Is the next downturn coming soon...?

[JoshTrent]

This article lays out an interesting indicator that WB supposedly uses..

https://www.msn.com/en-us/money/markets/warren-buffetts-favorite-market-indicator-hits-205percent-signaling-stocks-are-way-too-expensive-and-a-crash-may-be-coming/ar-AANLNCp?li=BBnb7Kz

A basic valuation of the entire market calculated:
Wilshire 5000 Total Market / GDP

Currently this stands at roughly 205% ($46.69T / $22.72T) - as of 2Q21 GDP

The article notes that for both the dot com bubble (late 1990s) and the 2007/2008 crisis, this indicator remained under 150%.

The article does acknowledge there are Companies whose valuation is based domestically, but don't contribute 100% of their income to the GDP.

I respect those who hold their AA through these downturns. However, I pose the following questions to those who take a more active approach..

- Are you preparing for a "crash" in the near future?
- If so, how?

I have found myself of late, trimming some earnings off Index Funds (in my tIRA & Roth) in very small increments to cash on a bi-weekly basis. I think it's the "the NASDAQ hits a new record" that gets me thinking..

 

[corn18]

1. No
2. NA

You have been a member since 2011. Have you been trimming some earnings off index funds every time the Nasdaq has hit a record high since 2011? I have in the form of rebalancing back to my AA. I have done a lot of equity trimming in the past 10 years.

 

[38Chevy454]

There are always talking heads/articles that predict doom. One of these days one of them will be right. Until then their track record is pretty inaccurate.
Answer to your question is no, not doing anything different today than I was yesterday, or one month ago, or 6 months ago. Or plan to do any anything different for foreseeable future.

 

[Jerry1]

Yes, I prepared for a crash when I selected my asset allocation. It’s very conservative and has been since the crash at the beginning of the pandemic. Yes, it’s true that I didn’t participate as robustly as I would have liked in the significant increase since then, but that last downturn taught me a very important lesson. If you’re not willing to lose it, don’t risk it. I’m currently at 30% equities and if there’s another down turn, I will do nothing other than rebalance if it lasts long enough.

I know I can live on the 70% non-equities and while nothing is 100% safe, if those investments go down, we’ll all be in for a nasty ride.

 

[braumeister]

The next downturn is probably coming soon.
But my definition of soon is likely not someone else's.

I have no idea, actually, and neither does anyone else (except the lucky few who figure it out by accident). So most of us simply rebalance as we feel proper and let the macroeconomics work themselves out.

 

[yakers]

I keep an eye on how much cash I have available so I can buy on a major decline, didn't sell anything last time but took very little advantage of the buying opportunity. Market will decline sometime, I cannot time it but may be able to take advantage a bit even if only rebalancing.

 

[Montecfo]

Comparing public equities to GDP makes little sense IMHO, for variety of reasons.

Instead, equity valuations are best understood relative to interest rates, the single most important driver of equity values.

Am I ready for a "crash"? Always. I stand ready to buy more equities as I did last year.

But I do not "worry" about a crash. Worry is completely unproductive and shortens your life.

Instead I prepare myself. And the most of important part is to be mentally ready to buy stocks when they are falling and worry is rampant.

In my view the money is made in down markets, when everyone wants to sell. That's when I buy.

 

[RobbieB]

I sell in January to fund the years expenses and collect dividends all year long.

 

[Midpack]

I think it's the "the NASDAQ hits a new record" that gets me thinking..

Really? All the indexes have “hit new records” countless times over their history, and hopefully they’ll continue to do so, with lesser downturns between various new highs. Would you be more comfortable if the NASDAQ or other indexes never hit a new record again? Or playing the market timing game?

 

[ExFlyBoy5]

Yes. There was a downturn today. There might be another tomorrow. Or not. Marketwatch.com should have it covered.

 

[W2R]

- Are you preparing for a "crash" in the near future?
- If so, how?

I just never spend every last cent of income. You know how it is, before retirement you have to put away some for retirement, for the next car, and so on. It's still like that for me after retirement. My nest egg has grown and grown, and that gives it a little room to shrink once again if there is a crash.

 

[Aerides]

Are you preparing for a "crash" in the near future?
- If so, how?

No, but I am always prepared for a long period where I want to leave equities alone to avoid selling on a downturn. So, bull or bear, I have always kept about 3 years of expenses in cash.

Then I don't have to listen to noise and pundits.

 

[Major Tom]

Really? All the indexes have “hit new records” countless times over their history, and hopefully they’ll continue to do so, with lesser downturns between various new highs. Would you be more comfortable if the NASDAQ or other indexes never hit a new record again? Or playing the market timing game?

Absolutely. If you look at any bull market run, there are many, many days on which the indices hit new highs. In fact, there are more days on which they hit new highs than new lows. The overall trend is up. It can be a bit difficult to remember that during a lengthy downturn, but that's why we have friends, family, and hobbies

 

[MC Rider]

Market like skyrocket in flight.
Fuse lit. Thump! Then soaring into the sky on a thin column of smoke.

Ooh Aah!



You can guess what comes next.

OK, I hope it does not go that bad this time. It's coming.

 

[NW-Bound]

...
Instead I prepare myself. And the most of important part is to be mentally ready to buy stocks when they are falling and worry is rampant.

In my view the money is made in down markets, when everyone wants to sell. That's when I buy.

Sure. That's why I want to lower my stock AA and raise more cash, so that I have something to buy stock with.

But being a stock lover, I have found it difficult to sell.

 

[Markola]

The indicator I prefer is the bond booms that happened during the two stock crashes that the OP referenced. That’s why our allocation is 50/50 with very little cash.

 

[Montecfo]

Sure. That's why I want to lower my stock AA and raise more cash, so that I have something to buy stock with.

But being a stock lover, I have found it difficult to sell.

Fair enough. But I was making a different point: buy into market declines by deploying your cash, bonds or other safe type investments AFTER equities drop.

I wasn't suggesting to sell in anticipation of a decline for the simple reason there is no way to know the timing of declines. You will leave more money on the table trying to anticipate them than you can make back when stocks finally do drop.

 

[JoshTrent]

Fair enough. But I was making a different point: buy into market declines by deploying your cash, bonds or other safe type investments AFTER equities drop.

I wasn't suggesting to sell in anticipation of a decline for the simple reason there is no way to know the timing of declines. You will leave more money on the table trying to anticipate them than you can make back when stocks finally do drop.

I too am a fan of Equities, and my AA is very strong (~95%) into that position. I am also mid-40s & accumulating. I agree with buying in a down market, and that is why I asked the questions in the OP.

How do you recoup your cash, bonds, other safe investment positions as the market rises? Cash divi's/interest?

 

[JoshTrent]

1. No
2. NA

You have been a member since 2011. Have you been trimming some earnings off index funds every time the Nasdaq has hit a record high since 2011? I have in the form of rebalancing back to my AA. I have done a lot of equity trimming in the past 10 years.

Ha - Touché!

I respect the set it & forget thinking - which usually incurs an annual rebalance. I've practiced that for 25+ years.

Free time is something I have more of now, and I've found myself more actively involved in my portfolio. I was looking for other('s) philosophies.

 

[target2019]

Ha - Touché!

I respect the set it & forget thinking - which usually incurs an annual rebalance. I've practiced that for 25+ years.

Free time is something I have more of now, and I've found myself more actively involved in my portfolio. I was looking for other('s) philosophies.

For the long run you have the correct strategy. If you have more time then review your asset allocation.

 

[DrRoy]

Since ER 4 1/2 years ago, I have reduced my equity AA from 63% to 58%, but that is due to the degree of increase in the market and now being overfunded, rather than to an expectation of a crash.

 

[Gumby]

I predict that sometime between today and the heat death of the universe, the market will suffer a downturn. Sorry, can't be any more specific than that. Plan accordingly.

 

[Time2]

The indicator I prefer is the bond booms that happened during the two stock crashes that the OP referenced. That’s why our allocation is 50/50 with very little cash.

 

[Montecfo]

I too am a fan of Equities, and my AA is very strong (~95%) into that position. I am also mid-40s & accumulating. I agree with buying in a down market, and that is why I asked the questions in the OP.

How do you recoup your cash, bonds, other safe investment positions as the market rises? Cash divi's/interest?

As an active investor, I sell equities from time to time when I they have reached a price objective or are fully valued. That freed up cash can then be redeployed as needed.

 

[misanman]

Sure. That's why I want to lower my stock AA and raise more cash, so that I have something to buy stock with.

But being a stock lover, I have found it difficult to sell.

+1