02-25-2020, 07:56 PM (This post was last modified: 02-25-2020, 08:00 PM by fenders53.)
I hope this doesn't come off as arrogant in any way. I certainly don't know everything. Not even close. I've shared many of my errors of the past. What I do know is I've had my face ripped off in corrections and bear markets. It was REALLY bad the first time. I've learned not to panic. When it rains lemons maybe you do nothing. I usually try to make some lemonade. It makes it a little less painful down the road. So here are a few random thoughts you can take or leave. Maybe they are helpful now. Maybe they are helpful in the future. I welcome other's comments if you've been through this before. Much of this is common investing wisdom, but it's easy to forget when the market gets rough.
1. It's natural to hate watching your port go down. My port is down a little over 4% from the high. That's a lot of money, but I won;t allow it to affect my investing thesis. Don't let fear control your actions. I've said it many times but don't do today what you wish you had done yesterday. That always applies no matter the market direction. It's almost always costly.
2. I think this is correction and not the beginning of a long lasting bear market. I could be wrong. I have no idea where the bottom is. I don't know the perfect point to buy more shares. If I could pick tops or bottoms I would have sold all my stock last week. Beware of taking advice from folks who pretend to know today, but are somehow sitting on a big port full of equities. They don't know anymore than they knew last week.
3. Have a plan and try to stick to it. Easier said than done for sure. Maybe your plan is to do absolutely nothing. There are times when that is the best plan. You'll probably know in a few months. It's a completely rational strategy, especially if you are young.
-Have some dry powder to buy some shares while they are down? Great! Be methodical and proceed slowly. That is exactly what I will do. I bought some shares yesterday and took today off. I have no problem buying the same stock more than once a day in small bites.
-Don't buy more junk shares just because those have fallen the hardest. Don't go too crazy chasing stocks with big headwinds if you are hoping for any near or midterm gratification. If they were stinking it up last week, why would people want to buy them now when quality is on sale in most every sector? Great stocks will rebound fast. Junk will still be junk. And speculative stocks thrive when the bull is running. Not so much now. They will be there later. They will amaze you how far they can fall when the market is scared.
-Thinking about selling some shares? What will you do with the proceeds that makes long-term sense? I may trade in some junk for quality. Maybe not. I'll go slow if I do. It's probably too late to just go to cash and jump back in later. Nobody knows.
You really do need a plan or you'll likely make emotional moves. Greed and fear, like always.
My plan may not appeal to you at all. It's worked well enough in the past. It's why I always have dry powder. I hate completely missing out on deals. So how do you handle a sudden correction?
Now I have to go tell my wife "Dammit honey, I lost another Beamer in the stock market". I didn't yet, but I have before and that's what I always tell her. Thankfully she only wants to see the port a couple times a year because she trusts me. Not tonight though lol.
02-26-2020, 03:09 AM (This post was last modified: 02-26-2020, 03:10 AM by vbin.)
Great points. Thank you. But if this is the start of a bear market( I also don't know if it is) then it can last 1-3 years based on a lot of content I have been reading and my understanding due to how much quant ease have been done all over the world.
Banks going for 0 cost transactions is to attract mom and pops investor money into buying more stock. That's not a good indicator. Yesterday there was an article in Bloomberg about it aswell.
I do believe we are in the last cycle of bull but I will just try to ride all my stocks as I am still below 40 and have plenty of time and stick to the points to mentioned above. I should print these and put them on my desk, lol. Thank you @fenders53
02-26-2020, 05:08 AM (This post was last modified: 02-26-2020, 05:13 AM by fenders53.)
vbin
I enjoy watching financial media too. It's a very dangerous past-time right now. Some fool is going to say something contradictory every 15 minutes for shock value. Don't let any shock pieces make your decisions. Don't let anyone scare you into making rash decisions. YOU maintain charge of your emotions. That's why you have to have a plan. But remember Mike Tyson's famous quote. "Everybody has a plan until you get punched in the mouth". It's really true. I certainly won't get this perfect either. I don't have to. I type a lot of this stuff repeatedly. Partially because I need to remind myself.
Tell me what has actually changed since we were at all-time highs last week? The market will remain too liquid. The only difference is the flu scare. That can definitely peel a few percentage points of growth off the next few quarters in a lot of sectors. It sure won't be like last year when corporate profits soared. Oh wait, that didn't happen. Earnings and revs were actually pretty flat and sometimes down. That's why the market was so terrible last year. Oh wait, that didn't happen either did it? Don't expect the market to be rational in the short-term. It rarely is. This is an election year. Thankfully we aren't at zero rates yet. The bear will come and those who are still working can invest through it. I miss that. Now I have to keep dry powder ready. Cash, and stocks like my overweight Utes. Those can be converted to shares of $100 AAPL or $500 AMZN if that makes sense. No that is not my prediction but I hope you get the point. It's all about the plan. It's highly likely you will face the bear at least twice before you retire. If you are smart, and I'm confident you are, it will be easier each time. Maybe we get lucky and we are chasing new highs by summer. You get yourself in shape for the big one. We know it's coming some year soon. I can't emphasize enough how much more pleasant it is if you can do some shopping while others are terrified and cashing out and making the deals even better.
I know you watch the other thread. If you see me chasing falling knives that will likely be left behind when/if the market rebounds soon please call me out. It's so tempting and about the opposite of what I should do. That was a not so stealth way of telling you to stop buying XOM. You have to be overweight by now and you have no idea where the new bottom will be. You are seriously giving me flashbacks of myself doubling and tripling down on CSCO, MSFT and INTC as they fell from glory 20 years ago. I'm honestly not trying to embarrass you on a public forum. Been there, done that. and waiting a decade to get back to even is not a sound investing strategy. The opportunity cost is enormous.
Good post Fenders. What I learned from going through the dotcom crash and the housing bubble crash was to buy quality stocks (reasonably priced) and to ignore the noise. Yes I do have some junk stocks in my portfolio, but I keep their valuations small. While I always want to have some dry powder on hand, I always seem to find some quality stock that is reasonably priced.
(02-26-2020, 09:20 AM)ChadR Wrote: Good post Fenders. What I learned from going through the dotcom crash and the housing bubble crash was to buy quality stocks (reasonably priced) and to ignore the noise. Yes I do have some junk stocks in my portfolio, but I keep their valuations small. While I always want to have some dry powder on hand, I always seem to find some quality stock that is reasonably priced.
Yeah it's tough to sit on cash Chad. The young shouldn't keep much. My biggest problem is my last bad idea always looks too cheap to pass up lol. I settled on 10% cash the last half of my investing career. I was contributing a lot from my paycheck so the extra cash was just there for a solid correction. I really hated coming out of the backside of the tech crash broke. I wasn't able to pick up many cheap shares. What we do when it's rough makes a big difference in our long-term performance.
Hopefully this is yet another buy the dip moment. I'll get warmed up for the big one later.
1) Bear markets are short lived-14 months on average.
2) The market has a built in upward drift, they will go up in time.
3) DGI allows one not to worry (as much) about portfolio totals. I watch to see income growing, because that is what I will spend in retirement.
4) Buy good stuff, it's OK to speculate but know that you are speculating.
5) Learn about valuation, not price.
To the AZO buyer, I work for one of the BIG parts retailers, I'd be careful. I think there are industry changing shifts coming along that will not be pretty for valuations on these retailers.
(02-26-2020, 09:51 PM)NilesMike Wrote: 1) Bear markets are short lived-14 months on average.
2) The market has a built in upward drift, they will go up in time.
3) DGI allows one not to worry (as much) about portfolio totals. I watch to see income growing, because that is what I will spend in retirement.
4) Buy good stuff, it's OK to speculate but know that you are speculating.
5) Learn about valuation, not price.
To the AZO buyer, I work for one of the BIG parts retailers, I'd be careful. I think there are industry changing shifts coming along that will not be pretty for valuations on these retailers.
Good post Mike. When you have time, a good contribution to this thread might be how to hedge your port. Nothing complicated (although I'd learn that if it's worth it). I realize one can just buy a SPY put and watch it go worthless.
An auto parts thread might be useful. As you know I'm knowledgeable on parts quality. I even worked for AZO just a few months. I actually worked at a decent store, but to be honest I don't understand how they have been as successful as they have. Its always kept me from owning AZO, and obviously it's been a solid stock to own. .
To all.... How do you generally enter new trades after a significant pullback? Take this one for example. The typical 8-12% pullback. Enough to sting your port, but you don't think a real bear market is imminent. If you believe this one is destined for down 30%, well that's a different matter. I know I am typically too early. I understand I am not going to time the bottom very often. In the past I have just thrown down a few fairly large trades. Free commissions caused me to try something a little different this time. Much smaller purchases, spread across most everything in my port that I have confidence in. The buy quality thing. I can do this ten times over months because I happen to be cashier than usual. That's not a typical situation. It shouldn't be that way for a younger investor for sure. Maybe it's a personality thing, or perhaps merely discipline. I suffer from reverse FOMO. I lose zero sleep because I miss a bull run like TSLA or FAANG. Now let stocks drop and I really have to be careful because I hate to miss a good dip on a stock I've been waiting for.
Jim Cramer is making my point this week. I have huge respect for his knowledge of economics, and he truly knows how the markets function in great detail. I've even purchased one of his books. With that said, OMG his emotional advice will get you killed. When the market is volatile a typical week is always something like this....
"Watch out, market is crashing, don't buy yet, oh wait, we are buying some now, ouch that was a sucker rally, hope you didn't get in too deep, I told you this wasn't the bottom, don't sell though, bull market's back on, I hope you followed my advice and got rich like we did in my club"
I swear that wasn't much of a stretch. He is NOT helpful when the market is choppy. It's my understanding his early career trading for clients was respectable. Perhaps his ex-wife kept a leash on his emotions. I think my head would explode if I watched CNBC for a full week when the market is volatile.
Good post Mike. When you have time, a good contribution to this thread might be how to hedge your port. Nothing complicated (although I'd learn that if it's worth it). I realize one can just buy a SPY put and watch it go worthless.
/quote]
First off, I am a chartist by nature and only trade fundamentals within the DGI concept. If it moves, I can usually trade it successfully. That said, this is how make money on a down move, not really considering hedging becausing the ratio is miles away from a 1:1 true hedge. That's too expensive.
What isn't expensive is buying VIX calls when volatility is very low. The first chart shows what happens when VIX is in 12-13 area, it goes up every 4-6 months when you can ring the register. The 2nd chart is a period where VIX just keeps on sliding and my calls (and the money I paid) evaporate into thin air. Chart 3 shows SPX for that same time period, making big money here so the VIX call expense is quickly and easily erased from my mind. There is a symbiotic relationship to the market.
I have always been cognizant of having several various cash flow going at once. I'm not rich but at 60 I want for nothing, still work, my wife is a crossing guard. Until I retire (begin collecting at 62) it goes like this, I get paid on alternating weeks, my wife gets paid on the other alternating weeks, another week my rental checks come in and dividends get dripped. At 62, I will add SS to the cash flow and at 65 my wife collects another 50% of my benefit.
After listening to the old Germans my entire life saying it's not how much you make but how much you keep that matters...simple works for me.
02-27-2020, 08:44 AM (This post was last modified: 02-27-2020, 09:17 AM by fenders53.)
Good, you understood what I meant Mike. I'm not looking for a 1:1 hedge for my entire portfolio, that really only ensures I can't possibly take advantage of the bull market. I am looking for that "inexpensive,high deductible insurance policy" that offers some downside protection. That, and some dry powder, would allow me to feel comfortable with a higher % in equities most all the time. In the absence of that, I am going to sit in my safe space with 50% cash l ikeI have been, then scurry around collecting up cheap shares, then sell them too soon on the next run trying to make sure I am safe again. I will give your VIX hedge a test drive next time it's low. I also wish I would have purchased some of that TLT when I was talking about it on the forum. I've been tracking it, and it is as advertised most of the time. A yield not that much less than SPY, and inverse when the market gets volatile. There is no guarantee of that, but it looks consistent enough for me. Looks better than gold to me long-term.
And IMO it's good that you shared your age. We are both very near "real retirement", and could get along well enough if we just retired now. Works i reverse as well. I'm glad vbin shared his age. Whether a poster is 35 or 75 years old offers a lot of context. On a side note, I can't help but think some here probably believe we are on some complicated and risky options mission, when the reality is it's generally producing reliable monthly income, and sometimes less risky than holding the common stock. I'm all about putting some of my assets in less peril, especially when I know I easily exceed the yield of the best oil majors, without enduring the pain that my some of my higher yielding DGI stocks do. MO and BP comes to mind. Quarter after quarter I can beat that with a boring insurance, paper or grain processing company, and not deal with all this draw down grief that seems to come at least annually. But hey, I'm way off topic yet again.
02-27-2020, 01:58 PM (This post was last modified: 02-27-2020, 02:00 PM by Otter.)
Still not buying anything, dividends to cash, and watching my puts.
I am concerned that, if analogizing to prior downturn charts, we are closer to the Q1/Q2 2008 initial dip than the March 2009 lows.
Pandemic all but certain at this point. Highly infectious virus (R0 values as high as 6 estimated by a recent Los Alamos National Laboratory study funded by DARPA). Unchecked spread in South Korea and Italy, Germany's health minister saying an epidemic there is underway. Evidence of community spread in the U.S. (California case announced yesterday went untested for 1 week after being hospitalized, is on a ventilator, and patient had no known travel history or ties to other infected persons). With epidemiologists estimating 60-80% of global population becoming infected in a pandemic scenario (now highly likely), 15-20% of all infected developing pneumonia, 3-5% requiring ICU care, and ~2% mortality rate, those statistics don't augur well for global economic performance (it's around 100,000,000 dead globally, and so many people needing hospital/ICU care that most countries' health services will be overwhelmed).
By the infection numbers, South Korea and Italy are where China's Hubei province was in early/mid January, before things got really bad there and the Chinese government quarantined over 700 million people. Iran's reported death numbers are so high, and so many infected travelers have been detected after leaving Iran, that unless they just happen to have a far deadlier strain of the virus, it is likely that they have thousands (if not tens of thousands) of unreported infections.
I just can't see buying into this market at these levels. This is not your typical business-cycle downturn, but a serious external risk that was not accounted for well in advance by business. Current revenue/earnings warnings and suspension of guidance are probably just the tip of the iceberg. Economic models don't have a good past event to use as a baseline. The pathogenic characteristics of prior outbreaks (MERS, Ebola, H1N1, SARS) were markedly different. SARS and MERS are far deadlier than the new SARS-CoV-2 virus, but are far less contagious, and those outbreaks have been easy to contain and did not pose a serious risk of global pandemic (SARS killed a grand total of 774 people). H1N1 (Swine Flu), while somewhat contagious (R0 value of 1.4-1.6, so less than even the lowest estimates for SARS-CoV-2), was only marginally more deadly than seasonal influenza. Mortality rate of SARS-CoV-2 is estimated 10x-20x higher than seasonal influenza, per epidemiologists (who have accounted for the fact that a substantial number of mild cases have likely not been detected). Ebola was a non-event outside of Africa, and it is fairly straightforward to put controls in place to stop the spread (it is transmitted almost exclusively through infected bodily fluids, and not via aerosolized transmission like SARS-CoV-2).
If you think the market has been panicky since Friday, imagine what it will be like if millions suddenly have pneumonia and require ICU-level care, in a country that has a grand total of ~930,000 hospital beds and 20,000 ICU beds. Nowhere close to that number of beds is actually available on any given day, and patients with COVID19 infections have to be isolated from all other patients in a facility, otherwise the other patients get infected. Italy had this problem with a case going undetected in a Hospital, spreading the infection to numerous other patients and healthcare providers, and that is how they initially detected the outbreak there. There is no vaccine, and there won't be one, at the earliest, for roughly a year. Some early attempts at a SARS vaccine ran into huge problems, as the trial vaccines caused test animals' immune systems to overreact, killing them. There is still no SARS vaccine for that coronavirus 17 years later, despite a fair amount of effort. Humans have no inbuilt immunity to this new infection, as they do to seasonal influenza (mortality rate of 0.1%).
I'm content to sit on the sidelines and see how this plays out. If I am wrong, I can close out my put options and put dividends/cash back to work in the market. If I'm right, I think a 2008-2009 scenario is not out of the question. The objective indicators should be pretty clear in the coming weeks. It's not like I'm statistically likely to miss out on a sudden doubling of the market from close to all-time-highs in the same time period.
