Author Topic: Market All Time Highs - Mental Hacks  (Read 3411 times)

DeltaT

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Market All Time Highs - Mental Hacks
« on: November 30, 2017, 08:00:16 AM »
With the market at all time highs, and with close to 400K invested in equities, it seems like every day when it hits a new high, I get more nervous. I'm a pretty laid back individual, and I hate feeling nervous, so I decided to reframe my thinking on this and get your all's feedback on my new thought trajectory.

So I've switched my thinking to not only accept the correction but in a sense, look forward to it. Here is my thoughts on why. I've got enough mental stability to not sell in the middle of a correction first off. Secondly, I am reinvesting everything (dividends,gains, etc) and right now, that's pretty expensive. So the main positive I see when things finally correct is that my reinvestments should be purchasing more shares (i.e. at a discount).

Do you all have any other positives to look forward to once the market goes on sale?

Retire-Canada

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Re: Market All Time Highs - Mental Hacks
« Reply #1 on: November 30, 2017, 08:06:32 AM »
Do you all have any other positives to look forward to once the market goes on sale?

Stocks would be on sale. I'd get a crash out of the way that would happen in early FIRE if it doesn't happen before. That said I spend next to zero time worry about the market. I just get on with my life. When I have extra cash I invest it according to my AA and that's it. Worrying about something you can't predict and can't really do anything about is worse than pointless.

trollwithamustache

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Re: Market All Time Highs - Mental Hacks
« Reply #2 on: November 30, 2017, 08:13:18 AM »
with only 400k you should be looking forward to a crash. You've got a few years of buying in to go and a lower price buy in for a big chunk of years is to your benefit.

I also took a very small stake in Bitcoin, so I spend a lot of energy watching that gyrate its hips up and down. It distracts me from needing to look at my real assets!

DeltaT

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Re: Market All Time Highs - Mental Hacks
« Reply #3 on: November 30, 2017, 08:25:58 AM »

Do you all have any other positives to look forward to once the market goes on sale?

I'd get a crash out of the way that would happen in early FIRE if it doesn't happen before.

Very good point. Better to have the crash before FIRE than after.


with only 400k you should be looking forward to a crash. You've got a few years of buying in to go and a lower price buy in for a big chunk of years is to your benefit.

I also took a very small stake in Bitcoin, so I spend a lot of energy watching that gyrate its hips up and down. It distracts me from needing to look at my real assets!


Agreed. My plan doesn't change with a crash. Certainly look forward to things going on sale. Just mentally, the inevitable hit to my net worth kind of sucks. Its a give and take. I don't touch the Bitcoin stuff... hope it works out well for you, I just don't understand it, therefore I don't touch it.

Linea_Norway

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Re: Market All Time Highs - Mental Hacks
« Reply #4 on: November 30, 2017, 08:27:30 AM »
I am also nervous about it. Although I have most of my assets in my house, and the rest in index funds. Still, I keep buying funds because it is supposed to be the most sensible action. I usually try to plan that I buy into one of the funds I own that has a little dip at that moment.

I am really concerned about the world on longer term, like a decade or more. I just saw a TED talk telling me the world food crisis is there in 10 years time. I also understood that the big sale introduction of robots will ruin the opportunities for cheap companies in Asia. Climate changes will require expensive measures (like prevention from flooding). And there is a lot more I worry about.

I expect some countries to go broke or whole regions to get into financial trouble. And then I don't expect stock markets to do well in such a situation. I just asked DH last night where to invest in in such a situation? He says that in times of trouble, people tend to invest in gold, or maybe a crypto valuta. From people on the forum here I have understood that investing in gold and silver has been a financial disaster, so I won't do that. Maybe we should invest in bonds in such times.

On the other hand...
Maybe the market is at an all time high because we are introducing robots and everything can be done more efficiently than before.

DeltaT

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Re: Market All Time Highs - Mental Hacks
« Reply #5 on: November 30, 2017, 09:05:07 AM »
I am really concerned about the world on longer term, like a decade or more. I just saw a TED talk telling me the world food crisis is there in 10 years time. I also understood that the big sale introduction of robots will ruin the opportunities for cheap companies in Asia. Climate changes will require expensive measures (like prevention from flooding). And there is a lot more I worry about.

I usually try not to let this kind of thing get to me. Throughout the history of the world, there have always been challenges. I think the difference is now, the challenges just create SO much noise. Internet, news, twitter, all these things just blast it constantly. Regarding crisis like that in the future, one way of looking at it, is if it happens, that crisis will make the companies that help resolve the crisis will become filthy rich (and the people who invest in those companies will prosper also). 

I expect some countries to go broke or whole regions to get into financial trouble. And then I don't expect stock markets to do well in such a situation. I just asked DH last night where to invest in in such a situation? He says that in times of trouble, people tend to invest in gold, or maybe a crypto valuta. From people on the forum here I have understood that investing in gold and silver has been a financial disaster, so I won't do that. Maybe we should invest in bonds in such times.

I expect this also. I expect the next collapse/recession/whatever it is to eventually reward the companies that are fiscally responsible (culling the herd in a sense). But this is what we as investors ultimately want. We want the strong to get stronger, and the weak and incompetent companies to just go away. I also expect significant pain that will occur from the inevitable pension crisis. It makes me sick how the people/companies responsible have let this turn into something where the only realistic solution is broken promises to the pensioners.. The market is at all time highs, and this house of cards is already crashing in some areas.

kasperle

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Re: Market All Time Highs - Mental Hacks
« Reply #6 on: November 30, 2017, 09:42:49 AM »
I just donít think about it. I have control over two things:

- FIREíing when the amount in my account hits a certain number
- Continuing to invest in the account each paycheck

so thatís all that I concern myself with. Whether the market goes up or down will absolutely affect the amount of money in the account, but I canít control nor predict it, so itís not worth me worrying about.

DS

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Linea_Norway

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Re: Market All Time Highs - Mental Hacks
« Reply #8 on: November 30, 2017, 11:02:36 AM »
@DS
Interesting graph, that Dow Jones. As long as we donít get a 1930 crash, we might be allright. But if you would have FIRED in 1929 with all your money in stock, you would have had to wait for about 30 years to get your money back on track. I also notice a period from 65-85 where the market doesnít really go up.

Retire-Canada

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Re: Market All Time Highs - Mental Hacks
« Reply #9 on: November 30, 2017, 11:05:27 AM »
@DS
Interesting graph, that Dow Jones. As long as we donít get a 1930 crash, we might be allright. But if you would have FIRED in 1929 with all your money in stock, you would have had to wait for about 30 years to get your money back on track. I also notice a period from 65-85 where the market doesnít really go up.

If you lower your WR to 3.5% or use a mildly variable WR of 3%-6% averaging out to 4%+ you get 100% success against all those bad times for a 30yr retirement and that's without any Gov't benefits considered.

TheAnonOne

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Re: Market All Time Highs - Mental Hacks
« Reply #10 on: November 30, 2017, 11:13:07 AM »
@DS
Interesting graph, that Dow Jones. As long as we donít get a 1930 crash, we might be allright. But if you would have FIRED in 1929 with all your money in stock, you would have had to wait for about 30 years to get your money back on track. I also notice a period from 65-85 where the market doesnít really go up.

If you lower your WR to 3.5% or use a mildly variable WR of 3%-6% averaging out to 4%+ you get 100% success against all those bad times for a 30yr retirement and that's without any Gov't benefits considered.

The 60s to 80s flat line isn't too much different from 2000 to 2014. I also don't think that graph is taking into account dividends which you would still get for 20 years.

After the 80s started growth, in a massive way for 20 years. If you laid that over today, we might have another 10-15 years of insane growth, with earnings to match.

You just never know, it could dump tomorrow for years, but big deal.

Dicey

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Re: Market All Time Highs - Mental Hacks
« Reply #11 on: November 30, 2017, 11:22:23 AM »
The market is ALWAYS hitting a "New High" because the Old High is, well, old.

I'm FIRE, and looking forward to a market correction. We're sitting on a pile of cash. We're planning on buying more rentals with it, but our target market is experiencing a surge at the moment*. If the markets drop, we'll happily deploy some of it to the stock market. Think of it as a big, red "Sale" sign, and embrace the opportunity it presents.

*Yeah, we're not finding anything to buy, but our existing rentals are increasing in value and it's pushing rents up, for the win.

ILikeDividends

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Re: Market All Time Highs - Mental Hacks
« Reply #12 on: November 30, 2017, 11:34:55 AM »
I also notice a period from 65-85 where the market doesnít really go up.

You're not seeing the whole picture there.  Fixed income was sweet, sweet, sweet, during that period.  Did I say it was sweet? ;) If you had that included in your AA, you would have re-balanced excess cash into equities on a regular basis, and you would have been well positioned for the run-up in equities post-'85.

« Last Edit: November 30, 2017, 11:39:59 AM by ILikeDividends »

neil

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Re: Market All Time Highs - Mental Hacks
« Reply #13 on: November 30, 2017, 11:45:32 AM »
Personally I don't think it is too healthy to react to movements in either direction.  I'm invested in companies actively working to generate economic value, of which some is passed to me.  Being able to appraise those assets on a minute to minute basis is mostly an artifact of the system that allows us to purchase those assets without making a formal business agreement or whatever; but without this system I'd probably only own government bonds and have to work much longer.  Regardless of today's market price, you roughly have the same stake in each business as you did the day before.

You have to simultaneously accept two truths.  The last "top" revisited was 1997 (in 2008) and eventually even these levels will not be seen again.  And 50% drawdowns are possible, so theoretically we could see S&P 1300 again.  You should find an AA where you find both scenarios acceptable and stick with that.  If you honestly can't stomach the drop, maybe 100% isn't for you.  I was 100% US stock and mid-cap tilted and suffered a 60% drawdown and grinded through it, but this was much earlier in the game when I was maybe 15% of the way there when I hit the top.  Now that I'm much closer, I've settled on a 70/30 balance with more international exposure because I feel this is the sweet spot for me - more diversification and around 10x expenses in conservative allocation should allow me to sell bonds for living expenses and the occasional rebalance.

The happier you are with your portfolio allocation, the easier you will find surviving the tense moments.  If it's so simple you can manage to ignore it completely, you may not even care; though I don't claim to have that much discipline.

seattlecyclone

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Re: Market All Time Highs - Mental Hacks
« Reply #14 on: November 30, 2017, 11:45:41 AM »
We buy investments because we expect them to increase in value over time. By that very nature the prices will be at an "all-time high" a very large percentage of the time. You can see from the graph that there are plenty of periods where the market was at an all-time high for many years before any significant correction, and the correction only took away a fraction of the value increase that happened during the bull market. If you had sat on the sidelines until the correction, you would have been worse off than if you had simply invested money as you had acquired it each year.

ChpBstrd

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Re: Market All Time Highs - Mental Hacks
« Reply #15 on: November 30, 2017, 11:59:08 AM »
Why worry when options are this cheap? You can purchase a 2.1 year collar on SPY that limits your capital gain/loss possibilities, including premium paid, to be somewhere between -7.5% and +13.5%. Just buy the put at-the-money and sell the call 21% out-of-the money. Keep the 1.8% dividend during the ride and rest easy.

Historically, stock corrections of 10-20% have occurred every few years, so such a deal might be your ticket to skip the next correction. Be aware that the price of this collar will rise once the volatility arrives.

ILikeDividends

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Re: Market All Time Highs - Mental Hacks
« Reply #16 on: November 30, 2017, 01:10:00 PM »
Why worry when options are this cheap? You can purchase a 2.1 year collar on SPY that limits your capital gain/loss possibilities, including premium paid, to be somewhere between -7.5% and +13.5%. Just buy the put at-the-money and sell the call 21% out-of-the money. Keep the 1.8% dividend during the ride and rest easy.

Historically, stock corrections of 10-20% have occurred every few years, so such a deal might be your ticket to skip the next correction. Be aware that the price of this collar will rise once the volatility arrives.
Hmmm.  Agree that options are cheap these days.  So why sell the call at all?  It would only offset the cost of the position by a about 12.5% (~$300).  Why not just buy the insurance (the ATM put, ~$2360), so you don't cap your upside potential on the underlying?  Basically, you're paying an extra 38.5 cents per day, but you get to keep all the upside, and restful sleep, for 2+ years.
« Last Edit: November 30, 2017, 01:39:21 PM by ILikeDividends »

ChpBstrd

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Re: Market All Time Highs - Mental Hacks
« Reply #17 on: November 30, 2017, 08:23:38 PM »
Why worry when options are this cheap? You can purchase a 2.1 year collar on SPY that limits your capital gain/loss possibilities, including premium paid, to be somewhere between -7.5% and +13.5%. Just buy the put at-the-money and sell the call 21% out-of-the money. Keep the 1.8% dividend during the ride and rest easy.

Historically, stock corrections of 10-20% have occurred every few years, so such a deal might be your ticket to skip the next correction. Be aware that the price of this collar will rise once the volatility arrives.
Hmmm.  Agree that options are cheap these days.  So why sell the call at all?  It would only offset the cost of the position by a about 12.5% (~$300).  Why not just buy the insurance (the ATM put, ~$2360), so you don't cap your upside potential on the underlying?  Basically, you're paying an extra 38.5 cents per day, but you get to keep all the upside, and restful sleep, for 2+ years.
Welcome to my mental world of dilemmas.

You're right. The short call doesn't contribute much revenue when it's that far OTM, and it only slightly improves resistance to time decay.

I wanted to keep the explanation simple, so I worked with one date. If I executed this strategy in reality, I would sell the short call over and over again at 1-2 month durations and safely OTM, harvesting time decay faster and more repetitively. So sort of a calendar-collar. This would only work in a very low-cost trading account, and it would consume a lot of time, making the simple put position more and more attractive. Also, I would roll that 2-year put at some point to avoid accelerated time decay, unless SHTF at that moment.

Yet, even that seems like a hassle compared to just selling everything, putting 90% in treasuries and 10% into calls.  Such a position would mostly mimic a 100% all-stock position at maturity, dividends and all. However, it would only have 10% maximum downside (i.e. 100% of the incredibly cheap cost of the calls).

There are lots of options options.

ILikeDividends

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Re: Market All Time Highs - Mental Hacks
« Reply #18 on: November 30, 2017, 09:02:12 PM »
Why worry when options are this cheap? You can purchase a 2.1 year collar on SPY that limits your capital gain/loss possibilities, including premium paid, to be somewhere between -7.5% and +13.5%. Just buy the put at-the-money and sell the call 21% out-of-the money. Keep the 1.8% dividend during the ride and rest easy.

Historically, stock corrections of 10-20% have occurred every few years, so such a deal might be your ticket to skip the next correction. Be aware that the price of this collar will rise once the volatility arrives.
Hmmm.  Agree that options are cheap these days.  So why sell the call at all?  It would only offset the cost of the position by a about 12.5% (~$300).  Why not just buy the insurance (the ATM put, ~$2360), so you don't cap your upside potential on the underlying?  Basically, you're paying an extra 38.5 cents per day, but you get to keep all the upside, and restful sleep, for 2+ years.
Welcome to my mental world of dilemmas.

You're right. The short call doesn't contribute much revenue when it's that far OTM, and it only slightly improves resistance to time decay.

I wanted to keep the explanation simple, so I worked with one date. If I executed this strategy in reality, I would sell the short call over and over again at 1-2 month durations and safely OTM, harvesting time decay faster and more repetitively. So sort of a calendar-collar. This would only work in a very low-cost trading account, and it would consume a lot of time, making the simple put position more and more attractive. Also, I would roll that 2-year put at some point to avoid accelerated time decay, unless SHTF at that moment.

Yet, even that seems like a hassle compared to just selling everything, putting 90% in treasuries and 10% into calls.  Such a position would mostly mimic a 100% all-stock position at maturity, dividends and all. However, it would only have 10% maximum downside (i.e. 100% of the incredibly cheap cost of the calls).

There are lots of options options.
Interesting alternatives.  Maybe rolling a shorter duration collar with a closer to-the-money short call would be more attractive, assuming you don't mind the extra effort in maintenance (I personally wouldn't mind).

E.g., if I get called away after an 8% gain in 3 months, who cares?  I'll just buy the underlying back, and put on another collar, and be quite content to bank my 32% annualized gain (minus the net debit of the long put and the short call) on the underlying.

It would obviously be a cash drain if the market goes sideways for 2 years, but so would the 2 year put.  Shorting a closer-to-the-money call would reduce my insurance premium meainingfully.  This position is all about insurance.  Even when insuring a car, it's all about paying a premium for coverage that you hope you never need.  The only real difference is that in the market you will most certainly need it, eventually.

It's a pleasure exchanging thoughts with you, as it always is.

Edit to add: I should have set up a 3 month collar before posting.  Even just 8% away, a short call only brings in pennies.  It only offsets the cost the position by a paltry 2.7%. Pathetic, really.  So I guess the collar strategy is going to be out of season for awhile.  Long puts only, or just ride without a saddle.
« Last Edit: December 01, 2017, 01:37:12 PM by ILikeDividends »

Radagast

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Re: Market All Time Highs - Mental Hacks
« Reply #19 on: December 01, 2017, 12:12:49 AM »
@DS
Interesting graph, that Dow Jones. As long as we donít get a 1930 crash, we might be allright. But if you would have FIRED in 1929 with all your money in stock, you would have had to wait for about 30 years to get your money back on track. I also notice a period from 65-85 where the market doesnít really go up.
That graph is price only. Stocks in the 1930's also paid their owners a large share of their value every quarter, but you can't see the large and frequent payments in the graph. If you included them, the 1930's person would have been back to even by 1937, followed by a another crash, but a recovery shortly after that. It was not as bad as it looked.

I do like the extreme log graph though. Most of them are either linear, or their logarithmic scale isn't up to the task of conveying the magnitude of the earlier price movements.