Lessons from the last crash?

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Lessons from the last crash?

Postby vbdoug » Tue May 07, 2013 9:03 pm

Were there any? Most investors suffered in the last stock market crash. After the downturn, Bogleheads who stayed the course did quite well. We could have another panic. Or maybe not. My question for the Bogleheads: Did the crash change your investment strategy in any way whatsoever?
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Re: Lessons from the last crash?

Postby z3r0c00l » Tue May 07, 2013 9:10 pm

No, if anything it reinforced my strategy. Granted I was very lucky to have a crash just 1 year after starting my first full time job. So I started investing during an extremely low market.

What tests me more are:

A.) An extremely strong market like this one and
B.) A likely period of poor bond returns.
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Re: Lessons from the last crash?

Postby cheese_breath » Tue May 07, 2013 9:24 pm

No. If you maintained your desired AA and rebalanced into stocks when the market crashed you got a great deal.
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Re: Lessons from the last crash?

Postby Johm221122 » Tue May 07, 2013 9:27 pm

This may be of interest, What you learned from the lost decade
viewtopic.php?t=76356
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Re: Lessons from the last crash?

Postby market timer » Tue May 07, 2013 9:33 pm

Don't use leverage. Don't risk what you can't afford to lose.
"I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt." -Irving Fisher
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Re: Lessons from the last crash?

Postby bottomfisher » Tue May 07, 2013 9:38 pm

Be fearful when others are greedy; be greedy when others are fearful
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Re: Lessons from the last crash?

Postby Toons » Tue May 07, 2013 9:44 pm

vbdoug wrote:Were there any? Most investors suffered in the last stock market crash. After the downturn, Bogleheads who stayed the course did quite well. We could have another panic. Or maybe not. My question for the Bogleheads: Did the crash change your investment strategy in any way whatsoever?


None whatsoever,I continued purchasing shares of equity funds as the market kept declining.Prior bear markets had taught me that when the market eventually heads North again after a bear market ,which it always has,your portfolio will regain and surpass its previous highs quicker as you were buying more shares for your money(in declining market).It worked . :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: Lessons from the last crash?

Postby z3r0c00l » Tue May 07, 2013 9:44 pm

Be cold and logical when others are emotional.
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Re: Lessons from the last crash?

Postby Dale_G » Tue May 07, 2013 10:54 pm

Yes - I changed my IPS - a pretty serious matter.

Beginning in the mid-nineties I maintained tighter rebalancing bands than most folks, and I always rebalanced back to my target allocation. I followed those rules during the 2008/2009 crunch to the tune of moving 7 figures from bonds to equities. It made for a lot of transactions - and despite my tagline "volatility is my friend", the draw down wasn't any fun.

It worked out okay. I spent money from the retirement accounts, made significant gifts, paid taxes at a 28%-35% rate, and the portfolio is still up 21% from the high in 2007.

But, I did change my IPS after the events of 2008/2009:

1. I have widened the rebalancing bands
2. On hitting a buy trigger, I move XX dollars from bonds to equities rather than rebalancing to target
3. After each rebalancing buy, I move the next buy trigger down a bit.

It probably isn't a big deal, but during the next serious downturn (assuming the market eventually recovers) I should see:

1. Fewer transactions
2. Less draw down during the decline
3. A lower rebalancing bonus if there is a recovery

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Re: Lessons from the last crash?

Postby RadAudit » Wed May 08, 2013 8:01 am

I learned I wasn't as comfortable with a higher stock / bond asset allocation as I thought I was.

Also, if you drink enough Pepto, your ears will ring.
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Re: Lessons from the last crash?

Postby Mitchell777 » Wed May 08, 2013 8:06 am

Yes, I learned I had a bit too much in equities, dollar and percentage wise, for my risk tolerance. How I thought I'd feel and how I actually did were not the same. Or perhaps I just underestimated the chance of a 50%+ hit
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Re: Lessons from the last crash?

Postby OverTheHill » Wed May 08, 2013 8:17 am

First, I learned that 70% equities was a little too much for my actual risk tolerance just a few years before retirement. On the other hand, I didn't sell into a down market, but waited until it came back to adjust my asset allocation. I'm now 50/50. Second, Iearned that buy and hold really is the best approach. Those who held on made their money back and then some to boot. Those who sold lost out big time. I also learned that it's good to have some dry powder for buying on the cheap. I think I'm more ready for the next crash. The more crashes I live through, the more I come to understand the need to hold tight and wait for the comeback. I also learned a much bigger lesson in that the market is more manipulated by crooks and frauds than I ever imagined possible, and that the government truly doesn't know much about running a railroad.
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Re: Lessons from the last crash?

Postby mcblum » Wed May 08, 2013 8:34 am

Between the greed and the Short Term Memory Loss, we WILL go round again, That is what I have learned. I will take a dip when it happens, but I have protected my self
with asset allocation and will come out of it better than before.Marty
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Re: Lessons from the last crash?

Postby jimkinny » Wed May 08, 2013 8:39 am

I no longer remember what I knew before 2008/2009 except that I was taking more risk at the time than I should have been taking. There are a lot of lessons we should have learned, if we did not already know them.

Here is a link to an Allan Roth moneywatch article that deals with this topic and he knows more than me.

http://www.cbsnews.com/8301-505123_162-57406107/10-lessons-from-the-great-stock-crash-and-recovery/

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Re: Lessons from the last crash?

Postby Rosebud » Wed May 08, 2013 8:40 am

Mitchell777 wrote:Yes, I learned I had a bit too much in equities, dollar and percentage wise, for my risk tolerance. How I thought I'd feel and how I actually did were not the same. Or perhaps I just underestimated the chance of a 50%+ hit

+1
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Re: Lessons from the last crash?

Postby Phineas J. Whoopee » Wed May 08, 2013 12:28 pm

In the last crash I learned again what I had learned from a series of prior crashes; to wit:

The last crash is not a guide to the present crash.

PJW
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Re: Lessons from the last crash?

Postby MnD » Wed May 08, 2013 12:38 pm

I was disappointed in myself in that I did not predict the magnitude of the stock market crash despite being pretty well prepared for the housing and credit crash. It was very apparent to me that the credit and housing world had gone mad and that it was going to end very badly for people buying overpriced homes and other things on too much easy credit. I did not anticipate that the banks and other issuers of all this the sketchy debt had retained such an exposure to it and I also let inflated earnings in the financial sector fool me into thinking that the broader equity markets would weather a housing crash in so-so shape because unlike 2000, stock P/E's were not wildly inflated. After the crash I did a very good of tax loss harvesting and rebalancing back to my AA without any waffling or reductions in my equity AA (the worst time to reduce your equity exposure is after the crash).

I did better in anticipating the 2000 market crash and reacting to it better prior to the decline than I did in 2008. In the prior crash I moved a lot into value funds and small cap and made sure I wasn't over-weighted in tech or even in the S&P 500 which had clearly become dominated by the big tech stocks and was no longer a well diversified index.

Based on lessons learned from last two crashes I have taken steps to lessen exposure to bonds that have the highest exposure to interest rate risk. I have zero holdings currently directly in intermediate term or long term treasuries or funds or in total bond market funds where those bonds have very large position.
Accepting an SEC yield of 0.62% and 2.50% for intermediate and long-term treasuries at this point in the economic cycle is not prudent IMO.
Last edited by MnD on Wed May 08, 2013 12:50 pm, edited 2 times in total.
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Re: Lessons from the last crash?

Postby InvestorNewb » Wed May 08, 2013 12:38 pm

I wasn't in the market in 2008, so I basically 'yawned' when the crash happened, not knowing much about it.

Hopefully we won't see one of that magnitude again.
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Re: Lessons from the last crash?

Postby Call_Me_Op » Wed May 08, 2013 12:40 pm

vbdoug wrote:Were there any? Most investors suffered in the last stock market crash. After the downturn, Bogleheads who stayed the course did quite well. We could have another panic. Or maybe not. My question for the Bogleheads: Did the crash change your investment strategy in any way whatsoever?


Good question. It made me realize that although I thought I knew what I was doing, I had a lot to learn. It inspired me to learn much more about investing, about strong diversification, and ultimately to implement a better plan.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Lessons from the last crash?

Postby sperry8 » Wed May 08, 2013 12:50 pm

I learned a lot:

1- I was almost 100% stocks prior to the crash (I was young, under 40). Because I held almost no cash, I could barely buy low. I used what cash I had to buy low through the crash and right up until the low (I luckily bought on Mar 8, 2009). But I learned that I always want to hold some cash for these "buy low" opportunities.

2- I learned that my asset allocation was not correct. I had trouble sleeping through the last crash. It was my first. It's very easy for everyone on this board to say get your asset allocation right and then ride out any ups/downs. But I never saw a down like this before. And what I thought to be true prior, wasn't. Now that I've lived through it - I've modified my asset allocation so I can handle a 50% drop and be able to sleep at night. I'm now 70% stocks and 30% cash/bonds.

3- I learned the feeling required to buy low. When I was buying (and yes, even on March 8), I felt like I was throwing money out the window. I didn't know this would prove to be the bottom. But I bought on the way down because I learned (in part from this board) that it was the right thing to do. I was sick to my stomach and was using my last cash to do it. Now I know why it is so hard to do. I figured I almost lost everything whats a little more. Next time it happens, I'll know that feeling - and then have more confidence that I'm buying low - and its the right thing to do.

4- I learned to not be greedy. Once I got back to even (recently), I took the opportunity to take the mulligan and sold many stocks/etfs I shouldn't have bought in the first place. They have risen 10% since... but I don't care. I shouldn't have bought them in 2007 and I don't want them now. If the prices drop, I might. We shall see.

5- I learned the importance of having a board like this and access to others that are similar when you are going through a crisis. Without the calmness of people who had been through something like this before I might have made horrible decisions (like pulling it all out). I am not afraid to learn and listen. And then discern what I think is good vs poor advice.

Thanks all!
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Re: Lessons from the last crash?

Postby Artsdoctor » Wed May 08, 2013 2:21 pm

Yes. I learned a tremendous amount about myself. It absolutely taught to be cold and unemotional when it comes to investing. You hang on when everything around you is dropping and you stick to your guns. I even included how I was feeling at the time (early March 2009) in my IPS so I would never forget those feelings.

I remember Black Monday in 1987 very well although I didn't have a lot to lose since I was starting out. And I definitely remember the dot.com era and the greed that had overcome me. The 2008 dive made me put everything together and practice what I had learned.

I now know my risk tolerance. I only had an inkling prior to 2008. I'm as ready for the next swoon as I can be, and I have 2008 (and this board) to thank for that. And I will always have some "dry powder" around to buy equities when they take a hit, at least during my accumulation years.

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Re: Lessons from the last crash?

Postby nodenuff2 » Wed May 08, 2013 3:16 pm

+1 Artsdoctor Like you it has taken me a lifetime to come to my senses. In '87 I lost a high percentage but not a big amount. Actually lost nothing because I stayed the course 100% equity. Next comes the dot.com era. Wahoo easy to make money until it wasn't. Lost 50k on Worldcom and another 25k on another telecom bust from my taxable account. Went home and confessed to my wife what had happened. Promised it would not happen again. Started reading and learning but stayed 100% equities throught the 2007- 2009 debacle and stayed there until I recovered . What have I learned? 1. Diversify 2. Keep some powder dry at all times. 3. Bonds have a place in your portfolio. 4. Talking heads are actually Sargeant Shultz in a suit "I know Nothing" . At least this is what I hear when they talk. 5. Stay out of indivdual stocks. Watch Cramer for the entertainment value only .6. Index funds for the long haul. I can't go back but I can teach those willing to listen around me.
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Re: Lessons from the last crash?

Postby HongKonger » Wed May 08, 2013 3:30 pm

sperry8 wrote:I learned a lot:

1- I was almost 100% stocks prior to the crash (I was young, under 40). Because I held almost no cash, I could barely buy low. I used what cash I had to buy low through the crash and right up until the low (I luckily bought on Mar 8, 2009). But I learned that I always want to hold some cash for these "buy low" opportunities.

4- I learned to not be greedy. Once I got back to even (recently), I took the opportunity to take the mulligan and sold many stocks/etfs I shouldn't have bought in the first place. They have risen 10% since... but I don't care. I shouldn't have bought them in 2007 and I don't want them now. If the prices drop, I might. We shall see.


This - except I still have one stock I shouldn't have bought that is still down 27% and one that I recently got rid of at a 36% loss because I knew it was never going to get back to even. Yes, I learned.
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Re: Lessons from the last crash?

Postby Dandy » Wed May 08, 2013 5:34 pm

One lesson learned was that a black swan was more risk than I expected. The fact that it occured during the year I retired just made it a bigger impact. I was prepared, during the accumulation stage, for the "normal" 20% or so "correction" and had not batted an eye for prior plunges. This was different.

The other lesson was that fixed income allocations should include a decent allocation to "safe" investments e.g. CDs, Ibonds, stable value funds, etc. rather than just bonds/funds. That ah ha made me appreciate Wm Bernstein's have 20 to 25 years worth of residual expenses in "safe" investments (he includes short term bond funds).

Since I view my fixed income as providing portfolio stability (take the risk on the equity side), I also looked to have an approximate balance between intermediate duration, short duration and "safe" fixed income.

If I was early in the accumulation stage I doubt if I would have made significant changes to my moderate risk tolerance. Loss of futue earning power (and subsequent ability to make contributions) makes a big difference.
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Re: Lessons from the last crash?

Postby Sheepdog » Wed May 08, 2013 7:02 pm

The lesson I learned was actually relearned. As a retiree taking monthly distributions from his investments to add to his SS, I would sell mutual funds monthly. That's no problem when your fund value is holding, however, when they have dropped in value, I was having to sell as they dropped. That hurt to sell low. I knew that I should keep a "cash" cushion, but I was greedy. I had invested the cushion. So what I have done was to build and keep an approximate future 3 year distribution needs in cash and short term bond funds. In a market drop, I hopefully will not have to sell a stock containing fund for over 3 years. (Don't invest money you will need soon.)
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Re: Lessons from the last crash?

Postby Artsdoctor » Wed May 08, 2013 7:13 pm

Thank you, Sheepdog, for your incredibly honest post. I have printed it out and plan on keeping it with my investment folder.
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Re: Lesson from Jack Bogle.

Postby Taylor Larimore » Wed May 08, 2013 7:32 pm

Bogleheads:

The "last crash" and subsequent recovery, once again, impressed me with the knowledge and experience of our mentor who wrote in Common Sense on Mutual funds (underline mine):
Stay the course. No matter what happens, stick to your program. I've said "Stay the course" a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you.


Best wishes
Taylor
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Re: Lessons from the last crash?

Postby Blues » Wed May 08, 2013 7:39 pm

Dandy wrote:One lesson learned was that a black swan was more risk than I expected. The fact that it occured during the year I retired just made it a bigger impact. I was prepared, during the accumulation stage, for the "normal" 20% or so "correction" and had not batted an eye for prior plunges. This was different.

The other lesson was that fixed income allocations should include a decent allocation to "safe" investments e.g. CDs, Ibonds, stable value funds, etc. rather than just bonds/funds. That ah ha made me appreciate Wm Bernstein's have 20 to 25 years worth of residual expenses in "safe" investments (he includes short term bond funds).

Since I view my fixed income as providing portfolio stability (take the risk on the equity side), I also looked to have an approximate balance between intermediate duration, short duration and "safe" fixed income.

If I was early in the accumulation stage I doubt if I would have made significant changes to my moderate risk tolerance. Loss of futue earning power (and subsequent ability to make contributions) makes a big difference.


Well said, Dandy. That's worth a few :dollar :dollar :dollar
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Re: Lessons from the last crash?

Postby rgb73 » Wed May 08, 2013 8:27 pm

That I want another crash just like it - one of the best times to buy equities in the last few years ;-)
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Re: Lessons from the last crash?

Postby Artsdoctor » Wed May 08, 2013 8:30 pm

RGB,

Yes! If you're 30 years old, you get down on your knees and pray for another 2008!

If you're 65, no.

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Re: Lessons from the last crash?

Postby nisiprius » Wed May 08, 2013 8:43 pm

The lesson I learned was to trust my own assessment of my own risk tolerance. I had almost started to believe that I was invested too conservatively. I definitely thought, before 2008-2009, that I could take a 50% drop in stocks easily. I learned during 2008-2009 that in fact my risk tolerance was stressed very close to its breaking point. As I've said, what we did was less like "staying the course" and more like "deer caught in the headlights." My wife and I--and it was a joint decision--did consciously articulate that the best strategy was to do nothing, and whatever happened, happened.

One of the "lessons" I hope we do not learn from the last crash is that 50% is the farthest the stock market can ever drop and that 5 years is the longest it can take to recover. (There is a curious tendency, I've noticed, to feel that 1929-1942 somehow shouldn't really count...)
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Re: Lessons from the last crash?

Postby 4th and Inches » Wed May 08, 2013 10:40 pm

Lots of good insights shared. Thank you!
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Re: Lessons from the last crash?

Postby Scooter57 » Wed May 08, 2013 10:44 pm

Nisi,

It is almost unfortunate that things did come back so quickly after that crash because so many people came away with the idea that crashes were short term phenomena. 1929 is still very relevant. We avoided a replay until recently because of the regulations put into effect by the Roosevelt administration. But recent administrations rolled them back and the faulty state of bank regulation makes it far from impossible that we could see another massive crisis due to rogue institutional trading.

The last crash taught me to respect my very conservative approach to investing. I had twinges of regret that I didn't have a lot in stocks when they went up, but when I "only" lost $100k after the crash my relief that I still had enough to live on as I got older way outweighed the earlier regret.

I stayed in the market through the worst, though I had no desire to buy more when it started to rise again because I feared a double dip like what happened in the 1930s. I'm still not convinced that scenario doesn't wait ahead, once the massive Fed intervention ends. So I'll stay conservative in my allocations, though the addition of my inheritance, mostly now in cash as it was poorly invested, necessitates that I greatly increase the amount invested in stocks to get back to my old, very conservative allocation percent.

Mostly I have to remind myself when it goes up that it could just as well go down. The long term tendency is up, yes, but that means less and less the older I get.
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Re: Lessons from the last crash?

Postby heyyou » Wed May 08, 2013 11:02 pm

My lesson was that there will always be another market decline, and each one is slightly different than what we knew from the past ones. There is no easy reward, there are always some unseen risks that can occur. Santayana was an optimist, in that history doesn't teach all that can happen, it only teaches what has happened. After the first world war, no one could imagine that there would be another one, and the second one was worse than the first one.

Like respiration, heart beats, or ocean tides, all with ebb and flow, I now see market declines are an integral part of the gains, not just some unlikely occurrence. Many people are just too short sighted to see the rhythm, like the grasshopper in Aesop's fable that thought that summer would never end. Note how long ago that comment on human behavior was written, and it is all still true, especially in the financial markets.
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Re: Lessons from the last crash?

Postby nedsaid » Thu May 09, 2013 12:05 am

I stuck with what I had. I did not sell anything. I did not rebalance. What I did was to direct 100% of my new funds for investment into stocks. I was too scared to sell bonds to buy stocks.

The key thing is not to be panicked out of your stocks when things look bad. Own enough bonds so that you can weather the tough bear stock markets.
A fool and his money are good for business.
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Re: Lessons from the last crash?

Postby ray.james » Thu May 09, 2013 2:27 am

I was 23 year old, not a wise sage as above but early lesson of life :happy

1) Cannot win stock market: Got a gift of 10K from grandpa to help with school(had 30k school loans). Invested, bought everything on CNBC. 10K->25k->8k->10K sold and paid off loans. Best chickened out decision. Found bogleheads and understood zero sum game, effect of costs, stock market is efficient.
My 2009 taxes in 2010 helped too - 2M$ total sales, cost basis - 1.99M, trading costs - 1200, day trading interest- 340. I paid to loose money :annoyed

2) Peace of mind beats all: Invest as per risk tolerance. Stress of 4 -6hrs everyday through all financial sites, CNBC, blogs or worrying about stock market/jobs every moment is not worth it. (and ofcourse they are also useless information)
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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Re: Lessons from the last crash?

Postby grakster » Thu May 09, 2013 2:30 am

A recent issue of Fidelity's newsletter featured an article entitled "Lessons from the financial crisis", which included the following chart:

Image
Workplace defined contribution data are based on nearly 20,500 record-kept plans and more than 11.6 million record-kept participants as of June 30, 2011. The analyses exclude tax-exempt accounts and non-qualified plans but include participant and plan data from the Fidelity Advisor 401(k) Program. The average elected deferral rate was 8.2%. Continuity (i.e. >$0 balance) was check on a quarterly basis during the time period studied.


At the time I didn't do anything because I didn't know anything. Having watched the rebound, I think the lesson has sunk in. I know enough now that next time I should rebalance through everything as well.
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Re: Lessons from the last crash?

Postby flipflopliving » Thu May 09, 2013 2:50 am

vbdoug wrote:Were there any? Most investors suffered in the last stock market crash. After the downturn, Bogleheads who stayed the course did quite well. We could have another panic. Or maybe not. My question for the Bogleheads: Did the crash change your investment strategy in any way whatsoever?


For us, we did not change any of our tactics and it reinforced our strategies. The big aha for me has been talking with others and have yet to meet anyone who did not make silly mistakes and are back to their high mark. The two biggest mistakes I have watched others do, is to have an asset allocation they were not comfortable with and second to cash out as a result. In hindsight they are silly mistakes, but am sure they were rational to those folks at the time.
Take the course opposite to custom, you will almost always do well. Rousseau
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Re: Lessons from the last crash?

Postby meowcat » Thu May 09, 2013 6:57 am

I just stood there. I was sitting on 100% equities in 2008-2009. I am well ahead of the high in 2007. Stay the course. No lessons learned, this is something all Bogleheads should already know.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson
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Re: Lessons from the last crash?

Postby nisiprius » Thu May 09, 2013 7:07 am

Scooter57 wrote:1929 is still very relevant.... Mostly I have to remind myself when it goes up that it could just as well go down. The long term tendency is up, yes, but that means less and less the older I get.
Yep. And, I would add, 1937-1938 is still relevant. That one gets forgotten for a lot of bad reasons. The stock optimists pounce on a brief peak in 1936 to justify calling it the end of the 1929 bear market, but either you had two terrible bear markets back to back, or one 14-year-long bear market that was briefly interrupted by a false dawn. The 1937-1938 crash lost 50%, i.e. it was as severe as 2008-2009, and the only reason it gets forgotten is that 1929 was so much worse.

In other words, you can have two terrible crashes within less than ten years of each other. Don't think that's going to happen, sure hope it won't, but don't assume it couldn't.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Lessons from the last crash?

Postby johnep » Thu May 09, 2013 8:46 am

Have a sound investment plan and AA and know your risk tolerance as best you can.
Turn off the noise of financial news. I let this influence me to sell part of my equities in early 2009.
Nobody knows nothing! A famous quote from Wall Street that was never truer than 2008. I am still amazed at how few people saw the meltdown coming although once I understood the financial house of cards that existed, the outcome seemed obvious.
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Re: Lessons from the last crash?

Postby Ed 2 » Thu May 09, 2013 9:00 am

My lesson that Mister Market will always do what no one can predict in a short run,so been a long term investor is the only one way to be successful. I guess what saved me from many mistakes what others made that I was not overconfident nor panicked and did't sell anything,just watched and been amused of all this circus on TV. :happy
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Re: Lessons from the last crash?

Postby 3504PIR » Thu May 09, 2013 9:25 am

Interesting to look at the join date of most of those replying.
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Re: Lessons from the last crash?

Postby sperry8 » Thu May 09, 2013 10:22 pm

nisiprius wrote:The lesson I learned was to trust my own assessment of my own risk tolerance. I had almost started to believe that I was invested too conservatively. I definitely thought, before 2008-2009, that I could take a 50% drop in stocks easily. I learned during 2008-2009 that in fact my risk tolerance was stressed very close to its breaking point. As I've said, what we did was less like "staying the course" and more like "deer caught in the headlights." My wife and I--and it was a joint decision--did consciously articulate that the best strategy was to do nothing, and whatever happened, happened.

One of the "lessons" I hope we do not learn from the last crash is that 50% is the farthest the stock market can ever drop and that 5 years is the longest it can take to recover. (There is a curious tendency, I've noticed, to feel that 1929-1942 somehow shouldn't really count...)


This is a good point... I am now ready for a 50% drop. But am I ready for a 90% drop? Doubtful. If stocks dropped that much, I guess I'd have to go back to work (assuming I could get a job, any job). As for time, I can handle down 50% for 8-10 years... but if it was like Japan and was down 20 years? Again, probably have to work after the 8-10 year period. Are we really supposed to plan for 90% drop over 20 years though? That would put me in 90% cash - and would severely curtail my lifestyle (which isn't ridiculous at the moment). Sometimes you have to not be afraid to live, while you're alive.
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Re: Lessons from the last crash?

Postby Valuethinker » Fri May 10, 2013 9:09 am

sperry8 wrote:
nisiprius wrote:The lesson I learned was to trust my own assessment of my own risk tolerance. I had almost started to believe that I was invested too conservatively. I definitely thought, before 2008-2009, that I could take a 50% drop in stocks easily. I learned during 2008-2009 that in fact my risk tolerance was stressed very close to its breaking point. As I've said, what we did was less like "staying the course" and more like "deer caught in the headlights." My wife and I--and it was a joint decision--did consciously articulate that the best strategy was to do nothing, and whatever happened, happened.

One of the "lessons" I hope we do not learn from the last crash is that 50% is the farthest the stock market can ever drop and that 5 years is the longest it can take to recover. (There is a curious tendency, I've noticed, to feel that 1929-1942 somehow shouldn't really count...)


This is a good point... I am now ready for a 50% drop. But am I ready for a 90% drop? Doubtful. If stocks dropped that much, I guess I'd have to go back to work (assuming I could get a job, any job). As for time, I can handle down 50% for 8-10 years... but if it was like Japan and was down 20 years? Again, probably have to work after the 8-10 year period. Are we really supposed to plan for 90% drop over 20 years though? That would put me in 90% cash - and would severely curtail my lifestyle (which isn't ridiculous at the moment). Sometimes you have to not be afraid to live, while you're alive.


What it really says is you have to annuitize some portion of your capital, to provide a 'baseline' retirement income.
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