Poll: Market bottom and recovery time?

[marko]

(hey, just "buy and hold - that'll work out GREAAAAAT!" -

Has worked for me for the past 45 years. YMMV

 

[Out-to-Lunch]

It is not clear to me that the price on the last trading day of 2021 is relevant to your decision now. Stocks don't care what you paid for them. At this point, the decision is whether you think it will drop further or not. If you are really convinced we'll see a 50% drop, then sell now and buy back when we do.

We can tick off "Anchoring." Now how many more boxes on the "Cognitive Bias Bingo Card" can we tick? (Spoiler: quite a few!)


Loss Aversion Bias
Endowment Bias
Affinity Bias
Anchoring and Adjustment Bias
Outcome Bias
Mental Accounting Bias
Snake Bite Effect
Illusion of Control
Availability Bias
Self-Attribution Bias
Recency Bias
Cognitive Dissonance Bias
Self-Control Bias
Confirmation Bias
Hindsight Bias
Representativeness Bias
Overconfidence Bias
Paradox of Choice

 

[Helen]

To me the idea that we're about to see anything near a 50% collapse is unrealistic.

It wasn't that long ago that the Dow hit 10,000. Even after this recent drop it's around 34,000. The run up seems pretty spectacular. A 50% drop would still give a pretty good return since hitting 10k.

 

[24601NoMore]

Has worked for me for the past 45 years. YMMV

And it's worked well for many of us to this point (including me over the last 40 years or so).

However, things have changed. Algorithms now do 80+% of all trading - and they trade largely on TA. Support levels and moving averages become "the" thing driving markets - not earnings. Just look at the last couple of months. Something like 75+% of all S&P500 companies beat earnings - yet we're down ~9-10% YTD, and many of those component companies are down 30, 40 or even 50+%. The only reason the S&P500 is holding where it is (even though many underlying stocks are down 30-50+%) is the FAANG components, which make up 30+% of the index..

Unfortunately, TA whether you believe in it or not becomes a self fulfilling prophesy with so many people watching support levels and other technical indicators. The algos will absolutely increase selling if and when we violate the Jan lows (~4,300) decisively. Worse, we're getting perilously close to a key level at 4,222'ish that's the bottom of the rightmost shoulder on a Head and Shoulders pattern that's developing. People who watch TA (and there are many, with billions of dollars in the market) will very likely accelerate their selling if we breach that level decisively. Estimates I've seen of technical damage if we do is an additional 15+% below 4,222, which would take us to ~3,588. That's 25% below the close price on 12/31/21, or $250K on every million anyone has in equities.

Now, throw in the "this time is different" with rates. We've had 40+ years of mostly declining rates, with no-where to go from here but up - which is almost certain to happen, perhaps significantly in '22 to fight 7.5+% inflation. And the old saying "don't fight the Fed" applies more than ever when the Fed has no tools to jump in and save markets. They can't lower rates (already at zero). They can't do more QE (QE is already adding to our huge inflation problem and the Fed must therefore taper aggressively). In short, there is no cavalry that will come to the rescue of a falling market this time around, unlike they have many times in the past.

The broader point I'm attempting to make is that much has changed in markets over what's worked the past 40-50 years including a huge shift to algorithmic trading, passive indexing (which will either raise or sink all boats together regardless of fundamentals or earnings), high inflation, Fed "in a box" unable to come to market's rescue, etc. Recognizing that "risk management" (notably NOT market timing, but knowing when to trim holdings [something I'm personally quite bad at], when to hedge, etc) is an increasingly important thing to think about is prudent, IMHO to all of our financial well being and success in ER.

 

[Helen]

I have never come out ahead by trying to time the market.

 

[24601NoMore]

I have never come out ahead by trying to time the market.

Me either, but there's a difference in timing vs prudent risk management.

For instance - I "should" have sold a good chunk of equities last year when the S&P was in the 4,700s. Locked in some very good gains that happened across two pretty abnormal years in the market. But, nope! Got greedy. Fell prey to the "just buy and hold forever" mindset. Big mistake on my part.

Going forward, I intend to be a lot more active in capturing gains when it's obvious that things are over-inflated (like it was mid-late last year..super obvious), and buying when it's obvious panic has caused prices to drop way more than is reasonably justified.

I also intend to pay a LOT more attention to TA, because whether I believe in it or not, the market is moving more on TA (and will likely continue to move more on TA going forward) than on fundamentals. I'm not saying fundamentals no longer matter, but both TA and fundamentals are now the name of the game.

ETA: I see the algos have dropped the S&P right to Oct lows @ 4,300 and are keeping it there with a little buying come in right at 4,300 - 4,301 and selling under 4,310'ish. A strong wind could easily push us over the cliff, IMHO, but if anyone doubts what the algos are doing nowadays, movements have sadly become somewhat predictable..

 

[target2019]

Can anyone save us from the impending death cross of the 50 and 200 day moving averages?

https://www.investopedia.com/terms/d/deathcross.asp

 

[rodi]

I realize this is on the active investing forum (vs fire and money)... But I'll play...

I don't try to predict the market. I rebalance going down, and rebalance going up. I check for rebalance 1x/quarter (some here do it annually). I sometimes check if there's been a big swing and if it's more than 5% out of wack I'll consider rebalancing.

I cannot predict whether the market will go up or down, or how long it will go in whatever direction it goes... I can just rebalance to mitigate risks.

 

[aja8888]

Can anyone save us from the impending death cross of the 50 and 200 day moving averages?

https://www.investopedia.com/terms/d/deathcross.asp

I recall that one has to boil 3 frog's heads and 8 turtle's feet in a broth of armadillo blood and turpentine and chant the magic words once the boiling begins. Then, when cooled, one has to drink the boiled broth. Should be all good after that.

 

[Looking4Ward]

With headlines screaming about worse inflation in 40 years, impending war, rising energy prices, inevitable recession etc... I look back at how something like Wellington performed the last time these very same things were headlines.

But I'm sure this time it's different, right?

 

[karen1972]

I don't know if any of you go grocery shopping. I just got back from a shopping trip. I would say about a third of the shelves/freezer space was empty. No frozen french fries, no coffee creamer, no frozen chicken, etc, etc. Heard on the radio that the price of fertilizer is up 300%.

It is hard for me to convince myself that our economy is healthy. I have never seen anything like this in my 70 years on earth. It seems to me that there is some probability that stuff is going to get real. Hope I'm wrong, I am old and crotchety after all.

So weird, I"m actually seeing the shelves fuller than they were. All last year I couldnt' get my favorite fizzy water and now its in stock every week. I use to go in the afternoon and Aldis had like no fruit/veggies but is fully stocked now at 3 in the afternoon. The stores for a few weeks didn't have any sales other than their brands and now are doing the $5 off $30 grocery coupons again.

The local pizza place just announced they dropped the menu price of 10 wings by $2 because they use to be charged $175/case of wings and its been steady at $125/case for the past month.

And its not just groceries, 2x4s are 25% cheaper from their high. The local car dealerships finally have cars on their lots as they are slowly able to build back up inventory..a few cars at a time.

I know I read someone said their food bill was up 30% and I looked and our food bill is actually less than it was last Feb and so was Jan YoY.

 

[REWahoo]

Me either, but there's a difference in timing vs prudent risk management.

For instance - I "should" have sold a good chunk of equities last year when the S&P was in the 4,700s. Locked in some very good gains that happened across two pretty abnormal years in the market. But, nope! Got greedy. Fell prey to the "just buy and hold forever" mindset. Big mistake on my part.

Going forward, I intend to be a lot more active in capturing gains when it's obvious that things are over-inflated (like it was mid-late last year..super obvious), and buying when it's obvious panic has caused prices to drop way more than is reasonably justified.

Interesting that to this investor your description of your prudent risk management strategy sounds exactly like my definition of market timing.

 

[24601NoMore]

With headlines screaming about worse inflation in 40 years, impending war, rising energy prices, inevitable recession etc... I look back at how something like Wellington performed the last time these very same things were headlines.

But I'm sure this time it's different, right?

Actually, it IS different.

1) The 73 and 74 losses took until late 76 to recover. That's almost 4 years underwater.

2) Rates were ~12% in 1974 and were cut to ~5% in 75. Surely, that supported markets and helped things start to come back in 75.

There will be no rate cuts to pull us out of the current dive. (Rates are at zero). Plus, the Fed will have to raise rates heavily this year (probably to at least 1% and quite probably nearing 2%), into a rapidly declining market and slowing economy. If that's not bad enough, they will have to end QE.

Lastly, while I'm not an expert on the level of computerized trading and use of TA way back in 73 and 74, I did work in IT my entire career and can pretty confidently say markets were not trading on TA and algorithms to any great extent in that timeframe as they are now.

Aside from that...

 

[Dtail]

I will likely sell what I need to fund 2023 at the end of this year regardless of the state of the market. If the market is down I might be able to sell more than I need to fund 2023 while not exceeding my desired MAGI (my cost basis is very low so proceeds are gains at this point); if I can do so, I will sell even more and step up the basis to max out MAGI.


If the market seriously CRASHES right before I plan to sell, I might use my HELOC to float my expenses month to month in 2023 until it came back some (would still harvest the "losses" which would actually be a step up in basis with a capital gain shown so no wash-sale concerns and immediately reinvest so I have no time out of the market until recovery).


Or I'd go back to work.... HA just kidding!

Don't you dare go back to work.

 

[aja8888]

Lastly, while I'm not an expert on the level of computerized trading and use of TA way back in 73 and 74, I did work in IT my entire career and can pretty confidently say markets were not trading on TA and algorithms to any great extent in that timeframe as they are now.

Aside from that...

I started investing back in the early 1970's as I had a good job and the company had a "Stock savings plan". I remember going to a broker, signing on for an account, and placing a trade for a stock like GM and paying a fee of (I'm guessing) $75/trade of 100 shares. There were no computer's to trade with. And if you wanted to know the price of a stock you looked it up in the newspaper (yesterday's price). For today's price, you called the broker.

 

[24601NoMore]

Interesting that to this investor your description of your prudent risk management strategy sounds exactly like my definition of market timing.

Market timing (to me) has always meant making large, outsized bets (eg: all in, all out, move from stocks to gold, etc).

Risk management is about capturing gains prudently (which I failed badly to do last year and am now kicking myself), and attempting to increase purchases when things go on deep discount sale.

There's no hard and fast rule that I'm aware of that says your AA has to be mostly static. It can ebb and flow as conditions warrant. Now, if you're adjusting in huge, outsized chunks, that could reasonably be seen as timing.

 

[Out of Steam]

We appear to have gotten to a 10% drop from peak in the S&P 500 today.

EDITED TO ADD: The market recovered slightly after my first post, but closed 10% below its peak.

https://www.marketwatch.com/story/s...arket-benchmark-11645559257?mod=mw_quote_news

 

[Out of Steam]

The local car dealerships finally have cars on their lots as they are slowly able to build back up inventory..a few cars at a time.

We'd like to replace my wife's car, and I noticed today that our nearest Honda dealer is starting to have inventory of Civics and Accords again.

 

[marko]

This should be an interesting thread to re-visit 6, 12 and 24 months from now.

For me, while I always want to maximize my portfolio's value, my main interest at this point in life is what dividends I'm paid. My portfolio value goes up and down but as I've successfully lived on dividends for the past 20 years (and have maybe 20 years at best to go) I'll leave to the day-traders on how the market handles volatility .

 

[daylatedollarshort]

This should be an interesting thread to re-visit 6, 12 and 24 months from now.

For me, while I always want to maximize my portfolio's value, my main interest at this point in life is what dividends I'm paid. My portfolio value goes up and down but as I've successfully lived on dividends for the past 20 years (and have maybe 20 years at best to go) I'll leave to the day-traders on how the market handles volatility .

I decided to switch to mostly dividend stocks, too. I don't know what the market will do. It seems like a good 50% drop is overdue, so I only have enough in stocks where that amount won't hurt (much). Otherwise I add up our dividend income from stocks, our TIPS ladder and other fixed income, a little odds and ends income (product reviews, credit card rewards, recycling rewards, etc.), Social Security and pensions and I'm pretty happy.

We come out ahead during high inflation because our recurring, annual expenses subject to high inflation are pretty low compared to our inflation adjusted income. Plus our house will likely continue to go up in value with inflation.

My financial hero is Bobcat2 on Bogleheads who promotes an asset matching strategy for retirement, which has worked out really well for us, especially now. As far as I know he doesn't sell anything. He just seems like someone smarter than me I've learned a lot from.

 

[24601NoMore]

Whew. Closed literally a couple of dollars above the critically important level of January lows. We live to see another day before things risk going totally kablooey.

 

[MichaelB]

Whew. Closed literally a couple of dollars above the critically important level of January lows. We live to see another day before things risk going totally kablooey.

What makes the January lows critically important?

 

[24601NoMore]

What makes the January lows critically important?

As I understand it (not being a TA expert by any means myself), a failure of the Jan lows opens up 4,222 or so as the next critical test level before we head to high 3,600 - 3,700s.

Worse, 4,222 is roughly the bottom line of the rightmost shoulder on a Head and Shoulders pattern, which short of a "death cross" is one of the worst possible sell signals there is..

While some of the folks here seem to not hold some of the analysts I mentioned in that high of a regard, I know of several that got totally out of equities when the last Head and Shoulders occurred. They used other signals to get back in, but bailed entirely when H&S showed. And 4,222 seems to be where the rightmost shoulder completes on this go-around..

All that said, the rightmost shoulder at 4,222 "could" resolve..or things go splat with a high rate of speed toward high 3,600 - 3,700s also.

It's...funny?...how the Algos closed today at roughly the Jan lows. To me, that's yet another example of just how programmed everything truly is. The odds of us randomly closing there without Algos pushing it are pretty close to zero..

 

[foxfirev5]

Just keep plodding along. My "feelings about what may happen " are worthless and perhaps destructive. In March 2020 I felt that things would get much worse for the stock market. However due to my plan, I could not let my equity drop below 40% and bought more. I credit my LMP approach to enable me to stay the course. Behavior is real.

Prior to this I lost my modest equity stake in 1974 and learned a lesson by 1982. By 1987 I stayed the course and came out fine. In 2000 I earned my stripes and doubled down with 100% equity until retirement was in sight. By 2005 I got lucky and peeled back to about a 60/40. When 2008 hit I went full blown deer in the headlights and hung on for the ride.

By March 2009 I saw numerous 50+ coworkers bail out and eat their losses. I was in a funk and joined this forum. Jack Bogle had already proclaimed that " when you can't afford to lose anymore you get out". Here I saw both sides of the issue. Fortunately I hung on and was more than able to retire in 2016. Damn near pure luck. The big takeaway was that truly nobody knows nothin.

 

[Out of Steam]

As I understand it (not being a TA expert by any means myself), a failure of the Jan lows opens up 4,222 or so as the next critical test level before we head to high 3,600 - 3,700s.

Worse, 4,222 is roughly the bottom line of the rightmost shoulder on a Head and Shoulders pattern, which short of a "death cross" is one of the worst possible sell signals there is...

Technical analysis seems like reading tea leaves to this engineer, yet it appears to have significant predictive value.

https://www.investopedia.com/terms/t/technical-analysis-of-stocks-and-trends.asp