Did anyone's financial advisor see this coming?

[2177V]

FYI, the 1st quarterly performances are now coming out.....

VUSUX or LT treasuries 1st quarter performance: +20.86%
VFIAX or S&P500 equities 1st quarter performance: -19.61%

This is what I had expected when I reallocated from a 60%/40% portfolio to 100% treasuries bonds after the yield curve inverted in 2019. The back and forth discussion about back testing and other investing strategies are very amusing to me since I have my own simple system: Avoid the bear market like the plague....or like the corona virus. I used the inverted yield curve and Jeffrey Gundlach's recommendation to put my portfolio in "a capital preservation mode" as my reason to reallocate and I lucked out.

Since I succeeded in my original strategy in avoiding the bear market, I have a prediction: We will test the lows in the 2nd quarter and the beginning of the 3rd quarter.

Here is my rationale: I tend disregard daily or weekly volatility but I do pay attention to quarterly trends mainly because most financial statements are published quarterly just like VUSUX and VFIAX above.

Corporate earnings for the 1st quarter are now coming out which are slightly negative but the virus hit 1st mid-quarter. When the 2nd quarter comes out, the corporate earnings will reflect the full effect of the virus. It will not be pretty. Add the record breaking unemployment to the negative earnings and potential bankrupcies of weaker companies, I do not see any reason to be bullish. I was bearish in 2019 and I am still bearish. The government $2T stimulus and other government programs will not put 100% of the millions of unemployed people back to work, it will not avoid bankrupcies and it will not make the virus disappear overnight.

IMO, only time will solve some of the problems our nation is facing.

[Ready]

I’ve owned the same index funds for many years now. I’m a buy and hold investor. Even with the recent drop my funds are still up quite a bit relative to the original purchase price. I I were to sell now I would incur substantial capital gains taxes on the sale while selling at a price that is quite a bit lower than the February high point in the market.

So if I wanted to play the market timing game and get out now, I would end up getting hit with a big tax bill and then be forced to sit out on of the market and hope I can figure out when the right time to get back in is.

It just seems like a foolish thing to pursue. A few people may get lucky and get it right. But nobody has a crystal ball here and most people who play this game will get it wrong and lose a lot of money.

[ERD50]

Quote:

Originally Posted by vchan2177 .... Corporate earnings for the 1st quarter are now coming out which are slightly negative but the virus hit 1st mid-quarter. When the 2nd quarter comes out, the corporate earnings will reflect the full effect of the virus. It will not be pretty. Add the record breaking unemployment to the negative earnings and potential bankrupcies of weaker companies, I do not see any reason to be bullish. ....

And every serious investor also knows every bit of this. Who in their right mind would not expect the earnings reports to be bad year over year?

Those serious investors aren't going "Oh, my!" and deciding to watch their stocks sink more, they have already made their moves based on all these expectations.

And the non-serious investors? Well, they are unpredictable, so good luck with that.

These sorts of comments remind me of many years ago, listening to Bob Brinker's radio show. He'd talk about the 'sharks' trying to get you to trade heating oil futures in the fall, because.... (wait for it) people will be using more heating oil in the winter! DOH! It's already factored in, no surprise, no trading opportunity.

-ERD50

[2177V]

Quote:

Originally Posted by ERD50 And every serious investor also knows every bit of this. Who in their right mind would not expect the earnings reports to be bad year over year? Those serious investors aren't going "Oh, my!" and deciding to watch their stocks sink more, they have already made their moves based on all these expectations. And the non-serious investors? Well, they are unpredictable, so good luck with that. These sorts of comments remind me of many years ago, listening to Bob Brinker's radio show. He'd talk about the 'sharks' trying to get you to trade heating oil futures in the fall, because.... (wait for it) people will be using more heating oil in the winter! DOH! It's already factored in, no surprise, no trading opportunity. -ERD50

Does not matter. Winners win. Losers lose. My portfolio is now up about 15% YTD 2020 because I went into treasuries in 2019. I expect my portfolio will be up about 30% during this bear market after I buy equities to restore my 60/40 portfolios.

I really do not understand passive investors. Here is the timeline:
Jan 23- Wuhan shutdown
Mar 5 - Five states reported their 1st COVID19 cases
Mar 6 - ten states reported their 1st COVID19 cases
Mar 7 - four states reported their 1st COVID19 cases
Mar 9 - Stock Market crashed.

In other words, there were ample time to go into a capital preservation portfolio but passive investors ignored these trends. Especially people with IRA where there is no tax consequences in exchanging asset classes within their IRA.

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?

[harley]

Quote:

Originally Posted by vchan2177 Does not matter. Winners win. Losers lose. My portfolio is now up about 15% YTD 2020 because I went into treasuries in 2019. I expect my portfolio will be up about 30% during this bear market after I buy equities to restore my 60/40 portfolios.

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?

This is exactly the situation I was in back in 2010. I had missed the drop through luck/market timing. I was tempted to buy back in in 2011, but the market dropped again a bit and I was afraid it was going to again, since everything was still a mess, between foreclosures and Quantative Easing and all. So by the time I finally bought back in in I had already missed a 100% increase. In the long run I broke about even. 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.

[ERD50]

Quote:

Originally Posted by vchan2177 Does not matter. Winners win. Losers lose. ... I really do not understand passive investors. .... but passive investors ignored these trends. ...

Quote:

Originally Posted by harley 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]

Quote:

Originally Posted by vchan2177 ... Winners win. Losers lose. My portfolio is now up about 15% YTD 2020 because ...

You got lucky.

Quote:

Originally Posted by vchan2177 ... 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]

Quote:

Originally Posted by harley 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]

Quote:

Originally Posted by vchan2177 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]

Quote:

Originally Posted by vchan2177 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]

Quote:

Originally Posted by Dtail 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...lative-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-t...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]

Quote:

Originally Posted by vchan2177 Excellent question. You need to click the following link: https://investor.vanguard.com/mutual...lative-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-t...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]

Quote:

Originally Posted by Dtail 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...folio-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]

Quote:

Originally Posted by vchan2177 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]

Quote:

Originally Posted by vchan2177 ... I am just glad that I am DIFFERENT.

You can accurately predict the future?

[gauss]

Quote:

Originally Posted by OldShooter 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]

Quote:

Originally Posted by gauss +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]

Quote:

Originally Posted by devans0 ... 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.