Is a recession coming? Sell stocks? (2 Viewers)

[Forty4]

Poker chips will (re-)gain value when humans feel sure they 'll survive physically and have a job (NOT the case currently).

Not 100% accurate, they could decrease more even after if there is a huge influx of new chips.

 

[Coyote]

Not 100% accurate, they could decrease more even after if there is a huge influx of new chips.

Bring them "in" (or "on"-f*ckin English), anyway

 

[Changster]

I haven’t seen poker chip prices fall though. Have you guys? I haven’t seen any BTP/Boat chips selling for 35% off its peak (I’m judging 35% cuz it’s inline with the S&P), etc.

 

[Coyote]

Wait till the Post Offices handle only medication.

 

[Darson]

Thanks for your thoughts. I've changed my paycheck investment mix to eliminate any money going into bonds right now.

For me, the 10% bond investment was more a hedge against a catastrophic market event, not really one for income - I class this as a catastrophic event!

Over the next several of months, I will move money from bonds into equities. Probably in 4 tranches of 25% of my bond holdings. When my 401k is back to pre-coronavirus levels, I'll move money back into bonds and reset the paycheck mix, ready for the next catastrophe.

Oh and on the poker chip investments, although I have many sets, the majority of the money is in leaded TRKs. I don't think you can find a better asset class to invest in

 

[DrStrange]

So the market hit my sell point and I took my short term gain. I had an itchy trigger finger yesterday (3/25) and missed out on a point getting ~19 points per share or a bit more than an 8% gain rather than my 20 point target which was available an hour later.

Normally I am a buy and hold sort of investor. But the huge volatility represents a somewhat unique opportunity. The average gain from equity investments is 10% per year. Getting 8% in a week is close to a normal year's gain. Too temping to pass up. So long as the volatility keeps going. It is quite counter productive if I have to buy back in at yesterday's level or higher - I am going to owe taxes at my marginal rate on the short term gain.

This isn't my first rodeo. Market bottoms represent surrender from investors. I think we have weeks of bad news already "baked into the cake". A significant number of people don't believe there is that big a problem or at least have elected to remain ignorant. I still see more people saying buy vs sell. I am betting there is at least one more period of investment panic yet to come.

for the long term investors - I think buying is better than selling. However I think waiting to buy is even better. The bottom seems more likely to be later this year than last week. You likely will not be giving up much to wait it out. Economic recovery is certainly a quarter away at best. Could be 2021, more likely than 3rd quarter 2020.

Be careful out there. Buying individual stock means you should have a deep understanding how the bailout affects your selection. How much money is being injected and under what terms. Ignorance will be punished by the sharks . . . . .

Just saying -=- DrStrange

 

[BNM]

Market bottoms represent surrender...

@DrStrange, do you feel this is capitulation? As in, THE bottom? Significant denial seems to endure, relative to the upcoming economic impact. Hopes of reopening the economy in another week seem fanciful at best.

 

[DrStrange]

I think there is at least one more period of market panic to come.

If 2008/2009 is any guide, the stimulus efforts will take a while to make a difference at the same time as the economic effects are still building & compounding.

The worst of the virus is in front of us. It is not going to be "fine" in a week or two. As the deaths mount, as the horrific images compound, as ignorant disbelief gives way to horror, the market will struggle. The government has adopted a maximalist damage course of action, perhaps not by intention but that isn't going to matter as much to investors.

We have months of bad news coming. To be sure, a sizable fraction of this is built into the current pricing of stocks etc. But I think not all. And more important, there are sizable blocks of people who are highly skeptical of the whole thing. But when you personally know someone dying a horrible, lingering death. When you are wondering how to pay next month's bills. When despair overwhelms hope. This is when the market bottoms - sellers will not care so much about price, they will be in dire need of cash or so afraid that they will take any price for their assets.

That is when we will find a bottom. We aren't there yet -=- DrStrange

PS This also applies to chip pricing. There might be some really sweet bargains soon. Please be mindful your bargain is someone else's desperate attempt to survive buy selling something they loved.

 

[Steamtrain]

Almost time to buy.

a few more slips down and then bottom feeding

 

[davin]

Look at the mortgage rates on Friday

 

[BNM]

I think there is at least one more period of market panic to come.

If 2008/2009 is any guide, the stimulus efforts will take a while to make a difference at the same time as the economic effects are still building & compounding.

The worst of the virus is in front of us. It is not going to be "fine" in a week or two. As the deaths mount, as the horrific images compound, as ignorant disbelief gives way to horror, the market will struggle. The government has adopted a maximalist damage course of action, perhaps not by intention but that isn't going to matter as much to investors.

We have months of bad news coming. To be sure, a sizable fraction of this is built into the current pricing of stocks etc. But I think not all. And more important, there are sizable blocks of people who are highly skeptical of the whole thing. But when you personally know someone dying a horrible, lingering death. When you are wondering how to pay next month's bills. When despair overwhelms hope. This is when the market bottoms - sellers will not care so much about price, they will be in dire need of cash or so afraid that they will take any price for their assets.

That is when we will find a bottom. We aren't there yet -=- DrStrange

PS This also applies to chip pricing. There might be some really sweet bargains soon. Please be mindful your bargain is someone else's desperate attempt to survive buy selling something they loved.

Concur. Can’t really “like” it, though.

 

[Darson]

I’ve been learning some terminology and perhaps last week can be considered a “dead cat bounce”. I should have sold everything on Wednesday. With numbers rising and actions getting harsher I think the market will only react negatively. Fundamentals be damned.

 

[Burke]

Even a dead cat will bounce if dropped from high enough!

 

[DrStrange]

I sold another 20% of my equities today. These weren't day trades, this position is much older.

Relevant data for S & P
- this year's low was 2,200 ( for less than a day )
- This year's all time high was 3,280 ( less than two months ago, on 02/19/2020
- Today's close was 2,750 almost exactly half way between the high and the low.

Low represents a 33% fall from high. Today's close is a 16% fall from the February high.

I think that is a huge over valuation. It doesn't reflect anything close to the damage the US economy is incurring. I still think we test the 2020 low of 2,200 but I will replace today's sale at 2,400. That is about a 15% profit, if successful.

DrStrange

 

[BNM]

Concur. The market is in "hope" phase.

 

[Darson]

I sold half my play portfolio today and looking to sell another 20%. I'm only keeping Amazon which has weathered this storm well. For me, cashing out now when it's been green for the last couple days, lets me have some additional cash reserves in case I lose my job.

Not touching my 401k yet other than to stop buying bonds with my paycheck contribution.

 

[Lemonzest]

Concur. The market is in "hope" phase.

Exactly, and propped up by QE. This current time just shows how artificial the market prices are.

I am going to wait a few months to see how things level off and then possibly buy some individual stocks that I think will perform well over the next 5 years. Overall though this event has just cemented in my mind how bullshit the whole market is. The money I am investing is really just play money to me and I feel bad for the people with their life savings in something that is totally erratic and unpredictable.

Stocks I like right now are: MasterCard, Microsoft, and Amazon. Nothing sexy or ground breaking but I don't see any of these struggling too bad even in a mad max timeline.

 

[Darson]

Sold my last lot today so now have 70% in cash and the rest left in Amazon. Amazon is hitting new highs so it seems silly to sell.

Overall, I'm actually only down about 10% from the February high so will be interested to see if the market tanks now that we're in earnings season.

 

[Beanz]

following

 

[timinater]

Exactly, and propped up by QE. This current time just shows how artificial the market prices are.

I am going to wait a few months to see how things level off and then possibly buy some individual stocks that I think will perform well over the next 5 years. Overall though this event has just cemented in my mind how bullshit the whole market is. The money I am investing is really just play money to me and I feel bad for the people with their life savings in something that is totally erratic and unpredictable.

Stocks I like right now are: MasterCard, Microsoft, and Amazon. Nothing sexy or ground breaking but I don't see any of these struggling too bad even in a mad max timeline.

I think you've hit on a few things that are correct (market is bullshit, based on hype, credit cards, tech and ecommerce =good bets going forward), but I disagree about erratic and unpredictable.

That depends on the time horizon you are looking at, of course. If I invested in the market on a sub 5 year horizon, that would be gambling at best and the market is predictably unpredictable. 10, 20, 30 years? Now that unpredictability and erratic nature (volatility) is just noise on a inevitable increase in wealth.

This chart is inflation adjusted, and while our current end times are approaching the 2000 high, it's still a ways off and is relentlessly marching upward. If I posted the chart not adjusted for inflation it would be even more stark, but I don't think that's fair.

https://www.macrotrends.net/2324/sp-500-historical-chart-data

Also worth noting, this post on reddit (criticisms AUTOMATICALLY granted on this one, of course, but it's a simple simulation, so I allow it) (visual gallery)

Preview:

Timing the market: The absolute worst vs absolute best vs slow and steady

I downloaded the historic S&P 500 data going back 40 years. I dumped everything in Google Sheets and modeled the three different portfolios, named after three fictional friends Tiffany, Brittany and Sarah. All three saved $200 of their income per month for 40 years for a total of $96,000 each. But after 40 years they all ended up with different amounts based on their investment strategies.

TL/DR

Spoiler: Results

Recap

• Amount Saved/Invested: $96,000 each
• Investment: Buy and hold an S&P 500 index fund
• Tiffany (worst timing in the world): $663,594
• Brittany (best timing in the world): $956,838
• Sarah (auto invests monthly): $1,386,429

 

[Lemonzest]

That depends on the time horizon you are looking at, of course. If I invested in the market on a sub 5 year horizon, that would be gambling at best and the market is predictably unpredictable. 10, 20, 30 years? Now that unpredictability and erratic nature (volatility) is just noise on a inevitable increase in wealth.

No one has any clue what the market will do tomorrow or 2 years from now or 5 years from now. That is what I mean by erratic and unpredictable. I feel bad for people with their life savings tied up in the market because some fund manager sold them a line about how on average the market returns 8%/year blah blah blah. I hate the industry of mutual fund managers more than I dislike the market itself. The market is what it is and those that know how it functions can work with it.

I personally knew so many people that were looking toward retirement only to have their whole life plan crushed by the 2008 recession. Similar story right now, I work with a guy in his retirement that just does a bit of work on the side for our company and his whole retirement and financial situation is in ruins.

The problem is that every person is limited by time. No one has an endless time horizon to work with so if you time the market wrong your retirement will be a mess and no one knows when the next boom/bust is going to happen.

The narrative around the market is bullshit and has led to so many people frustrated and lost in their golden years. Where are the fund managers then? All their promises of consistent returns don't mean shit.

Bottom Line: Mutual fund managers do not have their interests aligned with the those of the investors and are not to be trusted. If anyone wants to invest in the market then do you own research and live or die by your own decisions.

 

[Darson]

I just don't buy "the market crash ruined my retirement" statements that abound when there's a downturn.

Firstly, a reasonably managed retirement portfolio will shift more of your holdings into bonds the closer you get to your retirement date so that the total impact of the downturn is not felt across the whole portfolio.

Secondly, no one should be selling out of the market on the day they retire - they should be liquidating what they need for the coming months and leaving the rest in the market to grow back with the recovery.

Thirdly, looking at your portfolio value on the very highest day and considering the value on the lowest day as the amount you have "lost" is a false narrative. It's like buying Tesla at $200, seeing it go to $800 and back to $400. You didn't lose $400, you made $200!

Invest monthly, assume the market average 10% gain compounded, as your end game scenario and plan your future around that. Don't plan your future based on an instantaneous market high and complain during an instantaneous market low. Neither scenario is predictable or sustained.

 

[timinater]

@Lemonzest i agree with pretty much everything there. 2008 messed with many boomers retirement in a huge way, those retired and those planning to retire. I also agree about mutual fund managers. Those fees EAT into your returns and they always pitch them as... "well I can outperform the market by x% so my fees are basically included in that". Unfortunately 1-2% of money under management per year doesn't get offset by an extra 2% yearly return.

 

[David O]

If you do not know what to do then don't do it or at least make sure your financial manager is a fiduciary.

 

[Lemonzest]

I just don't buy "the market crash ruined my retirement" statements that abound when there's a downturn.

Hopefully, you are betting at working with the market than other people. I assure you 2008 and 2020 have screwed up many people's life plans whether you buy it or not.

 

[DrStrange]

For too many people, their retirement planning is more aspirational than actual. They will have "enough" money if . . . . . . and if generally includes that the market keeps running hot and no disaster strikes my family.

401(k) plans and IRAs sound fine on paper but in practice people rarely set aside enough money to retire. And then when a fiscal disaster strikes, the retirement account is easy enough to raid at a time when market values are at their lowest. Aside from public sector jobs and some union jobs, the days of the guaranteed retirement plan is over.

So what is a disaster? The biggest culprit is medical emergencies. yes, yes, you thought your insurance was fine. Or that you'd keep your job with good insurance. Or that it didn't make so much difference that you were now an independent contractor doing the same work. But now that someone has cancer, or is too sick to work, or you discover the "skinny" insurance isn't so good when the bills get big, well then you have a fiscal disaster on your hands to go with the medical one.

Other disasters? Let's say you live in a state where unemployment payments are less than $300/week and ends sooner than later. Or you decide to pay for COBRA insurance rather than your car note. Or maybe you had the bad luck to be in the middle of a life change when the depression/recession hits. Perhaps it isn't you that gets hit, maybe it is your children or grandchildren. Just saying there are a lot of things that can go wrong for which we are not properly prepared.

It isn't hard for the fiscal downturn or major disaster to eviscerate your retirement planning. It isn't just a market crash, but the collection of contemporaneous bad things plus the crash that ruin your retirement.

I see a number of advisors suggesting million dollar+ retirement balances to safely retire. Not so many people have that. Many more are trying to make do with a much smaller nest egg and very careful spending - - - a plan that is fragile in the face of a major market downturn.

Two things:

@David O 's advice about making sure your financial advisor is a fiduciary is potentially critical. You need to ask about this and get the reply in writing. All too often, the firm you use and the guy you trust is not acting as a fiduciary. That means he/she/they are free to sell you stuff that isn't in your best interest. Not saying they can just steal your money directly, but a disreputable/incompetent advisor can do extensive damage over time.

Second, the notion that bonds / income securities are safer than equites is not as true as it once was. Lower rates means higher volatility. some income securities are structured to forego safety to generate higher yield. (see 2008 where the core of the disaster was "safe" bundled home mortgages.) Diversification is important. But risk is still there just in different forms. Even the safest bonds issued by the US Treasury are "risky" in that inflation is higher than the yield, so that you are certain to lose value over time. You can have your money well diversified and still incur substantial losses.

DrStrange

 

[BNM]

"@David O 's advice about making sure your financial advisor is a fiduciary is potentially critical. You need to ask about this and get the reply in writing. All too often, the firm you use and the guy you trust is not acting as a fiduciary. That means he/she/they are free to sell you stuff that isn't in your best interest. Not saying they can just steal your money directly, but a disreputable/incompetent advisor can do extensive damage over time."

^^^This x10,000^^^

This was RAMPANT in the 2008 financial meltdown: financial "advisors" selling stuff that was "appropriate" for their clients portfolios but which they knew were full of absolute shite. That's why they tried to pass significant changes to the law in this regard. Much of it never went through, including, I think a requirement for all financial advisors to be fiduciaries.

I would go further and look for a fiduciary that practices "parallel investing": invests in the same things along with their clients. AKA: has skin in the same game. I would never invest with someone who was a "do as i say, not as I do" person. Doing otherwise is lunacy when you think about it objectively, but these folks are salespeople and people want to believe, so...

Also, something like 80% of funds (managed money) don't beat the S&P 500 Index over any extended period of time. That's a pretty stark number.

 

[Darson]

As usual, the good Dr gives sage advice. Everyone's financial situation is different but particularly in the USA, the potential healthcare costs are a game changer. This is a big concern of mine.

401(k) plans and IRAs sound fine on paper but in practice people rarely set aside enough money to retire.

For me this is the crux of the situation. And not only that, relying on 401k or IRAs as the sole source of your retirement income is betting your future in one asset class. Adequate retirement preparation should include diversification.

--

I guess the overall point I'm trying to make (not that anyone cares) is that failure to adequately prepare for the future should not be blamed on the market. But I guess it's easier to say "the market crash screwed my retirement" than saying "I should have saved more and diversified so that I didn't get screwed when the market crashed".

 

[BNM]

As usual, the good Dr gives sage advice. Everyone's financial situation is different but particularly in the USA, the potential healthcare costs are a game changer. This is a big concern of mine.


For me this is the crux of the situation. And not only that, relying on 401k or IRAs as the sole source of your retirement income is betting your future in one asset class. Adequate retirement preparation should include diversification.

--

I guess the overall point I'm trying to make (not that anyone cares) is that failure to adequately prepare for the future should not be blamed on the market. But I guess it's easier to say "the market crash screwed my retirement" than saying "I should have saved more and diversified so that I didn't get screwed when the market crashed".

Where would you diversify to get a 10% return that wasn't correlated with the market, though?

And, save more and put it in bonds that will be lucky to beat/keep up with inflation or other hedge assets like gold? You still have to make the million dollars you need to put in your retirement account if you're not getting much yield.

I don't think it's the market crashes that ruin people's retirement, it's them pulling their money out (due to need or fear) and realizing the loss on their retirement investments that ruins it. As discussed before, people routinely pull their money out of their accounts or shift them to bonds AFTER the market drops, realizing a a loss. They then wait until the market has recovered to reinvest that same money, having missed out on the biggest part of the recovery. Happens all the time and is the complete opposite of what should be done. But, fear and greed rule the market and people can't stay the course when it looks rough.

 

[Eloe2000]

"@David O 's advice about making sure your financial advisor is a fiduciary is potentially critical. You need to ask about this and get the reply in writing. All too often, the firm you use and the guy you trust is not acting as a fiduciary. That means he/she/they are free to sell you stuff that isn't in your best interest. Not saying they can just steal your money directly, but a disreputable/incompetent advisor can do extensive damage over time."

^^^This x10,000^^^

This was RAMPANT in the 2008 financial meltdown: financial "advisors" selling stuff that was "appropriate" for their clients portfolios but which they knew were full of absolute shite. That's why they tried to pass significant changes to the law in this regard. Much of it never went through, including, I think a requirement for all financial advisors to be fiduciaries.

I would go further and look for a fiduciary that practices "parallel investing": invests in the same things along with their clients. AKA: has skin in the same game. I would never invest with someone who was a "do as i say, not as I do" person. Doing otherwise is lunacy when you think about it objectively, but these folks are salespeople and people want to believe, so...

Also, something like 80% of funds (managed money) don't beat the S&P 500 Index over any extended period of time. That's a pretty stark number.

I worked as a regulator in the financial services industry and then worked as a compliance officer on the “sell side” investment bank and then as a chief compliance officer on the “buy side” for an investment advisor.

Basically, an investment bank employs “brokers” on the “sell side” sell securities “to” their clients that only need to meet a low bar of “suitability” to unsophisticated retail investors. These practices are regulated by the ‘33 Securities Act. While investment advisers are on the “buy side” and “buy” securities “on behalf of their clients” and must meet fiduciary standards according to the ‘34 Investment Advisors Act. The terrible thing that happened awhile ago (90’s-00’s) was that all of the investment banks and brokerages rebranded their brokers as “financial advisors” to fool people into believing they were investment advisors and fiduciaries which they are not. The easiest and most definitive way to tell whether or not your financial professional is a fiduciary or not is to determine how they get paid. If they take a management fee the must be a fiduciary. If they get paid transactionally via commissions or the like they are a broker and not a fiduciary.

Passively managed funds that track indexes have some good features, mainly the significantly lowered fees but also like you said real life managers rarely beat the indexes.