Will the "Other Shoe" EVER Drop?

[pb4uski]

WADR, Goldman's history of calling the market is pretty spotty... they have an inherent bias to keep people interested in the market since that is where they butter their bread.

 

[kjpliny]

+1


Yes, I'm expecting a significant stock market drop in the next 1 to 2 years.



I moved from 100% stocks to less than 10% stocks in Feb 2021. I did this because the market reaction just doesn't make sense to me. Looking at the big money investor investment actions (Warren Buffet, Bill Gates, etc.) was part of my decision process.


I've been 100% stocks for +30 years. I've held fast during all the past ups and downs. I've typically kick myself for not anticipating the previous big drops after the fact. I'm retired and have more than enough $ saved for my lifestyle (savings = 40 X last annual salary). So I've decided to just drop out of the market for awhile. My only real concern with my current cash/bond position is losses due to high inflation.

Some people fail to realize that preservation of capital can also be a strategy. If you have won the game, why take the elevated risk?

 

[pb4uski]

I didn't get a good sense of that until last spring when I saw my portfolio dropping like a rock and about to fall below what it was when I retired (admittedly after withdrawing to pay for a condo in cash, a new truck in cash and 8 years of expenses).

I suspect that I will ultimately get back into stocks on a lower scale if the market ever comes to its senses.

 

[Running_Man]

Keeping at least 25% of your assets in stocks has historically been a good minimum level for success. At that level you still have the vast majority of your portfolio to average back into stocks should they fall.

If the rise is being fueled by the increase in money supply and future inflation, then not having money in stocks could be disastorous as the FED is committed to keeping interest rates below inflation in order to try and keep the economy growing, which right now is equal to the size of the economy in 2019 with 50% higher prices.

 

[frayne]

One thing I know for sure is, nobody knows nothing. Right now it looks good for the US economy bouncing back and having a good couple year run, or some covid variant, natural disaster or war could raise its ugly head and derail everything. My advice is to keep enough cash for a ten year window and throw the rest into a total stock market index fund and forget about it. But again, what do I know, nothing.

 

[Closet_Gamer]

Some people fail to realize that preservation of capital can also be a strategy. If you have won the game, why take the elevated risk?

I don't see anything wrong with that...its just another way of saying a super conservative AA.

Where it gets dangerous is if one starts thrashing on their AA, moving in and out of the market, based on perceptions of valuation.

 

[Montecfo]

Out of Steam-

That all makes sense. Thanks for the perspective.

 

[SoReadyToRetire]

Just stay put and hope for the best. If the worst happens and everything collapses we will have lots of company in our misery.

Donheff, when you say "stay put", do you mean stay in cash like I am now?

 

[Lsbcal]

FOMO (fear of missing out) is alive and well. While it exists in stocks we can be more confident that more money will pressure stocks higher.

I personally think that value stocks have a way to go. PE's for value stocks (VBR, VOE, VTV) are just approximately 10% higher then the last 10 years. But this is all about future earnings which we do not know ... yet.

 

[Fermion]

Stocks have reached a permanently high plateau so I wouldn't worry over any big drops.

 

[audreyh1]

Well the last shoe drop was the fastest I’ve ever seen.it was a real crash down >30% in a very short period of time, but the Feds came out throwing everything at it, and there was a massive reversal. I didn’t even have time to finish my tax loss harvesting.

Who knows what it will be like next time.

Whatever. I like to stick to my simple plan.

 

[audreyh1]

Stocks have reached a permanently high plateau so I wouldn't worry over any big drops.

Just like 1929.

 

[Gumby]

Stocks have reached a permanently high plateau so I wouldn't worry over any big drops.

Why, Mr. Fisher. So nice of you to drop by.

 

[MarieIG]

The other shoe will drop - it always does. But - I can't tell you when.

 

[Time2]

Some people fail to realize that preservation of capital can also be a strategy. If you have won the game, why take the elevated risk?

That was one of Bob Brinkers lines,

"Once you have critical mass, don't put it at risk"
Now, why don't I follow that advice?
Someday!

 

[SecondCor521]

Post #47 is very good.

I would add, if you don't have a pre-thought-out plan based on fundamentals, then you're going to have to continuously make decisions.

I have a plan that I've stuck with for 34 years. I only change my plan when I change my goals (hasn't happened yet), my situation changes (divorce or inheritance), or if I understand something fundamentally better (NPV of future SS can be treated as a bond equivalent). I do not change my plan based on the Fed, interest rates, the price of GME, the DJIA level, who the President is, or what any talking head or stock picker says is about to happen.

Many would call me too rigid. I prefer the term consistent. Some will prefer to have a general plan that they tweak around the edges and/or periodically. Yet others like the OP have what might be called a continual planning process. The latter would be too stressful for me because I'd never get a break from the planning process.

 

[Out of Steam]

Stocks have reached a permanently high plateau so I wouldn't worry over any big drops.

 

[Out of Steam]

Out of Steam-

That all makes sense. Thanks for the perspective.

I'm not at all a sophisticated investor, but have been influenced by the "rising equity glidepath" from Michael Kitces that has been discussed here, as well as the idea that taking a market loss right at retirement has a larger impact than it would later.

 

[Closet_Gamer]

Post #47 is very good.

I would add, if you don't have a pre-thought-out plan based on fundamentals, then you're going to have to continuously make decisions.

Thanks.

To your point, I once got to see Warren Buffett speak live. It was really cool.

He said that "there are no called strikes in investing" by which he meant that the risk of making a bad decision generally outweighed the risk of making no decision.

His opinion was that the average investor only needed to make a handful (10 or so) good decisions in their entire life.

People who tried to make lots of decision -- chasing pitches -- would likely underperform.

 

[FREE866]

I think this whole fear of "another shoe dropping" is pretty much always baked into investors psyche. I recall back in March of 2020 with the market down 30%+ comments like "we haven't seen the worst". The proverbial wall of worry is always there.

 

[Montecfo]

I'm not at all a sophisticated investor, but have been influenced by the "rising equity glidepath" from Michael Kitces that has been discussed here, as well as the idea that taking a market loss right at retirement has a larger impact than it would later.

It seems to me that you took a loss though, by selling last May. Your AA should reflect your risk tolerance and temperament.

Many people wished to sell sometime in the past year. I considered it. But instead I held my nose and added to positions in March because I knew that was right to do with the market down.

If you could get a decent return from bonds I would lighten. Instead I am staying the course, for now. I'm at about 70 pct equities.

 

[jollystomper]

Does anyone here still think something "catastrophic" is bound to happen later this year? It just feels like everything is SO high, it's a dumb time to even consider getting back in.
Thanks.

Of course something catastrophic will happen. That is the nature of the market. Of course, one person's catastrophe is another person's opportunity . It is much more l likely to be a "It's just a flesh wound" catastrophe than an "apocalyptic burned out wasteland with hoards of flesh eating zombies roaming the landscape looking for brains to devour for years to come" catastrophe .

A simple test of your tolerance: visualize the market down 50%. or 60%. Calculate the impact on your investments. Determine if that would change your desired lifestyle, or cause stress or loss of sleep. If yes, then don't invest it. If no, go for it.

 

[stephenson]

Some get lucky based on timing, but few seem to be able to do it purposefully.

I have always kept some cash available for investing on dips - never been able to call the big drops, but did over-invest at the bottom a couple of times, like Dec 18, and COVID 20, but it was excruciating to do it. I bought stocks and ETFs.

I screwed up later in 2020 and went cash on about 25% of non taxable accounts, and since then have been easing back in, mainly on specialty ETFs like ARKK ... BUT, to be clear, I should never have sold that 25% to cash.

BTW, I resisted selling when the markets got really hammered a decade earlier ... perhaps because I had no time to overthink it - too busy with life and kids ��?

 

[sengsational]

If your time frame is long enough, returning to the AA you had before panicking-out, all at once, is probably the best approach. By doing it now, you won't have to make any more moves beyond the occasional rebalance. To improve upon this, all of your dollar cost averaging would have to sum up to below today's price. If it zig zags horizontally, you'd be the same as all-in. But historically it zig zags with an upward trend, so would sum to a price above today's price. Of course it's all about what it does during the (unspecified) DCA period. But I think that we're in for another "roaring twenties". Not without bears, but overall, I'm thinking positive.

 

[donheff]

Donheff, when you say "stay put", do you mean stay in cash like I am now?

No, I was talking about staying put at your AA. That would not be all cash for many. But once you are there, hang tight.

I don't have a good solution for when and how to get back in. Psychologically, it will be difficult to take if you go all in and a crash happens shortly thereafter. If I was in your situation I would probably pick an equity allocation somewhat below where I eventually want to be and just buy all in at one time. Staying fairly conservative initially would result in a smaller sticker shock if the market tanks. Any near time growth will feel good even with less than optimal equities. After a while I would then buy more equities to get to my chosen AA.