U.S. stocks in freefall

[Taylor Larimore]

"Ezra Klein from WaPo adds his take:"

There’s no really good reason that stocks are down today as opposed to some other day. The squiggly line squiggled down. That’s all there is to it.

I suspect Mr. Klein is right.

[woof755]

The squiggly line squiggled down is my new favorite adage!

[ftobin]

DOW finished down 391. We'll see tomorrow if players want to hold stocks into the weekend with Europe ready to tank - I'm guessing No.

I'm expecting the number of stocks held to decrease too. Probably no buyers tomorrow, only sellers.

[NERD777]

"Ezra Klein from WaPo adds his take:"

There’s no really good reason that stocks are down today as opposed to some other day. The squiggly line squiggled down. That’s all there is to it.

I suspect Mr. Klein is right.

That really is just silly. It may not be blaring in the mainstream news, but there were several major reasons why the market was flushed today. Anyone who suspected otherwise is a bit nuts.

[Noobvestor]

"Ezra Klein from WaPo adds his take:"

There’s no really good reason that stocks are down today as opposed to some other day. The squiggly line squiggled down. That’s all there is to it.

I suspect Mr. Klein is right.

That really is just silly. It may not be blaring in the mainstream news, but there were several major reasons why the market was flushed today. Anyone who suspected otherwise is a bit nuts.

The point is that there were a ton of reasons, not just a few nor just major ones ... and that trying to tease them out beyond the squiggly-line explanation doesn't serve much use for us lazy investors

[Lbill]

If it's all just random, then...

it's a shame we got this squiggly line


when we could have had this one instead.

[mak]

...
All the vampires walkin' through the valley
Move west down Ventura Blvd
And all the bad boys are standing in the shadows
All the good girls are home with broken hearts

And I'm free, I'm free fallin'!!!!

[Lbill]

You could always diversify into gold...



or maybe not.

[hazlitt777]

You could always diversify into gold...



or maybe not.

And cash and long term treasury bonds. Then things don't look so bad.

[mptfan]

DOW finished down 391. We'll see tomorrow if players want to hold stocks into the weekend with Europe ready to tank - I'm guessing No.

I'm expecting the number of stocks held to decrease too. Probably no buyers tomorrow, only sellers.

The number of stocks held does not change, only their price. And their can't be sellers if there are no buyers.

[plnelson]

Metals and energy are looking very attractive at these prices. XOM, MRO, CHK, FCX and AA, for examples, are all selling at the low end of their 52 week range, all pay dividends over 1% and some in the mid-2's.

Obviously they are down now because of anticipation of slowdowns in industrial and energy demand, but that won't last forever. And even if it takes a year or two for things to turn around, it's not like there's an obviously better place to stash your money while waiting. (FCX, it must be said, is also down because of strikes, which I take as a "buy on bad news" signal.

[Lbill]

Basic bottom-fishing rig:

[plnelson]

Basic bottom-fishing rig:

I've heard the term "bottom fishing" used in two different ways among investors. Sometimes it's used to denote buying stocks at a perceived market bottom. More often it's used to denote buying cheap, low-quality stocks.

But I am neither claiming that we are at a market bottom, nor that the companies I'm mentioning are low quality.

I think the companies I've mentioned are currently attractively priced based on the assumption that eventually the world economy will recover. If the world economy does not eventually recover then we all have more to worry about than the stock market. Of course these companies might become more attractively priced (i.e., might fall further) in coming weeks or month, but no one can predict that, but if they're already attractive then why wait? A bird in the hand is better than 2 in the bush.

[Lbill]

2-day scorecard (9/21 - 9/22):

S&P 500.......................................................................(-6.1%)
50% S&P 500 + 50% TBM............................................(-2.8%)
Swedroe Fat Tail (30% SCV + 70% TIPS).....................(-2.1%)
Permanent Portfolio (25% S&P 500, GLD, SHV, TLT).....(-0.7%)

[HomerJ]

Little Bill...

You realize that when you started this thread on August 8th, the DOW was at 10800, right?

And the DOW today is at 10730

Once it started going back up, you quit posting...

Now it's dropped again, and you're gloating again over two-day losses of 6%, but you never posted any of the gains from the last few weeks

So basically we have 300 posts of noise. We're pretty much right where we were when the thread started.

I'm sorry we made more money than you during the last bull market. I don't think any of us tried to rub it in your face though... Why do you persist in cackling with pleasure everytime the market turns downward?

[hsv_climber]

Little Bill...

You realize that when you started this thread on August 8th, the DOW was at 10800, right?

And the DOW today is at 10730

Once it started going back up, you quit posting...

Now it's dropped again, and you're gloating again over two-day losses of 6%, but you never posted any of the gains from the last few weeks

So basically we have 300 posts of noise. We're pretty much right where we were when the thread started.

I'm sorry we made more money than you during the last bull market. I don't think any of us tried to rub it in your face though... Why do you persist in cackling with pleasure everytime the market turns downward?

+1

[Lbill]

You realize that when you started this thread on August 8th, the DOW was at 10800, right?

And the DOW today is at 10730

Just trying to keep you stockbugs honest. How do you make money on stocks when they've actually gone down?

[hsv_climber]

Just trying to keep you stockbugs honest. How do you make money on stocks when they've actually gone down?

You might want to google the word "dividends".

[Sidney]

Just trying to keep you stockbugs honest. How do you make money on stocks when they've actually gone down?

I can only tell you how I did it. I started investing in the early 80s, adding to stocks regularly through the early part of the 2000's. At that point, I started to add all new money to bonds since I was starting to approach retirement and wanted a lower stock allocation. My original plan was to retire at 60 but was able to do it at 55, mainly due to asset performance.

When I started, I used a home-made spreadsheet (programmed in Fortran) that had a 60 year planning horizon.

[Random Musings]

2-day scorecard (9/21 - 9/22):

S&P 500.......................................................................(-6.1%)
50% S&P 500 + 50% TBM............................................(-2.8%)
Swedroe Fat Tail (30% SCV + 70% TIPS).....................(-2.1%)
Permanent Portfolio (25% S&P 500, GLD, SHV, TLT).....(-0.7%)

I would remove the first item - if you are going to "benchmark" to the PP - 100% equities is totally inappropriate.

Since two days is noise, let's look at the "longer term" - for example, the inception date of PRPFX 12/1/1982 to 9/22/2011 - $10K invested in each fund. From M*:

PRPFX (Permanent Portfolio) - $69K
Wellesley Income - $175K
Wellington - $191K

Like the PRPFX fund did over the past 10 years, each fund has had stretches out outperformance. Wellesley has less than 50% equities, while Wellington has more. On top of that, they do value-tilt equities (and have some in'tl exposure), but that's okay, since they stick with their plan, just like PRPFX.

I wonder how Larry's fat-tail would have responded over that time period (back-tested). My guess, pretty good.

We could look at expenses, let's say that the PP via ETF's can be done at very low cost (0.05% or so) - well the Admiral Funds are 0.21%/0.22% so that wouldn't sway me to the PP.

So moving foward, what would a long term investor do - a 50/50 blend of Wellington/Wellesley or the PP to best achieve real returns?

RM

[SVariance1]

I had a feeling this thread would be bumped up again. Not much has changed in the past few weeks, except that the Fed through operation Twist has shown that it is willing to reach into its tool box in an attempt to stimulate the economy aqain. There are alot of smart people at the Fed who apparently do not understand that the level of rates is not what is holding back the economy and investors. The issues are demand and confidence.

[jeffyscott]

There are alot of smart people at the Fed who apparently do not understand that the level of rates is not what is holding back the economy and investors. The issues are demand and confidence.

I think they understand that, but they can only do what they can do. Bernanke certainly pointed out a short time ago that there are others, who have other powers, and that they should also do what they can do to try to turn the economy around.

[SVariance1]

There are alot of smart people at the Fed who apparently do not understand that the level of rates is not what is holding back the economy and investors. The issues are demand and confidence.

I think they understand that, but they can only do what they can do. Bernanke certainly pointed out a short time ago that there are others, who have other powers, and that they should also do what they can do to try to turn the economy around.

If they understand it, then they should probably not do it. I think the action reduces confidence further.

[Lbill]

Since two days is noise, let's look at the "longer term" - for example, the inception date of PRPFX 12/1/1982 to 9/22/2011 - $10K invested in each fund. From M*:

PRPFX (Permanent Portfolio) - $69K
Wellesley Income - $175K
Wellington - $191K

Here's what I get using Simba's spreadsheet for similar time period of 1/83 - 12/10 using Vanguard fund proxies:

Classic PP (25% VFINX, 25% VMPXX, 25% VUSTX, 25% GLD).... $80.1K
Wellesley...................................................................................$166.3K
Wellington.................................................................................$197.6K
Swedroe Fat Tails (30% VISVX, 70% TIPS)................................$136K

The rest of the story is volatility, ranging from 5.8% annualized SD for the PP to 11.6% for Wellington. Max annual loss for each was:

PP................(-1.9%)
Wellesley.....(-9.8%)
Wellington...(-22.3%)
Swedroe.....(-11.6%)

Must recall that this time period beginning in 1983 greatly favors portfolios with a heavier equity allocation. If you start in 1972, the difference in annual returns is within 1%.

[jeffyscott]

If they understand it, then they should probably not do it. I think the action reduces confidence further.

Apparently the majority of "smart people at the Fed" have opinions that differ from yours as to what is the best course of action for them to undertake, given the limitations on what they can do. The Fed has stated that the problem is unemployment. What can really they do about it, though?

[dLdV]

I had a feeling this thread would be bumped up again. Not much has changed in the past few weeks, except that the Fed through operation Twist has shown that it is willing to reach into its tool box in an attempt to stimulate the economy aqain. There are alot of smart people at the Fed who apparently do not understand that the level of rates is not what is holding back the economy and investors. The issues are demand and confidence.

Could not agree more. My wife runs a small retail, and her customers are largely blue collar. Odds say they do not own much, if any, investment. Every time the averages take a dive, their wallets snap shut. This is not irrational on their part, because they have come to associate declines with layoffs and downward pressure on wages and benefits.

[SVariance1]

If they understand it, then they should probably not do it. I think the action reduces confidence further.

Apparently the majority of "smart people at the Fed" have opinions that differ from yours as to what is the best course of action for them to undertake, given the limitations on what they can do. The Fed has stated that the problem is unemployment. What can really they do about it, though?

That is my point. They can't do anything about it.

[Lbill]

- deleted -

[Taylor Larimore]

Political and Economic Policy are prohibited topics.

[SVariance1]

Political and Economic Policy are prohibited topics.

Hi Taylor,

Why is economic policy prohibited? The Federal Reserve is supposed to be independent.

[Sidney]

Political and Economic Policy are prohibited topics.

Hi Taylor,

Why is economic policy prohibited? The Federal Reserve is supposed to be independent.

I'm not Taylor but I will venture a guess.

It is almost impossible to have conversation on economic policy without sliding into a political discussion. I am guessing they are just trying to avoid the inevitable.

[Taylor Larimore]

Political and Economic Policy are prohibited topics.

Hi Taylor,

Why is economic policy prohibited? The Federal Reserve is supposed to be independent.

To avoid endless arguments.

[Random Musings]

Must recall that this time period beginning in 1983 greatly favors portfolios with a heavier equity allocation. If you start in 1972, the difference in annual returns is within 1%.

Over almost 40 years, that roughly 1% will really add up. Let's say 0.8%. I'll take the extra 35% for a little more volatility.

RM

[Lbill]

THE WEEK'S FIGURES

DOW -6.4% OIL -9.2%
S&P 500 -6.5% GOLD -9.7%
NASDAQ -5.3% DOLLAR +2.3%

[HomerJ]

THE WEEK'S FIGURES

DOW -6.4% OIL -9.2%
S&P 500 -6.5% GOLD -9.7%
NASDAQ -5.3% DOLLAR +2.3%

FYI, nobody invests for just a week.

[Lbill]

FYI, nobody invests for just a week.

Yes, that's true. Stock returns look a lot better over the last decade, and so does Gold!

[woof755]

Political and Economic Policy are prohibited topics.

Hi Taylor,

Why is economic policy prohibited? The Federal Reserve is supposed to be independent.

I'm not Taylor but I will venture a guess.

It is almost impossible to have conversation on economic policy without sliding into a political discussion. I am guessing they are just trying to avoid the inevitable.

Monetary policy from the Fed usually survives without degrading into squabbles. Fiscal policy directed by the white house and congress is the aspect of economics that gets posts locked!

[plnelson]

It looks like we're free-falling upward at the moment. (Dow is up 259 points midday today after gains yesterday and Friday.) All of the losses on Thursday, and part of Wednesday's have been erased.

So Douglas Adams was right: DON'T PANIC.

I have several different accounts, based on different philosophies. Investment philosophy is one of the many axes to diversify among. Needless to say, I did extremely well in my trading account. I've profitably unwound all the positions I bought on Thursday. In my value account I bought or added to several companies that I think will do well in the long run and pay good dividends in the meantime. I didn't do anything in my "Boglehead" account because I had rebalanced in August and it didn't go down far enough last week to go outside the bands.

But overall last week was nothing to get worked up over.

[HomerJ]

It looks like we're free-falling upward at the moment. (Dow is up 259 points midday today after gains yesterday and Friday.) All of the losses on Thursday, and part of Wednesday's have been erased.

Yep, and notice Little Bill stopped posting...

But he'll be back in a week or two if we drop 5% again pointing out how bad an investment stocks are, even though we will STILL be right where we were when he started this thread.

I expect more pain before pleasure in the years ahead... I still see the stock markets trading sideways (or even another crash) before the next bull comes...

But I do expect another bull in the next 20 years...

And there's certainly no reason to cry "Doom!" just because of some bad returns in one week.

[gkaplan]

Little Bill. I like that.

[Lbill]

rrosenkoetter-

The title of the thread is "U.S. stocks in freefall." If you want to celebrate these little dead cat bounces in the market, then you should start your own thread - maybe "U.S. stocks in orbit." I'll come visit and bug you whenever stocks go down.

[nisiprius]

This is not "freefall."



I don't know what to call it. I'm certainly not going to say that stocks have reached what looks like a permanently medium plateau. "Dead cat bounce" doesn't do it for me, either.



Buster Keaton falling off the ledge of a building and getting hung up on a clothesline, maybe.



I have no idea what happens next. I doubt that this is what anyone expected at the start of the thread.

[jginseattle]

This is not "freefall." I'm not sure what to call it, and I don't know what will happen next. But freefall it ain't. I don't know what to call it. I'm certainly not going to say that stocks have reached what looks like a permanently medium plateau. "Dead cat bounce" doesn't do it for me, either.

I need new glasses.

[Lbill]

Squint.

[Snowjob]

I wouldn't mind up and down for another couple years to keep buying certain stocks at attractive prices.

[plnelson]

I wouldn't mind up and down for another couple years to keep buying certain stocks at attractive prices.

I agree!! I've done very well with that strategy for years. People complain about the S&P500 moving "sideways" for the last decade or so, but I hope it does that forever.

[HomerJ]

I wouldn't mind up and down for another couple years to keep buying certain stocks at attractive prices.

I agree!! I've done very well with that strategy for years. People complain about the S&P500 moving "sideways" for the last decade or so, but I hope it does that forever.

Heh, well not forever...

But yeah, people who started investing in 1966 experienced 18 years of sideway movement and 50% crashes.... In 1966, the DOW was about 1000, and in 1982 it was still 1000...

But things worked pretty well for them... All that money they saved over 18 years, was multiplied by TEN by 1999.

Those people who saved all through the bad times (assuming they "stayed the course"), did better than the people who started investing in 1982.

[Lbill]

But yeah, people who started investing in 1966 experienced 18 years of sideway movement and 50% crashes.... In 1966, the DOW was about 1000, and in 1982 it was still 1000...

But things worked pretty well for them... All that money they saved over 18 years, was multiplied by TEN by 1999.

Of course, the obvious difference between 1982 and now is that in 1982 stocks were reviled and most people didn't want to own them. The Shiller PE/10 got all the way down to about 7. Today, the Shiller PE/10 is still above the historical average at 20 and there still are too many people around like you who think now's the time to buy more. I'm actually doing you stockbugs a favor by talking them down. If there were more people like me, there would actually be some chance you could get rich on them, but until then I wouldn't hold my breath.

[grap0013]

This is not "freefall." I'm not sure what to call it, and I don't know what will happen next. But freefall it ain't. I don't know what to call it. I'm certainly not going to say that stocks have reached what looks like a permanently medium plateau. "Dead cat bounce" doesn't do it for me, either.

I need new glasses.

Maybe you shouldn't take ambien before going on here.

[grap0013]

I wouldn't mind up and down for another couple years to keep buying certain stocks at attractive prices.

I agree!! I've done very well with that strategy for years. People complain about the S&P500 moving "sideways" for the last decade or so, but I hope it does that forever.

Heh, well not forever...

But yeah, people who started investing in 1966 experienced 18 years of sideway movement and 50% crashes.... In 1966, the DOW was about 1000, and in 1982 it was still 1000...

But things worked pretty well for them... All that money they saved over 18 years, was multiplied by TEN by 1999.

Those people who saved all through the bad times (assuming they "stayed the course"), did better than the people who started investing in 1982.

+1

I think Lbill just likes fear mongering no matter what the market's doing.