Is the disaster scenario for stocks a reason not to invest or pull out of the market?

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TheTimeLord
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Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 8:49 am

If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

zrail
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by zrail » Sat Apr 13, 2019 8:55 am

I think people have a tendency to generalize based on extremely rare events like the Great Depression and Great Recession. They see these terrible events that are talked about all the time and assume they happen all the time and ignore the fact that things like that just don’t happen very often.

The biggest bull run in history is still very fresh in people’s minds and they get scared that we’re “due” for a recession.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by UpperNwGuy » Sat Apr 13, 2019 8:59 am

It is not a reason to not invest. If it were a reason, then nobody would ever invest.

dbr
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dbr » Sat Apr 13, 2019 9:01 am

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
Of course it is a good reason if the investor sees that possibility as so terrible it must be avoided at all costs and the cost of not investing in stocks is acceptable or even desirable. For example, a person can be wealthy enough relative to their need for the money to just put everything in T-bills and go away. I am not sure, but I think Suzi Orman has been said to do exactly that, but I don't know that the reason is to avoid a disaster in stocks. I could have misread about Ms. Orman. What do you think is the answer to your question?

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by JTColton » Sat Apr 13, 2019 9:20 am

It's definitely not a reason not to invest, and it's not a reason to delay retirement until mid 60's in fear of it either.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 9:33 am

dbr wrote:
Sat Apr 13, 2019 9:01 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
Of course it is a good reason if the investor sees that possibility as so terrible it must be avoided at all costs and the cost of not investing in stocks is acceptable or even desirable. For example, a person can be wealthy enough relative to their need for the money to just put everything in T-bills and go away. I am not sure, but I think Suzi Orman has been said to do exactly that, but I don't know that the reason is to avoid a disaster in stocks. I could have misread about Ms. Orman. What do you think is the answer to your question?
My answer is of course not, as long as you believe stocks will recover within some reasonable amount of time and you have allocated fixed income assets to cover your needs in case of such an occurrence then a potential temporary short term setback is no reason to avoid a long term investment opportunity.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by tibbitts » Sat Apr 13, 2019 9:40 am

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening. Everyone will assign a higher probability of non-recovery if you replace "never" with, say, 30-50 years.

A 50% drop for 3-5 years is a blip, not a "dire scenario."

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 9:48 am

tibbitts wrote:
Sat Apr 13, 2019 9:40 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening.
Then that is the wrong argument because if you own stocks you will likely experience multiple market plunges. I believe the issue should be time to recover and your ability to weather the plunges that inevitably will come with investing in the stock market.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

dbr
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dbr » Sat Apr 13, 2019 9:51 am

TheTimeLord wrote:
Sat Apr 13, 2019 9:48 am
tibbitts wrote:
Sat Apr 13, 2019 9:40 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening.
Then that is the wrong argument because if you own stocks you will likely experience multiple market plunges. I believe the issue should be time to recover and your ability to weather the plunges that inevitably will come with investing in the stock market.
I agree. The issue is the time to recover. I don't think five years counts as dire rather than as routine. A real disaster for a human investor would be thirty to fifty years of non-recovery and only then if there is no ongoing continued investment. That disaster would be at the beginning of a long retirement, for example.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 9:57 am

tibbitts wrote:
Sat Apr 13, 2019 9:40 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening. Everyone will assign a higher probability of non-recovery if you replace "never" with, say, 30-50 years.

A 50% drop for 3-5 years is a blip, not a "dire scenario."
Good to know The Great Recession was a blip.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by sabtastic » Sat Apr 13, 2019 10:01 am

It is a psychological reason.

For example, our equity position was accrued over the last decade, yet it is in just as much danger of a haircut as someone who invested the exact same amount in its entirety yesterday. For whatever reason, the mind regards a 50% drop of the latter as more painful than the former, even though we lost the same amount of money, and have the same opportunity for recovery.

The business cycles of ever-increasing amplitude contribute to the psychological terror. Obviously everyone would be much more comfortable with a steady 5% real growth for eternity, but instead we seem to have many years of >5% ending with a gut wrenching 50% drop. No one wants to be left holding the bag, so hesitation and the associated terror result.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dknightd » Sat Apr 13, 2019 10:03 am

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think you should work One More Year ;)

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by tibbitts » Sat Apr 13, 2019 10:12 am

TheTimeLord wrote:
Sat Apr 13, 2019 9:57 am
tibbitts wrote:
Sat Apr 13, 2019 9:40 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening. Everyone will assign a higher probability of non-recovery if you replace "never" with, say, 30-50 years.

A 50% drop for 3-5 years is a blip, not a "dire scenario."
Good to know The Great Recession was a blip.
It was a blip, relative to a similar loss followed by no recovery for 30-50 years, which I think is reasonably probable at some point. I'm hoping not in my lifetime, of course.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dknightd » Sat Apr 13, 2019 10:20 am

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I assume my stock holdings could drop in value by 80%. If that happened I'd buy more stocks from my cash like reserves. My assumption is they would eventually recover. I could be wrong. But in the mean time I think I could afford beans and rice/

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Xrayman69 » Sat Apr 13, 2019 10:33 am

To OP, depends upon your age, your time horizon, and your risk comfort.

65 year old with comfortable retirement account and and a “average” risk comfort level should not be 100% equities. This would be to risky. In addition the aversion for equity risk and being 100% cash is also risky due to inflation.

25 year old with a 30-40 year time horizon for withdrawal 100% invested in a diverse equity account with similar “average “ risk tolerance would not be considered unreasonable (albeit 100% equities is a bit extreme with no exposure to bond), if I were this individual I would probably not be tremendously upset if the market had a significant pullback so I could buy equities at a lower entry point and continue to invest regularly and permit compounding to do its work over 30-40 years.

Time is probably the most critical variable.
Last edited by Xrayman69 on Sat Apr 13, 2019 10:37 am, edited 1 time in total.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 10:36 am

dknightd wrote:
Sat Apr 13, 2019 10:03 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think you should work One More Year ;)
Yeah people constantly posting that never gets old especially when it has nothing to do with the thread.
TheTimeLord wrote:
Sat Apr 13, 2019 9:33 am
My answer is of course not, as long as you believe stocks will recover within some reasonable amount of time and you have allocated fixed income assets to cover your needs in case of such an occurrence then a potential temporary short term setback is no reason to avoid a long term investment opportunity.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 10:38 am

Xrayman69 wrote:
Sat Apr 13, 2019 10:33 am
To OP, depends upon your age, your time horizon, and your risk comfort.

65 year old with comfortable retirement account and and a “average” risk comfort level should not be 100% equities. This would be to risky. In addition the aversion for equity risk and being 100% cash is also risky due to inflation.

25 year old with a 30-40 year time horizon for withdrawal 100% invested in a diverse equity account with similar “average “ risk tolerance would not be considered unreasonable (albeit 100% equities is a bit extreme with no exposure to bond), if I were this individual I would probably not be tremendously upset if the market had a significant pullback so I could by equities at a lower entry point and continue to invest regularly and permit compounding to do its work over 30-40 years.
OP was not about investing 100% in equities.
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dbr » Sat Apr 13, 2019 10:55 am

TheTimeLord wrote:
Sat Apr 13, 2019 10:38 am
Xrayman69 wrote:
Sat Apr 13, 2019 10:33 am
To OP, depends upon your age, your time horizon, and your risk comfort.

65 year old with comfortable retirement account and and a “average” risk comfort level should not be 100% equities. This would be to risky. In addition the aversion for equity risk and being 100% cash is also risky due to inflation.

25 year old with a 30-40 year time horizon for withdrawal 100% invested in a diverse equity account with similar “average “ risk tolerance would not be considered unreasonable (albeit 100% equities is a bit extreme with no exposure to bond), if I were this individual I would probably not be tremendously upset if the market had a significant pullback so I could by equities at a lower entry point and continue to invest regularly and permit compounding to do its work over 30-40 years.
OP was not about investing 100% in equities.
No, it was about avoiding equities entirely, conversation confused by an additional statement of not adding new money. Without a doubt some people could rationally avoid stocks entirely due to assessment of a possible dire disaster. Those are people who have no need to invest in stocks and also no ability in their view to take the risk, or at least no willingness to.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Broken Man 1999 » Sat Apr 13, 2019 11:02 am

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
No, I fully understand the possibility of a 50% drop with a 3-5 year recovery, fact is, a recovery might be far longer than 3-5 years.

Stocks are risky, short term and long term. OTOH, stocks provide the type of return one needs to be able to retire with a fighting chance of their portfolio helping mitigate inflation.

A retiree should recognize the volatility of stock prices in "good" markets and "bad" markets, and hold some type of asset that allows spending during downturns, exclusive of depleting the equity portion of their portfolio.

We have a 50% equity and 50% bond portfolio that should protect us from the volatility of equities, while allowing us to enjoy our current lifestyle spending.

I can't say I would NEVER EVER go to cash, but I can say I have never experienced anything over decades of investing that would lead me to do so.

Broken Man 1999
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Valuethinker » Sat Apr 13, 2019 11:19 am

TheTimeLord wrote:
Sat Apr 13, 2019 9:57 am
tibbitts wrote:
Sat Apr 13, 2019 9:40 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening. Everyone will assign a higher probability of non-recovery if you replace "never" with, say, 30-50 years.

A 50% drop for 3-5 years is a blip, not a "dire scenario."
Good to know The Great Recession was a blip.
1. We must distinguish between the economic performance (probably the worst economic performance for a sustained period of time since 1945) and the stock market performance (a bear market, brutal but quick; neither the worst fall (in real terms) experienced since 1929 (or 1945) nor long in duration.

The move by Central Banks across the world to loose monetary policy in Q4 2008 & 2009, and the unprecedented use of Quantitative Easing, turned the stock market rout and drove government bond yields *below* those of the 1930s (for that length of period).

Probably we haven't had a ride that bad since the 1930s (certainly) and maybe the 1870s (we don't have complete comparable data). I believe American GDP is thought to have fallen by something like 25% after the crash of ?1873? World GDP would have done something similar.

2. If you look at the 1968-1981 period you saw a series of bear markets and recoveries, with inflation eating away at returns. Overall, investors fell behind inflation by something like 40% (investing in stocks, that is).

3. The UK had a period 1973-75 where the stock market, real return basis, dropped something like 82%. *That* was a brutal bear. Even doubling the year after the bottom, as it did, did not do you much good if you had been fully invested at the start of 1973.

4. Japan of course has had a 28 year bear market. Real GDP per capita has risen more or less in line with the USA, so the long run economic consequences have been less severe.

mhalley
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by mhalley » Sat Apr 13, 2019 11:25 am

What if you repeatedly invested at market peaks? This happened to Bob, and he did ok.
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Last edited by mhalley on Sat Apr 13, 2019 11:26 am, edited 1 time in total.

dbr
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dbr » Sat Apr 13, 2019 11:25 am

Valuethinker wrote:
Sat Apr 13, 2019 11:19 am
TheTimeLord wrote:
Sat Apr 13, 2019 9:57 am
tibbitts wrote:
Sat Apr 13, 2019 9:40 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening. Everyone will assign a higher probability of non-recovery if you replace "never" with, say, 30-50 years.

A 50% drop for 3-5 years is a blip, not a "dire scenario."
Good to know The Great Recession was a blip.
1. We must distinguish between the economic performance (probably the worst economic performance for a sustained period of time since 1945) and the stock market performance (a bear market, brutal but quick; neither the worst fall (in real terms) experienced since 1929 (or 1945) nor long in duration.

The move by Central Banks across the world to loose monetary policy in Q4 2008 & 2009, and the unprecedented use of Quantitative Easing, turned the stock market rout and drove government bond yields *below* those of the 1930s (for that length of period).

Probably we haven't had a ride that bad since the 1930s (certainly) and maybe the 1870s (we don't have complete comparable data). I believe American GDP is thought to have fallen by something like 25% after the crash of ?1873? World GDP would have done something similar.

2. If you look at the 1968-1981 period you saw a series of bear markets and recoveries, with inflation eating away at returns. Overall, investors fell behind inflation by something like 40% (investing in stocks, that is).

3. The UK had a period 1973-75 where the stock market, real return basis, dropped something like 82%. *That* was a brutal bear. Even doubling the year after the bottom, as it did, did not do you much good if you had been fully invested at the start of 1973.

4. Japan of course has had a 28 year bear market. Real GDP per capita has risen more or less in line with the USA, so the long run economic consequences have been less severe.
It is hugely important to point out that disaster in stocks may more often than not be these secular bear markets rather than short term but severe market crashes. The market does not have to decline in nominal dollars to be a disaster for the investor spending real dollars over time.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dknightd » Sat Apr 13, 2019 11:31 am

TheTimeLord wrote:
Sat Apr 13, 2019 10:36 am
dknightd wrote:
Sat Apr 13, 2019 10:03 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think you should work One More Year ;)
Yeah people constantly posting that never gets old especially when it has nothing to do with the thread.
TheTimeLord wrote:
Sat Apr 13, 2019 9:33 am
My answer is of course not, as long as you believe stocks will recover within some reasonable amount of time and you have allocated fixed income assets to cover your needs in case of such an occurrence then a potential temporary short term setback is no reason to avoid a long term investment opportunity.
The reality is it does apply to this thread. We can not predict what the drop might be, We can also not predict how long it might take to recover. If ever. Eventually you have to decide. Would you like one more year of working, or, would you like one more year of not working (aka retirement). This choice is yours (and you are lucky to be able to decide.)

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TomCat96 » Sat Apr 13, 2019 11:46 am

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?

No that is not a reason to avoid investing in the market or pulling out of the market.

Stock Market growth is approximate 10% a year compounded. The price of that growth is the possibility the market might crash.
The S&P 500 just weathered a 20%+ drop, less than a year ago. Since I am actually 100% Small and Midcaps US, my drop was a little larger. 25.4% over the course of several months.

That is the price you pay for that growth. You pay in the risk and volatility you bear.

Look to your left and right. There are plenty of people on this forum that cannot bear risk. They either cannot stomach it emotionally, or because they are older, because they are sick, because they were burned too seriously in the past, because they are insolvent, illiquid, because they have fallen on hard times.

If you can bear risk, it is an honest to god true blessing that can be converted to money pretty readily. It's at least one reason why the rich keep getting richer.

Those who can bear risk should happily take the opportunity to do so.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Thesaints » Sat Apr 13, 2019 12:09 pm

The “50% drop” is always around the corner for stocks. That’s precisely their nature. Those who can’t accept it should not invest in stocks. Period.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by randomguy » Sat Apr 13, 2019 12:11 pm

tibbitts wrote:
Sat Apr 13, 2019 10:12 am
TheTimeLord wrote:
Sat Apr 13, 2019 9:57 am
tibbitts wrote:
Sat Apr 13, 2019 9:40 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think everyone agrees that stocks could drop 50% or more the day after you invest and never recover. The argument is over the probability of that happening. Everyone will assign a higher probability of non-recovery if you replace "never" with, say, 30-50 years.

A 50% drop for 3-5 years is a blip, not a "dire scenario."
Good to know The Great Recession was a blip.
It was a blip, relative to a similar loss followed by no recovery for 30-50 years, which I think is reasonably probable at some point. I'm hoping not in my lifetime, of course.
It is a blip cause 3 year dips don't really matter in long term planning. 10+ year ones do. Obviously you have no way of knowing if you 3 year dip is going to turn into a 10+ year one. In 2011, there were tons of people talking about the dead cat bounce and how that 19% drop we had was about to turn into a 40% one.

A 50% drop wiht a 3-5 year recovery isn't a disaster scenario for stocks. It is something that is likely to happen several times over an investors lifetime (i.e.Any one that invested before 2000 has has basically experienced this twice). If that was the worst stocks could do, most people should be holding 80/20 or so. The disaster scenario for stocks is they go to zero. The disaster scenario for bonds is the go to zero. And before you go US currency can't go to zero, how many 1914 German investors thought that their cash would be worthless within 10 years. Heck how many 1919, thought that in 4 years their currency would be worthless. And yes some of them got some money back years later when some of the debts were reevaluate but the losses where still huge.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Valuethinker » Sat Apr 13, 2019 12:44 pm

TomCat96 wrote:
Sat Apr 13, 2019 11:46 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?

No that is not a reason to avoid investing in the market or pulling out of the market.

Stock Market growth is approximate 10% a year compounded.
5% real in USD for the global index.

just over 6% real for the US, historically (could be as high as 7% depending on start date).

So inflation is 2%.

Hard to get an equity return over 7%.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Mr.BB » Sat Apr 13, 2019 1:10 pm

The real key to all this is are you working? If you are working and earning enough money, you can buy funds/stocks at a big discount etc. It's when you lose your income flow, is what changes everything.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 1:12 pm

dknightd wrote:
Sat Apr 13, 2019 11:31 am
TheTimeLord wrote:
Sat Apr 13, 2019 10:36 am
dknightd wrote:
Sat Apr 13, 2019 10:03 am
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
I think you should work One More Year ;)
Yeah people constantly posting that never gets old especially when it has nothing to do with the thread.
TheTimeLord wrote:
Sat Apr 13, 2019 9:33 am
My answer is of course not, as long as you believe stocks will recover within some reasonable amount of time and you have allocated fixed income assets to cover your needs in case of such an occurrence then a potential temporary short term setback is no reason to avoid a long term investment opportunity.
The reality is it does apply to this thread. We can not predict what the drop might be, We can also not predict how long it might take to recover. If ever. Eventually you have to decide. Would you like one more year of working, or, would you like one more year of not working (aka retirement). This choice is yours (and you are lucky to be able to decide.)
OP was about should a potential disaster scenario affect your investing in equities not about steps to mitigate the consequences of poor results.
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by David Jay » Sat Apr 13, 2019 2:10 pm

I think the behavioral finance issues are even more important than time-frame as discussed above. The “sleep at night” and “sell after drop” issues are paramount:

1. If one believes that the market is a “casino” and one has no need to take the risk (they have the necessary income streams and assets @Treasury rates of return) then that individual simply should not invest in stocks. Having to worry every day about what the market will do is no way to live.

2. If one has a tendency to react in the moment to bad financial news, one should probably not invest in stocks (or maybe set a ceiling of 20- 30%, so a 50% drop is a 10-15% drop in portfolio) if there is no need. I have a sibling who sold out of all of their stock holdings at the bottom in 2008, permanently locking in their losses. They should not have been in stocks in my opinion.

Need is such a key in this discussion. I would not be able to meet my retirement goals with the return of T-bills or CDs, so “invest I must”.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by marcopolo » Sat Apr 13, 2019 3:29 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
For me, it depends on how confident you are in your prediction that such a crash is coming. If you know it, then of course you would go to cash to avoid it. But, I have no such confidence in my own ability to predict such things, so it does not affect my investing decisions. On the other hand, since I can't predict it, I follow HoemrJ's approach: I also assume it could happen at any moment, so my portfolio is structured to withstand it.

For me, by "it", I mean a scenario where we get a 50% drop, followed by a slow recovery ( i.e., below average returns after a 50% drop).
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Fallible » Sat Apr 13, 2019 5:25 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
It's a good question, almost a trick question - not so much what investors might do after a disaster scenario, but how well they’ve planned for one. In setting an allocation, a key question to ask is how much one can afford to lose in a downturn before the money is needed - five years, ten years, or more?
"John Bogle has changed a basic industry in the optimal direction. Of very few can this be said." ~Paul A. Samuelson

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by zorclon » Sat Apr 13, 2019 5:49 pm

So as someone entering retirement that will not be working due to health issues, what is a reasonable AA?

(I'm cautiously optimistic about the future, maybe that's not the wisest attitude).

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Trader Joe » Sat Apr 13, 2019 6:08 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
Well, in my case, I would never "go to cash". I have a portfolio of 100% Vanguard S&P 500 (VFIAX). I will never deviate from this portfolio.

I am experienced enough to stay the course.

If there were a 50% drop? This would be no significance to me, whatsoever. Just noise. That drop would be only temporary (as history demonstrates).

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by randomguy » Sat Apr 13, 2019 6:12 pm

zorclon wrote:
Sat Apr 13, 2019 5:49 pm
So as someone entering retirement that will not be working due to health issues, what is a reasonable AA?

(I'm cautiously optimistic about the future, maybe that's not the wisest attitude).
50/50 +-15% covers most situations. Reality is that the differences are unlikely to matter much between holding 60/40 and 40/60. For your specific case maybe more bonds is better or worse but we aren't talking huge differences. Pick which one let's you sleep at night

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by zorclon » Sat Apr 13, 2019 6:25 pm

I've been pretty comfortable at 55/45. Hoping that will give me a reasonable upside and the ability to weather a downturn.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Fallible » Sat Apr 13, 2019 6:33 pm

zorclon wrote:
Sat Apr 13, 2019 5:49 pm
So as someone entering retirement that will not be working due to health issues, what is a reasonable AA?

(I'm cautiously optimistic about the future, maybe that's not the wisest attitude).
You would continue to base an AA on your ability, willingness (risk tolerance), and need to rake risk, reflecting how they might change in retirement. That would also tell you how wise your cautious optimism is.
"John Bogle has changed a basic industry in the optimal direction. Of very few can this be said." ~Paul A. Samuelson

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by dogagility » Sat Apr 13, 2019 6:34 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities?
No it is not. But people do it anyway.
You've hit the nail on the head for why I think people are too timid. It's like they think a large drop in the market is somehow permanent.
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
Or do people have an even more dire scenario in mind?
For the typical investor discussing market timing, this is not on their mind.
Taking "risk" since 1995.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by teelainen » Sat Apr 13, 2019 6:38 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
The Japanese Nikkei index hit its all-time high on December 29, 1989 when it closed at 38,915. Subsequently, it closed at 7,054 on March 10, 2009 (82% below its peak twenty years earlier).

I think something like that would be a disaster scenario for most investors, even Bogleheads.

I'm not saying something like this will happen, nor do I want it to happen. But it did happen in Japan.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by letsgobobby » Sat Apr 13, 2019 6:39 pm

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Dialectical Investor
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Dialectical Investor » Sat Apr 13, 2019 7:08 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
TimeLord: Maybe you will understand it if I phrase it this way, and I phrase it this way just for you: I'm going to tell you the most important thing you will read in this thread, at least as pertains to your question. You may not understand it today, and hopefully you never will. I have no special powers of prediction. I have no insight into the workings of the world that cannot be gleaned by the average person stopping what they are doing and reflecting for just a moment. Here it is:

First: Trust nothing else you read in this thread.

Second: You have a problem.

Third: Unless you are a person of not just unusual but also extraordinary means, which I presume you are not, because you post here frequently... your problem cannot be solved.

Good night.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 8:16 pm

Dialectical Investor wrote:
Sat Apr 13, 2019 7:08 pm
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
TimeLord: Maybe you will understand it if I phrase it this way, and I phrase it this way just for you: I'm going to tell you the most important thing you will read in this thread, at least as pertains to your question. You may not understand it today, and hopefully you never will. I have no special powers of prediction. I have no insight into the workings of the world that cannot be gleaned by the average person stopping what they are doing and reflecting for just a moment. Here it is:

First: Trust nothing else you read in this thread.

Second: You have a problem.

Third: Unless you are a person of not just unusual but also extraordinary means, which I presume you are not, because you post here frequently... your problem cannot be solved.

Good night.
You are correct I have no idea what problem you are referencing. It is one to which I am apparently oblivious.
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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Dialectical Investor » Sat Apr 13, 2019 8:31 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:16 pm

You are correct I have no idea what problem you are referencing. It is one to which I am apparently oblivious.
And yet you know it well. It is why you post questions here. It is that what you reach toward but cannot touch.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 9:04 pm

Dialectical Investor wrote:
Sat Apr 13, 2019 8:31 pm
TheTimeLord wrote:
Sat Apr 13, 2019 8:16 pm

You are correct I have no idea what problem you are referencing. It is one to which I am apparently oblivious.
And yet you know it well. It is why you post questions here. It is that what you reach toward but cannot touch.
Nope, still without a clue.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Dialectical Investor » Sat Apr 13, 2019 9:07 pm

TheTimeLord wrote:
Sat Apr 13, 2019 9:04 pm
Dialectical Investor wrote:
Sat Apr 13, 2019 8:31 pm
TheTimeLord wrote:
Sat Apr 13, 2019 8:16 pm

You are correct I have no idea what problem you are referencing. It is one to which I am apparently oblivious.
And yet you know it well. It is why you post questions here. It is that what you reach toward but cannot touch.
Nope, still without a clue.
And you call yourself a Time Lord. :D

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by TheTimeLord » Sat Apr 13, 2019 9:18 pm

Dialectical Investor wrote:
Sat Apr 13, 2019 9:07 pm
TheTimeLord wrote:
Sat Apr 13, 2019 9:04 pm
Dialectical Investor wrote:
Sat Apr 13, 2019 8:31 pm
TheTimeLord wrote:
Sat Apr 13, 2019 8:16 pm

You are correct I have no idea what problem you are referencing. It is one to which I am apparently oblivious.
And yet you know it well. It is why you post questions here. It is that what you reach toward but cannot touch.
Nope, still without a clue.
And you call yourself a Time Lord. :D
But we are an egomaniacal race who are not all that accepting of our flaws.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by sambb » Sat Apr 13, 2019 9:19 pm

teelainen wrote:
Sat Apr 13, 2019 6:38 pm
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
The Japanese Nikkei index hit its all-time high on December 29, 1989 when it closed at 38,915. Subsequently, it closed at 7,054 on March 10, 2009 (82% below its peak twenty years earlier).

I think something like that would be a disaster scenario for most investors, even Bogleheads.

I'm not saying something like this will happen, nor do I want it to happen. But it did happen in Japan.

Often BH dont seem to acknowledge this event, in one of the worlds largest economys. Over 20 years, down 80%. No hope for recovery in one;s lifetime. This is why savings and earnings and expenses matter. Stocks of any sort might be really bad in lon term. No way to know.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by NibbanaBanana » Sat Apr 13, 2019 9:44 pm

TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
No. If you're in the accumulation phase you get to buy low. If you're in the withdrawal phase you still get your reliable, generally increasing dividends.

Any other apocalyptic scenario like stocks going to zero implies a collapse of the global economy as we know it and is not worth considering. Big permanent losses occur from bubbles. Japan asset bubble 1990, the technology/media/telecommunications bubble of 2000, the real estate bubble of 2007-2008.

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by typical.investor » Sat Apr 13, 2019 9:58 pm

sambb wrote:
Sat Apr 13, 2019 9:19 pm
teelainen wrote:
Sat Apr 13, 2019 6:38 pm
TheTimeLord wrote:
Sat Apr 13, 2019 8:49 am
If the disaster scenario for investing in stocks they drop 50% the day after you invest and don't recover for 3-5 years is that really a reason to be going to cash or avoid putting new money into equities? Or do people have an even more dire scenario in mind?
The Japanese Nikkei index hit its all-time high on December 29, 1989 when it closed at 38,915. Subsequently, it closed at 7,054 on March 10, 2009 (82% below its peak twenty years earlier).

I think something like that would be a disaster scenario for most investors, even Bogleheads.

I'm not saying something like this will happen, nor do I want it to happen. But it did happen in Japan.

Often BH dont seem to acknowledge this event, in one of the worlds largest economys. Over 20 years, down 80%. No hope for recovery in one;s lifetime. This is why savings and earnings and expenses matter. Stocks of any sort might be really bad in lon term. No way to know.
Well, I think $10k in the Japanese Nikkei on December 29, 1989 nets you $3800 in March 2009 when you consider dividends and currency movement. Not great but over 2X your figure of $1800 (82% loss).

$10k 12.'89 nets you $10,364 today (considering dividends and currency). [in at around CAPE 65]

$10k 12.'86 nets you $21,174 today (considering dividends and currency). [in at around CAPE 40]

$10k in 12.'83 nets you $28,744 today (considering dividends and currency). [in at around CAPE 21]

I don't believe current global valuations, or even current valuations in the most expensive markets, are anywhere near what they were for Japanese equities in '90.

Globally CAPE is 23.5. Japan '90 was 90.

OK, I agree don't get in with all your money at CAPE 90, and maybe think about reducing equity exposure at that level.

Data used:

Japanese CAPE
http://siblisresearch.com/data/japan-shiller-pe-cape/

Yen Value
https://www.poundsterlinglive.com/bank- ... o-JPY-2019

Nikkei Returns with Dividends Reinvested
https://dqydj.com/nikkei-return-calcula ... nvestment/

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Re: Is the disaster scenario for stocks a reason not to invest or pull out of the market?

Post by Eagle33 » Sat Apr 13, 2019 10:32 pm

Why is it that when the market drops 50% the guideline of "buy low and sell high" is ignored? It is a great time to buy equities.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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