Author Topic: How would you handle a 90% drop in the market?  (Read 19642 times)

Baylor3217

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How would you handle a 90% drop in the market?
« on: August 19, 2013, 06:24:18 PM »
Will this ever happen again?  Who knows.  History tends to repeat itself.  At a minimum, the market tends to drop at least 30%, on average, every 3 years or so.

We are in somewhat unprecedented times.  The impact of Obamacare are already being felt and for some it will help, for many it may hurt.  I don't claim to know enough to know financially how this will effect bottom lines, but it's already impacting the amount of hours some are getting to work.

We have an unprecedented number of people on food stamps. 

We have the smallest work force in decades for various reason, including the baby boomer generation starting to retire without enough people coming in on the front end to help support them.

We have unprecedented debt and entitlements that have no hope of ever being repaid but don't necessarily directly impact the cash flow for years and sometimes decades to come so a lot can change between now and then.

We also have companies with cleaned up balance sheets and productivity through the roof as they hesitate to commit capital based on the unknowns of much of the above.

This is not intended to be a political post in any way as the Bush administration spent more money we didn't have than any administration until Obama surpassed him.

My question to the smart investors of this forum is what does this portend and how would you handle the unthinkable? 

I personally have enough cash saved that I could continue to DCA for many years at the same level in the hopes the market would return to normalcy before i became insolvent, but that also assumes I could maintain some cash flow.

Has your investment thesis considered this possibility and how would you handle it?

arebelspy

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Re: How would you handle a 90% drop in the market?
« Reply #1 on: August 19, 2013, 06:28:18 PM »
I'd try not to strain my cheek muscles from smiling so hard.
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huadpe

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Re: How would you handle a 90% drop in the market?
« Reply #2 on: August 19, 2013, 06:33:29 PM »
unprecedented

You keep using that word.  I do not think it means what you think it means.

Also, you are neglecting that the great depression was a deflationary depression, which means the inflation adjusted drop was much less.

matchewed

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Re: How would you handle a 90% drop in the market?
« Reply #3 on: August 19, 2013, 06:38:28 PM »
I'm still in the accumulation phase so it wouldn't bug me at all. Assuming my job is secure (as much as it can be it is), I won't have a problem. In fact a drop like that would probably accelerate my FIRE timeline as I'll be investing all the long long way.

So I would handle it by keeping on buying.

Baylor3217

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Re: How would you handle a 90% drop in the market?
« Reply #4 on: August 19, 2013, 06:46:41 PM »
any specifics you would care to speak to? Again, just searching for data and max preparedness, not calling out anyone's particular government affiliation one way or the other as I'm rather agnostic when it comes to that.

As a former lexicographer, I'm well aware of what the definition is :)

unprecedented

You keep using that word.  I do not think it means what you think it means.

Also, you are neglecting that the great depression was a deflationary depression, which means the inflation adjusted drop was much less.

matchewed

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Re: How would you handle a 90% drop in the market?
« Reply #5 on: August 19, 2013, 06:50:19 PM »
Speak to specifics about a potential future amongst several possible potential futures? No thank you.

All of this is just fear mongering and speculation. This is well worn ground with this crowd from gold bugs to bullet bugs. If you're really looking ahead and only seeing a collapse then act as you see fit. If you're looking ahead and seeing a dip but then things getting better, and getting worse, and getting better, but generally always moving in an upward trend, then act as you see fit.

tomsang

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Re: How would you handle a 90% drop in the market?
« Reply #6 on: August 19, 2013, 06:53:17 PM »
It's all about Top Ramen and Lentils! When you are living a Mustachian lifestyle your outflows are reasonable, so you can weather storms much better than other people.  If you are still working than it would be a huge windfall for you to acquire securities cheaply. If you are retired or laid off, you would still adapt quicker and more logically than 99% of the population.

I think a 90% loss would be worse than 1929 and other time, so you are talking complete meltdown. Something like this would most likely be the result of a nuclear attack on most of the US. At that point, the goverment would be throwing everything at the economy to stimulate it back to pre-catastrophe.  This would be a time to make a mint.  Any time the government is artificially trying stimulate the economy, that is another word for windfall for Mustachians.

Baylor3217

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Re: How would you handle a 90% drop in the market?
« Reply #7 on: August 19, 2013, 06:59:38 PM »
No my question was more to any specifics of my use of the word "unprecedented" they wanted to speak to since the conjecture was I used the word incorrectly.

Speak to specifics about a potential future amongst several possible potential futures? No thank you.

All of this is just fear mongering and speculation. This is well worn ground with this crowd from gold bugs to bullet bugs. If you're really looking ahead and only seeing a collapse then act as you see fit. If you're looking ahead and seeing a dip but then things getting better, and getting worse, and getting better, but generally always moving in an upward trend, then act as you see fit.

avonlea

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Re: How would you handle a 90% drop in the market?
« Reply #8 on: August 19, 2013, 07:08:19 PM »

As a former lexicographer, I'm well aware of what the definition is :)

unprecedented

You keep using that word.  I do not think it means what you think it means.


Sometimes it's hard for people to refrain from using The Princess Bride quotes.  There are so many good ones!  :)

(Just wanted to throw that in.  I have nothing important to add to the main topic.  Sorry.)

huadpe

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Re: How would you handle a 90% drop in the market?
« Reply #9 on: August 19, 2013, 07:15:25 PM »
any specifics you would care to speak to? Again, just searching for data and max preparedness, not calling out anyone's particular government affiliation one way or the other as I'm rather agnostic when it comes to that.

As a former lexicographer, I'm well aware of what the definition is :)

unprecedented

You keep using that word.  I do not think it means what you think it means.

Also, you are neglecting that the great depression was a deflationary depression, which means the inflation adjusted drop was much less.

With respect to "unprecedented" I don't think any of your examples are very unprecedented, thus the princess bride reference.

Well, the US federal debt is not at its highest in terms of GDP, so it's not unprecedented.  Highest was in 1945.  And it's certainly well within historical worldwide examples standards.

While the specifics of Obamacare are new to the US, they're certainly not historically unprecedented, as several European countries use similar systems, such as Switzerland.

While the number of people on food assistance is higher than it's been since the program began in the 1960s, it's still a very tiny part of the economy, and as this was the worst recession since the program began, it's not unexpected.  Also, food stamps as a portion of GDP is on the decline.  See this graph: http://research.stlouisfed.org/fredgraph.png?g=lBQ

The specific inflation adjustment is seen on this graph (which is DJIA divided by CPI for the period 1928-1934) http://research.stlouisfed.org/fred2/graph/?g=lBP  Basically, one of the major causes of the depression was falling prices across the board, which resulted in a debt trap for many firms and households.  But you have to take the stock market fall (which really was gigantic) into account in that broader context.

In 2008 we had a banking crisis which really did have the possibility of great depression round two.  But we really have learned how to do monetary policy better now.  And while it was a bad recession, the '08 crash and recession following are nowhere near how bad the 1929-45 depression was.  Fiscal policy sucked, but it turns out that Congress and the President can neither fix the economy, nor really break it (well, they can break it if they really try, but they aren't -that- stupid).  Monetary policy can break an economy though, and we had some awful monetary policy in the 20s and 30s.

It would suck beyond compare if we had another depression, but if you wanna know if you're prepared, run FIREcalc.  It does historical modeling that includes the depression.  If your FI plan scores 100%, it means you would have made it through.

matchewed

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Re: How would you handle a 90% drop in the market?
« Reply #10 on: August 19, 2013, 07:41:15 PM »
No my question was more to any specifics of my use of the word "unprecedented" they wanted to speak to since the conjecture was I used the word incorrectly.

Speak to specifics about a potential future amongst several possible potential futures? No thank you.

All of this is just fear mongering and speculation. This is well worn ground with this crowd from gold bugs to bullet bugs. If you're really looking ahead and only seeing a collapse then act as you see fit. If you're looking ahead and seeing a dip but then things getting better, and getting worse, and getting better, but generally always moving in an upward trend, then act as you see fit.

Well my take on that is that the term unprecedented has been over used in the past as well http://goo.gl/pUKqtJ . The term almost loses the meaning when used so much. Yes we're in unprecedented times because these times have never happened before. So what? Why does that have to be a 90% drop in the market.

Here's an opposite -

We're living in unprecedented times.

We have unprecedented amount of data, information, and processing power.

We have an unprecedented number of solar power installations, wind power installations, and puppies.

There are more people working on large humanity sized problems than ever before, dare I say it is unprecedented.

It's all how you view the world. You look out and see your "unprecedents" and see the 90% drop. I look out, see mine, and see the bright shiny future.

brewer12345

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Re: How would you handle a 90% drop in the market?
« Reply #11 on: August 19, 2013, 07:51:01 PM »
It depends on the nature of the meltdown.  Great Depression 2?  Hunker down and make do with my fixed income positions.  Inflationary recession?  Thank heaven for my fixed rate mortgage and commodity positions.  Nuclear war/zombie invasion?  Kids and wife in the basement while I prowl the ground floor with a 12 gauge.

Kriegsspiel

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Re: How would you handle a 90% drop in the market?
« Reply #12 on: August 19, 2013, 07:58:14 PM »
I have no debt, and a very low cost lifestyle. I have a fairly large amount of money that is well diversified. I don't own many things and am geographically mobile. I'm pretty smart and have a college degree and real world experience. And I have a personal philosophy that is very resilient. In light of all this, I'm very confident in the future no matter what happens.

sol

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Re: How would you handle a 90% drop in the market?
« Reply #13 on: August 19, 2013, 08:09:13 PM »
Under a "normal" 90% drop, I'd be investing every penny I could scrounge on the assumption that the market would eventually recover and I'd be rich beyond my wildest dreams.

But I can also foresee a scenario in which a 90% market dive is accompanied by the death of the global economy.  Nuclear holocaust.  Global plague.  Anything that significantly stops manufacturing or population growth.  In those cases, stocks will eventually go to zero and you're better off with a bunker full of ammunition to help ride out your few remaining days.

In those situations I'm less worried about my asset allocation and I'm not even very worried about my imminent death.  We'll all fry together when we fry.

mpbaker22

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Re: How would you handle a 90% drop in the market?
« Reply #14 on: August 19, 2013, 09:02:31 PM »
At a minimum, the market tends to drop at least 30%, on average, every 3 years or so.


Do you have any data to back this up.  IT might be true, but I would be shocked if it is.

Didn't we just assign a bunch of no moderators to the forum?  These posts should be deleted.

I guess the post actually has some legitimacy, but some of the individual statements are just totally asinine.

Baylor3217

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Re: How would you handle a 90% drop in the market?
« Reply #15 on: August 19, 2013, 09:14:25 PM »
Man it's a tough crowd tonight. Apologies for raising a few questions based on our macro environment. Thanks to those that have offered some valuable insight. Sometimes it's nice to play Devil's Advocate to help reaffirm positions or open eyes to things one hasn't thought before.

Anyway, to the ask below, here's some data. Can't believe this thread is so egregious to warran maybe being deleted.

http://www.gold-eagle.com/article/history-us-bear-bull-markets-1929

Please note I just googled this website.  I don't own gold nor do I endorse its purchase as a result of any of my questions or comments in this thread.

I do stand corrected. The average bear market was actually -35% in the 25+ since 1929 (which is roughly every 3 years - of course not linear).

At a minimum, the market tends to drop at least 30%, on average, every 3 years or so.


Do you have any data to back this up.  IT might be true, but I would be shocked if it is.

Didn't we just assign a bunch of no moderators to the forum?  These posts should be deleted.

I guess the post actually has some legitimacy, but some of the individual statements are just totally asinine.
« Last Edit: August 19, 2013, 09:20:11 PM by Baylor3217 »

LowER

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Re: How would you handle a 90% drop in the market?
« Reply #16 on: August 19, 2013, 09:29:30 PM »
Buy, buy, buy, buy, buy, then bye bye......

Dream come true!

brewer12345

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Re: How would you handle a 90% drop in the market?
« Reply #17 on: August 19, 2013, 09:30:30 PM »
Man it's a tough crowd tonight. Apologies for raising a few questions based on our macro environment.

You should not be all that shocked at the reactions you got.  You seem to have already decided that there is an imminent downdraft on the way.  I don't buy it, but difference of opinion makes a market.  However, asking a series of loaded questions is disingenuous and most of us can see it.

mpbaker22

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Re: How would you handle a 90% drop in the market?
« Reply #18 on: August 19, 2013, 09:32:10 PM »
Man it's a tough crowd tonight. Apologies for raising a few questions based on our macro environment. Thanks to those that have offered some valuable insight. Sometimes it's nice to play Devil's Advocate to help reaffirm positions or open eyes to things one hasn't thought before.

Anyway, to the ask below, here's some data. Can't believe this thread is so egregious to warran maybe being deleted.

http://www.gold-eagle.com/article/history-us-bear-bull-markets-1929

Please note I just googled this website.  I don't own gold nor do I endorse its purchase as a result of any of my questions or comments in this thread.

I do stand corrected. The average bear market was actually -35% in the 25+ since 1929 (which is roughly every 3 years - of course not linear).

At a minimum, the market tends to drop at least 30%, on average, every 3 years or so.


Do you have any data to back this up.  IT might be true, but I would be shocked if it is.

Didn't we just assign a bunch of no moderators to the forum?  These posts should be deleted.

I guess the post actually has some legitimacy, but some of the individual statements are just totally asinine.

To be fair, I do think I mis-read the part I quoted from the original post, though I'm not entirely sure how.  Even so, given the data that is cited, it has dropped 30+% 7 times in the past 73 years.  Hardly a drop of at least 30% every 3 years or so.  That's a drop of 30+% every 10 years.  I do believe there is reason to believe the stock market could drop 30% in the next year.  It could also go up 30%. 

Notice we don't see any 'bear markets' from 1987 till 2000.  We'll all feel really stupid if we pull our stocks waiting for that bear market until 2027.

dragoncar

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Re: How would you handle a 90% drop in the market?
« Reply #19 on: August 19, 2013, 10:03:36 PM »

As a former lexicographer, I'm well aware of what the definition is :)

unprecedented

You keep using that word.  I do not think it means what you think it means.


Sometimes it's hard for people to refrain from using The Princess Bride quotes.  There are so many good ones!  :)

(Just wanted to throw that in.  I have nothing important to add to the main topic.  Sorry.)

Anybody want a peanut?

Seriously though, I think a lot of you are deluding yourselves.  If there's a 90% drop, you are going to be wondering if global economic collapse is imminent.  You will not have a "secure" job with which to fund additional investments.  Nobody is going to be smiling, even if you do end up making a killing in the market years later (unless you get off on the misery of others).

Jamesqf

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Re: How would you handle a 90% drop in the market?
« Reply #20 on: August 19, 2013, 10:05:00 PM »
I would do exactly what I did in the '87 crash, the bursting of the dot-com bubble, and the '08 crash: that is, nothing except buy as much as I reasonably could at bargain prices.

I do agree that there are some possible long-term problems associated with what I call the squirrel-cage economy: everyone working their butts off to produce excess consumer junk so they can use the money they make to buy the junk, which creates more junk-producing jobs...  Kind of the antithesis of part of the MMM philosophy.  What happens to the economy if & when a largish fraction of the population decides that they just don't need to buy new cars, iGadgets, bigger TVs, and all the rest?

Christof

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Re: How would you handle a 90% drop in the market?
« Reply #21 on: August 19, 2013, 10:38:55 PM »
The impact of Obamacare are already being felt and for some it will help, for many it may hurt.  I don't claim to know enough to know financially how this will effect bottom lines, but it's already impacting the amount of hours some are getting to work.

Translation: Most people have work and could even work longer... Oh, and 4% of the population experiences a change with health insurance.

We have an unprecedented number of people on food stamps. 

Translation: We have an unprecedented number of people not starving and dying of hunger.

We have the smallest work force in decades for various reason, including the baby boomer generation starting to retire without enough people coming in on the front end to help support them.

Translation: Our work force got more productive, we all live longer to enjoy retirement, and if anyone from abroad wants to live in this country, guess what, we have a lot of high paying job offers.

We have unprecedented debt and entitlements that have no hope of ever being repaid but don't necessarily directly impact the cash flow for years and sometimes decades to come so a lot can change between now and then.

Translation: We are smart enough not to start wars as we did in the past when debt was too high.

We also have companies with cleaned up balance sheets and productivity through the roof as they hesitate to commit capital based on the unknowns of much of the above.

Translation: We have unprecedented productivity, companies that are really successful, offering jobs and products, and moreover, our economy is so transparent that we even catch those companies that aren't honest with their balance sheet.

Baylor3217

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Re: How would you handle a 90% drop in the market?
« Reply #22 on: August 19, 2013, 11:09:19 PM »
I haven't decided anything. I'm still invested and purchase weekly.

Enjoying the rousing discussion though and people's perspectives.  I have no idea what will happen or how the government debt bubble will be unwound but I don't have the information or knowledge to predict or change that so can only go with what I know.

Man it's a tough crowd tonight. Apologies for raising a few questions based on our macro environment.

You should not be all that shocked at the reactions you got.  You seem to have already decided that there is an imminent downdraft on the way.  I don't buy it, but difference of opinion makes a market.  However, asking a series of loaded questions is disingenuous and most of us can see it.

gooki

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Re: How would you handle a 90% drop in the market?
« Reply #23 on: August 20, 2013, 01:52:22 AM »
Spend less, and become significantly more self sufficient.

Mike

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Re: How would you handle a 90% drop in the market?
« Reply #24 on: August 20, 2013, 01:55:57 AM »
How I handle it depends on what accompanies it:

- WWIII?  Probably just kiss my ass goodbye as such a conflict probably means a nuclear war that brings an end to human civilization.  There's no reason to even plan for this scenario (we are all screwed if it happens).
- Nothing(just a stock market crash)?  Buy into the market as aggressively as I possibly can from those who are selling in a mad panic.  Then sell the shares back to them years later after everything stabilizes and recovers at a massive profit.
- Great Depression, round 2?  Same as the nothing scenario (job is very likely safe regardless of what happens).
- Even in the highly unlikely event I lose my job, I can just go find another one.  Healthcare is a field that is in high demand and is likely to be in even higher demand going forward as the population ages and requires more care.

Honestly, this is not much different from any other challenge or obstacle; if you adapt to it quickly, you'll probably do just fine (I don't know if it's even possible to adapt to a world wide nuclear holocaust, hence the rather fatalistic response to that).

Villanelle

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Re: How would you handle a 90% drop in the market?
« Reply #25 on: August 20, 2013, 04:49:58 AM »
It would depend heavily on why the drop occurred.  We'd cut back on spending and dump some extra money into the market (assuming our specific job security looked very solid) and pad the savings as well.  If something catastrophic lead to the drop, I suppose I'd stock up on necessities and read up on Zombies and self-sufficinecy.
« Last Edit: August 20, 2013, 06:32:01 AM by Villanelle »

chesebert

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Re: How would you handle a 90% drop in the market?
« Reply #26 on: August 20, 2013, 05:23:17 AM »
To the OP with a big pile of money, what's your investment horizen? Sitting on a big pile of money and DCA into th market over years is a big waste of time and money, assuming you are in it for the long haul. If I were you, I would go all in over the next few months and asset allocate to suite your risk profile and rebalance when necessary.

randymarsh

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Re: How would you handle a 90% drop in the market?
« Reply #27 on: August 20, 2013, 06:47:25 AM »
Be very excited because I was still in high school during most of the recession and then didn't have much money to work with during my 1st two years of college. I've only recently started investing again and I regret not finding more money to invest over the last 4 years or so.

chesebert

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Re: How would you handle a 90% drop in the market?
« Reply #28 on: August 20, 2013, 07:38:01 AM »
I'd try not to strain my cheek muscles from smiling so hard.
Why? Because your 10M portfolio is now 1M and you are fully invested?

Christof

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Re: How would you handle a 90% drop in the market?
« Reply #29 on: August 20, 2013, 08:00:44 AM »
Why? Because your 10M portfolio is now 1M and you are fully invested?
A 90% drop in the market means that recent deals of part-ownership of companies were closed at a 90% lower prices than previous deals. Nothing else. It does not change the value of my portfolio, it does not change the prospect of the company and in most cases doesn't even affect a significant amount of shares, since only a small percentage of shares is traded each day.

Unless you are the business of dealing with shares, the market price does not have any immediate impact except that a drop makes investments cheaper. If, however, the business model of my partly owned company doesn't have a future, that's a critical issue no matter what the shares are valued, right now. That's a matter that becomes less pressing the more companies you own.

If you do own enough companies to average this effect (like a total market fund) and you do not have the need to convert part of your ownership to cash (because these companies pay dividends and you can adjust your life style to that fit that amount) then a 90% market drop does not affect you very much.

Mr.Macinstache

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Re: How would you handle a 90% drop in the market?
« Reply #30 on: August 20, 2013, 08:06:47 AM »
We have seen a few things in recent history. The austerity of Greece. The "haircut" of Cypress, where people had a % of their banking accounts confiscated! And since January we are force to pay a % more into social security.

It's no surprise the most governments are NOT MMM-like. They overspend and then we as citizens are forced to pick up the tab. So I think its a practical concern to worry about 17 trillion dollars in debt, rising deficits and unfunded liabilities that we are all responsible for. International finance cartels aren't just going to write that off and give us a "freebie". Legitimate or not, it's on our tab.

Is anyone familiar about what Iceland did? They absolutely got it right with their recent financial solution.

I like the documentary I.O.U.S.A. If you haven't seen it, give it a watch.

Mr.Macinstache

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Re: How would you handle a 90% drop in the market?
« Reply #31 on: August 20, 2013, 08:12:38 AM »
All of this is just fear mongering and speculation. This is well worn ground with this crowd from gold bugs to bullet bugs.

I realize there are certain groups of people who profile those who like to buy precious metals, firearms and ammo. But if someone spent $10,000 on each, 10 years ago, right now they would be looking pretty good.

It's about knowing hot markets. In times of runaway spending, the metals and firearm market is always hot. When government spending gets under control, we might see prices relax a bit in those markets.

Freeyourchains2

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Re: How would you handle a 90% drop in the market?
« Reply #32 on: August 20, 2013, 08:14:39 AM »
Just make sure your Emergency Supplies are big enough and prepared, Emergency fund the same, then BUY BUY BUY all those delicious High quality discounted companies...that if they went, the world would go crazy and start destroying entire governments with all their freetime.

spider1204

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Re: How would you handle a 90% drop in the market?
« Reply #33 on: August 20, 2013, 08:35:46 AM »
Instead of leaving work to go be a bum for a while I'd stick with it and keep buying as much stock as I have been in the past.  Although, plotting the periods during which I work and which I take time off kinda sounds like market timing to me.

arebelspy

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Re: How would you handle a 90% drop in the market?
« Reply #34 on: August 20, 2013, 09:43:00 AM »
I'd try not to strain my cheek muscles from smiling so hard.
Why? Because your 10M portfolio is now 1M and you are fully invested?

Because the once in a lifetime opportunity to buy solid companies at historically underpriced valuations.

Aside from a world-collapsing event (and that being the case is much less likely than it not being so), are we to assume companies like Coca-Cola, McDonald's, General Mills, Disney, etc. aren't going to continue to produce things people are going to buy?

If they are, what a fantastic opportunity.

I'd immediately cut all spending and work to raise as much cash as I could in order to buy as much as possible.  What an exciting time.
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randymarsh

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Re: How would you handle a 90% drop in the market?
« Reply #35 on: August 20, 2013, 10:39:19 AM »
The austerity of Greece. The "haircut" of Cypress, where people had a % of their banking accounts confiscated! And since January we are force to pay a % more into social security.

It's no surprise the most governments are NOT MMM-like. They overspend and then we as citizens are forced to pick up the tab. So I think its a practical concern to worry about 17 trillion dollars in debt, rising deficits and unfunded liabilities that we are all responsible for. International finance cartels aren't just going to write that off and give us a "freebie". Legitimate or not, it's on our tab.

I really don't think you can compare Greece and Cypress to North America or even most of Europe.

We're only paying "more" into SS now because they cut the payroll tax for a year or 2. That tax cut was always supposed to be temporary...just like the Bush tax cuts. We're back now to paying what we were.

Deficits are not rising. They've been falling. The national debt isrising, but it's an important distinction. Debt as a % of GDP was actually higher during WWII. ~30% of US debt is actually owed to US citizens and institutions. Only 5 trillion of it is held by foreign entities. http://www.fool.com/investing/general/2013/08/14/poll-most-americans-oblivious-about-our-falling-de.aspx
http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm


dragoncar

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Re: How would you handle a 90% drop in the market?
« Reply #36 on: August 20, 2013, 10:50:41 AM »
Why? Because your 10M portfolio is now 1M and you are fully invested?
A 90% drop in the market means that recent deals of part-ownership of companies were closed at a 90% lower prices than previous deals. Nothing else. It does not change the value of my portfolio, it does not change the prospect of the company and in most cases doesn't even affect a significant amount of shares, since only a small percentage of shares is traded each day.

Unless you are the business of dealing with shares, the market price does not have any immediate impact except that a drop makes investments cheaper. If, however, the business model of my partly owned company doesn't have a future, that's a critical issue no matter what the shares are valued, right now. That's a matter that becomes less pressing the more companies you own.

If you do own enough companies to average this effect (like a total market fund) and you do not have the need to convert part of your ownership to cash (because these companies pay dividends and you can adjust your life style to that fit that amount) then a 90% market drop does not affect you very much.

A 90% drop in share price absolutely devalues your portfolio. If not, then I'd invite you to sell your portfolio for its (still 100%) value and purchase equivalent shares at 10%.  Of course this wont work.

Share price doesn't CAUSE companies to have financial trouble, but they are INDICATIVE of existing trouble.  You and arebelspy are basically saying "yeah, the patient may be be coughing up blood, but that doesn't cause death."  90% is almost by definition an economic collapse, and even those with "safe" jobs may find that they pay almost nothing (deflation) or are unpaid (ridiculously tight money recession where employers simply don't have the cash for payroll).  Sure you could survive through barter, but the stock market doesn't take chickens (maybe poultry futures?).

sol

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Re: How would you handle a 90% drop in the market?
« Reply #37 on: August 20, 2013, 11:10:00 AM »
A 90% drop in share price absolutely devalues your portfolio. If not, then I'd invite you to sell your portfolio for its (still 100%) value and purchase equivalent shares at 10%.

Sounds like a great plan to me.  You mean I get 10x more shares for zero more dollars?  I'm in!

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Share price doesn't CAUSE companies to have financial trouble, but they are INDICATIVE of existing trouble.

Share prices are indicative of buyer sentiment about the market, not the financial health or productivity of the market.

Which is why the discussion here has focused on a "normal" 90% dive, in which prices plummet due to fear but the underlying economy is still intact.  In that case, yes I say buy.

Besides, if the economy really is going to completely disintegrate as prices go to zero, then we're all living Mad Max style anyway and whether or not you've lost your shirt is kind of irrelevant.  Everybody will be shirtless together.

Praxis

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Re: How would you handle a 90% drop in the market?
« Reply #38 on: August 20, 2013, 11:17:53 AM »
Well, as I own real estate, I'd grin enormously and start buying stocks like a madman.

Will this ever happen again?  Who knows.  History tends to repeat itself.  At a minimum, the market tends to drop at least 30%, on average, every 3 years or so.

What? Source?  The market has definitely gone up on average.

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This is not intended to be a political post in any way as the Bush administration spent more money we didn't have than any administration until Obama surpassed him.

Every president has spent more than the last as the country grows.  This is a useless statistic.

Mr.Macinstache

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Re: How would you handle a 90% drop in the market?
« Reply #39 on: August 20, 2013, 11:22:21 AM »
The austerity of Greece. The "haircut" of Cypress, where people had a % of their banking accounts confiscated! And since January we are force to pay a % more into social security.

It's no surprise the most governments are NOT MMM-like. They overspend and then we as citizens are forced to pick up the tab. So I think its a practical concern to worry about 17 trillion dollars in debt, rising deficits and unfunded liabilities that we are all responsible for. International finance cartels aren't just going to write that off and give us a "freebie". Legitimate or not, it's on our tab.

I really don't think you can compare Greece and Cypress to North America or even most of Europe.

We're only paying "more" into SS now because they cut the payroll tax for a year or 2. That tax cut was always supposed to be temporary...just like the Bush tax cuts. We're back now to paying what we were.

Deficits are not rising. They've been falling. The national debt isrising, but it's an important distinction. Debt as a % of GDP was actually higher during WWII. ~30% of US debt is actually owed to US citizens and institutions. Only 5 trillion of it is held by foreign entities. http://www.fool.com/investing/general/2013/08/14/poll-most-americans-oblivious-about-our-falling-de.aspx
http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm

Yes the citizens own our national debt of 17 trillion. It's not all China or Japan. We are responsible for it. Investors, businesses, taxpayers and the like are on the hook. When we had the banker bailout, sky is falling panic, our then Treasurer Hank Paulson, ex CEO of Goldman Sachs was a champion of it. Now why is it we got another ex Goldman guy, Tim Geitner for Treasurer? They are there to manage the "bankruptcy".
 
Correct, the deficits are now falling. The debt is still rising. There are reasons for that. But, really, what's the point when....

Quote
According to the Daily Treasury Statement for July 12, which the U.S. Treasury released this afternoon, the federal debt that is currently subject to a legal limit of $16,699,421,095,673.60 has stood at exactly $16,699,396,000,000.00 for 56 straight days.

Hmmmm. So I always sort of revert back to Mark Twain's quote "There are three kinds of lies: lies, damned lies and statistics.

I can't help but be skeptical when it comes to financial banking cartels, and their collusion with an anti-MMM government spending.


Hamster

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Re: How would you handle a 90% drop in the market?
« Reply #40 on: August 20, 2013, 11:33:07 AM »
90% drop in the broad market. That would be unprecedented. While you're at it, remember to plan for the Martian invasion.

Mr.Macinstache

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Re: How would you handle a 90% drop in the market?
« Reply #41 on: August 20, 2013, 11:51:10 AM »
90% drop in the broad market. That would be unprecedented. While you're at it, remember to plan for the Martian invasion.

Too late.... invaded.


Jamesqf

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Re: How would you handle a 90% drop in the market?
« Reply #42 on: August 20, 2013, 11:55:29 AM »
I'd also want to look at why the 90%, 30%, or whatever drop happened.  Was it because of some real problem with the economy, or just the bursting of a speculative bubble?  As '08 was in large part the result of the bursting of the housing bubble, 1929 was the result of speculation on margin, etc.  I'd hope I had managed to see signs of the growing bubble in time not to buy at the top of the market.

brewer12345

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Re: How would you handle a 90% drop in the market?
« Reply #43 on: August 20, 2013, 11:57:47 AM »
Quote
Yes the citizens own our national debt of 17 trillion. It's not all China or Japan. We are responsible for it. Investors, businesses, taxpayers and the like are on the hook. When we had the banker bailout, sky is falling panic, our then Treasurer Hank Paulson, ex CEO of Goldman Sachs was a champion of it. Now why is it we got another ex Goldman guy, Tim Geitner for Treasurer? They are there to manage the "bankruptcy".

Um, did you fail to put on your tinfoil helmet this morning?  First, Mr. Geithner is no longer Secretary of the Treasury.  Second, please show me where in this bio he was ever employed by Goldman Sachs: http://en.wikipedia.org/wiki/Timothy_Geithner

Mr.Macinstache

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Re: How would you handle a 90% drop in the market?
« Reply #44 on: August 20, 2013, 12:53:32 PM »
Quote
Yes the citizens own our national debt of 17 trillion. It's not all China or Japan. We are responsible for it. Investors, businesses, taxpayers and the like are on the hook. When we had the banker bailout, sky is falling panic, our then Treasurer Hank Paulson, ex CEO of Goldman Sachs was a champion of it. Now why is it we got another ex Goldman guy, Tim Geitner for Treasurer? They are there to manage the "bankruptcy".

Um, did you fail to put on your tinfoil helmet this morning?  First, Mr. Geithner is no longer Secretary of the Treasury.  Second, please show me where in this bio he was ever employed by Goldman Sachs: http://en.wikipedia.org/wiki/Timothy_Geithner

Such a nice tone along with your finger wagging.

I'll correct myself, Geithner was the former President of the Federal Reserve Bank of NY. Nothing to see there. Surely no collusion.. everything's on the up and up, never mind those Treasury Sec's cheerleading for those AIG/Goldman/etc bailouts.

http://www.prwatch.org/news/2009/11/8705/geithner-aig-goldman-story-keeps-ticking

dragoncar

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Re: How would you handle a 90% drop in the market?
« Reply #45 on: August 20, 2013, 12:59:23 PM »
90% drop in the broad market. That would be unprecedented. While you're at it, remember to plan for the Martian invasion.

Did you catch the post above where this is referred to as a "normal" 90% drop?  Because apparently the stock market will occasionally up and lose 90% value for no fundamental reasons whatsoever.

GuitarStv

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Re: How would you handle a 90% drop in the market?
« Reply #46 on: August 20, 2013, 01:04:39 PM »
90% drop world wide?

I for one, will barricade the windows and doors of my house.  Then (donning a ninja outfit) I will start to secure fresh meat by hunting down the healthiest looking of our neighbours by night.  We have a great quantity of salt used to keep our driveway clear of ice in the winter, which I will re-purpose with the freshly killed neighbour carcasses to create delicious and nutritious jerky that should see us through the long, cruel winter.  We can wittle the bones of our former neighbours into useful items for barter . . . arrow heads, fish hooks, sewing needles, etc. and reemerge from the winter with goods to trade to the surviving population around us.

Hamster

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Re: How would you handle a 90% drop in the market?
« Reply #47 on: August 20, 2013, 01:24:35 PM »
90% drop world wide?

I for one, will barricade the windows and doors of my house.  Then (donning a ninja outfit) I will start to secure fresh meat by hunting down the healthiest looking of our neighbours by night.  We have a great quantity of salt used to keep our driveway clear of ice in the winter, which I will re-purpose with the freshly killed neighbour carcasses to create delicious and nutritious jerky that should see us through the long, cruel winter.  We can wittle the bones of our former neighbours into useful items for barter . . . arrow heads, fish hooks, sewing needles, etc. and reemerge from the winter with goods to trade to the surviving population around us.

I hope you have lean neighbors. North American neighbor jerky is too high in cholesterol for my tastes. Now, ifyou have garss-fed neighbors, maybe.

brewer12345

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Re: How would you handle a 90% drop in the market?
« Reply #48 on: August 20, 2013, 01:37:37 PM »
90% drop world wide?

I for one, will barricade the windows and doors of my house.  Then (donning a ninja outfit) I will start to secure fresh meat by hunting down the healthiest looking of our neighbours by night.  We have a great quantity of salt used to keep our driveway clear of ice in the winter, which I will re-purpose with the freshly killed neighbour carcasses to create delicious and nutritious jerky that should see us through the long, cruel winter.  We can wittle the bones of our former neighbours into useful items for barter . . . arrow heads, fish hooks, sewing needles, etc. and reemerge from the winter with goods to trade to the surviving population around us.

I hope you have lean neighbors. North American neighbor jerky is too high in cholesterol for my tastes. Now, ifyou have garss-fed neighbors, maybe.

I knew vegans would be good for something...

brewer12345

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Re: How would you handle a 90% drop in the market?
« Reply #49 on: August 20, 2013, 01:38:23 PM »
Quote
Yes the citizens own our national debt of 17 trillion. It's not all China or Japan. We are responsible for it. Investors, businesses, taxpayers and the like are on the hook. When we had the banker bailout, sky is falling panic, our then Treasurer Hank Paulson, ex CEO of Goldman Sachs was a champion of it. Now why is it we got another ex Goldman guy, Tim Geitner for Treasurer? They are there to manage the "bankruptcy".

Um, did you fail to put on your tinfoil helmet this morning?  First, Mr. Geithner is no longer Secretary of the Treasury.  Second, please show me where in this bio he was ever employed by Goldman Sachs: http://en.wikipedia.org/wiki/Timothy_Geithner

Such a nice tone along with your finger wagging.

I'll correct myself, Geithner was the former President of the Federal Reserve Bank of NY. Nothing to see there. Surely no collusion.. everything's on the up and up, never mind those Treasury Sec's cheerleading for those AIG/Goldman/etc bailouts.

http://www.prwatch.org/news/2009/11/8705/geithner-aig-goldman-story-keeps-ticking

No fair picking up aliases, freeyourchains2.