strategies for this correction

[crimsonghost747]

So, to continue from the other thread.

"I don't know guys, I don't know. Sure, there are some good opportunities out there right now... I agree with that.

But I have a feeling that this correction is far from over. "

So obviously a lot of people here are starting to buy now. But how do you decide between buying now and waiting? Do you have some sort of a rulebook? Just go by the feel? 


Personally I have always bought stocks monthly from my salary and that will of course continue. I have a, what I consider pretty decent, amount of cash saved up for a situation like this. I haven't touched any of it yet but it's starting to look like it's time to start soon. But as I said I have a feeling that this correction might go on for a while so I'm certainly not in a hurry. I'm thinking of maybe taking 3% from the backup fund and throwing it at a couple of good stocks? That would more than double my regular monthly buy at this point and still leave me with a lot of cash for later.

But I'm just thinking out loud here. What are you guys planning on?

[fenders53]

I agree with you.  This may be nowhere over.  The FED surprised me with their hawkish forward guidance.  The yield curve was partially inverted prior to this rate hike.  The  president remains volatile.  In the end he desires the stock market not be completely wrecked while the economy is still very good in relative terms.  World stock markets are hurting and the trade war is a huge threat.  Money has left the market.  They will miss much of the ride back up, whatever month or year it occurs.  It really doesn't matter why we are here, but it is clear to me we aren't going straight back up.   We'll get a relief rally at some point.  Perhaps that presents an opportunity to adjust my sector allocations?  

My plan is to proceed slowly.  Slower than I have been since OCT for sure.  I was investing $10K most weeks in the equity market when a fraction of that would have been prudent.  But hindsight is 20/20 and nobody knows where the bottom is.  I thought it was merely a routine correction and this was the downside risk. That no longer appears likely. I have not touched my crash fund yet, and I won't until a true bear market occurs.  Another 10% drop would get me started, but that's just a number.  I'll have to be patient. I don't want to have zero cash at my age.  In the meantime I have other cash to invest, but not much compared to just a few months ago.  I'll make small buys from this point.  I am not investing any money I might need in the next 5-6 years.  If that's not good enough, well I tried to not be overly conservative.

To your point on the other thread, very few stocks are deeply undervalued.  They are merely less expensive than they were the past few years.  It jades our opinion.  Mine anyway as I am accustomed to higher PEs that were once unacceptable. If you don't need your money for 20 years, history says it matters much less if you overpay.  But simple math says buying when 50% down is going to make your portfolio a lot larger than buying more shares when they are 15% down.  But GIS has a 5% yield and expected to grow revenues.  There are others at 4% now that don't look shaky.  That's as close as it gets to a winning long term bet in a dividend portfolio.  Higher yields remain attractive when interest rates rise.  A 1% dividend  not so much, if at all. 

A good percentage of my port will remain defensive in utilities, healthcare, and select DGI stocks I know are somewhat recession proof. A huge market drop and a subsequent recovery of economy would be required to alter that plan.     

What I won't do is sell and go to cash no matter how bad it gets.  You never recover from that because you'll miss the run.  Hedge funds will try, and 90% will lose the bet, just like always.

[Binary]

Good idea opening this thread!
I personally deploy reserve cash step by step. If the price drops I add more shares. Simple
The more it drops the happier I become

[crimsonghost747]

(12-21-2018, 02:03 AM)Binary Wrote: Good idea opening this thread!
I personally deploy reserve cash step by step. If the price drops I add more shares. Simple
The more it drops the happier I become

That's definitely the right attitude. 
I'm just having a hard time figuring out what sort of steps I should take to deploying that reserve cash. :p I might be a bit too cautious but just like fender, I really don't want to be all out of cash.

[Binary]

(12-21-2018, 03:11 AM)crimsonghost747 Wrote:

(12-21-2018, 02:03 AM)Binary Wrote: Good idea opening this thread!
I personally deploy reserve cash step by step. If the price drops I add more shares. Simple
The more it drops the happier I become

That's definitely the right attitude. 
I'm just having a hard time figuring out what sort of steps I should take to deploying that reserve cash. :p I might be a bit too cautious but just like fender, I really don't want to be all out of cash.

Oh I know what you mean, but we - sadly - can't see the future and you know what happens when we all try to time the market. We can't eat all the cake

I get a salary every month and I get dividends every month. These are two things stopping me from running out of cash. 

Actually being out of cash is a very pleasant byproduct of finding enough good opportunities with which you still sleep well.

[rayray]

Nothing changes, still in the accumulation phase and being roughly 15 years away from retirement I stay the course and invest when I have "x" amount of dollars saved. I have friends that are constantly trying to buy, sell and or stay on the sidelines for the right time. Well, I had friends sell in 2009 and stay on the sidelines as late as 2014/15. Really? Yea, some of these guys have finance degrees!

Maybe as I get older and make more I'll have more cash waiting to be deployed when it gets really bad, but I don't know. The markets go up and they go down, my stomach doesn't get upset either way.

I save then put the cash to work.

[Caversham]

I find that having rules is the best strategy, otherwise your emotions will cloud your judgement. My rules are this:
Deploy 10% of reserve cash at 10% correction (cash at 90%)
Deploy 20% of reserve cash at 20% correction (cash at 70%)
Deploy 30% of reserve cash at 30% correction (cash at 40%)
Deploy 40% of reserve cash at 40% correction (cash at 0%)
Sell kidney, use margin, etc at 50%+ correction

I’ve followed these rules pretty closely deploying about 14% of my cash reserves so far.  I continue to buy with my monthly contributions from my paycheck. I was saving about 20% of monthly paycheck contributions as cash, that is being fully deployed now.

So far all investments during this correction have been in defensive sectors like utes, staples, healthcare. If the market continues to fall I will branch out into the other sectors and hopefully get a shot at getting some of the perpetually overvalued stocks like V, MMM, AMZN, etc. cheaply.

[Kerim]

I just follow my gut, but typically make purchases all the way down. I keep a lot of cash on hand so that I can, and temperamentally, I hate missing a potential dip. It doesn't really bother me to buy some at what seems a good price to me only to have the price fall further. Then I just buy a little more. But I can't stand missing out on a good price when the shares rally while I waited for better. So when prices get into my range, I start buying. And if they keep falling, I just keep buying.

It is of course much trickier if you have a set amount to invest, and you have to choose between now and later. I agree having a plan is best. "XYZ is my highest conviction play right now, and if the price drops to (or below) $ZZ.00, I'll buy" seems to be the best you can do. Until your crystal ball arrives from Amazon, that is!

[fenders53]

(12-21-2018, 06:44 AM)rayray Wrote: Nothing changes, still in the accumulation phase and being roughly 15 years away from retirement I stay the course and invest when I have "x" amount of dollars saved. I have friends that are constantly trying to buy, sell and or stay on the sidelines for the right time. Well, I had friends sell in 2009 and stay on the sidelines as late as 2014/15. Really? Yea, some of these guys have finance degrees!

Maybe as I get older and make more I'll have more cash waiting to be deployed when it gets really bad, but I don't know. The markets go up and they go down, my stomach doesn't get upset either way.

I save then put the cash to work.

rayray,

Your plan is sound. I rode out a few crashes 100% invested.  As retirement approached I knew it would be foolish to do that yet again when it was clear we are getting long overdue for a recession.  Call it market timing if you like, but having the ability to go shopping with real money when the market is anywhere near it's lows will be very noticeable in the end.  Buy and hold, and dollar cost averaging are great.  So is not losing half your money every five or ten years.  Even Buffet will tell you that.  There are times when being 100% invested makes sense.  This doesn't look like one of those times unless you are just starting out.

[Otter]

I'm just watching my portfolio's current yield go up as the yield on cost goes down, while continuing to deploy paychecks and dividends into whatever fits my buy criteria. I'm kinda of the same mind of Caversham when it comes to deploying more of the cash reserves as the distance from the highs increases. Gotta coil the spring in advance of the next leg up. Long term it always goes up, so might as well take advantage of fire sales.

[fenders53]

One thing that is different this time is we don't have a true catalyst.  What I listed a few posts ago is mostly just fear and speculation that things are going to go terrible.  We have no real inflation yet,  gasoline is under $2.00 here.  Company earnings still show solid growth.  Interest rates will still be historically low if the FED goes worst case on us in 2019.  This looks every bit like a full bear market, but perhaps it is just a correction and the market bounces in 2019.  If so I guess we should consider restoring at least some the cash position for the actual recession.  My biggest fear short-term is the politics.  The prez is going to get more vocal real soon, maybe even threaten to fire Powell.  He is not going to sit quietly while the Dow dips well below 20K.  Powell may prove he is independent until the end.  We had trade war leverage China markets were crashing and the US was hitting new highs. That game is clearly over. This is likely to be volatile for a long time.  They say no major correction is ever the same.  That's a fact in my lifetime.  This is nothing like the 1970's,1987, 2001, 2008. We are not required to figure it all out for long-term investing. I still find it fascinating while attempting to predict where we go next month.

[crimsonghost747]

That's what I love about this one.
There is no reason other than "stocks are expensive, interest rates are going up" which makes it a good buying opportunity if it keeps going. But it's true, stocks were a bit too expensive so this is a welcome move.

Personally I haven't touched my cash reserves yet but the time to start may be soon.