- Countrywide: On Jan. 11 it was announced that Countrywide Financial would be acquired by Bank Of America
- Bear Stearns: On March 17 Bear Stearns failed. The stock had been the subject of much speculation prior to its failure, and company management defended the company's standing until the end. The collapse of Bear led to a confidence crisis in other investment banks and financial institutions.
- IndyMac: On July 14 mortgage bank IndyMac was seized by federal regulators
- Fannie & Freddie: On Sept. 8 mortgage GSEs Fannie Mae and Freddie Mac were placed into a conservatorship, effectively wiping out the value of their equity
- Lehman, AIG & Merrill: On Sept. 15, Lehman Brothers filed for bankruptcy, AIG was bailed out by the government and Bank of America bought Merrill Lynch. Lehman represents the biggest bankruptcy in U.S. history.
- WaMu: On Sept. 25, JPMorgan bought the banking assets of Washington Mutual after the bank collapsed and was taken over by the FDIC. WaMu represents the biggest bank failure in history.
- Wachovia: On Sept. 29, it was announced that Citigroup would acquire Wachovia, although Wells Fargo eventually outbid Citigroup.
| Region | Symbol | % Change |
| US | SPX | -38.7% |
| US | Nasdaq Comp | -40.8% |
| US | Dow | -33.9% |
| UK | FTSE 100 | -31.3% |
| France | CAC 40 | -42.7% |
| Germany | DAX | -46.3% |
| Japan | Nikkei | -42.1% |
| China | Hang Seng | -48.3% |
| China | Shanghai | -65.4% |
| Korea | Kospi | -40.7% |
| Russia | Micex | -67.2% |
| Brazil | Bovespa | -41.2% |
| Iceland | OMX Iceland 15 | -90.0% |
Holy Crap! It's like that joke "I spent a month in (insert your least favorite city) one night." We did a lot of experiencing in 2008, let's hope 2009 is far less interesting. FWIW I am expecting a very large rally, a run back close to the lows with a mid to low single digit finish around SPX 925.
More important than any prediction is to take whatever comes and react when appropriate and be proactive when that is appropriate.
As far as sector leadership, in other years I've had opinions going in (some right, some wrong) but 2009 is more difficult. If positive leadership comes from the same sectors as during the bull market then I will take that to mean we are still in a bear phase. I would be more trusting (in terms of new bull market) if positive leadership came sectors that lagged in the 2003-2007 bull market.
I believe my expectation of big bear market rally followed by a run toward the low (give or take) netting out to not much of a move is consistent with the notion of stumbling along the bottom.
29 comments:
Is there an easy way to buy the OMX
Happy New Year, Roger.
Wouldn't it be great to see tech finally reverse and lead?
Roger, I read your blog daily but seldom post. I've been thinking hard about moving some money out of cash some time in the first half of the year. I want to see what happens with the Obama stimulus plan. I'm just not sure what his team will do and what the effect will be. My general thoughts have been to scale into overweight oil and oil infrastructure holdings (ETFs only) and to short the longer end of the treasury curve using the Proshares ETF. It's hard for me to imagine that oil won't be a multiple of what it is now in a few years. It seems like the safest bet in uncertain times. It's also hard to imagine a long bond approaching 2 percent into the future. I'd also like to find a way to scale back into Asia at the appropriate time. The picture for America will get better eventually but I don't feel like I have a good idea what things will look like. Any thoughts would be appreciated.
I hope you and Joellyn have a great New Year and thank you again for the daily posts.
Best,
Simon
What do you mean buy OMX? All of the Nordic markets have OMX in their names. NDAQ bought OMX Group the exchange and platform provider.
happy new year to you as well. Tech will lead again, it would be nice to be able to figure out which decade that might occur in:->>
Thank you Simon, I would observe that you put a lot of short term expectation for the markets into Obama's plan. I would not trust the initial reaction to a stimulus plan but I tend to be skeptical about policitians and their plans. We know that at some point time will heal the market. Obama's actions will either help it along faster or slow it up some.
To clarify I would like to buy the Iceland 15 index you listed down 90%
Does this mean we have to start another year right away without any break?
I don't know if any readers here have heard of Larry Swedroe. He has written several books on investing and provides no nonsense, level-headed views at the Bogleheads forum. Below is a link to his lessons learned for 2008.
http://seekingalpha.com/article/112915-lessons-the-market-taught-us-in-2008
The lessons might not go over so well here with so much effort expended indentifying "sector plays" and such. However, it cannot hurt anyone to keep an open mind and broaden their horizons.
Thanks Roger for your daily efforts. For the most part, I don't agree with your investment approach as I am firmly in the 50/50 buy and hold camp, but I do believe you have a lot to offer to investors of all stripes. When you're 50/50, there's not much portfolio work to do and you can spend time reading blogs like this and shake your head in disbelief.
Happy New Year and best wishes.
Hi roger,
As an avid reader of yours I would appreciate your thoughts on the Larry Swedroe article that was published above. specifically, his assertion that one should not take risk with their bond investments such as preferreds, etc and how do you manage your bond portion for clients? Do you use short term investment grade bonds, tips and treasuries or do you try to use more equity like returns with bonds such as using preferreds, individual bonds, etc?
Lastly and more importantly several Nobel prize winners and academic research supports buy hold strategies, why do you believe your strategy is better than pure buy hold?
Thanks
Happy New Year Roger,
This must be the day of the buy hold investor questions for you. I have been a recent reader of your blog and am a prospective client of your firms however have not had any discussion with anyone from your firm yet.
My family has been 100% pure buy hold with your typical DFA/ETF advisor whom uses a combination of DFA products and Vanguard ETF/Funds. Based on the Fama/French academic research my current advisor advocates the strict buy hold and rebalance strategy with a value and small cap tilt in order to capture this behavioral risk premium.
Please advise why a party would consider your approach versus one based on the DFA buy hold approach?
Thank you in advance for your consideration.
You should be flattered that so many buy and holders frequent your blog.
Back from a hike in the snow and settling in for a little football, not too shabby!
Let's see if can knock some of these out. OMX-15, not unless you have an account in Iceland and buy it through that account. The ticker is in Iceland is ICEQ--if it still exists. Kaupthing used to have a Stockholm listing that could be bought as ordinary shares in the US and it was a pretty good proxy, it was about 30 or 35% of that market.
The positive comments about buy and hold are interesting in that this part of the cycle (and the way it has gone this time) is the worst time for buy and hold. That said...
The Swedroe lessons;
1) Bear Market Protection--I am amazed how few advisors even try (more on this below)
2) Unfortunately many people learned too late that they had taken on too much volatility
3)I still believe in diversification but people have the wrong expectations (written about that one a lot)
4)That worked last year, it will be bad advice this year, next year or the year after
5)Nothing from me here
6)The fund manager is not that asset allocator. Protection comes from the asset allocator not the manager with a mandate
7)Nothing from me here
8)Agreed
9)Instead of forecasting, focus on heeding warnings. This bear market warned exactly how I said it would when I started writing in 2004. I did not predict anything, I had a history book and history repeated (inverted curve, breach of 200 DMA fake outs included and slow rolling over that everyone denied)
10)I've made the same point--if you missed 2003 for being afraid you missed out on a lot of the bull market returns
11)Agreed and written about on this blog before
12)Under promise and over deliver--amen
13)I'm all about plan B but this is more of a planning point
14)Again planning
15)Agreed
Final)More important to me is avoiding stupid behaviors. People are very willing to live beyond their means and pay a lot for bad advice
Why is my strategy better than buy and hold. It is not better, it is better for me. You should do what is better for you. I don't ever want to be down 40% in a down 40% world. I have yet to meet anyone who would like to be down 40% in any world. I am convinced that what I am trying to do is the right thing, i can look someone in the eye and tell them I gave my best effort to protect their assets. The method I have found to do this, in my opinion, works for long bear markets, as opposed to fast panics down like 1987, 1997 and 1998. The 200 DMA was breached in Dec 2007, September 2000 and November 1973. That's good enough for me.
Why consider trying to take defensive action? I have tremendous respect for the work it took to put away what I have, I assume you respect whatever you did to put away whatever you have. The way to pay ongoing respect for that effort is to try to protect it when things look bad. The buy and hold debate aside I am astounded by how many people do not respect their nest eggs.
As far as being flattered, I am humbled that strangers have any interest in anything I say.
My impression is that the reason there are so many buyandholders around here is that Rogers' approach is really not that far away from the buy and hold approach in spirit... because he admits that he doesn't know more than the market and that all moves should be made according to the weight of the evidence, with no moves of such size as to permit substantial loss of primary capital (or provide substantial outperformance)... the main difference is that buyandholders make their plans according to long term behavioral finance and Roger makes his on an ongoing basis depending on the appetite (or distaste) of the market for certain asset classes...
While the main difference is between waiting for the returns to come to you... and going to areas to which capital is attracted or staying away from, the key as always is consistency... when I read all these posts from buyandholders who are now saying that they are considering altering that approach depending on their perception of a new administrations policies, it does make me think of the reasons that most investors never capture the long term returns of their asset classes and/or investment approaches...
If you are a buyandholder, you need to buyandhold for the entire 40-60 years of your investment life... if you are a sector rotator (or a variation of the two as I perceive Roger as), then you need to continue to rotate between sectors on a consistent basis... at the end of your investing life you might be surprised to see you are in similar places, but its possible that you might not be... the only thing that matters at the end of the day is picking an approach you can STICK WITH, because that is what garners the returns...
Its fashionable to bash Warren Buffett these days due to his recent short term losses, but his attitude, as always, is correct... he says that's just the way that markets work, that he has had a number of similar setbacks over his investing life and hopes to live long enough to have several more similar setbacks...
Sounds a lot like Rogers' approach to me... a very needed dose of reason in an increasingly emotional world
Ajw
Ajw, well said. Consistency is key from most of the studies I have read. Stick to the plan, assuming it is well formulated to begin with.
Roger, I don't know why you keep insisting buy and holders are down 40%. A 50/50 allocation in Vanguard Total Bond Index and Vanguard Total Stock Market index was down 16% in 2008. This is what Benjamin Graham recommends. That return is way less than half of what you keep claiming. Compared to Lehman, Bear Sterns, most hedge funds, etc. and many other professional managers, that performance you would have to admit is respectable. Doesn't go over well at cocktail parties though.
the context of that comment refers to the equity portion of the portfolio.
Roger, do you usually post your annual performance?
Agree with previous poster. Down 16% in a year like this with both the equity and bond problems the market has experienced really isn't bad wouldn't you agree? Also, there's no one skimming 1-2% on "management fees"
maybe you missed the comment but the context is the equity portion. you frame the rest of your question like a lawyer but your comment about skimming is straight up asinine. A manager is either worth the fee or not just like a lawyer. There are plenty from both fields that are competent and plenty that are not.
How can anyone know if their manager is competent up front? Madoff anyone?
competent is not the same thing as not crooked. chances are a manager who wants you to put your money at Schwab, Fido, Vanguard or any other unrelated brokerage firm you have heard of for him to manage is not crooked.
Fair enough. But still it is impossible to know what someone's long term performance will be ahead of time.
If investment managers are the "market", how can a manager beat the market ad infinitum? This is a logical contradiction.
The exceptions would be by statistical chance.
what is more important to you, beating the market or having enough money when you need and being able to sleep more often than not?
In my answers above I don't think I said competence ties beating the market.
I would focus on a manager's philosophy, it is either right for you or it isn't, either gives you the sense that they can get you to where you need to be or not. A competent manager will beat the market sometimes, lag it sometimes, have hot streaks along the way and also go cold.
If beating the market is your only criteria you will be disappointed. IMO an investor needs to have enough money when the time comes and need to be able to stomach the ride between here and there.
Having sufficient funds to meet goals is very important. Sleeping well at night is important too. And many, many people are incapable of managing their financial affairs and need honest people like Roger to handle their affairs for them.
I am just questioning the strategy that well intentioned managers use. I am not questioning the integrity of anyone.
However, competent managers underperform and loose investor's money with regularity. How does one know if his manager will or will not meet the stated objectives ahead of time? How does anyone know ahead of time if a particular philosophy is flawed?
Hopefully your manager's cold streak doesn't occur when you need your money. Think no withdrawals from hedge funds. Or no withdrawals from certain money market funds who strayed from their philosphy. How do you know who these guys are in advance?
But my main point is that any (hot or cold) streak or measurement of competence is normally tied to a performance benchmark. My question is, then, why risk underperforming the benchmark when one could simply invest in the benchmark for essentially free? If the benchmark is exceeded, clients are happy. If performance falls short, clients are unhappy. By definition, 50% of all managers will underperform the benchmark. One can easily erase that 50% risk.
One thing Ajw, Roger has said on this blog many times that buy and hold doesn't work. I just don't understand why he makes that blanket statement. I would argue that buy and hold works, but people are not honest about their ability to take risk and therefore say buy and hold doesn't work because they took more/less risk than was appropriate. It's the fear and greed factor at work.
sound like you already know buy and hold is right for you.
I guess so. Long-term investing is not that hard. I have had close family members get burned by honest, well-intentioned plans gone wrong. I want a plan that transcends a portfolio manager's tenure and something that can be basically on automatic for my family if I am incapacitated. Fortunately for me, my wife understands the approach and can follow the plan, as well as my son.
Sorry to be so arguementative. I hope I have not insulted someone who is so obviously passionate about his work. Just posing some honest questions about the nature of investing. I am sure that your clent's have been well-served.
I wish I were able to contribute in a more positive way on this blog. I really enjoy the civil discourse.
Good night, and thanks for the dialog. As those of us who have been in the naval service like to say, "Fair winds and following seas, my friend."
Just a post to thank you for orchestrating a wonderful blog which I have enjoyed for a long time.
T
Why is there an assumption made that there are no buy and hold investment managers? I think the entire DFA crew would prove that assmption wrong without out even looking very far into the subject.
to 50/50 guy:
"Long-term investing is not that hard."
I would not want to be you - the fates seem to find a way to punish for statements like that.
Your equity side: if the markets are roughly at levels they were 10 years ago, then save for dividends your effectively flat for a decade.
Bond side: we've since lower interest rates for the last 20+ years. Now at zero so they can only stay flat or go up. What do you think will happen to your bonds if interest rates go to 5%, how about 10%. Ouch is the answer.
What if interest rates go up and stocks don't? The it's a triple whammy for you. Bonds down, stocks flat or down, and inflation eats you up.
Your strategy has worked great so congrats, but beware of thinking trendlines go on forever.
Anyone down only 10% or so in 2008 who had at least 50% of their $'s in the stock market is a smart, smart person. I would think that most of the smartest people in the world that were invested 50% or more in the market lost at least 25%. I read that the average 401K account was down 40%. I have watched other posting all year on this blog and no one including Roger predicted a 40% decline. I wish people would stop trying to look smart and be honest. I am sure based on all that Roger will say he lost 30% or more, heck Buffett lost that!
To Anon 8:01,
Haven't you heard of rebalancing? Treasuries were up 22% while equities were down 38%. You sell the winners and buy the losers. That is: buy low, sell high. An effective way to rebalance and minimize taxes in a taxable account would be to direct income to the underperforming asset class.
Furthermore, a review of long-term equity returns show that most of the gains actually do come from reinvested dividends. They are important! Your comment seems to diminish the value of dividends.
The hazards you cite are nothing new. I would recommend that you read Intelligent Investor by Benjamin Graham.
I would argue 50/50 buy and hold is probably the best strategy in the face of the unknown. Not sure where the trendline statement comes from.
I would be appreciative if you could inform me of your stategy that is prepared to flourish under all sets of risks, known and unknown.
Have you been wondering who is responsible for the bank crisis and the failure of Fanny Mae and Freddie Mac? Every voting age American should be required to watch this video. The video is from 2004 Congressional hearings about regulating Fanny Mae and Freddie Mac. You will see Republicans pointing out problems and calling for more regulation of Fanny Mae and Freddie Mac. You will see Barney Frank, Maxine Waters and other Democrats denying there is a problem and criticizing the regulators and Republicans for trying to prevent the upcoming crisis. If this video doesn't make you ashamed to be a member of the Democratic Party, nothing will.
Proof positive that democrats are responsible for bank crisis
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