October 10th Market Plunge

[copyright1997reloaded]

Quote:

Originally Posted by Free bird If anyone has an opinion on a bottom sing out.

Some number > 0 on the SP 500?

We have had some serious technical (psychological) damage. We need to find a bottom, rally off of it .... and test it again successfully. We have not seen that yet.

As I type this, overseas (far east) markets are down 2-4%. yet the sp 500 futures are up 0.3%. That is a bad thing. We need a whoosh down on an opening on heavy volume (or overseas), followed by a recovery. Some time after that (not right away, time is needed to heal), we need a retest of the lows...which can slightly break the low but needs to be on lower volume with a move up. These things need to happen (in my opinion), otherwise it is just more people trying to catch a falling knife and we will continue to see continued down.

I've been nibbling here and there, but nothing serious. In addition, I've sold some weaker players so I have more cash to buy companies I would rather own. Now is the time to build a list of stocks you have wanted to own, but haven't because they were too expensive. Look for financially strong companies who are taking share and who have secular trends in their favor. In good markets, lots of things go up. In a wash out, the strong get stronger.

There is an old saying, "Don't cut the flowers and keep the weeds". In brutal days like today, everything get hammered, and this starts to present opportunities to move from weak players to companies with stronger fundamentals.

Look for companies that have relative strength in the downturn. These are the potential winners when the turn comes, but also be aware that people sometimes sell things where they can get money - which means that even the good ones get sold (in violation of my flowers vs weeds analogy above). Sometimes they get hammered towards the END of the downdraft.

Good luck. Alternatively, sell everything and invest in CD's

[VanWinkle]

Quote:

Originally Posted by audreyh1 This selloff plus the Jan-Feb one looks like a double top (as opposed to the double bottoms we often see at the bear market bottoms).

The human brain always wants to see a pattern, but markets don't follow a pattern it seems. My crystal ball is very foggy, but clear enough to show that "nobody knows nuthin".

I sold more foreign in the taxable today for a little more harvesting on losses.

Bought another foreign fund though, so not giving up on International.

[NW-Bound]

Quote:

Originally Posted by Archman I bet NO.

Quote:

Originally Posted by njhowie It may very well. I believe that the same technical factors which led the index funds to drive the markets higher as a result of their blind across the board buying, can do exactly the same on the way down. It may have already begun. If we see weekly net outflows from the index funds, then watch out - it could be brutal.

Forecasting is tough, but I will venture a guess.

That is, the market will not set a new high any time soon, meaning in the next 5 years. But I don't think that it will keep on sliding down to a bear market of 20% down straight from here.

Rather, it will go up/down, but is more likely to make 20% down before it climbs back above the recent high of 2926 set just 3 weeks ago. Will it take 1 week, or 6 months before it gets to that 20% bear market? I don't know.

What will I do? I will play the bounces, according to my belief that they will be short-term. I will continue to look to write covered calls, and not selling the shares outright. I will not be selling everything to go to cash. Never did, never will. But I may be able to talk myself into a stock AA of less than 70%, as I have planned to do for almost a year now.

[DeborahB]

Quote:

Originally Posted by NW-Bound Well, we have not had a real bear market yet, which is defined as a 20% decline. Could this current drop develop into one? Yes, or no? Place your bet now, heh heh heh...

No, or not likely going down 20% from where we are now.

[Lsbcal]

Looking back from today on SP500 + dividends:

October return = -8.8%
3 month return = -5% (Aug to now)
12 month return = +5%
24 month return = +30%

Makes me a bit worried that I'm so calm.

[DeborahB]

The worst story I ever heard, was at a dumb financial seminar. A woman sitting at my table had gotten scared when the market went down, sold her entire 401k for cash, and removed it from the 401k, paying a huge penalty. I think she was 55. No one had told her that she could leave it in the IRA/401(k) as cash, with no penalty.

[RobbieB]

She must be really stupid. After all she was at a dumb financial seminar.

[NW-Bound]

I have told this story before, but it is worth repeating.

In the early 90s, a fellow engineer was so convinced that the market and economy would crash and hyperinflation would ensue, and he wanted to buy gold. There was no gold ETF then, else he could withdraw the 401k out to an IRA to buy gold ETF. So, he had to cash out his 401k, then used the cash to buy physical gold to keep in a safe at home.

Needless to say, the tax penalty was huge. And to rub salt into his injury, gold crashed, while the stock market soared. Aye, aye, aye...

[DeborahB]

Quote:

Originally Posted by RobbieB She must be really stupid. After all she was at a dumb financial seminar.

Well, for me, the seminar was a very simplistic one. I felt bad for the woman, who desperately needed help and didn’t get it. A lot of people do not understand investing or finance but put money into a 401(k). She wasn’t the brightest woman I’ve ever met, but mostly she didn’t have any background in finance.

[samclem]

Quote:

Originally Posted by Lsbcal Looking back from today on SP500 + dividends: October return = -8.8% 3 month return = -5% (Aug to now) 12 month return = +5% 24 month return = +30% Makes me a bit worried that I'm so calm.

So the S&P, with dividends, is still up 30% over the last 24 months? That sounds great.

[Free bird]

You can really understand why corporations wanted out of the pension game. Investing takes a certain skill set & personality type to be sucessfull. I think being a sociopath might be helpful. No emotional mistakes.

[NW-Bound]

OK. I remember now the book that scared my fellow engineer into liquidating his 401k to buy gold.

He lent me the book, and I read it while on a Hawaiian vacation. Don't remember what the book said, but I was skeptical and did not touch my 401k.

[NW-Bound]

Quote:

Originally Posted by samclem So the S&P, with dividends, is still up 30% over the last 24 months? That sounds great.

Too great in fact.

And that's why it will have to give up some of that exuberance.

PS. Bogle hinted that much just recently. Heh heh heh...

[gcgang]

It kind of annoys me when I lose more in a day than I used to make in a year, a pretty good year at that. But, that's the game we're playing now.

[Free bird]

Jack Bogle might be proven right after all. Mid single digit returns were his expectations after the bank mess.

[samclem]

Quote:

Originally Posted by NW-Bound Quote: So the S&P, with dividends, is still up 30% over the last 24 months? That sounds great. Too great in fact. And that's why it will have to give up some of that exuberance. PS. Bogle hinted that much just recently. Heh heh heh...

So true. The Shiller PE10 is at 29.97 today, from about 33 at the high a few weeks ago. In 2009 it got as low as about 15, and the historic mean (1870 to today) is 16.6 .

[revhappy]

Quote:

Originally Posted by gcgang It kind of annoys me when I lose more in a day than I used to make in a year, a pretty good year at that. But, that's the game we're playing now.

By 'make in a year' you mean market returns or your income from your job?

[gcgang]

Quote:

Originally Posted by revhappy By 'make in a year' you mean market returns or your income from your job?

My income from my job. A decent bear market, there goes 20 years of earnings. I know, kind of a sick way to look at it.

[njhowie]

Quote:

Originally Posted by gcgang My income from my job. A decent bear market, there goes 20 years of earnings. I know, kind of a sick way to look at it.

It may be a sick way of looking at it, but it is a good way. Only by understanding it in those terms can you appreciate the level of risk being taken. Are you willing to risk 20 years of earnings with a high equity AA?

Maybe some are ok with that. Maybe you have accumulated 100 years of earnings and losing 20 is no big deal. However, my belief is that for the overwhelming majority, losing 20 years worth of earnings would be quite devastating.

[HadEnuff]

Quote:

Originally Posted by njhowie It may be a sick way of looking at it, but it is a good way. Only by understanding it in those terms can you appreciate the level of risk being taken. Are you willing to risk 20 years of earnings with a high equity AA? Maybe some are ok with that. Maybe you have accumulated 100 years of earnings and losing 20 is no big deal. However, my belief is that for the overwhelming majority, losing 20 years worth of earnings would be quite devastating.

agree. In fact that kind of thinking is why I changed my AA as I did back in February. I can withstand a 20% drop in my total nut, and really not effect my lifestyle. a 40% drop? that would have an effect on my spending.

But, to reiterate, I'm 65. I don't need a 40 year projection, and I am not in an accumulating mode. If I had 10- 15 years left to work, I wouldn't be sweating a correction, I'd be welcoming it.