Here is the quote from Lou Rukeyser from the 1987 crash as per USA Today."Let's start with what's really important tonight," he told viewers. "It's just your money, not your life. Everybody who really loved you a week ago still loves you tonight. And now that that's all fully in perspective, let me say. .. Ouch! And: Eek! And: Medic!"
The stock market had another puke down yesterday and clearly fear has escalated if yesterday's comments are any guide. It may not be exhausted yet but there is a freak out happening.
Now that we have cut in half (down 48% on the year and down 51.9% from the peak) people are afraid and no one knows what to expect next. Lou's quote above is still relevant. I am an optimist by nature I have had opinions about how this would play out and while I've generally been wrong about magnitude the 200 DMA breach was a reliable indicator.
You are down whatever you are down and while that may seem to be too much for you it is what it is. The decline to this point is beyond you're control. I tried to write about things that can be controlled like a trigger point for defense (I started in on that in 2004) to miss a chunk of the bear but it is clear from the comments that many folks had no such trigger in place. Next time you will.
I'm sorry to be cold here but if you have a financial plan, that plan will either work or not based on a combination of luck, minimizing poor decisions and discipline. Not every plan can work because of all the variables in those determining factors (and I'm sure I left some out). If your plan has not worked then something has to give when the time comes. If you are a little younger and worried about whether your plan will work or not then something will have to give right now.
I say above I'm an optimist, I am quite certain the S&P 500 will make a new high in the future. The time table will not be acceptable for some folks but I am convinced it will happen. So between here, the bottom and there what can you do to recover a little quicker? Well if you have missed some of this bear market you have already helped yourself in this regard. If you buy into what I have been saying that some countries that are down just as much as the US are down for cyclical reasons and not structural reasons like the US then you probably know where you need to start researching.
If you have started to learn about new (to you) asset classes then you are giving yourself a better shot for a little faster recovery than just sticking with broad based, domestic exposures. You have a chance to shape your financial future by proactively seeking out this sort of stuff. That is why I write so often about things like Norwegian fisheries or hydro funds. Learn about all this stuff, select what makes sense to you and then keep learning. Someone will say there is not enough time in the week for this ok, something somewhere will have to give.
I realize from a couple of off the wall comments that people get the wrong idea about my point of view on things but I am very much a pull yourself up by your own bootstraps, play the biggest role in determining your own outcome and quit worrying about how other people are doing.
40 comments:
I also consider myself an optimist. I remember that Wall Street Week segment in 1987 and really miss my Friday nights with Louis Ruykeyser! When I watch the current carnage, I like to view the 50% reduction in my portfolio (so far) as a stockpile for future up days of 1 to 2%, stored away for more deliberate release over the next 3, 5, 10 years?
As a result of some diversification I am only down 11%. But I hesitated to use the word 'only' because 11% represents 2-3 years of my retirement. In that respect I would certainly like to recoup my losses and add more comfortable years to my life.
But, this market is like nothing I've seen and the possibility of 600 or 400 on the s&p is frightening. I know, buy good stocks and diversify. But good stocks are down a lot and could go down a lot more if this is not the bottom or close to it. Putting cash to work feels like a crap shoot and I've not ever been one to play the don't pass. But the dice are ice cold and we need that one hot shooter to turn the table. Of course, the don't pass players aren't complaining as they build their chip pile.
I'm writing to offer my thoughts as an FYI and I'll keep reading to continue my education.
Thanks.
I track 180 symbols. Stocks, etf's, cef's, etc.
My fingers are sore from having to continually lower my low targets. Supposedly good stocks like PG, JNJ, PEP, etc. are continuing to make lows. Where does one buy? Dollar cost average? That wouldn't have worked for stocks like GE, IP, MO, KO, etc.
Looks like cash in indeed king. Probably best to wait until we get some continued upside.
And now I wonder about keeping my accounts at Citibank.
I guess on top of my belief that high school students should be required to read "Citizen Soldier" we should have them read "House of Morgan" now - at least the chapters on the early 1900s.
Please, the people who are posting about down only 11%, save it for someone who cares. Others have lost most of their life savings so I would not say what you posted at a neighborhood party or you might leave in an ambulance.
New bumper sticker:
Has your politician, bankster,
CEO and investment advisor
been drug tested lately? ;-)
9:38 AM
agree!!!!
and if I were a financial advisor
I would be careful mentioning
my vacation home.
to anon 9:38
I'm not proud of being down 11%. It represents a lot of money to me. The only reason I mention it is to point out that stocks are a small part of my portfolio. I want to be in the market for a larger return but I am afraid. I don't have the guts to do what many of you have. That means when you're all up 30 %, I'll be up 5% because I was afraid to pull the trigger.
I'm looking for guidance here. Just like the rest of you.
I have historic long term based price models that show possible Dow lows of 2750. Whilst unlikely that such a further 65% downside from present levels would occur - such an event could happen.
What if it did, how would that impact upon your lifestyle.
Roger strives to teach us to be prepared, to consider the possibilities before they happen, rather than wondering what to do after the event.
I for one am grateful for those teachings and have adapted my investment style accordingly.
Thanks Roger.
Hmm, what I don't quite understand is why many older Americans have so much in stocks in the first place, especially when it's supposed to generate income.
The old rule is deduct your age from 100 and put that in stocks. Any nearing retirement who did that wouldn't be down painfully now. Or is this old wisdowm forgotten?
I saw Uncle Lou's broadcast that evening. He schooled me in investing, one class each Friday evening.
I've told anyone who would listen about my mother's reaction to that decline. Though she had never owned a stock in her life, the following week she bought Exxon, WalMart, Ford, Merck, Service Master, Citi, FedEx and a few others because she thought they were a bargain. Now it's my turn at an opportunity that doesn't come around that often.
Comment from 10:00:
I'm sorry but there's only so much that you can do to prepare at osme point. Right now I could hedge my portfolio with SPY puts for 7.20 till March. That's 10% for barely four months of preparation. If I "prepare" by buying these, I will look like a genius if I buy them and I will look like a complete moron if the market crashes the day after the options expire. It's a crap shoot.
What if markets don't give any return for twenty years. How does one "prepare"? I've pondering that. I don't know. Clearly in that sense retiring while relying on stock market gains will be impossible. Yes, Roger would point out that some active management might generate games even in a flat market. But let's face it, with no economic growth it's a given things become a zero-sum game, and thus the stock market becomes a system where the majority truly loses. So what does preparation do in that case?
I was "prepared" for a bear market but not Armageddon. My main stocks beat earnings last quarter and every quarter this year, and reaffirmed guidance. Well guess what, they're down 40%-50% from the peak. Coming out and saying we should prepare is like coming to the guy whose house was flooded in the desert and saying he should have prepared for that eventuality.
to anon 10:02
Let's take someone who is 40. That means 60% goes into stocks. For the year, stocks are down 51% and bonds are essentially flat with dividends. Overall, the portfolio would be down 18.6% minus any stock dividends received.
Is that good or bad? I don't know. What do you say Roger?
to Muzie
Kind of sums it up for a lot of us.
Now what?
Well, I'm sorry but you really should've planned better. 50% down is not unusual in a bear market. Hell, we hit it already this decade. There are numerous "options" other than buying puts. You could collar at no cost, you could buy double shorts, you could convert stock into vertical spreads, you could short futures ... and you could also take money out of the market that you cannot afford to lose. I have my buy points plotted all the way to Dow 0. Well actually, Dow 1,000 is when I finally sell and take my proceeds and buy a shotgun and a loaf of bread.
Nothing is impossible.
JEC49, not sure how you calculated 18.6%. A 60/40 portfolio with stocks down 51% would be down about 30% assuming bonds were flat. 0.6 x 0.51 = 0.306
That's approx. where I am ytd.
Not great, but better than being down 50%. I have 10-15 years until retirement, and am confident as Roger says that we'll see new highs down the road. Not counting on that happening next year of course!
One thing expressed in the comments today and yesterday is a perception that equities will either take decades to recover if ever. There is a lot of my retirement is ruined and what not.
As BillB just pointed out we cut in half earlier this decade and gained it back in 5 years (from the bottom). During that five year period maybe you saved a little money and so had more one year ago than you did in 2002.
The ride back to 1565 will either be shorter than 5 years or longer but it will happen. In the mean time you will keep adding to your savings.
As far as retirees having so much in stock, the generic problem is that a healthy 70 year old could make it to 90. using 3% inflation expenses go up by 50% in 15 years. Loss of purchasing power is a big risk, just as big as stock declines.
JEC49 anything done to miss a chunk of the bear is, IMO, a success. Heeding the market's warning (breach of 200 DMA or something else) adds value over the course of the entire stock market cycle. Looking at it in terms of the stock market cycle is to me (at a minimum) what long term means.
to anon 10:59
You are correct. Sorry I'm wrong. Time to get a new calculator from Santa.
"Well, I'm sorry but you really should've planned better. 50% down is not unusual in a bear market. Hell, we hit it already this decade. There are numerous "options" other than buying puts. You could collar at no cost, you could buy double shorts, you could convert stock into vertical spreads, you could short futures ... and you could also take money out of the market that you cannot afford to lose. I have my buy points plotted all the way to Dow 0. Well actually, Dow 1,000 is when I finally sell and take my proceeds and buy a shotgun and a loaf of bread.
Nothing is impossible."
Well I probably spent 1,000 hours studying and reading and dealing with the markets this year. So I'm either of the rather moronic type or maybe you know, just maybe, there are no guarantees, and even those who prepare still have a 50/50 chance of not doing the exact correct hedge and you end up on the losing side.
I bought Wamu and Countrywide puts back in late '07, gold in early '08, and SKF back in June. I wasn't exactly late to the shorting party as most people I see nowadays you know.
Well I'm still down a lot. Why? Because this is the type of market where if you sell at 3PM, you're rich, and you sell at 4PM, destitude (or at least your retirement age changes by a couple years, ha). Randomness and luck lurks at every corner. This is also the type of market where it's OK to ignore fundamentals and pile in on the most oversold condition in history and short random stocks - and you get away with it like a bandit.
Obviously, I made mistakes, lots of them. But considering the time I spent "preparing", it's a complete fallacy for anyone to bravely say "you should have been prepared" knowing full well that being prepared does not grant any guarantees. Sometimes, you prepare, and shit happens anyway. That's life.
"Please, the people who are posting about down only 11%, save it for someone who cares."
there are people that simply
state how much $ they have invested
in the market at any given time..
disclosure.
Muzie, how much are you down ytd? Sounds like you really took a hit. DOW should hit 5000 and then we will get a new bull to take us back to 15000.
"Take my proceeds and buy a shotgun and a loaf of bread."
You go ahead and do that. It fits perfectly the selfish attitude I see in most shorts nowadays.
Me, if the Dow hits 1,000, well I'm going to pull up my sleeves, put on my hat and offer up my help to rebuild to anyone that wants it.
And I can tell you people are going to be a lot more interested in that than the useless piles of yellow rocks you're going to be sitting on and apparently willing to shoot somebody for.
Muzie, you're missing the point. It's not the amount of time you put into it. The movement is somewhat random. If you think buying puts is your only option, you did not look very hard at protection or you did not consider that you could be down 50%. That's unfortunate. Don't feel bad, I learned this the hard way too. I was the guy buying Nasdaq @ 5K and went all in. Back the truck up boys, this investing crap is EASY!
The point is, there are many tools at your disposal and you need to figure out which ones make sense given your risk tolerance. I would never recommend one penny in the market until you have a plan for at least a 70%+ decline.
You cannot predict this. Study as hard as you want, you'll never see into the future. So you need to be prepared. If you can't lose 50%, get it out of the market, or protect it with something (fully understanding the trade offs of your protection). This is something you should've thought of then, it's too late now.
P.S. I've been holding some C stock when I was assigned (short puts) at 22.50, but I understood the risk of financials. Bellyaching does me no good now and my plan is still to go down with the ship if that's what's meant to be. It's such a small portion of the portfolio, it was damn near speculative. I predicted it was way oversold @ 22.50 and due to bounce back ... I was clearly wrong, take the hit, move on.
"Muzie, how much are you down ytd? Sounds like you really took a hit. DOW should hit 5000 and then we will get a new bull to take us back to 15000.
"
I'm sorry if I sound flustered. I'm not that bugged about the money - I'm more bugged about wasting my time on studying this crappy market. The YTD down changes 5-10% everyday so I've stopped tracking it (portfolio pretty volatile right now). Used to be 25% last month. Must be around 40% now. Did I make a mistake going long last month? Well, who knows? My main stocks had good earnings surprises in that month - one made record profits; didn't matter. We could be up 20% next Monday, next month or next year. Or maybe never.
I retired in 2000 at the start of the last bear market. Many retirees I know here in Prescott live on their investment assets and returns because they/we do not have big union or Government/Civil Service Pensions. Therefore most of us have at least half of our assets in the market because, hopefully, we will live 30 years (I am 61 now) and we need growth and inflation protection.
The typical retiree I know has a relatively balanced portfolio with about half in equities, 30-40% in bond funds and maybe 10% cash and some alternative investments like commodities, real estate etc.. Do the math....equities down 50%, bond funds (many of them) down 10-15%, cash up 1-2%, alternatives all over the map depending on what you have. Thus we are down about 30% in retirement assets in one year which means a big cut in next year's budget or risk running our of money. That's the reality for many many retirees.
Thanks, retiredinprescott. That's me exactly and it's nice to know there are others in the same leaky boat. I expect to live another 25 years and had a reasonable and diversified portfolio.
retiredinprescott:
Being at a much younger age (32), I simply question if it is reasonable to entrust what amounts to a third of one life's outcome to a system that as of late as shown to be so fragile, and in fact, so easy to manipulate.
Citi stock is now down 60% in three days. Well, what happened? Does somebody know something? Did some new event get triggered that we will never know about cause this change? Or perhaps (and that's my personal opinion) nothing actually happened but the stock crossed some magical technical threshold and panic and short pressure is pulling it into oblivion (and the entire market with it)?
Imagine you were an alien, and you asked earthlings how they deal with their older citizens, and the reply would be "well, they save money all their lives and retire. Then, every year, if we feel pretty good about ourselves and are confident, we throw them a bone or two, you know, maybe 5-10%. When we don't feel so good we just take away some of their money... maybe a third of it if they're lucky. Oh ya, and depending on the vaguaries of whether we feel good or bad, some might run out of money before they run out of time... well I guess we haven't really figured out what to do with those."
I'm being sarcastic. But these are the thoughts I'm having. Retirement is being touted as a great freedom. I can't imagine any retiree feels "free" right now with no control over their income. A "working" retirement rather sounds like bliss right now.
retiredinprescott: By the way, I did not mean you made the wrong choice. I am just wondering if this system is not a rather broken way of doing things. We should treat our elder citizens better then to put them through this rollecoaster than is hard to stomach for even a thirty year old.
We can only predict the future by what's been known in the past. Unfortunately, that doesn't give us all the correct answers. There will always be elements of the unknown. We, as Americans, tend to forget this. We think we are all-knowledgable and so well educated, we can deduce the future (especially now with computer planning programs). We are gradually waking up to the truth. We don't know or control the future. In 2 years the DOW could be at 14,000 again...or it could be at 3000. The US is no longer the grand machine it was in the 1950's. Sure, there were many problems then, but, if you worked hard, you could surpass the fear and the problems. Today, hard work may not push you forward. Success today is measured by how much you can screw the other guy before he knows it. Is anybody trustworthy?
A friend told me 20 yrs ago that the stock market was a giant gamble. I said no, if you study it and choose good long-term companies, you will do well. Well today, many of those companies are no longer in existance or are teetering. And many of the CEO's in their annual report, stated how well the company was doing.....3-6 months later, the companies went under.
So what is coming next? Who the hell knows. I'm fearful today
Here's a chart that shows we're in an upswing. No bear in sight.
http://www.nyse.tv/djia-chart-history.htm
Whoa. I just realized that if I'd listened to Jim Cramer I'd have avoided losses in November!
"As far as retirees having so much in stock, the generic problem is that a healthy 70 year old could make it to 90. using 3% inflation expenses go up by 50% in 15 years. Loss of purchasing power is a big risk, just as big as stock declines."
At the moment to seems preferrable to me to save a lot more during my working life so that I can live comfortably with not more than 40% in stocks, factoring in the loss of purchasing power through inflation - preferrable to needing to put more in stock and face the risk of having to live through such a gut-wrenching downturn. My heart goes out to all the retirees that have seen their live savings cut by a third or even in half. I don't want to be there, ever.
Just one man's musings from the trenches.
Anon 10:02
to anon 10:02
Save now and play later. As someone who is close to social security, I will tell you that one of life's great feelings is to have financial freedom. If you save enough to live off of the interest from your account you won't need to be in stocks. There are many other investment vehicles that will give you a mostly safe 5-6% return. Good luck!
"If you save enough to live off of the interest from your account you won't need to be in stocks."
This is exactly my point. Sure you have inflation eating away at your account, but this is something gradual you can adjust for (mentally and practically). Or you can adjust for it by trying to put together a bigger nest egg in the first place. Or you can work a little on the side, as Roger points out.
No, I am not saying NO stocks, but the risk many older people have taken is just incredible to me (my 83-year-old mother included: her financial advisor had her in 50% stock, and she's not even in great health :-) !)
Anon 10:02
"No, I am not saying NO stocks, but the risk many older people have taken is just incredible to me (my 83-year-old mother included: her financial advisor had her in 50% stock, and she's not even in great health :-) !)"
Well, you should thank the manager for getting her out of stocks before the crash.
"There are many other investment vehicles that will give you a mostly safe 5-6% return."
Very true...but then the problem
you will have is that you will
live to be 100+ years because
you have NO STRESS from being in
the market;-)
I bet this market has shortened
many lives.
Re: outliving one's nest egg.
Minor epiphany...I'll just smoking and drinking more...THAT should fix it!
Rog, hopefully no one will take offense - but along the lines of WWLD you may get a laugh out of this
http://rmccown.org/images/fark/wwjd_bankers.jpg
In this bear market, Roger has been a guiding light. Well, I have stayed out most of the time and have only traded for day positions for a quick profit. However, this is a retracement from the the market bull that started in the 1930. So we now have to go to either dow 7000 or 5400. So I am in the camp with Roger to buy with prudence but only a modest amount of youtr portfolio. As for me I am trying to purchase a home for my family and especially for my kids. Home prices have come down a lot and am trying to pick up a home for 10% of its high. What will for best is to keep together with family member because hard times are coming. That is most important. Best wishes to all of you, and remeber keep each other tight. After this, perhaps few years from now, we will not ever see a drepession and our kids will have a rosy future.
Best,
Jeff
Please don't take this as bragging or anything like that, but I have done quite well in this market by using a very simple strategy.
First, the concept of value never even enters my mind in this environment. All it does is lead you down a hole. A P/E of 6.00 might look tempting until you allow for the possibility that the E part is going down.
Second, I use the economy as a guide to direction - up or down. I generally stay on top of the news, and at present I am hearing not a single piece of good news about the economy. This does not mean the market will not rally on bad news, because it does sometimes. In general, though, I digest the news and have come to the conclusion that the trend is down, and that is like card counting - I have improved my odds of picking the right direction.
Third, because I think the direction is down, and also because I can't think of any stock I am comfortable going long in, I am left with going short. The thing is, shorting a stock is for pros and carries great risk unless you do it with an inverse ETF. For this reason, I like to trade put options. Put options are there for a reason, so I use them.
Fourth, what would you expect to perform poorly in this economy? I naturally thought banks and other financial companies would do poor during a down business cycle, but the government threw a wildcard into this mix so I waited until I saw the charts going down and now I include financial stocks as candidates for trading. Since real estate seems to have started this recession, and it's troubles are often in the news, I decided real estate and construction probably will not fare well either. Transportation may not do well, so that stays on the radar too.
Fifth, you may have a better way, but I go to nyse.com and look through its member stock listings by sector. The first thing I use as criteria is average trading volume. If a stock doesn't trade in the millions of shares per day, I don't want to look at it. The greater the volume, the lower the spread and the more predictable it is. I also look at price, and my sweet spot is between $5.00 and $25.00. The rest is research, common sense and legwork, but you have to do the legwork. If I see a company that operates strip malls, I ask myself if strip malls do well in recessions. My guess is they don't, but I drill down into the company and look at the price chart first. If that graph is drifting south (they all are now), then I look for clues on how stressed the company is. How much has revenue dropped (forget estimates in this climate), and how much debt does the company have? If it looks like it may accelerate to the downside, then I will buy short-time put options, the shortest time greater than about 18 days is what I use. The strike price is pure guesswork for me, because I don't actually even care too much if the option goes in-the-money. All it has to do is head toward the strike price, and if it does so at a good clip, and gets near the strike with a good amount of time left, then you will be looking at 100%, 200%, maybe even 300% gains. If you have your doubts about how fast a stock will take to get near the strike, then add a month to the expiration. The premium you pay on the option is well worth it if the stock has every reason to eventually get there in price.
Sixth, sell them! Don't get too greedy. If a put option is doing good, but all of a sudden there is a market rally, I don't even waste a second worrying about it. Right now, there is nothing to fundamentally support a sustained rally - not while unemployment is still accelerating, and especially while the credit market is dysfunctional. Play through the rally. If it starts going down but there is not a rally going on, then look at the company news fast and be ready to bail if it is news that looks like it will prop up the stock. Dump it and forget it.
That's my strategy right now, and it's worked very well for me. I have been very fortunate lately as a good number of my positions have been opened and closed in 3 or 4 day periods. My target gain always starts at 100%, so when lady luck blesses with target gains make in 3 or 4 days, you are one busy, happy trader.
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