U.S. stocks in freefall

[SVariance1]

I don't think there is any blood yet.

I agree.

Part of the hope rests on strong corporate earnings, which have generally been good. However, the good earnings are for the second quarter, not the third quarter, which may tell a different story.

[Lbill]

As a fellow bear on this market, I have to say that you might be a little too enthusiastic about the downside. My guess is that posts like this might irritate some people.

Mike - yeh, I can see that. I want to make amends by sharing the good news that the market will undoubtedly go up by 500 points tomorrow and everything will be OK. I promise to post this image when it does:



Or maybe this one would be better:

[/url]

[VictoriaF]

Mike - yeh, I can see that. I want to make amends by sharing the good news that the market will undoubtedly go up by 500 points tomorrow and everything will be OK. I promise to post this image when it does:

I doubt it will go up tomorrow. The fall will continue into the weekend. You have to go to NYC and repeat the trick you did on the second picture.

Victoria

[TrustNoOne]

Guess that at least shows what it takes to be a bull on Wall Street.

[Beagler]

Bill Gross made some good comments today about demand, employment and the downward stock cycle.

[rustymutt]

Lbill, why are you in the markets if every time it falls, you're going to freak out.

[Lbill]

rusty - I use myself as a contrary indicator. The more I freak the more stocks I buy. I freaked enough that day the market tanked over 600 points to buy a little. It will take more than this pantywaist 420 point drop today to get me freaked out enough to buy more.

[john94549]

I had to shake my hands for five minutes to get the circulation going. Sitting on your hands all day on a day like today does crimp the capillaries. I was 65/35 (stocks/cash) in my trading account yesterday, but I suspect the number to the right is a heck of a lot bigger this evening. And that to the left smaller. I have a wake-up in for when I hit 60/40.

"Messieurs/dames, faites vos jeux."

[wesgreen]

Quote:
How's that 100% equity allocation working out for ya. Dave

Working out great as long as I can keep working. Check back with me in about 20 years.

[SVariance1]

rusty - I use myself as a contrary indicator. The more I freak the more stocks I buy. I freaked enough that day the market tanked over 600 points to buy a little. It will take more than this pantywaist 420 point drop today to get me freaked out enough to buy more.

I am surprised to hear you that you bought stocks.

[rustymutt]

rusty - I use myself as a contrary indicator. The more I freak the more stocks I buy. I freaked enough that day the market tanked over 600 points to buy a little. It will take more than this pantywaist 420 point drop today to get me freaked out enough to buy more.

Great ideal! I like contrarily investing myself. Buy low, sale high.

[wesgreen]

I respect this forum immensly. But I would like to see more flexibility when it comes to subject of politics. Now more than ever politics is affecting every aspect of investing and I feel that comments on current political policies and how they are affecting investment decisions are in order.[/quote]

Ain't gonna happen on our watch. Sorry.

Chris[/quote]
Thank you, Chris. There'd be no way I could resist that temptation!

[jginseattle]

Dare I say it? As of the price today, the S&P 500 has a cumulative return of 5% for the last 12 years, including dividends. That's not counting inflation. Puts me in mind of the Count of Monte Cristo's last words:

"But, as Until the day when God will deign to reveal the future to man, all human wisdom is contained in these two words, Wait and hope."

There's nothing new about the secular bull and bear market cycles. And it's impossible to determine in advance when the new cycle will begin.

[Dieharder]

I am buying. Bought last week, this week, and buying again today.

At some point I figure I will reach levels beyond which I don't want to deplete my cash position. If the market keeps falling after that point then I would have bought too early.

Oh, well, the perils of not having crystal balls.

I'm somewhat of a novice so please don't slam me but isn't the "Boglehead" way to (for the most part) only buy/sell during rebalancing periods and trying to buy/sell when you think the market is too low/high is merely timing the market which is a loser's game? Not trying to offend, just asking since I haven't bought/sold a thing during these past few weeks. I'm also 30 and I feel as though I can ride this out like 2008, but just want some input in case I'm way off base.

I am not market timing, if I tried it I will fail miserably, what I am doing is mostly re-balancing. There are two parts to it though.

First part is clear because the recent drops have taken my stocks / bonds ratio below the bands, that means I have to buy more stocks.

Second part is that after the market went up so much in 2009 and 2010, I decided not to buy any more equities with new money, but collect new contributions in cash over all of last year and this year. It is not market timing, simply not knowing what the market will do, and not wanting to take more risk in a rising market, I have decided to let new money go into cash. Since the market fell now, I am moving some of that money into stocks.

It's not pretty and I am not enjoying it, as they say I am holding my nose and buying. I have no idea whether it will recover this year, or go down further, just know that this is part of a plan and have to follow it, at least for now.

[Taylor Larimore]

Hi wesgreen:

If you want to argue politics, try the Politics & Investing Forum at Morningstar:

http://socialize.morningstar.com/NewSocialize/forums/100000035.aspx

[Random Musings]

I prefer to grab the bull by the horns.

RM

[SVariance1]

Second part is that after the market went up so much in 2009 and 2010, I decided not to buy any more equities with new money, but collect new contributions in cash over all of last year and this year. It is not market timing, simply not knowing what the market will do, and not wanting to take more risk in a rising market, I have decided to let new money go into cash. Since the market fell now, I am moving some of that money into stocks.

This is market timing according to most on this board. Not saying is wrong, though

[SVariance1]

Hi wesgreen:

If you want to argue politics, try the Politics & Investing Forum at Morningstar:

http://socialize.morningstar.com/NewSocialize/forums/100000035.aspx

Taylor, that must be one weird thread. Any posters over there also posters here?

[Noobvestor]

Hi wesgreen:

If you want to argue politics, try the Politics & Investing Forum at Morningstar:

http://socialize.morningstar.com/NewSocialize/forums/100000035.aspx

Taylor, that must be one weird thread. Any posters over there also posters here?

Some ... butthere is a vocal and obnoxious contingent of M* users that downright hate Bogleheads, think Taylor is a troll and Mel is some kind of passive-indexing devil child, and create threads like that one regularly.

It's not a very civil place, and the market-timing nonsense you'll hear (not to mention the rampant and unchecked personal insults) may well drive you mad. Fair warning

(Note: if you do dive into M*, be on the watch for folks like WagnerB (sp?) who politely point out omissions in market-timer's boastful statements about their past trades).

[Lbill]

Thanks to the MODS, I'm so glad we're still civilized over here:

[SVariance1]

It's not a very civil place, and the market-timing nonsense you'll hear (not to mention the rampant and unchecked personal insults) may well drive you mad. Fair warning

Thanks for the heads up. Not sure why people feel the need to launch personal attacks. I am glad they happen infrequently here.

Bogleheads should PM (Private Message) a moderator anytime you see a personal attack against anyone.--Taylor

[Taylor Larimore]

Hi Mike

Any posters over there also posters here?

I helped start the Morningstar Vanguard Diehard Forum in March 1998. Mel began posting soon afterwards. It became, by far, the most active Morningstar Forum (I made over 25,000 posts).

Morningstar showed their appreciation by inviting us to hold our third annual Boglehead Reunion at their headquarters in Chicago. Today that forum, now called "Bogleheads Unite," is a shadow of its former self.

Mostly out of loyalty, Mel, myself and a few Bogleheads help keep the forum alive and try to help others. We also found that many readers of our first edition of The Bogleheads' Guide to Investing used the link address in that book to the Morningstar forum. We want to be there to answer their questions.

[macrocarpa77]

50-years later you can now get a movie from a Redbox or Blockbuster Express vending machine on any street corner for $1, or in some case free with a coupon code. Throw in a box of milk duds for 0.50 cents and there's your entertainment for the night, just as cheap as it was 50 years ago.

That's the same logic used by proponents of adopting the Chained CPI for calculating Social Security COLAs. If a particular product or service becomes more expensive, consumers will look at alternatives which fulfill the same "need".

[FredPeterson]

If it closes red tomorrow, thats a huge sign this decline will continue.

Leverage for a positive gain is far easier then leverage to short. Therefore day traders like to push it green on Fridays so they have money to blow on the weekend.

[Lbill]

If it closes red tomorrow, thats a huge sign this decline will continue.

I'm poised to post my Cajones Toro. It can't go down. However, if you look just above that guy's head in the photo, he's not in a very auspicious position if that bull develops any intestinal distress.

[Noobvestor]

Hi Mike

Any posters over there also posters here?

I helped start the Morningstar Vanguard Diehard Forum in March 1998. Mel began posting soon afterwards. It became, by far, the most active Morningstar Forum (I made over 25,000 posts).

Morningstar showed their appreciation by inviting us to hold our third annual Boglehead Reunion at their headquarters in Chicago. Today that forum, now called "Bogleheads Unite," is a shadow of its former self.

Mostly out of loyalty, Mel, myself and a few Bogleheads help keep the forum alive and try to help others. We also found that many readers of our first edition of The Bogleheads' Guide to Investing used the link address in that book to the Morningstar forum. We want to be there to answer their questions.

I really applaud your efforts, and willingness to put up with all the noise, all to help other folks out. It really is important to have a bastion of sanity in that sea of mixed messages, so kudos for staying on deck to trim the sails I try to go over there sometimes ... but it's just too frustrating. Maybe when I'm older, wiser, and calmer

[MWCA]

Bill Gross made some good comments today about demand, employment and the downward stock cycle.

Yeah love his call about getting out of bonds.

[MekongTrader]

Asia closed - dark red. Europe now in free fall with DAX at -4%. US stock futures already 2% off. Looks like we're in for a rough Friday.

Investors are getting punched in the face.

The speed and power at which all that is happening is gut-wrenching. The other day I bought equities to rebalance back to my target AA. The money was gone within 2 or 3 sessions. All that is left is more shares... Dude, how crazy are we?

I mean really, one needs to be cold-blooded to be in this game. No emotions. By the end of August we will look at our account statements, licking our wounds. Bogleheads don't just take it on the chin. They'll stand up, wipe their faces and buy more stocks. Strong stuff.

It's feels good to be a (battle-hardened) Boglehead.
MT

[neverknow]

rusty - I use myself as a contrary indicator. The more I freak the more stocks I buy. I freaked enough that day the market tanked over 600 points to buy a little. It will take more than this pantywaist 420 point drop today to get me freaked out enough to buy more.

Boy ... Lbill, I am disappointed. There is no more subjective indicator then personal freak out. I tend to react to my gut. If I feel like throwing up, I will force myself to buy something (at least a little, maybe that's what your referring too). At the moment, I remain on plan. I am still positive on the year. No where near freaking out or throwing up.

Target Retirement Income and 2005 and 2010 are all positive on the year, as well. My portfolio must match something proportionally akin to these.

I'm looking for 8500 on the DOW. I need S&P 1071 before my IPS even says buy, more (but I am really looking for 928).

I hear Bloomberg radio, but my sat TV is unplugged. The freak out factor is just a tad further away from me. Sure, I can read web pages. But I think getting rid of sat TV really helped.

It could be really scary. It doesn't seem that way to me. It is August. Folks are on holiday. Computers running the show. Waiting for Bernanke and Jackson Hole. Guaranteed, the world will look different in 30 days (maybe better, maybe worse).

I think we get a retest of 1120, short of a bear market - a pause, on the way to the real bear market. Play the pause? Maybe. Maybe not.

No one should ever do what I do, or pay any attention to me at all.

Lbill, your freak out is subjective. I am not freaked out.
neverknow

[grayfox]

I was not impressed with the freefall yesterday.

The S&P 500 was down -4.46% to 1140.65.

You call that a freefall? It didn't even get down below the freefall a week ago
on Aug 9 and 10 when it was down around 1120.

Why, when I was young, we had real free falls. Not these silly -4% down days. I remember there was one time back in '87, I think that was during the Hoover administration, when the market fell -20% on one day. And back in -08 there were plenty of days it was down 6, 7, 8 and 9 percent. This generation, with their fancy iPods, smart iPhones and high-frequency trading, have no appreciation for what a real freefall is.

http://www.calculatedriskblog.com/2011/ ... n-666.html

[gnosis]

It's feels good to be a (battle-hardened) Boglehead.
MT

Drinking that Mekong water makes you even tougher.

[zinnia]

I see no correlation between today and 2008. IMO, we're in the beginning of a worldwide panic mode. My vision for the next 12 months is defaults in Europe, US banks requesting bailouts. Not a time I want to be in the market. But what do I know.....

[Dieharder]

Asia closed - dark red. Europe now in free fall with DAX at -4%. US stock futures already 2% off. Looks like we're in for a rough Friday.

Investors are getting punched in the face.

The speed and power at which all that is happening is gut-wrenching. The other day I bought equities to rebalance back to my target AA. The money was gone within 2 or 3 sessions. All that is left is more shares... Dude, how crazy are we?

I mean really, one needs to be cold-blooded to be in this game. No emotions. By the end of August we will look at our account statements, licking our wounds. Bogleheads don't just take it on the chin. They'll stand up, wipe their faces and buy more stocks. Strong stuff.

It's feels good to be a (battle-hardened) Boglehead.
MT

Like many others I am also in the same boat. Unfortunately there is no way to know whether the big drop on 8/8 was going to bring in more such drops or it was going stabilize. Acting on the plan is the best course of action, even if that means prices are now much cheaper.

[Valuethinker]

Asia closed - dark red. Europe now in free fall with DAX at -4%. US stock futures already 2% off. Looks like we're in for a rough Friday.

Investors are getting punched in the face.

The speed and power at which all that is happening is gut-wrenching. The other day I bought equities to rebalance back to my target AA. The money was gone within 2 or 3 sessions. All that is left is more shares... Dude, how crazy are we?

I mean really, one needs to be cold-blooded to be in this game. No emotions. By the end of August we will look at our account statements, licking our wounds. Bogleheads don't just take it on the chin. They'll stand up, wipe their faces and buy more stocks. Strong stuff.

It's feels good to be a (battle-hardened) Boglehead.
MT

Summarizes why I rebalance as infrequently as I do. Not even once a year:

- tax implications of same

- tendency of market to display short term momentum: down, down and up, up

Since rebalancing is by nature contrarian (selling into the up, buying into the down) it feels like the wrong thing to do.

Even when I don't know what I am talking about (probably in the above ) this policy helps me sleep better because I deliberately do NOT act when the market is very volatile. However this is irrational in Modern Portfolio Theory terms: taking on more risk by allowing asset allocation drift.

You have been warned. Don't try this at home

[magicmom]

[Gasp} I can't hold my breath much longer....
Thank goodness I still have a job to go back to on Monday, even if the pay is below poverty level.....[Gasp}

[Valuethinker]

50-years later you can now get a movie from a Redbox or Blockbuster Express vending machine on any street corner for $1, or in some case free with a coupon code. Throw in a box of milk duds for 0.50 cents and there's your entertainment for the night, just as cheap as it was 50 years ago.

That's the same logic used by proponents of adopting the Chained CPI for calculating Social Security COLAs. If a particular product or service becomes more expensive, consumers will look at alternatives which fulfill the same "need".

Indeed. If retirees wish to consume the 1967 Dodge Dart, with its brakes and fuel economy, then a properly adjusted CPI would reflect the current cost of 1967 Dodge Darts.

Also of course they could opt for medical treatment from historic periods. Eg they could choose the survival rate for AML of 1975 rather than the modern survivor rate.

And of course the Personal Computer of 1979.

Or the house of 1972 (only half had air conditioning, and it was c. 40% smaller than a US newbuild).

[Lbill]

Boy ... Lbill, I am disappointed. There is no more subjective indicator then personal freak out. I tend to react to my gut. If I feel like throwing up, I will force myself to buy something (at least a little, maybe that's what your referring too). At the moment, I remain on plan. I am still positive on the year. No where near freaking out or throwing up.

Neverknow - I couldn't agree more with you. I've been waiting so long to buy something, I was getting impatient. I'm looking for the same lows you are as a good opportunity. Part of the problem is that I've waited too long to pull the trigger in the past and the *%$! market turns around and skips away. I remember starting to buy in 2009 when the S&P hit 666, thinking I'd edge in as it went lower. But it never did go lower and I never "edged in". That was my theory this time again, and the thing did a 180 and blasted back up - deju vu all over again. But maybe this time that was a fakeout and it will keep going down. Next stop for me is right about 900 on the S&P. I think Jeremy Grantham said it's worth about that at the present time.

[VictoriaF]

I prefer to grab the bull by the horns.

RM

You do that when you want to tame a bull, not when you want to excite him.

Victoria

[Valuethinker]

I am buying. Bought last week, this week, and buying again today.

At some point I figure I will reach levels beyond which I don't want to deplete my cash position. If the market keeps falling after that point then I would have bought too early.

Oh, well, the perils of not having crystal balls.

I'm somewhat of a novice so please don't slam me but isn't the "Boglehead" way to (for the most part) only buy/sell during rebalancing periods and trying to buy/sell when you think the market is too low/high is merely timing the market which is a loser's game? Not trying to offend, just asking since I haven't bought/sold a thing during these past few weeks. I'm also 30 and I feel as though I can ride this out like 2008, but just want some input in case I'm way off base.

In other words, you are being a grown up. Taking a very mature approach.
Rebalance when your policy calls for it (annual, quarterly, etc.-- and always be mindful of adverse tax consequences).

Otherwise, ignore the market as noise.

You will have many bull and bear markets between now and retirement. This will neither be the worst, nor the best, of times-- you'll only know that looking backwards.

And remember, markets climb the wall of worry. When we think we've cracked it, economic growth, low inflation, low unemployment, as in 2000, that is a sure sign the market is ready to melt.

Most especially ignore attempts to link politics to markets. Politicians are a lot less powerful than everybody thinks.

[Lbill]

Victoria -

[LH]

I started my IRA a little over four years ago. Buy and hold all the way. My portfolio is now down 1.74% for that entire period. That's over four years of gains wiped away in the last two weeks. I'd imagine many people who started investing ten or twelve years ago have had similar experiences.

If you ask me, the last ten years are going to drive a whole lot people permanently out of the stock market. And frankly I wouldn't blame them.

I am sure people felt that way circa 1979 and 1981 too. The stock market is what it is, nothing has changed.

[HomerJ]

Boy ... Lbill, I am disappointed. There is no more subjective indicator then personal freak out. I tend to react to my gut. If I feel like throwing up, I will force myself to buy something (at least a little, maybe that's what your referring too). At the moment, I remain on plan. I am still positive on the year. No where near freaking out or throwing up.

Neverknow - I couldn't agree more with you. I've been waiting so long to buy something, I was getting impatient. I'm looking for the same lows you are as a good opportunity. Part of the problem is that I've waited too long to pull the trigger in the past and the *%$! market turns around and skips away. I remember starting to buy in 2009 when the S&P hit 666, thinking I'd edge in as it went lower. But it never did go lower and I never "edged in". That was my theory this time again, and the thing did a 180 and blasted back up - deju vu all over again. But maybe this time that was a fakeout and it will keep going down. Next stop for me is right about 900 on the S&P. I think Jeremy Grantham said it's worth about that at the present time.

This is exactly why we don't try to time the market.

[Lbill]

According to news reports, ordinary investors are leaving the stock market in droves in their 401(k)s and IRAs. They've found out why there is an equity risk premium - it's because there is actual RISK involved. As Ed Easterling wrote: "risk is not a knob" that you turn to produce higher returns. Sometimes the knob isn't connected to anything, or maybe it's connected to a trap door.

[neverknow]

Neverknow - I couldn't agree more with you. I've been waiting so long to buy something, I was getting impatient. I'm looking for the same lows you are as a good opportunity. Part of the problem is that I've waited too long to pull the trigger in the past and the *%$! market turns around and skips away. I remember starting to buy in 2009 when the S&P hit 666, thinking I'd edge in as it went lower. But it never did go lower and I never "edged in". That was my theory this time again, and the thing did a 180 and blasted back up - deju vu all over again. But maybe this time that was a fakeout and it will keep going down. Next stop for me is right about 900 on the S&P. I think Jeremy Grantham said it's worth about that at the present time.

What I did in 2009 was on 10% increments down or up, I buy more or sell some. This worked out really well. (it was an accident, not a deliberate number)

I use Crestmont's PE (rather then Shiller)
http://www.crestmontresearch.com/

I began the year with pretty much no equities (6%, my utilities) as the year began, where the year might end, with the plan to rebalance out of Treasuries July 31 - which I did. My IPS is written on 10% increments of Crestmont PE multiples -- so
1128 (PE 15.8) calls for 20% equities,
1071 (PE 15) calls for 30% equities
1000 (PE 14) calls for 40% equities
928 (PE 13) calls for 50% equities

These are 2012 numbers, but I believe the market is looking at 2012 already. I actually don't have the cash for 50% equities. I have many I Bonds and CD ladders. So if we get 928, I'll be buying with my last free cash.

But that is how I made methodical, what can get you into trouble, if you just rely on your emotions.

I hope this helps.
neverknow

[Random Musings]

I prefer to grab the bull by the horns.

RM

You do that when you want to tame a bull, not when you want to excite him.

Victoria

Exactly.

RM

[supersharpie]

I started my IRA a little over four years ago. Buy and hold all the way. My portfolio is now down 1.74% for that entire period. That's over four years of gains wiped away in the last two weeks. I'd imagine many people who started investing ten or twelve years ago have had similar experiences.

If you ask me, the last ten years are going to drive a whole lot people permanently out of the stock market. And frankly I wouldn't blame them.

I am sure people felt that way circa 1979 and 1981 too. The stock market is what it is, nothing has changed.

Indeed...recency bias really is a female dog isn't it?

[HiAlphaLowBeta]

I am buying. Bought last week, this week, and buying again today.

At some point I figure I will reach levels beyond which I don't want to deplete my cash position. If the market keeps falling after that point then I would have bought too early.

Oh, well, the perils of not having crystal balls.

I'm somewhat of a novice so please don't slam me but isn't the "Boglehead" way to (for the most part) only buy/sell during rebalancing periods and trying to buy/sell when you think the market is too low/high is merely timing the market which is a loser's game? Not trying to offend, just asking since I haven't bought/sold a thing during these past few weeks. I'm also 30 and I feel as though I can ride this out like 2008, but just want some input in case I'm way off base.

I am not market timing, if I tried it I will fail miserably, what I am doing is mostly re-balancing. There are two parts to it though.

First part is clear because the recent drops have taken my stocks / bonds ratio below the bands, that means I have to buy more stocks.

Second part is that after the market went up so much in 2009 and 2010, I decided not to buy any more equities with new money, but collect new contributions in cash over all of last year and this year. It is not market timing, simply not knowing what the market will do, and not wanting to take more risk in a rising market, I have decided to let new money go into cash. Since the market fell now, I am moving some of that money into stocks.

It's not pretty and I am not enjoying it, as they say I am holding my nose and buying. I have no idea whether it will recover this year, or go down further, just know that this is part of a plan and have to follow it, at least for now.

Dieharder - Thanks for the explanation. That makes sense. It sounds like you re-balance based off of being over/short a certain percentage in your allocations, correct? Rather than just re-balancing every quarter-end, for example. I"m still trying to determine which path to go with. I personally like the idea of only rebalancing every quarter or semi-annually to reduce the tax implications and since I'm lazy.

[peter71]

According to news reports, ordinary investors are leaving the stock market in droves in their 401(k)s and IRAs. They've found out why there is an equity risk premium - it's because there is actual RISK involved. As Ed Easterling wrote: "risk is not a knob" that you turn to produce higher returns. Sometimes the knob isn't connected to anything, or maybe it's connected to a trap door.

Hi Lbill,

The below "Investors Flee . . ." story in USA Today at once participates in the hype and undercuts it a few paragraphs in:

http://www.usatoday.com/money/markets/2 ... lows_n.htm

While the [$23 billion] outflow dollar amount is "eye-catching," says Brian Reid, the ICI's chief economist, it is tiny compared with the estimated $6 trillion of total assets invested in stock funds. The latest week's outflows "account for one-half of 1% of all equity assets," he says.

I agree that investor demand for stocks could dry up over time, but it's got a long way to go and the alternatives to stocks are already looking pricey . . .

Best,
Pete

[Lbill]

Thanks Pete - I was hoping for a better "contrary indicator". I guess there's not enough "fleeing" going on yet. Meanwhile, I've been happy with TREA.

[VictoriaF]

I started my IRA a little over four years ago. Buy and hold all the way. My portfolio is now down 1.74% for that entire period. That's over four years of gains wiped away in the last two weeks. I'd imagine many people who started investing ten or twelve years ago have had similar experiences.

If you ask me, the last ten years are going to drive a whole lot people permanently out of the stock market. And frankly I wouldn't blame them.

I am sure people felt that way circa 1979 and 1981 too. The stock market is what it is, nothing has changed.

Indeed...recency bias really is a female dog isn't it?

If a “female dog” is a euphemism for “ugly” then every bias is a “female dog.”

Victoria