I'm getting spooked about the markets

[youbet]

Sorry, logical leaps not allowed. "Cut back" is not equal to "cut out."

If we were "cutting back" we might dine out at less expensive places, plan less expensive trips, etc. For example, we've been to Africa a half-dozen times but probably only taken three or four road trips in the US. So we might plan a (very rare) year where we didn't use our passports but took our usual two trips. That could easily cut back our travel costs by $10-20K.

I understand you're speaking tongue in cheek..... but, it's all relative.

For example, instead of cutting back on international travel, why not just cut back your tipping percentage by one percent, order one fewer cocktail or glass of wine while dining at your usual high tier restaurants, etc. ? Perhaps if you live on a $10 million estate, you could sell and cut back to a $5 million estate (defining the lifestyle differences between the two places as "discretionary")?

Budgets with more modest discretionary spending plans would likely come closer to "cutting out" than "cutting back" to compensate for a significant reduction in income. There's a continuum between reducing and eliminating.

It's all relative.

 

[copyright1997reloaded]

I changed my allocation to that of a person 30 years my senior back when the CAPE ratio hit the rock breaks scissors trigger. So I have missed out on a few years of gains. Sigh. But I'm not changing my allocation until it hits the bottom trigger. Hopefully I won't need to wait 30 years! WAIT a minute! I just wished for a huge drop in equity pricing. I'm not sure I really want THAT!

So have you figured out how much you've lost out on because of that decision?

 

[haha]

So have you figured out how much you've lost out on because of that decision?

This statement explains why no matter what happens, when stocks finally go down almost every conventional equity investor will lose plenty.

Market sensitive investing requires that one admits that upside, if it occurs, will usually be missed in trying to avoid abrupt and meaningful downside. This is reality. To expect something different is a pure fantasy.

Ha

 

[sengsational]

So have you figured out how much you've lost out on because of that decision?

Nope. But the fat lady hasn't sung either. I might not live long enough to get to the point where I can run the numbers because at the next buy signal, that will make only 5 round trips since 1880. The average time of active sell signal is 73 months. Since October of 2015, it's been 34 months. The longest sell was over 10 years in August 1998. Shortest was November 1929 at 34 months. 77 months in 1901 and 54 months in 1966. The scheme might suffer from being "over fit", I realize that. But if it does hold, it will beat buy and hold by getting a return 1.7% higher than buy and hold.

 

[ER Eddie]

I've got a friend who has told me that the market is about to crash for the past two years. He hasn't been right yet, but of course he will be eventually. It always does crash, but the trick is to ride it out. In another few years, it always rebounds. Granted, some people are in a position where they have to rely entirely on investments and can't cut expenses, and they will get hurt. That's not me, though.

Otoh, I've never been through a significant crash, so maybe I'm just whistling past the graveyard. I don't know what it's like to suddenly lose half your net worth (or to feel as if you have). Maybe when it happens I'll run around like my hair is on fire. Hope not.

 

[OldShooter]

... Otoh, I've never been through a significant crash, so maybe I'm just whistling past the graveyard. I don't know what it's like to suddenly lose half your net worth (or to feel as if you have). Maybe when it happens I'll run around like my hair is on fire. Hope not.

The first one is the critical one. If you can stay in your seat for that, subsequent ones are easy.

"“Like all of life’s rich emotional experiences, the full flavor of losing important money cannot be conveyed by literature. You cannot convey to an inexperienced girl what it is truly like to be a wife and mother. There are certain things that cannot be adequately explained to a virgin by words or pictures.”

-- from "Where Are the Customers' Yachts" by Fred Schwed.

 

[audreyh1]

Nope. But the fat lady hasn't sung either. I might not live long enough to get to the point where I can run the numbers because at the next buy signal, that will make only 5 round trips since 1880. The average time of active sell signal is 73 months. Since October of 2015, it's been 34 months. The longest sell was over 10 years in August 1998. Shortest was November 1929 at 34 months. 77 months in 1901 and 54 months in 1966. The scheme might suffer from being "over fit", I realize that. But if it does hold, it will beat buy and hold by getting a return 1.7% higher than buy and hold.

Longest sell was 10 years in 1998? Well I guess you missed both 2000-2002 AND 2008/9. I guess there was never a buy signal 2002-2007?

 

[cyber888]

With great company earnings like CAT and Apple, Dow 30,000 is not far away. With AI and cuts in corporate taxes, The bull market is not over yet.

 

[Golden sunsets]

I've got a friend who has told me that the market is about to crash for the past two years. He hasn't been right yet, but of course he will be eventually. It always does crash, but the trick is to ride it out. In another few years, it always rebounds. Granted, some people are in a position where they have to rely entirely on investments and can't cut expenses, and they will get hurt. That's not me, though.

Otoh, I've never been through a significant crash, so maybe I'm just whistling past the graveyard. I don't know what it's like to suddenly lose half your net worth (or to feel as if you have). Maybe when it happens I'll run around like my hair is on fire. Hope not.

I'd consider the 2007-2009 recession a significant event!


Sent from my iPad using Early Retirement Forum

 

[ER Eddie]

I'd consider the 2007-2009 recession a significant event!

I would, too. Fortunately, though, I got heavily into the market in 2012, so I missed out on that wonderful little collapse. I'm probably spoiled at this point, having seen nothing but year after year of growth, and it's just getting better.

But what goes up, must come down...

 

[ESRwannabe]

If you lived through 2008 crash then you should know there is no reason to worry about it.

The central banks will bail us out of whatever mess happens. Its all fiat money anyway. So its not like they can run out of it.

If there is a big crash the proper response is to take out as much leverage as possible and buy the dip.

 

[sengsational]

Longest sell was 10 years in 1998? Well I guess you missed both 2000-2002 AND 2008/9. I guess there was never a buy signal 2002-2007?

Sorry for the poor quality of the image, but this is out of "rock breaks scissors" and shows what the (very likely over-fit) model results in.

 

[copyright1997reloaded]

This statement explains why no matter what happens, when stocks finally go down almost every conventional equity investor will lose plenty.

Market sensitive investing requires that one admits that upside, if it occurs, will usually be missed in trying to avoid abrupt and meaningful downside. This is reality. To expect something different is a pure fantasy.

Ha

Absolutely. That is why I have almost 18% of my assets in cash & Equivalents (High yield savings, stable value, iBonds, CD's). I fully realize potential upside that has been, is, and will likely be lost due to a high cash position.

My point (which I'm not sure you were agreeing with or disagreeing with) is that there is a cost associated with getting spooked out of a rising market a long time before it peaks.

FWIW, my strategy is that:
Pension income + large short term fixed position + current J*B income (retired but went back to work teaching comp sci full time) + eventual social security income = let the rest of my assets stay fully invested *and* bet some of it on longer term secular trends. I do buy and sell, but it is somewhat on the margin in terms of my overall investment $.

I keep seeing some of the same themes in posts. There are those who are afraid of losing what they have, so they go mostly or all fixed - not realizing that the inflation devil (which has been kept somewhat away) - can destroy the buying power of their fixed income portfolio in a relatively short time. They see the risk in equities, but don't see the other types of risk.

On the other hand, when equities are going up, it is easy to talk staying the course, asset allocations, and being in it for the long term. The reality is that these are good times - and if we see 2008/9 again (where I had minus 100K plus days) or 1987 (when I lost over a years salary in four hours), or even worse the stagflation of the 70's - only then will their staying power in terms of investing be tested.

Not that anyone cares, but I don't fall in the all or none camp when it comes to investment decisions. That is, there is no reason why one has to sell everything or buy everything one day because they get a 'feeling'. If one has too much invested, take a little off the table. In month, if you still feel exposed, sell some more. If you think a bottom is in, buy some. Wait a while, and buy some more.

 

[copyright1997reloaded]

If you lived through 2008 crash then you should know there is no reason to worry about it.

The central banks will bail us out of whatever mess happens. Its all fiat money anyway. So its not like they can run out of it.

If there is a big crash the proper response is to take out as much leverage as possible and buy the dip.

Yep. While the video was crass, there is some (a lot) of truth in it.

The FED and others will do whatever it takes(Tm) to prevent another 1930's cycle. To me, that means the eventual exposure is on the inflation side. So, Mr Smart pants (me), why hasn't that already happened?
1) the 2008 housing bubble burst and resulting credit panic was inherently deflationary. We went from worrying about "return on capital" to "return of captial".
2) Disintermediation. The Internet has ushered in wave after wave of disintermediation of various industries. Remember $100 commissions? I do. Institutions like Amazon, Netflix and many others have revolutionized retail and other industries, and this has been deflationary.
These have helped to offset the greatly expanded money supply.

Perhaps it will remain this way for a long time. Perhaps not. All I am betting on is that the powerful people would rather err on the side of inflation than have a 30's style deflationary repeat.

 

[OldShooter]

... Disintermediation. ...

I love that word. Understanding it is key to understanding many things that are happening and is even useful in predicting some.

Realtors, insurance agents, newspapers and magazines, even clerical workers in places like auto license bureaus, ... All disintermediated and scrambling to somehow retain some value-added.

Tesla is even trying to disintermediate car dealers. That will be an interesting fight to watch as it is played out in state legislatures.

 

[COcheesehead]

Yep. While the video was crass, there is some (a lot) of truth in it.

The FED and others will do whatever it takes(Tm) to prevent another 1930's cycle. To me, that means the eventual exposure is on the inflation side. So, Mr Smart pants (me), why hasn't that already happened?
1) the 2008 housing bubble burst and resulting credit panic was inherently deflationary. We went from worrying about "return on capital" to "return of captial".
2) Disintermediation. The Internet has ushered in wave after wave of disintermediation of various industries. Remember $100 commissions? I do. Institutions like Amazon, Netflix and many others have revolutionized retail and other industries, and this has been deflationary.
These have helped to offset the greatly expanded money supply.

Perhaps it will remain this way for a long time. Perhaps not. All I am betting on is that the powerful people would rather err on the side of inflation than have a 30's style deflationary repeat.

Personally the only inflation I’ve seen are property taxes, gas and auto. I’ve had price drops in food, cable, cell, travel, investing and clothes. The internet is a discounting mechanism.

 

[copyright1997reloaded]

Personally the only inflation I’ve seen are property taxes, gas and auto. I’ve had price drops in food, cable, cell, travel, investing and clothes. The internet is a discounting mechanism.

Yes, inflation has been re-markedly tame. In the 2008/09 crisis, I thought we would see a "Ka-boom" effect. What I mean by that is first a sharp deflationary draw in followed by a large wave of inflation caused by all of the increased (easy) money. I have been wrong, but fortunately still had sector investments which have led the economy higher (e.g. technology, medical devices).

So why hasn't all of that increased money sloshing through the financial system caused inflation? Well, partially because of the disintermediation trend that I mentioned (i.e. the internet is a discounting mechanism). Perhaps also because the velocity of money (turnover) has fallen dramatically:
https://fred.stlouisfed.org/series/M2V

Inflation can be thought of as too much money chasing too few goods. But if that money isn't chasing goods (i.e. it is not being used to buy things but is rather saved), then inflation is lessened.

Here's my dilemma: At its core, savings represent deferred spending. A person saves (or invests) and by doing so consumes less now so that they (or whomever they give the money to) can consume more later. So eventually the money will be used and perhaps money velocity increased and will "chase" goods and services.

Maybe the decline in money velocity is a combination of the baby boomer bulge along with some good old fashioned knowledge taught by the 2008/09 mega recession of having something put away for a rainy day. I would love to hear others thoughts on this.

 

[mrWinter]

I'm scared of an impending crash too. But I think I'm more scared of getting out of the market and missing out on growth. If things crash, I can wait them out and ride it back up and regain what was lost. If I get out, there is no regaining those lost years of growth. I'm in accumulation mode though, so it should be easier for me to throw my hands up and ride the roller coaster.

 

[Totoro]

The FED and others will do whatever it takes(Tm) to prevent another 1930's cycle.

Will I do agree with the intent of that statement, the assumption is that 1) there is something that can be done and 2) that competent people are in charge.

Neither have a solid history of being true.

 

[sengsational]

I'm not scared of missing out on growth unless inflation outpaces my stable value return. I'm very happy with the growth I've locked-in, and the SVF has been keeping a bit above inflation, so the fact that "the Joneses" are currently ahead of me isn't a problem. I know that by owning equities at such a high PE, they are taking more risk than they are getting paid for.

 

[USGrant1962]

Well, this article is certainly a contrarian indicator: https://www.cnbc.com/2018/08/14/pro...on-on-us-stocks-in-3-years-amid-peak-pro.html

 

[EvrClrx311]

The market has been fairly flat for the last 6 months or so... if anything, this is eating into any potential drop that may be coming. Doesn't always take drops to accomplish regression to more normal ranges - in fact, a flat market is a self correcting one too - we just don't look at it that way, because it stings less - but it's more a methodical slow regression. That is, 6 months equates to an expected (long term average) rise of about 5% in equities, yet despite the economic numbers we haven't see the market continuing to rise.

So if you're worried about a 40% drop... now you only have to worry about it being 35% (on average)

Glass half full...

Rest assured in the long run the market will do like the ocean does, no matter what obstetricals we place in it's way... continue to rise slowly... until the whole thing unravels and we reach another ice age, which will likely be many generations from now both in a figurative and literal sense.

The real point here, between the subtle sarcasm... is that emotions are what mess us up. If you have a solid investment plan, it doesn't matter much what you "feel" about the market. The feeling only messes you up if you react. So find a place where you can stay the course. In the long run, as a general rule, that is how you end up doing the best.

 

[OldShooter]

...

Rest assured in the long run the market will do like the ocean does, no matter what obstetricals we place in it's way... continue to rise slowly... until the whole thing unravels and we reach another ice age, which will likely be many generations from now both in a figurative and literal sense.

The real point here, between the subtle sarcasm... is that emotions are what mess us up. If you have a solid investment plan, it doesn't matter much what you "feel" about the market. The feeling only messes you up if you react. So find a place where you can stay the course. In the long run, as a general rule, that is how you end up doing the best.

Well said. I watch the markets every day, kind of like I watch the TV sets in a bar/restaurant while I'm waiting for food. Random stuff; soccer, tennis, baseball, ... without really knowing or caring who is playing or who is winning. We seriously look at our portfolio once a year, between Christmas and New Year and we make any adjustments during the following two weeks. Probably two out of three years there are no adjustments. This year I think we'll continue simplifying the portfolio, selling a combination of total US and total international funds and putting the proceeds into VTWSX, total world. But that decision is a few months away.

I teach an adult ed investing course. The punch line after six hours of classes is this: "Investing is boring. If you're not bored, you are not doing it right."

 

[mpeirce]

The market has been fairly flat for the last 6 months or so

I don't know. The S&P 500 index is up around 5.5% YTD that's not too shabby.

The DJI (is that what you are referring to as "the market"?) isn't up as much, but it's not a particularly good index to follow. Sadly it's what is most widely reported - it just has better PR that the broader indexes.

 

[MRG]

http://www.philly.com/philly/blogs/inq-phillydeals/vanguard-recession-malvern-20180814.html

Vanguard Group, the Malvern investment giant, says the chances of a recession are between 30 percent and 40 percent by 2020.