Recognizing an historic crash vs. correction or bear market.

[Options]

Just thought I'd highlight the words I find a little too hard to swallow. Maybe you didn't mean to be so negative?

Actually, I meant every word of it, and meant it to be cautionary. I was paraphrasing much of what I've read elsewhere--either in studies, books, talks. A study of the history of investing and speculation validates all of it, as all of what I mentioned has in fact happened, over hundred of years, all over the world. It's why Bernstein states that if you've studied history, you'll see there's no such thing as a black swan. In fact, he says, you'll recognize that "we've been here before."

 

[redduck]

Who was it that said there are two kinds of economists (?), those that don't know and those that don't know they don't know. I'm no economist, but I know that I don't know.

Are you referring to this quote?

“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
― John Kenneth Galbraith

 

[Lsbcal]

Hi Options, I think you are missing the point.

Anyway, it's good that we have these financial markets because we can all individually decide this stuff. I get my votes (expressed in $'s) and you get yours.

 

[NoMoreJob]

Hindsight is 20/20. You won't see it coming next time - it won't be like the last time, or the time before.

Know your psychological loss limits, diversify to insure you remain within that range (plan on 50% equity losses) and sit tight. If not working, have some readily available funds (i.e. CDs) to tide you over and prevent you from having to sell at a low point.

Timing doesn't work unless you are Spock.

 

[Options]

Are you referring to this quote?

“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

― John Kenneth Galbraith

Thank you, redduck. I believe the quote would apply to those with "predictions" as well.

Hi Options, I think you are missing the point.

Anyway, it's good that we have these financial markets because we can all individually decide this stuff. I get my votes (expressed in $'s) and you get yours.

Lsbcal, I agree. If you are one of the lucky ones who has extra $ to play with, at a minimum I'm highly envious

OTOH, many people come to this board looking to gain insight into investing, and it concerns me that someone without a lot of experience think they can time/predict/win/outthink any market. The parallels throughout history of market manias, booms, bubbles, and busts, suckers and fool schemes, is absolutely uncanny. The only way this stuff can repeat is because enough time elapses between the last fraud perpetrated on the investing public and the new one.

As I stated above, I do believe that it is an act of arrogance for any individual investor to think they know more than the market. Throughout history, and we're talking hundreds of years in countries all over the world, markets have outsmarted the most knowledgeable, most recently to wit:

"On the minus side, Greenspan’s reputation has suffered from two big mistakes. The first was his failure to see the importance of the housing bubble and the dangerous vulnerability of the financial mechanism that supported it. Had he done so and punctured the bubble promptly, the economy would have been spared the prolonged weakness that it is still suffering. The second was his deep-seated conviction that the unregulated financial system was self-stabilizing, that the self-interest of all those clever and experienced participants with a lot of their wealth at stake would keep the accumulation of risk within tolerable bounds. So he promoted deregulation and financial consolidation (as did others, of course) and, when this simple faith proved wrong, allowed disaster to strike."

-MIT Economics Professor Robert M. Solow writing on Alan Greenspan in The New Republic

If Alan Greenspan, who surely has/had more inside knowledge of the economy and markets, could get it wrong, what could possible lead an individual investor to think they know more? This would be the behavioral biases of overconfidence and confirmation bias in action.

John Bogle has some brilliant things to say about the marketing side of Wall Street, which includes planting stories in the financial press. By the time the individual investor gets any information, it is virtually worthless. This includes the current hoopla about which way the wind is going to blow in the bond markets.

The best deal for the invididual investor is indexing, picking an AA while accounting for one's risk tolerance, rebalancing, and minimizing costs (the single most important factor determining superior PF performance, according to a number of studies), and staying the course. Since 1920, this has always been the superior approach, and with calculators like FIRECALC, modelling demontrates the approach would work as far back as 1871.

OTOH, for people like you Lbscal with extra $$ to play with, a great investment might be writing me a check to cover the $3300 I had to drop yesterday to replace a 20 year old bed/mattress. You'll get a guaranteed return of making someone else very happy!

 

[Lsbcal]

...(snip)...
The best deal for the invididual investor is indexing, picking an AA while accounting for one's risk tolerance, rebalancing, and minimizing costs (the single most important factor determining superior PF performance, according to a number of studies), and staying the course. Since 1920, this has always been the superior approach, and with calculators like FIRECALC, modelling demontrates the approach would work as far back as 1871.

OTOH, for people like you Lbscal with extra $$ to "play with", a great investment might be writing me a check to cover the $3300 I had to drop yesterday to replace a 20 year old bed/mattress. You'll get a guaranteed return of making someone else very happy!

First, I don't know where you get the idea I have "extra $$ to play with". I take investing seriously and don't consider playing a good activity in financial matters. Maybe you got this idea from my "votes" sentences above? I just mean that it's a free financial market and every dollar is a vote on the direction. Institutions probably have the biggest number of votes. I am very small potatoes in that sea of money.

Second, I'm all for Bogleheads ideas and I think most investors would do best to stick with that. However, we are all mature adults here and people are free to form their own opinions. Investing is not a religious activity. I do not think the most forum participants (particularly regulars here) feel they must be saved from the sharks. There are admittedly a lot of naive folks out there (and occasional people who visit this forum) who have unformed ideas on good investing. Again, for those people the Bogleheads buy-hold ideas are best.

Now hopefully we can stop arguing. We probably share more areas of commonality then differences. We should get back to the OP's original intent for this thread. Also my fingers are tiring of this line of dialog.

 

[haha]

First, I don't know where you get the idea I have "extra $$ to play with". I take investing seriously and don't consider playing a good activity in financial matters. Maybe you got this idea from my "votes" sentences above? I just mean that it's a free financial market and every dollar is a vote on the direction. Institutions probably have the biggest number of votes. I am very small potatoes in that sea of money.

Second, I'm all for Bogleheads ideas and I think most investors would do best to stick with that. However, we are all mature adults here and people are free to form their own opinions. Investing is not a religious activity. I do not think the most forum participants (particularly regulars here) feel they must be saved from the sharks. There are admittedly a lot of naive folks out there (and occasional people who visit this forum) who have unformed ideas on good investing. Again, for those people the Bogleheads buy-hold ideas are best.

Now hopefully we can stop arguing. We probably share more areas of commonality then differences. We should get back to the OP's original intent for this thread. Also my fingers are tiring of this line of dialog.

This idea of a varying AA based on some reliable long term value indicator is interesting. The obvious gotcha is that in an equity market moving steadily upward, the closer to 100% equities someone can handle is going to be most profitable. Until the market goes in the other direction, which may be very sudden. Then 0% equities might be optimum.

Today, the Fed seems to be playing the tune that people are dancing to, so it is really hard to know whether past experience is even relevant in the near term. I would guess that eventually it will be, but eventual is quite a concept.
Ha

 

[RobLJ]

Of all the awful news from back then, the item that most struck home to me was the failure of Washington Mutual, which Wikipedia says happened on September 25, 2008. I would have guessed it happened a little earlier, but most likely that's because rumors of its imminent failure were already circling.

There were two reasons this news made an impression on me. It was the first time in my life that a financial institution failed in which I personally had an account. I had a credit card with them, which at the time was maxed out in a 0% loan.]

We had our checking, savings accounts, our mortgage, as well an equity loan with WaMu and in mid 2007 I convinced my wife to start a Schwab checking and brokerage account because I was fairly certain WaMu was going down, along with several others.I wanted to be sure we could get by for 3-4 months while waiting for the damage to settle. Turns out Chase opened the branch on Monday after closing it from Friday through the weekend.
The Texas S&L crash started right when I graduated from a Texas school and I saw the miniCalifornia real estate crash in 90 begin before we moved back to Texas, so that helped. I also started moving to bonds/cash in late '06, but primarily in '07 to a 40% bond/cash allocation from about a 90% stock beforehand. I remember wondering in early '08 whether I was just missing something, then when Bear-Sterns went down I knew I was probably right. When I heard about money-markets freezing, I got very worried we would see a 30's event.