Author Topic: Ready for a Correction  (Read 90407 times)

milesdividendmd

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Re: Ready for a Correction
« Reply #250 on: September 01, 2015, 03:28:09 PM »
I agree.  On the parabolic trajectory of asset price bubbles the first slope is greed and the second is fear, neither can be explained by fundamentals.

As to whether or not this is going to be a bear market, I, for one have no idea.  But this ain't a bubble.

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Re: Ready for a Correction
« Reply #251 on: September 01, 2015, 04:26:26 PM »
I agree.  On the parabolic trajectory of asset price bubbles the first slope is greed and the second is fear, neither can be explained by fundamentals.

As to whether or not this is going to be a bear market, I, for one have no idea.  But this ain't a bubble.
To be honnest, I have no idea what period we are now. In '08, I remember it was clear we were heading towards a recession and a housing bubble, but this year, I have no clue how all this will turn out.

forummm

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Re: Ready for a Correction
« Reply #252 on: September 01, 2015, 04:51:59 PM »
Given the low interest rates I think we're close (another 5%+ drop away) to a "fair" valuation of US equities after today's drop assuming the economy stays steady. But there are signs of slowdown around the world. And I don't know how fearful people are. And if rates do start to tick up, the "fair" valuation ticks down. A "good" valuation is another 20% drop away.

Mr. Green

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Re: Ready for a Correction
« Reply #253 on: September 01, 2015, 06:14:08 PM »
Charts don't show fear, and fear is what's moving the needle right now. Since it looks like the downturn wasn't a flash correction after all I invested the remaining 25% of my cash position today and liquidated some I-Bonds that were earning me nothing with the intent of investing them over the next fear days if I'm feeling it.

Actually charts do show fear.  You will see a market that ran up for like 6 years and in the last year go sideways as we had a equal amount of buyers and sellers and now more sellers than buyers and why you see the markets on the charts moving down.

Look at the big charts the 5 year charts and a 200 day moving avg that is the most important moving avg of all for long term investing.
When markets break the 200 day moving avg it usually means we are going into a bear market 90% of the time...unless it was a quick bounce off the 200 day moving avg.

I moved my 401k into a money market fund 4 weeks ago and will await to see what happens but right now I would say I am 90% certain we are going into a bear market...unless the FED announces another QE.

Those in the market turn off the computer and don't look at your balances things could get ugly....worst thing you could do is sell 3-5 months into a bear market.  Either you got out awhile ago or just wait the storm out.
I don't see it. Hiring is still strong, unemployment numbers are down, people are spending more money, wages are starting to tick up, GDP growth is good, and interest rates are still low. Sure the market could go down. But it could also turn around and go right back up too. I don't look at charts, only broad economic indicators. No selling for this guy!

forummm

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Re: Ready for a Correction
« Reply #254 on: September 01, 2015, 07:19:03 PM »
Charts don't show fear, and fear is what's moving the needle right now. Since it looks like the downturn wasn't a flash correction after all I invested the remaining 25% of my cash position today and liquidated some I-Bonds that were earning me nothing with the intent of investing them over the next fear days if I'm feeling it.

Actually charts do show fear.  You will see a market that ran up for like 6 years and in the last year go sideways as we had a equal amount of buyers and sellers and now more sellers than buyers and why you see the markets on the charts moving down.

Look at the big charts the 5 year charts and a 200 day moving avg that is the most important moving avg of all for long term investing.
When markets break the 200 day moving avg it usually means we are going into a bear market 90% of the time...unless it was a quick bounce off the 200 day moving avg.

I moved my 401k into a money market fund 4 weeks ago and will await to see what happens but right now I would say I am 90% certain we are going into a bear market...unless the FED announces another QE.

Those in the market turn off the computer and don't look at your balances things could get ugly....worst thing you could do is sell 3-5 months into a bear market.  Either you got out awhile ago or just wait the storm out.
I don't see it. Hiring is still strong, unemployment numbers are down, people are spending more money, wages are starting to tick up, GDP growth is good, and interest rates are still low. Sure the market could go down. But it could also turn around and go right back up too. I don't look at charts, only broad economic indicators. No selling for this guy!

With current data, I also think that it would be irrational for US markets to go down too much more (who knows with China). But even a drop of 10% would still be in the bounds of rational by my estimation. But markets are irrational sometimes.

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Re: Ready for a Correction
« Reply #255 on: September 01, 2015, 07:47:55 PM »
Given the low interest rates I think we're close (another 5%+ drop away) to a "fair" valuation of US equities after today's drop assuming the economy stays steady. But there are signs of slowdown around the world. And I don't know how fearful people are. And if rates do start to tick up, the "fair" valuation ticks down. A "good" valuation is another 20% drop away.

A 20% drop from here would put many dividend stocks like Apple, Corning, Intel at PE 7 or 8.  I would call that better than good.

johnny847

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Re: Ready for a Correction
« Reply #256 on: September 01, 2015, 09:10:35 PM »

Exactly that's what I knew, obviously you want all the eventual gains to be long term, but a loss is a loss, short or long term doesn't make a difference.
But maybe I missed something I'm not American and I've only been here 5 years.
Just wanted to be sure, thanks

The reason short term is better for a loss is that it cancels out short-term gains first before income. Long-term can only cancel out long-term gains before income, and the income is limited to $3k losses per year (carries over).

Let's say you had $5k gains this year from rebalancing earlier in the year (short-term), then the market goes to shit and you rebalance again. Let's also say that if you rebalance today it's short-term and if you do it tomorrow, it's long-term. You will incur $10k of losses in the rebalancing.

If you rebalance today, you get $10k of short-term losses, which cancels out the $5k of gains and leaves you with $5k to write off on your taxes ($3k this year, $2k next year) or cancel future short-term gains. If you rebalance tomorrow, you get $10k in long-term losses, which you can write off against income ($3k for three years, $1k the final year) or future long-term gains. Note that long-term losses do not cancel out all of the short-term gains. You'd still pay taxes on the $2k and be unable to reduce income farther.

Hopefully that helps to better understand it.

Thanks a lot for the explanation, super clear and very good to know.
I actually almost never sell and rebalance only through buying so it never made a difference for me

No Absolutely not. That's not how it works.

First long term losses cancel long term gains, and short term losses cancel short term gains.  If you have long term losses and short term gains, you net the long term losses against the short term gains. If you have short term losses and long term gains, you net the short term losses against the long term gains.

So in your example Pooperman, if you rebalance tomorrow. you have $10k of long term losses, which you net against your long term gains of zero, and then you net that against your $5k of short term gains. Now you have $0 in short term capital gains, and $5k in long term losses. You use $3k against income, and carry forward $2k of long term losses to next year.

To see this, download schedule D.
You have a net short term capital gain of $5k on line 7.
You have a net long term capital loss of $10k on line 15.
On the back, line 16, combine lines 7 and 15: $-5k. This is a loss, skip lines 17 to 20, go to line 21.
On line 21, enter ($3000).

Now to figure out the carryover. Go to page 11 of the schedule D instructions.
That's the 2014 instructions, so you'd carry over 2013's losses. Replace 2014 with 2016, and 2013 with 2015.
Line 1: (Some large number, capital losses are disallowed if you don't have taxable income)
Line 2: 3000
Line 3: 3000
Line 4: 3000
Line 7 of 2015's Schedule D is a short term capital gain of $5k. We enter zero on line 5 and go to line 9
Line 5: 0
Line 9: $10k (Line 15 of 2015's Schedule D is a long term capital loss of $10k)
Line 10: $5k
Line 11: $3k
Line 12: $8k
Line 13: $2k.

Line 13 is our long term capital loss carryover for 2016.


Here's the example where short term losses are more valuable than long term losses. I'm going to try make it as dramatic as possible.

Suppose you're in the 15% marginal bracket (and therefore 0% long term capital gain (LTCG) bracket)
Suppose you have $5k in short term capital gains (STCG) and $5k in (LTCG). You have $7k of unrealized STCL that will become unrealized LTCL tomorrow.

If you sell and incur $5k of STCL today, you have a net $0 STCG, and a $5k LTCG. You're in the 0% LTCG bracket, so your taxes on all your capital gains and losses is $0.

If you sell and incur $5k of LTCL tomorrow, you have a net $5k STCG, and a $5k LTCG. You're taxed 15% * $5000 = $750 on STCG, and 0 on your LTCG. Your net taxes paid on all capital losses and gains is $750.


Now notice I said you have $7k of unrealized STCL. What if you sold for a $7k STCL today?
You would have a $2k STCL, and a $5k LTCG. You net these together, and you have a net $3k LTCG. You're in the 0% LTCG tax bracket, so your taxes on capital gains and losses is zero. BUT, if you sold to incur the $7k STCL to TLH, then this was stupid. You haven't changed your tax bill at all (compare it to the above where you realize $5k of STCL). But you have lowered the basis of the funds you just TLH'd. Meaning you will realize a larger capital gain in the future.

What if you sold for a $7k LTCL tomorrow?
You would have a $2k LTCL and a $5k STCG, which net against each other, so you have a $3k STCG. You owe taxes of 3000*.15 = $450 for your capital loses and gains.

Clearly, it is best to incur up to $5k of STCL today (but no more, because then you're lowering your LTCG which you owe no taxes on anyways)

mpg350

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Re: Ready for a Correction
« Reply #257 on: September 02, 2015, 06:59:08 AM »
Charts don't show fear, and fear is what's moving the needle right now. Since it looks like the downturn wasn't a flash correction after all I invested the remaining 25% of my cash position today and liquidated some I-Bonds that were earning me nothing with the intent of investing them over the next fear days if I'm feeling it.

Actually charts do show fear.  You will see a market that ran up for like 6 years and in the last year go sideways as we had a equal amount of buyers and sellers and now more sellers than buyers and why you see the markets on the charts moving down.

Look at the big charts the 5 year charts and a 200 day moving avg that is the most important moving avg of all for long term investing.
When markets break the 200 day moving avg it usually means we are going into a bear market 90% of the time...unless it was a quick bounce off the 200 day moving avg.

I moved my 401k into a money market fund 4 weeks ago and will await to see what happens but right now I would say I am 90% certain we are going into a bear market...unless the FED announces another QE.

Those in the market turn off the computer and don't look at your balances things could get ugly....worst thing you could do is sell 3-5 months into a bear market.  Either you got out awhile ago or just wait the storm out.
I don't see it. Hiring is still strong, unemployment numbers are down, people are spending more money, wages are starting to tick up, GDP growth is good, and interest rates are still low. Sure the market could go down. But it could also turn around and go right back up too. I don't look at charts, only broad economic indicators. No selling for this guy!

Thats because the stock market goes into a correction then the economy follows it.  Hey it could go back up and break thru and start a   new bull market I just don't see it happening but you never know with what the Fed could do.  Market must hold the lows from last monday if they break below that we would be in big trouble.  So all we can do is wait and expect huge wild swings up and down and guess what the next day will bring.
« Last Edit: September 02, 2015, 07:03:43 AM by mpg350 »

Pooperman

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Re: Ready for a Correction
« Reply #258 on: September 02, 2015, 07:06:42 AM »
Charts don't show fear, and fear is what's moving the needle right now. Since it looks like the downturn wasn't a flash correction after all I invested the remaining 25% of my cash position today and liquidated some I-Bonds that were earning me nothing with the intent of investing them over the next fear days if I'm feeling it.

Actually charts do show fear.  You will see a market that ran up for like 6 years and in the last year go sideways as we had a equal amount of buyers and sellers and now more sellers than buyers and why you see the markets on the charts moving down.

Look at the big charts the 5 year charts and a 200 day moving avg that is the most important moving avg of all for long term investing.
When markets break the 200 day moving avg it usually means we are going into a bear market 90% of the time...unless it was a quick bounce off the 200 day moving avg.

I moved my 401k into a money market fund 4 weeks ago and will await to see what happens but right now I would say I am 90% certain we are going into a bear market...unless the FED announces another QE.

Those in the market turn off the computer and don't look at your balances things could get ugly....worst thing you could do is sell 3-5 months into a bear market.  Either you got out awhile ago or just wait the storm out.
I don't see it. Hiring is still strong, unemployment numbers are down, people are spending more money, wages are starting to tick up, GDP growth is good, and interest rates are still low. Sure the market could go down. But it could also turn around and go right back up too. I don't look at charts, only broad economic indicators. No selling for this guy!

Thats because the stock market goes into a correction then the economy follows it.  Hey it could go back up and break thru and start a   new bull market I just don't see it happening but you never know with what the Fed could do.

We're at least a year off of a recession, probably closer to two. Interest rates are low so it's not a case of Black Monday causing the 1990-1994 slowdown. The market will do what it does, and the economy will do what it does. They may ignore eachother at times, but for the most part the economy controls the market, not the other way around.

forummm

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Re: Ready for a Correction
« Reply #259 on: September 02, 2015, 07:53:24 AM »
Given the low interest rates I think we're close (another 5%+ drop away) to a "fair" valuation of US equities after today's drop assuming the economy stays steady. But there are signs of slowdown around the world. And I don't know how fearful people are. And if rates do start to tick up, the "fair" valuation ticks down. A "good" valuation is another 20% drop away.

A 20% drop from here would put many dividend stocks like Apple, Corning, Intel at PE 7 or 8.  I would call that better than good.
It would put the S&P500 around 15.6 vs 19.5 now. Who knows what individual stocks would look like. There's probably a reason why the PE's for those stocks are lower than the market now.

milesdividendmd

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Re: Ready for a Correction
« Reply #260 on: September 02, 2015, 08:27:51 AM »

Given the low interest rates I think we're close (another 5%+ drop away) to a "fair" valuation of US equities after today's drop assuming the economy stays steady. But there are signs of slowdown around the world. And I don't know how fearful people are. And if rates do start to tick up, the "fair" valuation ticks down. A "good" valuation is another 20% drop away.

A 20% drop from here would put many dividend stocks like Apple, Corning, Intel at PE 7 or 8.  I would call that better than good.
It would put the S&P500 around 15.6 vs 19.5 now. Who knows what individual stocks would look like. There's probably a reason why the PE's for those stocks are lower than the market now.

Whatever the reason that the market has priced these stocks lower, there is plenty of evidence that these stocks that are undervalued relative to the market will outperform going forward.

This is the value effect. Efficient market types tack the word "risk" onto the end of value, but even they don't dispute this anomaly. Cheap stocks outperform.

Mr. Green

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Re: Ready for a Correction
« Reply #261 on: September 02, 2015, 10:03:39 AM »
Charts don't show fear, and fear is what's moving the needle right now. Since it looks like the downturn wasn't a flash correction after all I invested the remaining 25% of my cash position today and liquidated some I-Bonds that were earning me nothing with the intent of investing them over the next fear days if I'm feeling it.

Actually charts do show fear.  You will see a market that ran up for like 6 years and in the last year go sideways as we had a equal amount of buyers and sellers and now more sellers than buyers and why you see the markets on the charts moving down.

Look at the big charts the 5 year charts and a 200 day moving avg that is the most important moving avg of all for long term investing.
When markets break the 200 day moving avg it usually means we are going into a bear market 90% of the time...unless it was a quick bounce off the 200 day moving avg.

I moved my 401k into a money market fund 4 weeks ago and will await to see what happens but right now I would say I am 90% certain we are going into a bear market...unless the FED announces another QE.

Those in the market turn off the computer and don't look at your balances things could get ugly....worst thing you could do is sell 3-5 months into a bear market.  Either you got out awhile ago or just wait the storm out.
I don't see it. Hiring is still strong, unemployment numbers are down, people are spending more money, wages are starting to tick up, GDP growth is good, and interest rates are still low. Sure the market could go down. But it could also turn around and go right back up too. I don't look at charts, only broad economic indicators. No selling for this guy!
Thats because the stock market goes into a correction then the economy follows it.  Hey it could go back up and break thru and start a   new bull market I just don't see it happening but you never know with what the Fed could do.  Market must hold the lows from last monday if they break below that we would be in big trouble.  So all we can do is wait and expect huge wild swings up and down and guess what the next day will bring.
Or the market could go sideways for a year and not go any lower. Up and down aren't the only options. Then if I've pulled my money out when do I put it back in? Odds are I'll miss the first 5-10% of gains by the time I realize things are moving up again. My point was I see no data that screams any one particular thing to me like I saw in '08 so my money is staying put. If the market does indeed drop then I'll just buy more.

sirdoug007

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Re: Ready for a Correction
« Reply #262 on: September 02, 2015, 10:20:10 AM »
Given the low interest rates I think we're close (another 5%+ drop away) to a "fair" valuation of US equities after today's drop assuming the economy stays steady. But there are signs of slowdown around the world. And I don't know how fearful people are. And if rates do start to tick up, the "fair" valuation ticks down. A "good" valuation is another 20% drop away.

What is your definitions for "fair" and "good" value based on?  P/E ratios (or the inverse: earnings yield)?  http://www.multpl.com/s-p-500-earnings-yield

I think the Ben Graham's old saying that the market in the short term is a voting machine and in the long term it is a weighing machine is appropriate.  In the short term (6-12 months) the market can be VERY irrational and not very interested in earnings yield even if it is significantly higher than risk free assets.  That is not to say that we, as aspiring successful investors, should not be cognizant of these values though.
« Last Edit: September 02, 2015, 10:26:39 AM by sirdoug007 »

Zaga

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Re: Ready for a Correction
« Reply #263 on: September 02, 2015, 11:27:20 AM »
I'm a little sad that our automatic 401-K monthly contribution went in on Aug 31st, when the market was higher than the days on either side of it.

Kaspian

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Re: Ready for a Correction
« Reply #264 on: September 02, 2015, 12:30:59 PM »
I'm a little sad that our automatic 401-K monthly contribution went in on Aug 31st, when the market was higher than the days on either side of it.

Me too--on the 31st!  Mine also went on the 17th (another slightly "up day").  But you can't win at that game.  Just ignore and truck along.  It means less in the grand scheme than stepping in gum.  :)

forummm

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Re: Ready for a Correction
« Reply #265 on: September 02, 2015, 12:53:56 PM »
Given the low interest rates I think we're close (another 5%+ drop away) to a "fair" valuation of US equities after today's drop assuming the economy stays steady. But there are signs of slowdown around the world. And I don't know how fearful people are. And if rates do start to tick up, the "fair" valuation ticks down. A "good" valuation is another 20% drop away.

What is your definitions for "fair" and "good" value based on?  P/E ratios (or the inverse: earnings yield)?  http://www.multpl.com/s-p-500-earnings-yield

Just ballparking with simple PE.

Zaga

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Re: Ready for a Correction
« Reply #266 on: September 02, 2015, 01:03:59 PM »
I'm a little sad that our automatic 401-K monthly contribution went in on Aug 31st, when the market was higher than the days on either side of it.

Me too--on the 31st!  Mine also went on the 17th (another slightly "up day").  But you can't win at that game.  Just ignore and truck along.  It means less in the grand scheme than stepping in gum.  :)
Oh agreed!  This doesn't change our investing plans at all!  DH gets paid just once a month and the investment generally goes through on the last day of the month, but sometimes is a few days later.

Left

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Re: Ready for a Correction
« Reply #267 on: September 08, 2015, 12:08:07 PM »
slight bump...

so... was that the correction? I saw two small drops, I'm still down about $10k but it wasn't really all that painful. I mean, well, if I wasn't so hyped up over the excitement of it, I probably wouldn't have even known it happened. It's like hitting a bug on the windshield, I see the deflection after hitting it, but it didn't do much to slow me down. Maybe I wiped glass off?

But really, if this is a standard correction, why the hell would people freak out over it? Admittedly, I haven't experienced any other corrections before. I probably have, but I never knew they were corrections, I just thought it was normal ups/downs of the markets and I had better things to do than watch "news" of it.

milesdividendmd

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Re: Ready for a Correction
« Reply #268 on: September 08, 2015, 12:33:59 PM »
Corrections are not particularly scary, and are truly never scary in retrospect when you can see the bottom.  They are scary when they are going down and you have no idea whether or not they will continue to go down a long way.

Whether this current market movement turns out to be a correction or a bear market is an open question at this point. 

sol

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Re: Ready for a Correction
« Reply #269 on: September 08, 2015, 12:52:29 PM »
Corrections are not particularly scary, and are truly never scary in retrospect when you can see the bottom.  They are scary when they are going down and you have no idea whether or not they will continue to go down a long way.

Whether this current market movement turns out to be a correction or a bear market is an open question at this point.

In the interest of full disclosure, miles is being on the bear market and has converted to cash.  His personal returns will improve if enough people follow his lead and sell out of stocks.  So his observations might not be entirely unbiased.

This recent correction was a baby, not enough to test anyone's metal.  Seek out some of the threads here about those of us who have weathered real downturns for a clearer picture of dealing with paper losses.

milesdividendmd

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Re: Ready for a Correction
« Reply #270 on: September 08, 2015, 02:04:39 PM »
Corrections are not particularly scary, and are truly never scary in retrospect when you can see the bottom.  They are scary when they are going down and you have no idea whether or not they will continue to go down a long way.

Whether this current market movement turns out to be a correction or a bear market is an open question at this point.

In the interest of full disclosure, miles is being on the bear market and has converted to cash.  His personal returns will improve if enough people follow his lead and sell out of stocks.  So his observations might not be entirely unbiased.

This recent correction was a baby, not enough to test anyone's metal.  Seek out some of the threads here about those of us who have weathered real downturns for a clearer picture of dealing with paper losses.

Please flesh out your absurd first paragraph out a bit Sol.  Exactly what part of my statement was in any way attempting to influence others as to what investment strategy to take in the future?  Where did I mention DM?

More to the point, I've already refuted your prior unsubstantiated claim in the Dual Momentum thread that writing about my chosen strategy is in any way self serving.  The effects of having other people adopt my strategy is nothing more than an unknown.  There is zero evidence that having others adopting DM helps or hurts me at all (This was all discussed in detail in the DM thread if your memory fails you.)

Since you've decided to take this off topic turn, here feel free to provide the first bit of evidence to support your hypothesis.  The next bit of evidence you provide will be your first, for those keeping score at home.

Left

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Re: Ready for a Correction
« Reply #271 on: September 08, 2015, 03:23:27 PM »
correct me if I'm wrong, but if you have an AA that you like, why would you care that you couldn't see the bottom?

I get this might be a small correction, but even if it is a bear market, so what?

I've been trying out a puts etf, and a bear market would be good for it so no worries on that front. Sure it drags me down a little in a bull market but any AA away from 100% stocks does that... I have G fund for bonds in 401k so no drops there either.

On non-G fund side, I would probably use EE bonds where they are guaranteed to double after 20 years (which gives 3.6%/year from rule of 72).

Pretty much, what is it about a bear market that people are afraid of? I understand market crashes are  bad, but if it is steady (not growing or falling), why would this cause panic?

milesdividendmd

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Re: Ready for a Correction
« Reply #272 on: September 08, 2015, 03:35:01 PM »
People don't like to see their wealth collapse.  Seeing your net worth go from $2,000,000 ti $1,000,000 is about twice as painful as seeing the reverse is joyful.  This is the fundamental finding of prospect theory. 

Add to this the all to human tendency to extrapolate current conditions forward, and the fact that any 50% loss in equity value is likely to occur in extremely uncertain times (like the 2007 financial collapse) and you may get a flavor for why this is not a pleasant experience for most.

Meb Faber always shares this question, which I think illustrates the pain of losing money pretty well.

Q: What do you call an investor who lost 90% of the value of his portfolio?
A: An investor who lost 80% of his portfolio's value, and then lost 50% of its remaining value.


Mr. Green

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Re: Ready for a Correction
« Reply #273 on: September 08, 2015, 03:38:22 PM »
If anyone was freaking out about the idea of a 10% drop after a 6 year bull market, that person needs to read more. Everyone should have been expecting a correction at some point, if not something more than just a correction. I welcome the notion of a little downturn because I'm looking to FIRE in about 18 months and statistically I'm in a lot better shape FIREing after some turbulence than at the peck of a, what would then be, 7.5 year bull market. To me it's just math, plus I had a small cash position from my pre-MMM days that I was looking to invest. Even though I don't generally time the market, I felt the conditions where right for a little dip that merited siting on that position until said dip happened. It did, and I executed.

forummm

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Re: Ready for a Correction
« Reply #274 on: September 08, 2015, 05:17:21 PM »
slight bump...

so... was that the correction? I saw two small drops, I'm still down about $10k but it wasn't really all that painful. I mean, well, if I wasn't so hyped up over the excitement of it, I probably wouldn't have even known it happened. It's like hitting a bug on the windshield, I see the deflection after hitting it, but it didn't do much to slow me down. Maybe I wiped glass off?

But really, if this is a standard correction, why the hell would people freak out over it? Admittedly, I haven't experienced any other corrections before. I probably have, but I never knew they were corrections, I just thought it was normal ups/downs of the markets and I had better things to do than watch "news" of it.

I don't think the market turbulence is over. I don't know the path it takes, but I think it will be more reactive to news than typical. I still think it's overvalued.

johnny847

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Re: Ready for a Correction
« Reply #275 on: September 08, 2015, 05:40:13 PM »
slight bump...

so... was that the correction? I saw two small drops, I'm still down about $10k but it wasn't really all that painful. I mean, well, if I wasn't so hyped up over the excitement of it, I probably wouldn't have even known it happened. It's like hitting a bug on the windshield, I see the deflection after hitting it, but it didn't do much to slow me down. Maybe I wiped glass off?

But really, if this is a standard correction, why the hell would people freak out over it? Admittedly, I haven't experienced any other corrections before. I probably have, but I never knew they were corrections, I just thought it was normal ups/downs of the markets and I had better things to do than watch "news" of it.

I don't think the market turbulence is over. I don't know the path it takes, but I think it will be more reactive to news than typical. I still think it's overvalued.

I agree that it's still turbulent. When you're still seeing 2% daily fluctuations, it's turbulent (at least, compared to how before this August correction began, it was pretty rare to see a 2% change in the value of VTI or VOO).

Whether it's still overvalued, I don't have any opinion one way or another.

milesdividendmd

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Re: Ready for a Correction
« Reply #276 on: September 08, 2015, 05:53:40 PM »
slight bump...

so... was that the correction? I saw two small drops, I'm still down about $10k but it wasn't really all that painful. I mean, well, if I wasn't so hyped up over the excitement of it, I probably wouldn't have even known it happened. It's like hitting a bug on the windshield, I see the deflection after hitting it, but it didn't do much to slow me down. Maybe I wiped glass off?

But really, if this is a standard correction, why the hell would people freak out over it? Admittedly, I haven't experienced any other corrections before. I probably have, but I never knew they were corrections, I just thought it was normal ups/downs of the markets and I had better things to do than watch "news" of it.

I don't think the market turbulence is over. I don't know the path it takes, but I think it will be more reactive to news than typical. I still think it's overvalued.

I agree.  By any metric The US stock market is now overvalued.

http://www.researchaffiliates.com/Production%20content%20library/Are%20Stocks%20Overvalued_%20A%20Survey%20of%20Equity%20Valuation%20Models_pdf.pdf

The only thing is that we were just as clearly overvalued 1 and 2 years ago and by all the same metrics.  So its really tough to argue that solely valuation is causal for the recent volatility.



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Re: Ready for a Correction
« Reply #277 on: September 08, 2015, 06:13:17 PM »
slight bump...

so... was that the correction? I saw two small drops, I'm still down about $10k but it wasn't really all that painful. I mean, well, if I wasn't so hyped up over the excitement of it, I probably wouldn't have even known it happened. It's like hitting a bug on the windshield, I see the deflection after hitting it, but it didn't do much to slow me down. Maybe I wiped glass off?

But really, if this is a standard correction, why the hell would people freak out over it? Admittedly, I haven't experienced any other corrections before. I probably have, but I never knew they were corrections, I just thought it was normal ups/downs of the markets and I had better things to do than watch "news" of it.

I don't think the market turbulence is over. I don't know the path it takes, but I think it will be more reactive to news than typical. I still think it's overvalued.

I agree.  By any metric The US stock market is now overvalued.

http://www.researchaffiliates.com/Production%20content%20library/Are%20Stocks%20Overvalued_%20A%20Survey%20of%20Equity%20Valuation%20Models_pdf.pdf

The only thing is that we were just as clearly overvalued 1 and 2 years ago and by all the same metrics.  So its really tough to argue that solely valuation is causal for the recent volatility.

 
Maybe sometimes the Coyote takes a while to realize he's walking on air

milesdividendmd

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Re: Ready for a Correction
« Reply #278 on: September 08, 2015, 06:21:25 PM »

slight bump...

so... was that the correction? I saw two small drops, I'm still down about $10k but it wasn't really all that painful. I mean, well, if I wasn't so hyped up over the excitement of it, I probably wouldn't have even known it happened. It's like hitting a bug on the windshield, I see the deflection after hitting it, but it didn't do much to slow me down. Maybe I wiped glass off?

But really, if this is a standard correction, why the hell would people freak out over it? Admittedly, I haven't experienced any other corrections before. I probably have, but I never knew they were corrections, I just thought it was normal ups/downs of the markets and I had better things to do than watch "news" of it.

I don't think the market turbulence is over. I don't know the path it takes, but I think it will be more reactive to news than typical. I still think it's overvalued.

I agree.  By any metric The US stock market is now overvalued.

http://www.researchaffiliates.com/Production%20content%20library/Are%20Stocks%20Overvalued_%20A%20Survey%20of%20Equity%20Valuation%20Models_pdf.pdf

The only thing is that we were just as clearly overvalued 1 and 2 years ago and by all the same metrics.  So its really tough to argue that solely valuation is causal for the recent volatility.

 
Maybe sometimes the Coyote takes a while to realize he's walking on air

I love this metaphor.

Of course when it comes to the market the coyote can walk on air for a very long time. And he will in fact never fall until there is a catalyst. (In the coyote's case the catalyst is looking down of course.)

Mr. Green

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Re: Ready for a Correction
« Reply #279 on: September 09, 2015, 06:14:43 AM »
Of course the idea of being overvalued depends on your definition of "at value." This can certainly change over time since our 100 years or market data is not a great sample. A statistician would probably tell you that's a fairly shitty data pool for making a claim that known market behavior is likely the only behavior we'll ever see. If the definition "at value" is changing then maybe the coyote hasn't left the cliff yet.

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Re: Ready for a Correction
« Reply #280 on: September 09, 2015, 06:54:56 AM »
If anyone was freaking out about the idea of a 10% drop after a 6 year bull market, that person needs to read more. Everyone should have been expecting a correction at some point, if not something more than just a correction. I welcome the notion of a little downturn because I'm looking to FIRE in about 18 months and statistically I'm in a lot better shape FIREing after some turbulence than at the peck of a, what would then be, 7.5 year bull market. To me it's just math, plus I had a small cash position from my pre-MMM days that I was looking to invest. Even though I don't generally time the market, I felt the conditions where right for a little dip that merited siting on that position until said dip happened. It did, and I executed.
If you look around for threads in mid-August, you'll find new investors who were really upset about 1% gains or tiny losses.  I'm sure that when the 10% dip hit, some people (even here) freaked out.

nobodyspecial

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Re: Ready for a Correction
« Reply #281 on: September 09, 2015, 09:15:10 AM »
If you look around for threads in mid-August, you'll find new investors who were really upset about 1% gains or tiny losses.  I'm sure that when the 10% dip hit, some people (even here) freaked out.
Or, with more reason, freaked by a 10year  1%/year decline, or even stability

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Re: Ready for a Correction
« Reply #282 on: September 09, 2015, 09:30:56 AM »
If you look around for threads in mid-August, you'll find new investors who were really upset about 1% gains or tiny losses.  I'm sure that when the 10% dip hit, some people (even here) freaked out.
Or, with more reason, freaked by a 10year  1%/year decline, or even stability
That would be bothersome, but hasn't happened, so it sort of sounds like jumping at shadows.

nobodyspecial

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Re: Ready for a Correction
« Reply #283 on: September 09, 2015, 09:34:20 AM »
Or, with more reason, freaked by a 10year  1%/year decline, or even stability
That would be bothersome, but hasn't happened, so it sort of sounds like jumping at shadows.
cough, Japan, cough
We had a decade of low inflation growth, followed by a decade of commodities boom, a decade of stagnation isn't totally impossible and would hurt more than a 10% "crash"

thd7t

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Re: Ready for a Correction
« Reply #284 on: September 09, 2015, 09:37:34 AM »
Or, with more reason, freaked by a 10year  1%/year decline, or even stability
That would be bothersome, but hasn't happened, so it sort of sounds like jumping at shadows.
cough, Japan, cough
We had a decade of low inflation growth, followed by a decade of commodities boom, a decade of stagflation isn't totally impossible and would hurt more than a 10% "crash"
That's true (and I meant to refer to the US, but Canada works, too), but I doubt that you have a lot of your money tied up in Japan's economy.  Are you worried about the world economy going into a decade of flat growth?  That seems a little hand-wavey to me.
ETA: You've mentioned "crash".  I've been really careful to use the word "dip", because I don't think that 10% even qualifies as a "drop".
« Last Edit: September 09, 2015, 09:39:17 AM by thd7t »

Mr. Green

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Re: Ready for a Correction
« Reply #285 on: September 09, 2015, 11:03:20 AM »
Or, with more reason, freaked by a 10year  1%/year decline, or even stability
That would be bothersome, but hasn't happened, so it sort of sounds like jumping at shadows.
cough, Japan, cough
We had a decade of low inflation growth, followed by a decade of commodities boom, a decade of stagnation isn't totally impossible and would hurt more than a 10% "crash"
Highly unlikely though. Japan has a population problem that is fueling their stagnation. The US has no such problem and won't in my lifetime due to the changing population demographics.

sol

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Re: Ready for a Correction
« Reply #286 on: September 09, 2015, 11:29:38 AM »
There have been several good threads here specifically about the Japan stagnation.  It looks like it wasn't really as bad as commonly cited, for a diversified investor who continued to invest regularly.  Straight up stock charts don't always tell the whole story.

Not that I'm looking for a Japan style economic downturn in the US, mind you.  But much of the reason the Japanese market looked so bad was that it bubbled up to P/E ratios never seen anywhere before or since, before the crash.  It's not entirely fair to quote 20 years of flat market returns starting with the biggest stock market bubble ever seen.  We're not anywhere close to those conditions in the US, financially or economically or demographically.

tl;dr: don't be afraid of Japan.

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Re: Ready for a Correction
« Reply #287 on: September 09, 2015, 01:42:11 PM »
Also, the crash in the japanese stock market coincided with a massive increase in value in the yen. So if a japanese investor was drip feeding into an all world tracker their yen was buying more and more equity outside of japan.

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Re: Ready for a Correction
« Reply #288 on: September 09, 2015, 01:59:08 PM »
Highly unlikely though. Japan has a population problem that is fueling their stagnation. The US has no such problem and won't in my lifetime due to the changing population demographics.
Well so long as you don't build that wall ;-)

Europe has a demographic issue, so do a lot of  SE Asia's industrial countries.
It's looking tough for Canada and Australia if people don't start buying more made-in-china gadgets

Anyway - my real point was that for all the news and media hysteria about a few % market blip for a week - while the gradual slowdown of the entire market, a long term low oil price, <1% inflation are probably more worrying.

« Last Edit: September 09, 2015, 02:08:12 PM by nobodyspecial »

Mr. Green

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Re: Ready for a Correction
« Reply #289 on: September 09, 2015, 06:51:04 PM »
Anyway - my real point was that for all the news and media hysteria about a few % market blip for a week - while the gradual slowdown of the entire market, a long term low oil price, <1% inflation are probably more worrying.
Why do people see long term low oil prices as a bad thing? I would think that the positive impacts on every other industry would dramatically outweigh the negative impact that has on the oil industry. If the prices stay low to the point where the majority of exploration and refining dries up and then we see a whiplash in prices then sure that would be ugly but up until that point everyone who is spending money benefits. Cheaper flights, cheaper plastics, cheaper trips, consumers spending more money. What am I missing, just curious?

forummm

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Re: Ready for a Correction
« Reply #290 on: September 09, 2015, 07:02:09 PM »
Anyway - my real point was that for all the news and media hysteria about a few % market blip for a week - while the gradual slowdown of the entire market, a long term low oil price, <1% inflation are probably more worrying.
Why do people see long term low oil prices as a bad thing? I would think that the positive impacts on every other industry would dramatically outweigh the negative impact that has on the oil industry. If the prices stay low to the point where the majority of exploration and refining dries up and then we see a whiplash in prices then sure that would be ugly but up until that point everyone who is spending money benefits. Cheaper flights, cheaper plastics, cheaper trips, consumers spending more money. What am I missing, just curious?
I think cheap oil is generally thought to be good for the economy (ignoring the environment or people's health).

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Re: Ready for a Correction
« Reply #291 on: September 09, 2015, 07:26:45 PM »
Cheap oil is a great opportunity to buy something low in a very expensive market, so there's that at least :)

Also I am not a veteran at all here, but have been lurking for a while, and cannot understand how a very rational member like sol can actually believe the posts of another member can possibly have even the most insignificant influence on the markets.
If all the forum net worth combined was put into the market in one day, we would likely have the same effect on it than a fart has on earth's rotation

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Re: Ready for a Correction
« Reply #292 on: September 09, 2015, 07:31:19 PM »

Anyway - my real point was that for all the news and media hysteria about a few % market blip for a week - while the gradual slowdown of the entire market, a long term low oil price, <1% inflation are probably more worrying.
Why do people see long term low oil prices as a bad thing? I would think that the positive impacts on every other industry would dramatically outweigh the negative impact that has on the oil industry. If the prices stay low to the point where the majority of exploration and refining dries up and then we see a whiplash in prices then sure that would be ugly but up until that point everyone who is spending money benefits. Cheaper flights, cheaper plastics, cheaper trips, consumers spending more money. What am I missing, just curious?

Cheaper oil is a good thing on balance.

The problem is what the really cheap oil signifies on the demand side, slowing growth worldwide, particularly in China. Which is definitely bad for the economy.

sol

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Re: Ready for a Correction
« Reply #293 on: September 09, 2015, 07:49:51 PM »
cannot understand how a very rational member like sol can actually believe the posts of another member can possibly have even the most insignificant influence on the markets.

I wasn't suggesting that any one person could move the markets, but that one particular strategy, widely adopted by millions of market participants, could move markets. 

Imagine what the market fluctuations would look like if every investor was a momentum trader; every random motion would be instantly translated into a race to zero or infinity.  Now imagine half of investors are momentum traders, and otherwise normal fluctuations would be greatly amplified by the market timers trying to catch every little wave.  At some smaller percentage of momentum traders the effect must diminish, but I think that current market gyrations make a lot more sense once you recognize that there are momentum traders out there right now, piling on to every price swing in the pursuit of short term profit.

Momentum trading strategies amplify market volatility.  They are a counterproductive force in the markets, rational actors who seek personal advantage by disrupting the market for everyone else.  I'm not a fan, just on philosophical ground.

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Re: Ready for a Correction
« Reply #294 on: September 09, 2015, 07:59:39 PM »
Thanks for your reply sol.
I am philosophically against any sort of short term speculation, so I'm with you 100% on that

nobodyspecial

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Re: Ready for a Correction
« Reply #295 on: September 09, 2015, 09:46:33 PM »
[Why do people see long term low oil prices as a bad thing? I would think that the positive impacts on every other industry would dramatically outweigh the negative impact that has on the oil industry. If the prices stay low to the point where the majority of exploration and refining dries up and then we see a whiplash in prices then sure that would be ugly but up until that point everyone who is spending money benefits. Cheaper flights, cheaper plastics, cheaper trips, consumers spending more money. What am I missing, just curious?
It's the reason oil is cheap. It isn't because everybody suddenly bought Priuses it's because demand for plastics and chemicals is down along with a big drop in energy usage as low demand shuts factories. Same with copper at the moment, you cant give the stuff away

Seppia

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Ready for a Correction
« Reply #296 on: September 09, 2015, 09:57:38 PM »
Yeah but oil is basically an oligopoly where few control supply, and where demand has increased and will continue to increase for the foreseeable future.
We will never understand exactly what is going on now, but it seems that a mix of dick size contest among those who control supply, China "not growing double digits any more OMG we are fucked!", some economical warfare to hurt Russia and who knows what else are depressing the prices.
In the long term I feel pretty confident the absurdly large amounts of money at stake will help everybody figure stuff out and go back to healthier business.

milesdividendmd

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Re: Ready for a Correction
« Reply #297 on: September 09, 2015, 11:43:51 PM »

cannot understand how a very rational member like sol can actually believe the posts of another member can possibly have even the most insignificant influence on the markets.

I wasn't suggesting that any one person could move the markets, but that one particular strategy, widely adopted by millions of market participants, could move markets. 

Imagine what the market fluctuations would look like if every investor was a momentum trader; every random motion would be instantly translated into a race to zero or infinity.  Now imagine half of investors are momentum traders, and otherwise normal fluctuations would be greatly amplified by the market timers trying to catch every little wave.  At some smaller percentage of momentum traders the effect must diminish, but I think that current market gyrations make a lot more sense once you recognize that there are momentum traders out there right now, piling on to every price swing in the pursuit of short term profit.

Momentum trading strategies amplify market volatility.  They are a counterproductive force in the markets, rational actors who seek personal advantage by disrupting the market for everyone else.  I'm not a fan, just on philosophical ground.

Interesting tangent.

We all have our irrational picadillos Sol. DM is clearly yours.

 Some observations...

1.  You have yet to demonstrate that my comment in question in any way was an attempt to convince other people to adopt my strategy. (It clearly wasn't.)

2.  You have yet to demonstrate a shred of evidence that having more people adopt DM would boost my returns. (You can't)

3.  You have yet to demonstrate a cursory understanding of what dual momentum is and isn't. (Your critique once again displays a stunning lack of insight as to what DM entails.)

4.  Comparing DM to short term momentum strategies and HFT displays a stunning ignorance of what DM is.

5.  DM has far more in common with buy and hold in terms of trading frequency than it does with the "market timers who try to catch every wave."

6.  It is stunningly arrogant for you to presume that you know what is a "counterproductive" force in the markets, particularly when you obviously have not even a basic understanding of the strategy which you feel comfortable critiquing.



sol

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Re: Ready for a Correction
« Reply #298 on: September 10, 2015, 12:32:09 AM »
Take a pill, miles.  I've spent as much time in the DM thread as anyone, and have thus far offered what I think are the simplest and clearest explanations of the strategy there.  Don't pretend to discredit my reading comprehension; you might hurt my feelings.

More people adopting momentum strategies positively reinforces their returns just like it does for the buy and hold strategy.  We've already been over this.  Markets respond to groupthink.

We're not even specifically talking about DM in this thread anymore, just momentum strategies in general.  Don't get so defensive about your chosen investing dogma.  DM is just a better diversified and slower rolling version of HFT or other kinds of market timing shenanigans.

I'll continue to ignore the personal attacks like "stunningly ignorant" here, as I did in the DM thread, as I don't feel like wallowing in that pond with you.  You've got a mean streak, brother.

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Re: Ready for a Correction
« Reply #299 on: September 10, 2015, 06:26:34 AM »
[Why do people see long term low oil prices as a bad thing? I would think that the positive impacts on every other industry would dramatically outweigh the negative impact that has on the oil industry. If the prices stay low to the point where the majority of exploration and refining dries up and then we see a whiplash in prices then sure that would be ugly but up until that point everyone who is spending money benefits. Cheaper flights, cheaper plastics, cheaper trips, consumers spending more money. What am I missing, just curious?
It's the reason oil is cheap. It isn't because everybody suddenly bought Priuses it's because demand for plastics and chemicals is down along with a big drop in energy usage as low demand shuts factories. Same with copper at the moment, you cant give the stuff away
Let's not forget that just about every major oil producer in the world is producing more oil than it ever has and OPEC is playing chicken with the US for production. I'm sure the decline in China is part of it but there is also that.