalance.com/what-is-the-flight-to-quality-416873

If you look at the 2020 1st quarter return in the first link, the performance is still +20.86%...even though the yield of treasuries are at the historical low and may approach zero. Too many people are focused on the income return while I focus on the capital and total return.

Second point: Just because the treasuries yield goes to zero, that does not mean all the existing treasuries of VUSUX goes to zero. It only affects "new" buyers of treasuries. If you look at the portfolio of VUSUX, most of the LT treasuries were purchased years ago at around 1.2%.

An existing treasury bond at 1.2% is worth more than a new treasury bond at 0%. This causes the capital return of the total return to go up while the interest return to go down. Not many investors FULLY understand treasuries. For example, During bad times, some people reallocate to 100% cash instead of 100% treasuries like I did. Cash has zero returns while VUSUX just earned +20.86% in the 1st quarter 2020.

Currently, High unemployment translate to losses in the travel industry, the hotel industry, restuarant industry, mortgage industry, etc and the government cannot bail everyone out. Case in point: The government did not bail out Lehman Brothers so I expect the government will let certain companies to go under. When that happens, there will be another flight to quality and "possibly" another +20% quarterly performance for VUSUX

I appreciate the response. I do understand the total return concept as an investor.
I am just referring to that there is probably less room for future total return %, when the price of the bonds can only move up so far in relation to potential negative yields.

 

[2177V]

I appreciate the response. I do understand the total return concept as an investor.
I am just referring to that there is probably less room for future total return %, when the price of the bonds can only move up so far in relation to potential negative yields.

OK. you should also look at the portfolio of VUSUX at located at:

https://investor.vanguard.com/mutual-funds/profile/portfolio/VUSUX/portfolio-holdings

To understand the potential future performance of VUSUX, you have to review the portfolio's coupon rates and maturity dates and the dollar amount being invested in the overall portfolio.

Let's suppose buying new the long term treasury yield is -1.0% in 2021 so VUSUX have buy LT treasuries at -1.0%. It will take a very long time to offset the overall existing portfolio with positive 1% to 3% yields that is already in their portfolio. Currently there are some 0.0% interest treasuries but no negative. Remember the overall interest return is the composite sum of all the interest rates in the portfolio. Let's say in 2021, the "overall" interest rates of VUSUX is +0.5% because of the -1% treasuries in the portfolio. Do you buy individual treasuries at -1% or VUSUX which has a +0.5% overall interest rate because of the existing 1% to 3% yield in the portfolio?

My point: Investors should review the overall portfolio of a treasury mutual fund...like you should do when you review the overall portfolio of a stock mutual fund.

 

[Retired Expat]

Nobody answered my question above on whether they will learn from the 2020 experience.

If, in the year 2030, Will you continued to be a passive investor even if a new COVID30 virus start to spread in the USA, the stock market has had a 8 years bull market and is at an all time high but has not crash yet...what do you do?

Since no one addressed my question, I will assume the passive investors will do NOTHING. I am just glad that I am DIFFERENT.

I think you need to ask that question in a year or two. If all the people who did nothing have recovered and are back where they were on March 1, then I thing you are right they will do nothing different. If they jumped out and lost “only” say 15% and then bought back at the bottom of Market and made a killing, then they might try to time the market again.

Being a buy and hold kind of guy the taxes I would have to pay by jumping out of the market for something like this will eat up the difference in gain had I waited it out. So if you can’t always just look at the value of something today but also your cost basis and what your new cost basis and tax cost will be.

 

[OldShooter]

... I am just glad that I am DIFFERENT.

You can accurately predict the future?

 

[gauss]

You got lucky.and from getting lucky, you have concluded that you are a genius who can see the future accurately.

Don't feel bad. There is a lot of that going around. Try Nassim Taleb's "Fooled by Randomness" for a good read.

And, hey, you might be a genius. From a sample size of one, no one can tell.

+1

Nassim Taleb's book The Black Swan does a very good job of illustrating why Beginner's Luck is a very real phenomenon in gambling circles, although temporary in nature.

 

[BeachOrCity]

+1

Nassim Taleb's book The Black Swan does a very good job of illustrating why Beginner's Luck is a very real phenomenon in gambling circles, although temporary in nature.

I don’t think it’s just beginners “luck”

I don’t think many financial advisors were calling this ahead of time but a small minority were.

I do think many individual investors could see back in late January and February we were going to have a huge economic impact that was not priced in.

I never was a fan of or did market timing myself prior to this. But early on in February I started making big changes because yes I saw something coming.

And I still think the markets overall price level as I write this is completely out of whack with the economic reality of what we face.

The best analogy I can think of is back in 2007 when a few realized mortgage backed securities of subprime were themselves junk and invested / shorted accordingly. They were not “lucky” they just did not follow the herd.

 

[devans0]

I consider one investing component is risk management. One investment in 2008 changed my view. I read that an industrial commodity had the bottom drop out, mines were closing because prices were so low. A few were in areas so rich in ore that operating costs were so low that the could still be profitable. I invested 10% in those. Stockpiles were very low, though. Timing was remarkably fortunate in that industry started taking off, quadrupling my investment in a year. I cached my profit.

My reasoning was that that niche that could eke out a small profit was perfectly positioned when recovery came, but prices would not go much lower and a commodity was unlikely to be replaced. Downside risk near zero, high chance for profit.

Since, i pay close attention to the worst case, its probability, and best case along with its probability. I see that as essentially a Buffett way to invest. I'm not a genius, but it is another tool to use.

2008 is a near term worst case. The recovery gives me an idea of best case. Until things get to a new normal, I will be watching for opportunities.

Timing? I consider it as investing to make use of forseeable affects of market cycles for special opportunities and adjusting my portfolio for risk management.

 

[OldShooter]

... Timing? I consider it as investing to make use of forseeable affects of market cycles for special opportunities and adjusting my portfolio for risk management.

You can see the future, then? Tell us more.

 

[MrsHaloFIRE]

Can confirm FA's could not forsee a pandemic developing and extrapolate impacts on market. Can confirm bc i went to school with them, sat alongside them, took the same finance/economics/insurance/trust classes with them. What if I told you ALOT of trust officers dont have any retirement savings at all? I would never consider a FA more than moderately better informed than me on this type of issue. I dont think any of them are the "chosen ones" with special gifts of foretelling the future. If they were, they wouldnt be FA's, they would be naked on their yacht in St Tropez.

 

[BeachOrCity]

You can see the future, then? Tell us more.

Some posit that the stock market is completely random and as such indexing is just investing in everything and letting the economic growth do all the work.

I happen to think that is is more akin to poker and that some can play it and occasionally see a hand that is better than others and increase their bets at that time. Others stay away from the game entirely, and that is fine too.

Both are ok, Poker entails more risk, but has better potential rewards.

And yes, the "average" poker player does worse than someone who avoids the game as the house keeps their take.

 

[OldShooter]

Some posit that the stock market is completely random and as such indexing is just investing in everything and letting the economic growth do all the work.

I happen to think that is is more akin to poker and that some can play it and occasionally see a hand that is better than others and increase their bets at that time. Others stay away from the game entirely, and that is fine too.

Both are ok, Poker entails more risk, but has better potential rewards.

And yes, the "average" poker player does worse than someone who avoids the game as the house keeps their take.

So your answer to my question is "yes?"

 

[BeachOrCity]

So your answer to my question is "yes?"

A good friend of mine makes a living playing poker

 

[OldShooter]

A good friend of mine makes a living playing poker

Still looking for your answer.

& I have a poker player friend, too, but neither he nor I consider poker to be in any way similar to the market.

 

[rayinpenn]

This question implies you want/expect your fa trading in your account. Or suggesting selling when they get a sense we are do for a correction. The trouble is you are then out of the game and if it goes up OMG.

I sold early in the year because me and a million other 401k boomers had made a killing. “Timing the market” I heard and people got testy. The truth was I was capturing gains. Right now I believe this thing hasn’t done it worse.

So I’m a bystander And I don’t trust anyone...

 

[capjak]

Wonder how long someone could last with 2% withdrawal, adjusting for 3% inflation and putting everything in FDIC insured CDs that yield average of 1%, 2%, 3%,4%.....and forget about the market

I tried 2% withdrawal a year adjusting for 3% inflation, while the money sits in a 1.5% CD and if I did it correctly you would run out of money after 37 years.

 

[RetiredAtThirty-eight]

The best analogy I can think of is back in 2007 when a few realized mortgage backed securities of subprime were themselves junk and invested / shorted accordingly. They were not “lucky” they just did not follow the herd.

You are conflating two different things. There is selecting investments that are likely to be profitable, and that should be more resilient to pandemics, market bubbles and other disruptions vs. trying to time the market. It's much more realistic to buy high-quality resilient investments than it is to try to time the market.

I've invested in individual stocks for the last 30 years and have NEVER taken action because of a pandemic (and I never will). I plan ahead and build a cash position when times are good. I also buy companies that I'm comfortable holding through such market disruptions. The only actions I take that are even related to Coronavirus is to step in and buy companies that look too cheap. My portfolio (which includes my cash balances) is up almost 20% from the beginning of the year and 70% in the previous 12 months. And I'm still in around 45% cash in case the market takes another dip in the next several months.

 

[Dale W]

I manage my own finances, and am not a market timer.

However, I keep kicking myself for not seeing/anticipating how this virus would impact the markets once it hit the U.S., and doing some defensive measures.

Did anyone's financial advisor give early warning before the market went crazy?

I know it's little comfort, but if they didn't see it coming either, my backside won't be as sore!

Hi

Just signed up and seriously thinking of leaving [ mod edit ] California and moving to FL. I am a retired financial Advisor 4 years ago. I did make over 10% from July 2019 thru March 2020. I should of made more if I seperated my emotions from ontological thinking

Cheers

 

[2177V]

You got lucky

Hahaha....That is what losers tell winners after a sporting event.

Winners get to brag and rightfully so. Some losers attempt to rationalize what had happened....without learning a thing.

That is my main point. In the past, I was a passive investor and I went through many bear markets just like most passive investors. In my case, I decided to learn how to avoid future bear markets by studying the business cycle, the leading economic indicators, how treasuries perform in a bear market, why an inverted yield curve is a good predictor of a recession, etc, etc. It takes a lot of confidence and research for me to reallocate from a 60/40 portfolio to 100% treasuries after the yield curve inverted in 2019. The fact that treasuries was making a good return in 2019 made this decision fairly easy. All of my hard work studying this subject finally paid off. Some people can call it "luck" if they want but I really do not care.

The result: VUSUX has returned 31.96% in the last 12 months and 20.96% for the 1st quarter 2020 according to the following link.

https://investor.vanguard.com/mutual-funds/profile/performance/vusux/cumulative-returns

I also want to thank all the private messages that I have been receiving asking me specific questions regarding treasuries.

 

[OldShooter]

Hahaha... Some people can call it "luck" if they want but I really do not care. ...

Got it. From a sample set of one you have concluded that you are a genius. Please keep us posted on future genius ideas.