Down goes the Dow

And because the market has done so well in recent years, selling at 20-30-40% down still means you come out ahead.

Financial Advisor wrote:

And because the market has done so well in recent years, selling at 20-30-40% down still means you come out ahead.

Not sure if that is true since you have to go back up 40-60-80% to get back to even. Most investors will keep waiting for an optimum time to sell and it drops further. I have been in this business long enough to see financial advisors freak in a bad market....no difference, human nature.

Understood. As an alternative approach that i use, I just would sell on the way down, like you would in the theoretical above. But when it rebounds, i buy back in. Yes, I sometimes may be a little bit lagging, and hence losing a little, but i only lose a relatively little, and i write that off as insurance from a more precipitous loss.

In reality, though, it may even out (in that the first few sell orders allow ample time to buy back in on the rebound).

agip wrote:

I suppose the counter argument to that is how pessimistic millennials and Gen Zs are. They really don't like to invest, from my experience. They think the world is ending.

Not sure about "the world ending," but a lot of my friends are just waiting for an actual correction to buy in. Equities aren't exactly cheap these days and a bunch of people salivate at the thought of buying a 2008 style dip and then ride it up for 10 years. What does current investment promise? 2%, maybe 3% gain when we're already approaching record long expansion?

Not saying that's the right attitude, but you gotta see investing from the perspective of millennials. They either don't trust Wall Street or want what all you boomers got : the dip buying opportunity of a lifetime.

Ghost of Igloi wrote:

Financial Advisor wrote:

And because the market has done so well in recent years, selling at 20-30-40% down still means you come out ahead.

Not sure if that is true since you have to go back up 40-60-80% to get back to even. Most investors will keep waiting for an optimum time to sell and it drops further. I have been in this business long enough to see financial advisors freak in a bad market....no difference, human nature.

Of course it’s true. The markets have quadrupled since 2009. If you lost 50%, you’d still have doubled your money.

Financial Advisor wrote:

Ghost of Igloi wrote:

Not sure if that is true since you have to go back up 40-60-80% to get back to even. Most investors will keep waiting for an optimum time to sell and it drops further. I have been in this business long enough to see financial advisors freak in a bad market....no difference, human nature.

Of course it’s true. The markets have quadrupled since 2009. If you lost 50%, you’d still have doubled your money.

Of course it is not that simple. Besides the March 2009 low took S&P 500 returns back to June 1995. Anyway these cute plans go to default when things get bad. You have yet to earn your Financial Advisor stripes.

Racket wrote:

agip wrote:

I suppose the counter argument to that is how pessimistic millennials and Gen Zs are. They really don't like to invest, from my experience. They think the world is ending.

Not sure about "the world ending," but a lot of my friends are just waiting for an actual correction to buy in. Equities aren't exactly cheap these days and a bunch of people salivate at the thought of buying a 2008 style dip and then ride it up for 10 years. What does current investment promise? 2%, maybe 3% gain when we're already approaching record long expansion?

Not saying that's the right attitude, but you gotta see investing from the perspective of millennials. They either don't trust Wall Street or want what all you boomers got : the dip buying opportunity of a lifetime.

Gaddang it, I'm in my 50s, I'm not a boomer. I'm Gen X. Just one more example of Gen X being forgotten, walked over. We may not even get a president. I've suffered from Boomer excess as much as anyone.

Anyway.

And the whole 'I'll buy in a crisis' argument...I mean really? Stocks don't fall 50% because the wind changes direction. Stocks fall 50% because things are really, really bad. And people lose their jobs. It's very very hard for even hardened professionals to put money to work in very bad times. So I'm not sure many younglings would have the courage to do that.

I don't blame the millenials for being gun shy. they came of age in the dot com crisis then matured into the financial crisis. Tough lessons.

Financial Advisor wrote:

Ghost of Igloi wrote:

Not sure if that is true since you have to go back up 40-60-80% to get back to even. Most investors will keep waiting for an optimum time to sell and it drops further. I have been in this business long enough to see financial advisors freak in a bad market....no difference, human nature.

Of course it’s true. The markets have quadrupled since 2009. If you lost 50%, you’d still have doubled your money.

Let’s put some perspective on your theory. $100,000 portfolio, 60% stocks, 40% bonds. Assume value of bonds stay the same. The investor has a cute plan to sell 10% of original principal when down 20%, 15% when down 30%, and 20% when down 40%. All sales can come from anywhere. Selling portfolio 20% down $100,000-$10,000 = $90,000 portfolio; 30% down $90,000-$15,000 = $75,000; 40% down $75,000-$20,000 = $55,000. Portfolio loses 45% and will require 90% return to get back to even. If the sales were from the stock bucket alone that would make getting back to even that more difficult.

In theory I will sell when stocks puncture the 200 day moving average and buy back in when they rise back above.

I probably will not be disciplined enough to do that correctly.

Ghost of Igloi wrote:

Financial Advisor wrote:

Of course it’s true. The markets have quadrupled since 2009. If you lost 50%, you’d still have doubled your money.

Let’s put some perspective on your theory. $100,000 portfolio, 60% stocks, 40% bonds. Assume value of bonds stay the same. The investor has a cute plan to sell 10% of original principal when down 20%, 15% when down 30%, and 20% when down 40%. All sales can come from anywhere. Selling portfolio 20% down $100,000-$10,000 = $90,000 portfolio; 30% down $90,000-$15,000 = $75,000; 40% down $75,000-$20,000 = $55,000. Portfolio loses 45% and will require 90% return to get back to even. If the sales were from the stock bucket alone that would make getting back to even that more difficult.

You’re the only one talking about “getting back to even”. That had nothing to do with the original premise.

Where’s that straw man guy when you need him?

In the example I kept the portfolio value constant now apply those same numbers to a portfolio that incorporates the losses and sales are from the stock side alone. The stock portfolio is down to $11,600 following the 30% drop. And if the final redemption comes from both the stock and bond side the portfolio has dropped to $26,960 or 70%. Far worse than the previous model.

I’m the same way, only more responsive because I’ve never been a b&h guy. I too have won, but I also have seen others who won go down the tubes in ‘00 and ‘08. So easy to do. You can survive even if you are only in 50%, but who the heck wants that? Old guy thinking, indeed. I think we’re the same age agip, and I’m in only a bit north of 3%—and nothing fancy at the moment, just straight mega-cap equities, overwhelmingly US. No futures, no shorts, no options, no forex, nothing.

I YEARN for a 50% drop and am ready for it, but I know it won’t happen any time soon. Millennials will have a long wait on their hands. Many of them plan to inherit, lol. I am 52 and not a boomer, but I have a boomer father-in-law with money, who will no doubt burn through it and end up living with us. Incredible burn rate, living in Hawaiian beach penthouses at height of season, a real a-hole. Inheritance is, unfortunately, not the option that many might believe.

I continue to ask what will drive markets to good returns in the future. Organic growth? Yes some in Africa and maybe Asia, but not really. A new sector? Cannabis? Beats me what it will be. Inflation of a new asset class? Which one?

It will be a stock picker’s game, for those wanting alpha. In that environment, setting up and running your own business starts to make sense. I have toyed with making private loans as a business, and it showed some promise, but I didn’t want to continue. Markets are just so easy in comparison.

I find myself considering CD ladders just to stay even. Elsewhere in the world there are profitable REIT’s, and even the equivalent of structured investment vehicles.

I might just stick to utilities, CD’s, alcohol, and tobacco. Old man stuff??

Financial Advisor wrote:

Ghost of Igloi wrote:

Let’s put some perspective on your theory. $100,000 portfolio, 60% stocks, 40% bonds. Assume value of bonds stay the same. The investor has a cute plan to sell 10% of original principal when down 20%, 15% when down 30%, and 20% when down 40%. All sales can come from anywhere. Selling portfolio 20% down $100,000-$10,000 = $90,000 portfolio; 30% down $90,000-$15,000 = $75,000; 40% down $75,000-$20,000 = $55,000. Portfolio loses 45% and will require 90% return to get back to even. If the sales were from the stock bucket alone that would make getting back to even that more difficult.

You’re the only one talking about “getting back to even”. That had nothing to do with the original premise.

Where’s that straw man guy when you need him?

As I pointed out to you and you ignored, if the starting point is March 9, 2000 S&P 500 666, you are taking the index back to something like June 1995. So you can’t have it both ways.

agip wrote:

seattle prattle wrote:

Understood. As an alternative approach that i use, I just would sell on the way down, like you would in the theoretical above. But when it rebounds, i buy back in. Yes, I sometimes may be a little bit lagging, and hence losing a little, but i only lose a relatively little, and i write that off as insurance from a more precipitous loss.

In reality, though, it may even out (in that the first few sell orders allow ample time to buy back in on the rebound).

In theory I will sell when stocks puncture the 200 day moving average and buy back in when they rise back above.

I probably will not be disciplined enough to do that correctly.

Thanks, and I'm going to check into this. I see Simple Moving Average on my brokerage charts but will need to dig a little deeper...

seattle prattle wrote:

agip wrote:

In theory I will sell when stocks puncture the 200 day moving average and buy back in when they rise back above.

I probably will not be disciplined enough to do that correctly.

Thanks, and I'm going to check into this. I see Simple Moving Average on my brokerage charts but will need to dig a little deeper...

if you look at the dot com crash and the financial crisis, that strategy would have worked very well. You get out at the beginning of the trouble and back in as the clouds clear. The beauties of the strategy are `1) you can stay in as the market rises, 2) it gets you out near the top it 3) gets you back in near the bottom.

The problem is all the false positives. Like this month - we punctured it, then rocketed back up. Same thing in December 2018.

Some add a layer to smooth it out...they pick a day in the month. Say the 10th. If the market is below the 200 day on the 10th day of the month, you sell. Then you don't look at it again until the 10th day of the next month. That reduces the number of in/out trips but still saves you from the big crashes.

The other way is to give a 2% buffer on the downside. You don't sell until the market falls below the 200 day by 2%.

I had a good job out of college under the VP of marketing and Northrop Aircraft. My wife and I decided we would enjoy a running induced minimalist life style for a year, then it was off to graduate school, followed by nineteen years as a teacher and coach. Most of those years we were a one income family which was good for our kids, but one reason I am still working today. Now fifteen months off from age 70 and retirement. Fortunately for me I am moving there gradually working about 25-30 hours a week. I believe between now and retirement the odds of the economy facing tough times is pretty high. So preservation of principal, paying down debt and adding to savings are at the top of the list. Similar to 2000 and 2007 I think people are generally living the YOLO lifestyle. The population has little historical context for most things let alone the markets. Should we be surprised by any of this? No. Look at the nonsense coming from the Fed. Totally have nothing left than more of the same. More debt, more speculation and more income inequality. And some want to know why the politics are crazy. The times we live in, but I don’t see a benign ending of it all.

Good for you, Igy!

In one way, the current lunacy is a better investment environment than ever, judged by risk. Of course, we all know what less risk means. I continue to view US equities as a new form of gold, their price is set by gov action—difference being that they can also do policy tinkering with equities that is impossible with gold.

Not all US equities, of course. Not yet, anyway.

Good weekend to everyone, I was not best this week so I have some free beer coming to me, and I intend to make the most of it!??

seattle prattle wrote:

agip wrote:

In theory I will sell when stocks puncture the 200 day moving average and buy back in when they rise back above.

I probably will not be disciplined enough to do that correctly.

Thanks, and I'm going to check into this. I see Simple Moving Average on my brokerage charts but will need to dig a little deeper...

You'll get screwed on wash sale rules doing that

Ghost of Igloi wrote:

Financial Advisor wrote:

You’re the only one talking about “getting back to even”. That had nothing to do with the original premise.

Where’s that straw man guy when you need him?

As I pointed out to you and you ignored, if the starting point is March 9, 2000 S&P 500 666, you are taking the index back to something like June 1995. So you can’t have it both ways.

Enjoy your strawman argument. I will continue to ignore you.