Author Topic: What will the next 10%+ correction look like?  (Read 40450 times)

retireatbirth

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What will the next 10%+ correction look like?
« on: April 16, 2015, 05:43:13 PM »
Let's all predict the market's (S&P 500) next 10%+ dip...

1. When will the dip occur?
2. What will the magnitude of the dip be (% diff between high and low in a 3-month window)?
3. Which sector will fall hardest?
4. What/who will CNBC "blame" for the dip? (subprime auto lending, fed policy, etc.)

forummm

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Re: What will the next 10%+ correction look like?
« Reply #1 on: April 16, 2015, 05:57:28 PM »
1) In the future.
2) At least 10%.
3) The one with the most panicked selling.
4) Obama.

Indexer

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Re: What will the next 10%+ correction look like?
« Reply #2 on: April 16, 2015, 07:42:05 PM »
1) In the future.
2) At least 10%.
3) The one with the most panicked selling.
4) Obama.

+1

Forummm beat me to it. 

I'll pretend speculate slightly more. 
3) Healthcare.  (It is might highly priced right now.)
4) Obamacare, or the ending of subsidies if the Supreme court kills those.

Jack

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Re: What will the next 10%+ correction look like?
« Reply #3 on: April 16, 2015, 07:51:07 PM »
Man, if I could predict that I'd be busy creating a trading strategy around it, not telling you!

sol

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Re: What will the next 10%+ correction look like?
« Reply #4 on: April 16, 2015, 08:07:44 PM »
In my perfect world, the dip starts tomorrow.  We would have a "significant but not catastrophic" recession, maybe a 15-20% drop in the S&P500, which would start in mid 2015, bottom sharply in 2016 then partially recover and hold for a while, and be notably on the road to recovery by the close of 2017.  Then I want another five years of 10%+ returns from 2017 to 2022.

Tech and healthcare will have to take a hit, valuations are just too high, but I think it will be a broad selloff and most of the blame will be attributed to the little guys.  It will be the anti-Occupy movement, blaming irrationally defensive consumers for driving down holiday spending instead of the major corporations who are sucking cash out of the system.  Rather than highlighting that Apple's $200 billion in cash is currently sitting in a checking account rather than driving economic productivity, they'll blame the Apply fanboys for not buying enough of the last three iThings.

It's been a while since we had a good round of "Let's Blame The Poor" so I think we're due.


retireatbirth

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Re: What will the next 10%+ correction look like?
« Reply #5 on: April 16, 2015, 08:44:39 PM »
LOL c'mon jcollins has his own stock predictions contest for fun so can't we get some good ol speculation here too?

arebelspy

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Re: What will the next 10%+ correction look like?
« Reply #6 on: April 16, 2015, 10:54:15 PM »

LOL c'mon jcollins has his own stock predictions contest for fun so can't we get some good ol speculation here too?

Isn't that what this whole thread is?  And didn't you start it?

/confused.
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skyrefuge

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Re: What will the next 10%+ correction look like?
« Reply #7 on: April 16, 2015, 11:26:56 PM »
It's not a question worth giving an actual answer to, but I think it's a good philosophical question for people to think about for themselves.

Because I've been feeling lately that a lot of people have a subconscious recency bias telling them "a market crash is a deep dive quickly followed by a long and steady bounce back up", just because that's what the last two major market crashes have looked like. The more you believe that, the less likely it will be that the next crash resembles the previous two, because the universe likes to fuck with you like that. Our species has an incredible pattern-recognition processor built-in, but using it on input that had no part in its evolution can lead to some incredibly wrong answers.

I may be reading invisible subtext, but I hear that bias when people talk about hoping for another crash so they can "buy stocks on sale". In general, people just seem to have more confidence in post-crash bounce-backs than they ought to, like a crash is just some "irrational" thing that the market will quickly and inevitably correct.

In 1972, the inflation-adjusted, dividend-reinvested S&P 500 lost ~50% of its value in a 2-year slide, almost identical to the crashes in 2000 and 2007. But the similarities end there, because that time, the post-crash bounce-back stalled after a year. In 1982, seven-and-a-half years after the 1974 bottom, your investment was still down 37% from its 1972 value. You wouldn't have returned to your break-even point until 1985, after a full twelve years in the hole. That's a longer period of time than an entire Mustachian career, so all of your "buying low" wouldn't have done anything to help you retire earlier. Contrast that with the recovery from the 2007 crash, which took only five-and-a-half years.

So I have no idea what the next crash will look like, but I wouldn't bet much money on it looking like the last two.



And look, I didn't even have to invoke Japan!
« Last Edit: April 16, 2015, 11:32:14 PM by skyrefuge »

NICE!

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Re: What will the next 10%+ correction look like?
« Reply #8 on: April 17, 2015, 04:34:36 AM »
...awesome data and stuff...

BOOM!

Thanks for reigning in my human pattern-recognition. I always forget about things like stagflation and the ridiculous period after the 1929 crash.

PS Japan!

retireatbirth

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Re: What will the next 10%+ correction look like?
« Reply #9 on: April 17, 2015, 05:27:12 AM »

LOL c'mon jcollins has his own stock predictions contest for fun so can't we get some good ol speculation here too?

Isn't that what this whole thread is?  And didn't you start it?

/confused.

Yes, but the replies are lacking in wild speculation with strong conviction.

matchewed

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Re: What will the next 10%+ correction look like?
« Reply #10 on: April 17, 2015, 05:37:37 AM »

LOL c'mon jcollins has his own stock predictions contest for fun so can't we get some good ol speculation here too?

Isn't that what this whole thread is?  And didn't you start it?

/confused.

Yes, but the replies are lacking in wild speculation with strong conviction.

Someone didn't get the memo about outrageous optimism or how to view investing. ;)

All joking aside that truly is why the replies are lacking what you seek. There is no value in considering the question outside of what skyrefuge has posted, which is more of a consideration of our preconceived notions of what a 10% drop looks like overall rather than a guessing game on when it will happen and who gets hit hardest.

arebelspy

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Re: What will the next 10%+ correction look like?
« Reply #11 on: April 17, 2015, 07:42:38 AM »

LOL c'mon jcollins has his own stock predictions contest for fun so can't we get some good ol speculation here too?

Isn't that what this whole thread is?  And didn't you start it?

/confused.

Yes, but the replies are lacking in wild speculation with strong conviction.

Oh.  You may be on the wrong forum.

Most of us aren't too interested in that.

I'm sure some doomer/prepper forums would love a thread about what the next correction will look like.  We don't really care, cause it's a win-win either way (high net worth if no crash, buying low if crash).  We'll take things as they come, and be grateful.  :)
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Axecleaver

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Re: What will the next 10%+ correction look like?
« Reply #12 on: April 17, 2015, 07:52:11 AM »
Quote
I hear that bias when people talk about hoping for another crash so they can "buy stocks on sale".

Great post Sky, it's important to understand that timing the "bounce" is just as much speculating in market timing as guessing when the crash will happen.

In the 2008 crash, I got nervous about the run up a few months before it happened, and moved my portfolio 100% into short term bonds. But I got back in too soon - moved 100% into stocks before the bottom, and as a result I lost about 40%. I missed out on a few months of the run up, and then I got back in too soon and still suffered a big part of the drop.

Learned my lesson the hard way and now I pick the asset allocation I want and stick to it. But, it doesn't stop me from feeling anxious about the next selloff. I just do a better job of resisting my anxiety.

Or, at least that is what I tell myself. We really won't know until the next correction hits.
« Last Edit: April 21, 2015, 07:22:22 AM by Axecleaver »

brooklynguy

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Re: What will the next 10%+ correction look like?
« Reply #13 on: April 17, 2015, 08:04:09 AM »
Apologies for continuing to take what was intended to be a lighthearted thread in a serious direction, but to counterbalance the sobering reminder outlined in skyrefuge's post, keep in mind that our style of early retirement planning is designed to protect against 1972-like near-worst-case scenarios.  Although 1972 represents one of the few historical retirement start years to have resulted in failure for the retiree following a standard 4% WR plan, the exercise of even a modicum of flexibility would have saved the retirement from failure (and, as we all constantly like to remind ourselves, surely none of us would have stared that initial decade of poor returns in the face, dared it to thwart our iron-clad retirement plan, and continued to robotically draw down fixed constant-dollar amounts from our portfolio without seeking supplemental income or taking other corrective action).  So, we should all be fine even if our collective retirements happen to commence in a 1972-like nightmare scenario.  Yay optimism!

On the other hand, a plurality (I think?) of leading experts believe we are in such a nightmare scenario, with all signs pointing to subpar market returns over the next several decades.  So we shouldn't derive false confidence from the outrageous success of our intended retirement plans in the past, given that we may very well be in a market environment poised to be as bad as or worse than any in history.  Yay pessimism!

On the other other hand (I have more hands than a Hindu goddess), as skyrefuge observed here, the last few decades have been much kinder to valuation indicators like CAPE than earlier historical periods, so maybe we're still poised for wildly successful retirements after all!  But wait, isn't this just another form of recency bias?  Why trust the story of the last three decades over that of the ten that came before them?  For that matter, why trust the last century and a half when we have several millennia of modern human history to look to?

So what's the takeaway?  For me, it's "be flexible and hope for the best, but don't necessarily plan for the worst."  The recent artificial intelligence threads highlighting the serious potential for the occurrence of world-changing dislocations in the near future have me reevaluating where to draw the line on what constitutes prudent planning versus indulgence of false precision.

Aphalite

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Re: What will the next 10%+ correction look like?
« Reply #14 on: April 17, 2015, 08:49:28 AM »
So I have no idea what the next crash will look like, but I wouldn't bet much money on it looking like the last two.

And look, I didn't even have to invoke Japan!

Sky - most people don't factor inflation as highly as they should (as the main danger to their wealth), and to your point, a major reason why the market has done so well after the last two crashes was because inflation was low - I think because the US has had dealings with the inflation specter already and the Fed has it in its crosshairs constantly, real returns won't suffer like they did from the 70s to the mid 80s, however, nominal returns before inflation will still be lower than post 2001 or 2009, just because there's more money in the system, pushing up price ratios

arebelspy

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Re: What will the next 10%+ correction look like?
« Reply #15 on: April 17, 2015, 08:53:10 AM »
I wish someone aggregated all the brilliant posts.  I'd nominate brooklynguy's.
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brooklynguy

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Re: What will the next 10%+ correction look like?
« Reply #16 on: April 17, 2015, 09:01:42 AM »
*Extremely flattered*

But seriously, that is a good idea and I wish someone would really do that.  There are a handful of posters whose posts I try to follow religiously because of their superb content (so I periodically click on their names and read all their posts the way I would a blog), but the problem is that this forum has too many such brilliant posters and it's impossible to keep up.  A curated collection of all the must-read posts would be a godsend.  But unless one of our already-FIRE'd participants wants to take up forum-curation as their fulltime retirement occupation, I doubt it will become a reality.

matchewed

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Re: What will the next 10%+ correction look like?
« Reply #17 on: April 17, 2015, 09:07:10 AM »
Eh, give it another 10 (1, 2, 3?) years, we'll run an algorithm that can recognize quality posts and will condense it into book form. MMM won't even have to work on his own book, it will just be a crowdsourced guide to FIRE.

sol

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Re: What will the next 10%+ correction look like?
« Reply #18 on: April 17, 2015, 09:08:53 AM »
I wish someone aggregated all the brilliant posts.  I'd nominate brooklynguy's.

Yes, it's been interesting to watch the forum evolve.  These days we have way more garbage posts from new people asking easy questions they could have answered for themselves with a simple search, but we also have a new group of really outstanding contributors that have kept me coming back. 

Brooklyn and Dodge top my list, but Skyrefuge is a close third.

posters whose posts I try to follow religiously because of their superb content (so I periodically click on their names and read all their posts the way I would a blog)

Oh dear that's horrible.  I can't imagine someone trying to read through my post history for content.  About once a week I actually have something to say, but most of my time on the forum is just mindless drivel.

Don't we already have a FAQ thread with links to good posts on like the top 50 topics that get discussed here?

brooklynguy

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Re: What will the next 10%+ correction look like?
« Reply #19 on: April 17, 2015, 09:23:43 AM »
Oh dear that's horrible.  I can't imagine someone trying to read through my post history for content.

Who said you're on the list?

But seriously, as long as we're sitting around in a collective ego-stroking circle jerk, you do indeed make the cut, and in fact top my list, because of your proclivity to spew forth thought-provoking essays that read more like stand-alone articles than forum conversation posts.

I'm not going to go farther and start naming my personal rankings of posters in terms of forum-contribution-quality, except to say you're nuts if you think skyrefuge ranks below Dodge and me.  No disrespect to Dodge (or myself), but the very fact that you're crazy enough to hold that ludicrous opinion lowers my own respect for your judgment by a couple of notches (unless you were kidding, which would make more sense).

brooklynguy

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Re: What will the next 10%+ correction look like?
« Reply #20 on: April 17, 2015, 09:53:25 AM »
EDIT:  Also, I'm not quite sure why I feel compelled to point this out (because it feeds into the "them" vs. "us" mentality that I absolutely hate (yet still can't help succumbing to, because, like all people, I have a human monkey-brain)), but in my view posters like skyrefuge (who joined the forum less than three months after its foundation) are part of the "original native group," while posters like myself (who, after several months of lurking, joined in mid/late-2013, together with a relatively small wave of others around that time) are more like second-generation immigrants who are now assimilated and firmly entrenched in the community, while those joining much more recently are closer to being fresh off the boat.

BarkyardBQ

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Re: What will the next 10%+ correction look like?
« Reply #21 on: April 17, 2015, 10:00:09 AM »
I wish someone aggregated all the brilliant posts.  I'd nominate brooklynguy's.

Maybe... http://www.simplemachines.org/community/index.php?topic=485528.0

Or this... http://custom.simplemachines.org/mods/index.php?mod=864


I still just enjoy getting schooled by all of you, trying to comprehend and retain the knowledge that is provided here is a feat of it's own.
« Last Edit: April 17, 2015, 10:09:26 AM by zdravé »

Cathy

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Re: What will the next 10%+ correction look like?
« Reply #22 on: April 17, 2015, 10:16:39 AM »
I also read all the posts of certain users here through the "Show Posts" function on the person's profile. To assuage sol's concern, I should say that I don't expect every post I read from these users to be amazing such that it would disappoint me if they are not. It's more that I don't want to miss anything particularly interesting.

As for aggregation, I have been thinking for a while that I should aggregate and revise some of my posts and post them on a website under my control at some point. This would only include my own posts, but not because I think my posts are the only ones worth reading on the forum. It would only include my own posts because I would plan to make significant edits to them (and because I wouldn't republish somebody else's writing without their permission). For example, my posts often contain propositions that are not fully explained and for which no reference is provided. Sometimes I throw in a reference to a concept with with no exposition whatsoever. These instances of laziness are not really oversights, but there is a limit to how much time I'm willing to invest into a given post, so sometimes I abridge things. However, in the collected edition of my content here, I would want to fully flesh out everything, including providing more extensive bibliographies, and probably add sufficient context so that every post can be read as an independent essay without the context of the forum -- and ideally, ensure that every collected post provides information of use to future internet searchers.

I already have a number of websites with their own content, including a personal website/blog. However, the latter website currently only contains essays on computer science topics and links to a variety of computer-related work I've done. It's not entirely obvious how to expand it to cover the range of topics I've written about here in the posts of which I am most proud (often tax law posts, but I'm also proud of some posts I've made on other topics). I would have to decide between expanding the existing blog -- perhaps by breaking it up into categories based on subject -- or starting a new one, although I'd probably lean toward expansion. I'd probably want to revise the layout of the website at the same time, and I don't really like dealing with web layout issues so it's probably something I'll put off for a while.

Given the intended scope (not just aggregating my posts, but significantly revising them), it will be a fairly large project, so I was thinking I would also write some fresh new content as well to tie everything together, perhaps some biographical material.

It may be that I don't actually get around to this any time soon. I am very lazy, after all ;). But it's good to know that there may be audience for the content. I don't know if anybody else has thought about preparing a "collected edition" of their own content here.
« Last Edit: April 17, 2015, 10:39:18 AM by Cathy »

skyrefuge

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Re: What will the next 10%+ correction look like?
« Reply #23 on: April 17, 2015, 10:40:52 AM »
Although 1972 represents one of the few historical retirement start years to have resulted in failure for the retiree following a standard 4% WR plan, the exercise of even a modicum of flexibility would have saved the retirement from failure

So, I wasn't even thinking of it in terms of retirement-survival. I was thinking of the effect of a crash on the psychology of people in the accumulation stage. Because for a retiree, there is absolutely no good to be found in a crash. Yes, a crash will almost always be survivable for a sensible retiree, and usually with nearly-unnoticeable adjustments, but "hmm, might have to cut back on the vacations, and hopefully not for too long..." is still a stark contrast to the average MMM-accumulator's perspective: "a crash? Woo hoo! Finally!"

I think that ability of an accumulator to see a silver lining in a crash is both important and correct, but I wonder if the nature of the last two crashes has misled people to expect not just a silver lining, but a whole giant pile of solid silver coins waiting for them in Scrooge McDuck's vault at the bottom of the V-shape.

Let's imagine a Mustachian accumulator who, in 2015, has been working on his Mustachian path for 5 years. He projects that with basic, ordinary 7% real returns from here on, he'll reach FI in 2020.

"Alright!! My plan is working great! Though after 5 years of investing in this bull market, what would be really great is if I got the chance to live through one of those crashes like I heard about in 2008-2009! I'm kinda jealous of the older guys who were able to take advantage of that opportunity, because that would accelerate my plans and help me reach FI even sooner than expected!"

The next year, he gets his wish, a 2008-like crash. But little does he know, he's getting served the 1970s "recovery" to go with it. Here is his thought process:

  • 2016 - down 24%: "Sweet! FINALLY I get to buy stocks 'on sale'!"
  • 2017 - down another 34%: "Even better! Now I'm getting stocks on SUPER-sale! This is exactly like that 2008 crash; when the bounce-back comes I'm gonna be soooo golden! (though hopefully it comes soon, because I have to admit I am a little freaked out seeing how low my portfolio balance is today...)"
  • 2018 - up 30%: "Yep, the recovery's right on schedule! Though now I'm actually a little sad it didn't stay down longer, I wouldn't have minded another year to keep buying on sale..."
  • 2019 - flat: "Awesome! I can't believe how this market keeps granting my wishes...a nice little pause here while halfway-recovered to allow me to continue purchasing shares at a discount before we return back up the rest of the way".
  • 2020 - down 11%: "Hmm, that's not what was supposed to happen! I was kind of expecting to declare myself FI this year, but I guess I'll have to wait for next year's recovery now..."
  • 2021 - up 3%: "ok, that helps a little, but I'd be FI now if I'd just gotten those 'boring' 7% returns rather than this stupid crash. :-( Well, I guess next year will be the year."
  • 2022 - up 1%: "what the fuck guys, this joke is starting to get a little old...  If I hadn't been adding things, my 2015 portfolio would still be down 36%, and that was 7 years ago...I'm starting to wonder if I was sold a bill of goods on this stock market bullshit.  :-(("
  • 2023 - up 13%: "OK! Fucking finally! If we keep going at this rate, by next year the market will be fully recovered."
  • 2024 - down 10%: "FFFFFFFUUUCKKK YOUUUUUUUUU!!!!! THIS BULLSHIT IS ALL FUCKING BULLSHIT!!!! I WAS SUPPOSED TO BE RETIRED 5 YEARS AGO!!!  Ok, ok, despite all this bullshit and the world dicking me over, the five extra years I've spent slaving away at a job I hate may have let me accumulate enough wealth to declare myself FI by now, but that was under THE OLD RULES. The stock market clearly doesn't work anymore as a tool to build wealth, so there's no fucking way that "4% SWR" bullshit is going to hold going forward, which makes my planned 60-year (now 55-year) retirement a fucking childish pipe-dream. I'm selling all my stocks and putting it in gold. Peace out, assholes."

Again, there's no reason to believe that 1972 crash will be exactly repeated, but there's also no reason to think a 2008 scenario is more likely to happen than the 1972 scenario. And especially not just because that's what happened most recently.
« Last Edit: April 17, 2015, 09:39:59 PM by skyrefuge »

arebelspy

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Re: What will the next 10%+ correction look like?
« Reply #24 on: April 17, 2015, 10:47:33 AM »
As amusing as it was, that was painful to read.

I feel for that guy, working years longer, most likely, than the guy starting his career at the beginning of that, rather than being halfway through his career when that happens.  =/
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matchewed

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Re: What will the next 10%+ correction look like?
« Reply #25 on: April 17, 2015, 10:53:32 AM »
I wish someone aggregated all the brilliant posts.  I'd nominate brooklynguy's.

Yes, it's been interesting to watch the forum evolve.  These days we have way more garbage posts from new people asking easy questions they could have answered for themselves with a simple search, but we also have a new group of really outstanding contributors that have kept me coming back. 

Brooklyn and Dodge top my list, but Skyrefuge is a close third.

posters whose posts I try to follow religiously because of their superb content (so I periodically click on their names and read all their posts the way I would a blog)

Oh dear that's horrible.  I can't imagine someone trying to read through my post history for content.  About once a week I actually have something to say, but most of my time on the forum is just mindless drivel.

Don't we already have a FAQ thread with links to good posts on like the top 50 topics that get discussed here?

Yeah that FAQ was done two years ago. My context for the awesome posts was up to then. The forum has gotten much bigger than my ability to keep up with awesome posts in the intervening two years. There are several individual posters in that time that have come (some that have come and gone) that have had incredible posts which, you're right, should be in there. Compiling them seems a daunting task; seemed easier when the content was only 1.5 years worth of content from probably less than (wild speculation incoming!) 35 consistent posters, now that we've got nearly 3.5 years of material and probably a couple hundred members who've had really great posts that have come and stayed or come and gone (ignoring people who may have come out of nowhere and posted great content then disappeared after <500 posts) well... Ż\_(ツ)_/Ż

skyrefuge

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Re: What will the next 10%+ correction look like?
« Reply #26 on: April 17, 2015, 10:58:59 AM »
Brooklyn and Dodge top my list, but Skyrefuge is a close third.

Woo hoo! My plot to get sol to like me (by being a snarky dick to dumb people) is working!

(and thanks for including me in the "old guard", brooklynguy...I wasn't sure if sol was including me in the "new group" or not, but since I have been posting a lot more recently than I did earlier, it's understandable.)

Anyway, it seems like the bogleheads solution to the "retaining valuable posts" problem was to create a wiki. The community-nature of it distributes the workload, though in their implementation (and maybe that's just the nature of wikis) it's not exactly a pure repository of forum posts, containing the exact text and voice of the original author. But that also might just be a reflection of the difficulty of extracting a forum post from its native context and have it still make sense.

seattlecyclone did recently start the "I'm going to create a blog to use as a FAQ for these damn repeated questions" approach.

matchewed

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Re: What will the next 10%+ correction look like?
« Reply #27 on: April 17, 2015, 11:03:53 AM »
Although 1972 represents one of the few historical retirement start years to have resulted in failure for the retiree following a standard 4% WR plan, the exercise of even a modicum of flexibility would have saved the retirement from failure

So, I wasn't even thinking of it in terms of retirement-survival. I was thinking of the effect of a crash on the psychology of people in the accumulation stage. Because for a retiree, there is absolutely no good to be found in a crash. Yes, a crash will almost always be survivable for a sensible retiree, and usually with nearly-unnoticeable adjustments, but "hmm, might have to cut back on the vacations, and hopefully not for too long..." is still a stark contrast to the average MMM-accumulator's perspective: "a crash? Woo hoo! Finally!"

I think that ability of an accumulator to see a silver lining in crash is both important and correct, but I wonder if the nature of the last two crashes has misled people to expect not just a silver lining, but a whole giant pile of solid silver coins waiting for them in Scrooge McDuck's vault at the bottom of the V-shape.

Let's imagine a Mustachian accumulator who, in 2015, has working on his Mustachian path for 5 years. He projects that with basic, ordinary 7% real returns from here on, he'll reach FI in 2020.

"Alright!! My plan is working great! Though after 5 years of investing in this bull market, what would be really great is if I got the chance to live through one of those crashes like I heard about in 2008-2009! I'm kinda jealous of the older guys who were able to take advantage of that opportunity, because that would accelerate my plans and help me reach FI even sooner than expected!"

The next year, he gets his wish, a 2008-like crash. But little does he know, he's getting served the 1970s "recovery" to go with it. Here is his thought process:

  • 2016 - down 24%: "Sweet! FINALLY I get to buy stocks 'on sale'!"
  • 2017 - down another 34%: "Even better! Now I'm getting stocks on SUPER-sale! This is exactly like that 2008 crash; when the bounce-back comes I'm gonna be soooo golden! (though hopefully it comes soon, because I have to admit I am a little freaked out seeing how low my portfolio balance is today...)"
  • 2018 - up 30%: "Yep, the recovery's right on schedule! Though now I'm actually a little sad it didn't stay down longer, I wouldn't have minded another year to keep buying on sale..."
  • 2019 - flat: "Awesome! I can't believe how this market keeps granting my wishes...a nice little pause here while halfway-recovered to allow me to continue purchasing shares at a discount before we return back up the rest of the way".
  • 2020 - down 11%: "Hmm, that's not what was supposed to happen! I was kind of expecting to declare myself FI this year, but I guess I'll have to wait for next year's recovery now..."
  • 2021 - up 3%: "ok, that helps a little, but I'd be FI now if I'd just gotten those 'boring' 7% returns rather than this stupid crash. :-( Well, I guess next year will be the year."
  • 2022 - up 1%: "what the fuck guys, this joke is starting to get a little old...  If I hadn't been adding things, my 2015 portfolio would still be down 36%, and that was 7 years ago...I'm starting to wonder if I was sold a bill of goods on this stock market bullshit.  :-(("
  • 2023 - up 13%: "OK! Fucking finally! If we keep going at this rate, by next year the market will be fully recovered."
  • 2024 - down 10%: "FFFFFFFUUUCKKK YOUUUUUUUUU!!!!! THIS BULLSHIT IS ALL FUCKING BULLSHIT!!!! I WAS SUPPOSED TO BE RETIRED 5 YEARS AGO!!!  Ok, ok, despite all this bullshit and the world dicking me over, the five extra years I've spent slaving away at a job I hate may have let me accumulate enough wealth to declare myself FI by now, but that was under THE OLD RULES. The stock market clearly doesn't work anymore as a tool to build wealth, so there's no fucking way that "4% SWR" bullshit is going to hold going forward, which makes my planned 60-year (now 55-year) retirement a fucking childish pipe-dream. I'm selling all my stocks and putting it in gold. Peace out, assholes."

Again, there's no reason to believe that 1972 crash will be exactly repeated, but there's also no reason to think a 2008 scenario is more likely to happen than the 1972 scenario. And especially not just because that's what happened most recently.

Is this where I whip out the first world problems meme? :)

Yeah a flat scenario is going to dick over that person. This is one of those things that we have to chalk up to out of our control and that the best laid plans are just that plans. They often don't work out exactly as outlined, it is important to be flexible with your outlook towards events outside of your control as much as it is to be with your spending when you're a retiree. How you respond to the events in your life is the only thing in your control in that scenario.

Plus savings rate > returns. :D

sol

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Re: What will the next 10%+ correction look like?
« Reply #28 on: April 17, 2015, 11:07:44 AM »
you're nuts if you think skyrefuge ranks below Dodge and me. 

Meh, tis just personal preference on the topics presented.  Didn't mean to denigrate anyone's contribution, but not everyone's contributions are of interest to all posters.  Cathy had put up some very detailed information that lots of people are clearly thankful for, it's just not the particular info I was looking for that day.

Such is the beauty of the internet. It's big enough to hold all of everything, even the stuff you may not be ready for just yet.

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Re: What will the next 10%+ correction look like?
« Reply #29 on: April 17, 2015, 11:16:48 AM »
skyrefuge's scenario just comes back to flexibility, if that individual were to stick to the plan, and get their planned principal invested, he could, being flexible, start downgrading his hours to gain more free time instead of a high savings rate... instead of saving 50-80%, he could gain 50% free time and save 10%. Sticking to your goal is more important than demanding a number. The true goal should be more free[dom]time.
« Last Edit: April 17, 2015, 11:24:43 AM by zdravé »

frugalnacho

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Re: What will the next 10%+ correction look like?
« Reply #30 on: April 17, 2015, 11:18:28 AM »
Oh dear that's horrible.  I can't imagine someone trying to read through my post history for content.  About once a week I actually have something to say, but most of my time on the forum is just mindless drivel.

Lol.  I've actually specifically gone through and read your posts. 

The Beacon

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Re: What will the next 10%+ correction look like?
« Reply #31 on: April 17, 2015, 11:37:55 AM »
skyrefuge's worst scenario is very possible. One way to prepare for it is to have a side gig that can bring in 10k or 15k a year which should not be too hard to achieve. Having a rental unit or 2 would definitely help because it is market direction neutral.

brooklynguy

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Re: What will the next 10%+ correction look like?
« Reply #32 on: April 17, 2015, 11:47:31 AM »
I already have a number of websites with their own content, including a personal website/blog.

Cathy, I'm torn between asking you to share the link to your blog so I can start reading it and capitulating to the voice inside me crying out for me to stop letting my fear of missing out on good content cause me to "read the internet" to the exclusion of all other life activities. 

I sympathize with the posts that periodically pop up questioning whether the commitment some of us have to this forum starts to border on unhealthy addiction (here's one such thread I started myself, and here's another in which I ruminated on the very fact that my familiarity with the forum is sufficiently deep to allow me to make these kinds of internal forum cross-citations, and the irony of now citing to that thread is not lost on me).

While I miss seeing some of the old faces around here, I envy the posters who have come and gone, presumably to move on to other chapters of their lives.  I want to FIRE in order to start new pursuits that don't involve staring at a screen for extended periods of the day, and I half-seriously worry that my addiction to the forum and other online content will interfere with that goal.

I lament the direction our society is headed in this Smartphone Age and the unhealthy "fear of missing out" it has created in us (a phenomenon which, apparently, has become sufficiently widespread to earn its own acronym: FoMO).

But that also might just be a reflection of the difficulty of extracting a forum post from its native context and have it still make sense.

This is what I see as the biggest obstacle to implementing the idea (aside from the problem of who's going to do the work, workload-sharing nothwithstanding, though Cathy is an obvious candidate since she clearly has the stamina to do doctorate thesis level research for every minute question that piques her interest and grandiose plans to compile and refine those posts into a feature-length blog! :-) ).

Removing posts from their native context won't just make it difficult for them to retain their meaning but will also rob them of the back-and-forth banter that made them good in the first place, except in the case of stand-alone essay posts of the type sol likes to pen.

Quote
seattlecyclone did recently start the "I'm going to create a blog to use as a FAQ for these damn repeated questions" approach.

This is great!  It saddens me to see great contributors like seattlecyclone turned into workhorses charged (by themselves, albeit) with answering the repetitive questions that routinely come our way.

BTW, sorry for my part in making this the most wildly off-topic thread in forum history.  I'll probably respond later to skyrefuge's tale of the unfortunate aspiring early retiree (which was terrific and, once again, sobering), but I think I've neglected my real job in favor of the forum enough for one morning--holy shit, it's the afternoon already!

sol

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Re: What will the next 10%+ correction look like?
« Reply #33 on: April 17, 2015, 11:50:13 AM »
Lol.  I've actually specifically gone through and read your posts.

I don't know man, that's a lot of pressure.

Posts like this one are like 95% of my contributions, and I pity the fool who wades through them looking for something of value.

Clearly I need to start my own blog.  Philosophical musings about finance!  Being mean to internet strangers!  Puppies and atheism and family life and global climate change, with occasional hints of unpopular political opinion.  Every Thursday will be taco night!

My audience would be four of you, and four members of my immediate family, and that might actually be preferable to letting me shout at the thousands of people on the mmm forum.

frugalnacho

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Re: What will the next 10%+ correction look like?
« Reply #34 on: April 17, 2015, 11:59:24 AM »
Lol.  I've actually specifically gone through and read your posts.

I don't know man, that's a lot of pressure.

Posts like this one are like 95% of my contributions, and I pity the fool who wades through them looking for something of value.

Clearly I need to start my own blog.  Philosophical musings about finance!  Being mean to internet strangers!  Puppies and atheism and family life and global climate change, with occasional hints of unpopular political opinion.  Every Thursday will be taco night!

My audience would be four of you, and four members of my immediate family, and that might actually be preferable to letting me shout at the thousands of people on the mmm forum.

Most of it is noise, but you offer great insight on a lot of topics.  After reading through a lot of your posts i've come to value your analysis and viewpoints.  Sometimes i'll see something that either I didn't originally think of, or seems off to me, but rather than dismiss it immediately I will force myself to reevaluate and consider your view point, which I don't do for most of the scrubs.  I don't agree with everything you say but I enjoy reading about it.

sol

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Re: What will the next 10%+ correction look like?
« Reply #35 on: April 17, 2015, 12:16:38 PM »
you offer great insight on a lot of topics.

Let me stop you before you lean in for the kiss.  I really enjoyed our time together but I don't think it's going to work out between us.  We're just too different; I'm a married man and you're a hairy cheesy mess.

Don't worry, there are lots of fish in the mmm sea.

(Though if you and some of the others want to get together for a little no-strings-attached group forum fun, I'm totally down.)

frugalnacho

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Re: What will the next 10%+ correction look like?
« Reply #36 on: April 17, 2015, 12:34:03 PM »
you offer great insight on a lot of topics.

Let me stop you before you lean in for the kiss.  I really enjoyed our time together but I don't think it's going to work out between us.  We're just too different; I'm a married man and you're a hairy cheesy mess.

Don't worry, there are lots of fish in the mmm sea.

(Though if you and some of the others want to get together for a little no-strings-attached group forum fun, I'm totally down.)

And what you lack in quotation competency you make up for in humor.

brooklynguy

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Re: What will the next 10%+ correction look like?
« Reply #37 on: April 17, 2015, 12:38:47 PM »
Let me stop you before you lean in for the kiss.  I really enjoyed our time together but I don't think it's going to work out between us.  We're just too different; I'm a married man and you're a hairy cheesy mess.

Don't worry, there are lots of fish in the mmm sea.

(Though if you and some of the others want to get together for a little no-strings-attached group forum fun, I'm totally down.)

I follow sol's posts as much for these nuggets of throw-away hilarity as for the thought-provoking poetic waxings.

Now stop sucking me back in!  I have actual work to do in the job that will hopefully allow me to one day buy my freedom, but the forum just keeps calling...  How ironic would it be if I lost the job that should have powered me to financial independence and early retirement as a result of my (unduly frequent) participation in a financial independence and early retirement forum?

QueenAlice

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Re: What will the next 10%+ correction look like?
« Reply #38 on: April 17, 2015, 12:55:44 PM »
Clearly I need to start my own blog.  Philosophical musings about finance!  Being mean to internet strangers!  Puppies and atheism and family life and global climate change, with occasional hints of unpopular political opinion.  Every Thursday will be taco night!

I would definitely read this blog.

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Re: What will the next 10%+ correction look like?
« Reply #39 on: April 17, 2015, 01:06:36 PM »
How ironic would it be if I lost the job that should have powered me to financial independence and early retirement as a result of my (unduly frequent) participation in a financial independence and early retirement forum?

I would definitely read this blog.
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Re: What will the next 10%+ correction look like?
« Reply #40 on: April 17, 2015, 01:39:08 PM »
Again, there's no reason to believe that 1972 crash will be exactly repeated, but there's also no reason to think a 2008 scenario is more likely to happen than the 1972 scenario. And especially not just because that's what happened most recently.

Sorry to beat a dead horse, but my point is, you showed the REAL (adjusted for inflation) return of sp500 - the correct view because it counts spending power, whereas an average investor will look at his market returns without considering inflation (if we're talking about psychological impact). Using indexview again, nominal returns saw a 40% drop by 1975, then back to even by 1978, ending at 140% by the end of 1985. If the investor was sophisticated enough, he would catch on that inflation was eating his returns, but if he was sophisticated enough, he also would not panic and bail in "2024"

arebelspy

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Re: What will the next 10%+ correction look like?
« Reply #41 on: April 17, 2015, 01:41:35 PM »
Again, there's no reason to believe that 1972 crash will be exactly repeated, but there's also no reason to think a 2008 scenario is more likely to happen than the 1972 scenario. And especially not just because that's what happened most recently.

Sorry to beat a dead horse, but my point is, you showed the REAL (adjusted for inflation) return of sp500 - the correct view because it counts spending power, whereas an average investor will look at his market returns without considering inflation (if we're talking about psychological impact). Using indexview again, nominal returns saw a 40% drop by 1975, then back to even by 1978, ending at 140% by the end of 1985. If the investor was sophisticated enough, he would catch on that inflation was eating his returns, but if he was sophisticated enough, he also would not panic and bail in "2024"

But inflation would eat his returns whether he consciously realized it or not, and sky's scenario didn't have them panic bailing, but holding.
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skyrefuge

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Re: What will the next 10%+ correction look like?
« Reply #42 on: April 17, 2015, 02:30:38 PM »
As amusing as it was, that was painful to read.

Success!

skyrefuge's scenario just comes back to flexibility

Yeah, although in this case, I think I'm trying to highlight the need for "expectational flexibility" in addition to the "operational flexibility" that we normally talk about around here. Because operationally, my hypothetical accumulator didn't do anything wrong, until he finally snapped. And the reason he snapped is because he had failed to mentally prepare for the reality he experienced; it had not been included within the range of his expectations. He had read all the MMM cheerleading, never dug much deeper than a glance at an S&P500 price chart from 1995-2015, and wholly bought into the idea that a crash is inevitably a good thing for a Mustachian accumulator in his position.

If he had instead read my post illustrating the 1972 crash, his expectations for the outcome of a crash would have covered a broader range, and that might have given him the "expectational flexibility" to better tolerate the unpleasant outcome. Someone who is told that there might be some harrowing shit in their military training exercise is less-likely to snap when the electric-eel attack starts at 3am than someone who is just expecting the exercise to be a relaxing day at the lake.

So my post was just intended to expand the range of possibilities for some people who might be suffering from recency bias;  not to make them more "scared" of a crash, but to help give their psyches the ability to bend rather than break on the rare chance that the eels show up.

Aphalite

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Re: What will the next 10%+ correction look like?
« Reply #43 on: April 17, 2015, 02:35:22 PM »
But inflation would eat his returns whether he consciously realized it or not, and sky's scenario didn't have them panic bailing, but holding.

Not arguing for argument's sake, but sky's last bullet point says:
2024 - down 10%: "FFFFFFFUUUCKKK YOUUUUUUUUU!!!!! THIS BULLSHIT IS ALL FUCKING BULLSHIT!!!! I WAS SUPPOSED TO BE RETIRED 5 YEARS AGO!!!  Ok, ok, despite all this bullshit and the world dicking me over, the five extra years I've spent slaving away at a job I hate may have let me accumulate enough wealth to declare myself FI by now, but that was under THE OLD RULES. The stock market clearly doesn't work anymore as a tool to build wealth, so there's no fucking way that "4% SWR" bullshit is going to hold going forward, which makes my planned 60-year (now 55-year) retirement a fucking childish pipe-dream. I'm selling all my stocks and putting it in gold. Peace out, assholes."

Obviously he was being facetious on the selling all my stocks and putting it in gold, but the point I was trying to make is that the whole time, in sky's scenario, the investor is looking at nominal returns, and not real returns (since you can't find real returns from a chart, normally, indexview is a rare exception), and nominally, he did pretty well in the period. Most people who are posting in this forum quote nominal and not real returns, and in current times that's probably appropriate because inflation is so low, just saying that there's more than a fair share of investors who don't take inflation into account when they should

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Re: What will the next 10%+ correction look like?
« Reply #44 on: April 17, 2015, 02:42:46 PM »
Oh, sure, I forgot about the last throwaway joke.  My bad.  It didn't actually affect the scenario at all though.

My point was he didn't bail after the first year, or two, crash, but held on the whole time, yet still had to work years and years more.

And it won't matter if he's looking at nominal returns, which I agree with you that he likely would be, because his expenses would have risen in the meantime and his "number" would have risen correspondingly (so that's why the real returns matters).
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skyrefuge

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Re: What will the next 10%+ correction look like?
« Reply #45 on: April 17, 2015, 02:45:35 PM »
Sorry to beat a dead horse, but my point is, you showed the REAL (adjusted for inflation) return of sp500 - the correct view because it counts spending power, whereas an average investor will look at his market returns without considering inflation (if we're talking about psychological impact).

That raises an interesting question. I agree that today, the "average investor" is likely to ignore inflation when feeling the psychological impact of his returns. But maybe that's just because inflation, even to the sophisticated investor, has been a relative non-issue in recent times. Its noise that can be waved away as a rounding error. But I wouldn't be surprised if "the average investor" of the 70s/80s was more psychologically- and emotionally-aware of the effects of inflation than even a sophisticated investor today, simply because inflation had a much more obvious and impactful effect on day-to-day life in that era. For example, you mention that IndexView is relatively rare in showing real returns, and I agree. But if Morningstar's website was created in 1972, it seems entirely plausible to me that the "Growth of 10k" charts would show (or at least have the option to show) real returns, and then so would everyone else's, maybe even your broker's website.

Unfortunately feelings of 1970s-era investors vs. 2010s-era investors is probably a hard thing to get data on, because anyone who was investing in that era and felt the effects of inflation in their emotions is likely to have continued carrying that inflated inflation-awareness throughout their entire lives.
« Last Edit: April 17, 2015, 09:50:59 PM by skyrefuge »

forummm

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Re: What will the next 10%+ correction look like?
« Reply #46 on: April 17, 2015, 08:12:04 PM »
Was I the only one who read skyrefuge's entertaining scenario and thought that it looked really good? With a savings rate high enough to start from zero and expect FIRE in 10 years (i.e. ~67%), even that market performance wouldn't be enough to delay retirement that much. And during this whole time, the young mustachian is stacking away tons of cheap stocks. He may not know exactly when the market will start climbing again, but he would know that CAPE was about 50% of the historical average at that point, and that he was very likely to have a really rich retirement. He could also know that with CAPE only being below that point twice in history, his SWR is actually increased to much more than the usual 4%.

I'd actually be pretty happy about that kind of scenario happening now. I think being where we are now is a much more worrisome place to be for planning a FIRE in the next 5ish years.

brooklynguy

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Re: What will the next 10%+ correction look like?
« Reply #47 on: April 17, 2015, 09:07:49 PM »
Was I the only one who read skyrefuge's entertaining scenario and thought that it looked really good?

I had just started preparing a post along similar lines.  I completely agree with skyrefuge that it would be a good thing for everyone to be mindful that the next market crash could take the form of the drawn-out 1972-style downturn outlined in his blow-by-blow account (or an even worse historically unprecedented type of downturn) rather than a sharp drop and quick recovery, and we should all mentally steel ourselves accordingly.  But it is true that for as long as someone chooses to remain in the accumulation phase, a down market is necessarily a good thing (ignoring the bad outcomes that have a correlational (but not necessarily causational) relationship with down markets, like employment layoffs).

Someone who is told that there might be some harrowing shit in their military training exercise is less-likely to snap when the electric-eel attack starts at 3am than someone who is just expecting the exercise to be a relaxing day at the lake.

See that, sol?  I rest my case.  This is skyrefuge's B material, and it's still wittier than anything anyone else in the forum can muster.

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Re: What will the next 10%+ correction look like?
« Reply #48 on: April 17, 2015, 11:28:14 PM »
Was I the only one who read skyrefuge's entertaining scenario and thought that it looked really good? With a savings rate high enough to start from zero and expect FIRE in 10 years (i.e. ~67%), even that market performance wouldn't be enough to delay retirement that much.

I went ahead and did the math, for a $100k earner with a 66% savings rate. At a steady 7% real return, that's a 10-year career to hit his $850k number. Assuming his first 5 years had that steady 7% return, and then the 6th year started the 1973 sequence, he'd have only $516k by his 10th year, and by the 15th year, the end of the sequence I described, he'd still be short at only $812k. His retirement is already delayed at least 50% past his expectation. Maybe a 5+ year delay is not "that much" to someone expecting a 40 year career, but for someone expecting a 10 year career, it's enormous.

And more importantly than the time delay, there is a strong risk that his faith is also damaged. Yes, with hindsight (and our recency bias), we know that he would have been fine if he had retired anyway in 1982, even if he was still short of his number (and he probably would have been fine retiring even earlier, since the stock market run after that point was ridiculous).

But this guy had been getting beaten up and abused for 9 years. Twice he had seen recovery finally approaching, only to be smacked down again for his impudent optimism. The environment was so bad and hopeless that Business Week actually published a cover story about The Death of Equities. If CAPE had been around, would anyone have paid it any heed? The CAPE value had been freakishly low for years, and it hadn't done shit except lead to more misery. You're seriously gonna tell me "don't worry, next year will be the year" and expect me to believe you?! If I was that much of a sucker, I'd be a fuckin' Cubs fan!

No one younger than 65 knows what it really feels like to live through a period like that as an investor (unless they live in Japan!), but it seems likely that they would be just as biased by their recent history as we are by ours, and that would result in two strongly divergent outlooks. It's hard to imagine the MMM blog would have even been born in that environment, much less catch on; it would all sound like a crazy pipe dream to us just like it does to those complainypants newspaper columnists that we all laugh at.

arebelspy was actually wrong; the final year of my hopeless non-retiree where he snapped was not just a throwaway joke. It was meant to illustrate how living through a particular environment can have major and long-lasting effects on your thought-process going forward. You hear the stories of those who grew up during the Great Depression who stayed unnecessarily frugal for the rest of their lives, for example. Heck, the original edition of the otherwise still-excellent Your Money or Your Life thought 30-year Treasury Bonds were the only investment you'd need. Sounded perfectly reasonable at that time, sounds crazy today. My point is that we are all at least partially products of our environment, and sometimes it's helpful to attempt to investigate how those environmental biases could be leading us astray.
« Last Edit: April 17, 2015, 11:35:53 PM by skyrefuge »

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Re: What will the next 10%+ correction look like?
« Reply #49 on: April 18, 2015, 01:50:46 AM »
Plus savings rate > returns. :D

This. On a short enough timeline, like with the hypothetical investor discussed by skyrefuge, savings rate is king. That's one of the things I loved about Jacob at ERE - he basically assumed no return during accumulation. He said that you can spend your non-working time in the future to learn about investing and pick the right opportunities. Do I use that approach? No, but my accumulation phase is already almost twice as long as his and will probably end up being 3-4x longer.

That being said, skyrefuge, I completely agree that the scenario you mentioned can really affect someone's psyche. It also could delay FIRE a bit, but if the person mentioned is truly concerned with FI and hits a bad recession, I think she will buckle down and save more. I know tons of people who kept their good jobs in 08-09 but had far less superfluous spending due to the carnage around them and in their portfolios. I wouldn't be surprised if many people could up their savings rates by 5-10% in such a scenario, which would undo much of the damage of a really bad market.

I guess the exception would be if you have a really long accumulation phase, ie standard working career. If you're trying to get to 1MM and you're doing it over 30 years, well, a recession in year 35 is going to hurt since your savings rate was never the primary driver of your portfolio.

tl;dr Mustachians should be fine in such a scenario if (and it is a big if) they can keep their heads.