Why not stand on the sidelines for a little while?

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fitterhappier
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Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 4:16 am

To recap: we are facing a world-historic crisis situation, much of which depends on how the US pandemic plays out, and various economic vicious cycles play out after an unprecedented small-business wipeout and massive unemployment...while at the same time we have (without getting too deep into politics) what everyone will agree is a highly unusual US administration in place, and are in an election year.

Multiply all those factors together and I understand the extreme market volatility. This current situation is so world-historic insane vs any crisis I remember that it's hard to hold it in my head at all.

I'm a buy-and-hold long-term indexing investor, but I also strongly believe in investing in what I understand. I do not understand the world economy right now at all.

So we have a nice bump here from the stimulus announcement. Why not take, say, a 9-month break (past the initial lockdowns, unemployment numbers, earnings announcements, US election), sit in cash, and get back in when we're back to an economic situation in some ballpark of "normal"?

I'm just having a hard time seeing the scenario in which the market rockets in that time and I miss out on some massive gain. The downside risk, however, seems...titanic.

So it's market timing, I know. But what are the arguments against the sensibility of an idea like this - given the circumstances?

manatee2005
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Re: Why not stand on the sidelines for a little while?

Post by manatee2005 » Wed Mar 25, 2020 4:23 am

Do it and let us know how much money you lost by being on sidelines for 9 months :-)

minimalistmarc
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Re: Why not stand on the sidelines for a little while?

Post by minimalistmarc » Wed Mar 25, 2020 4:24 am

Can’t do it. I’m 100% equities because that’s what matches my ability and willingness to take “risk”.

To stand on the sidelines while many are panicking and fearful to invest is impossible for me

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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 4:33 am

manatee2005 wrote:
Wed Mar 25, 2020 4:23 am
Do it and let us know how much money you lost by being on sidelines for 9 months :-)
To quantify: loss of dividend income (except, well, nobody's gonna pay dividends), plus 9 months of destruction of the value of the cash pile by inflation. So I'm more or less locking in a 2% loss for 9 months. Right?

Market volatility *every day* is well in excess of that. Do you think the surprises we encounter are more likely to be good or bad? (this is the question I'm asking myself)

Just to take one example: one of the most populous states, Florida, currently has no lockdown of any kind - if you plug the numbers just for that state into this

http://gabgoh.github.io/COVID/index.html

in very little time it gets very ugly. Probably a very unpleasant surprise building there. Kinda doubt this risk is being built in by the market. In general I think we've seen that the market is not doing super well dealing with exponential growth problems.

All that vs a certain 2% hit. Hmm.

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Stef
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Re: Why not stand on the sidelines for a little while?

Post by Stef » Wed Mar 25, 2020 4:47 am

And what if the market recovers in those 9 months and you missed out on +35%?

yohac
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Re: Why not stand on the sidelines for a little while?

Post by yohac » Wed Mar 25, 2020 4:54 am

Summer heat and humidity may slow down the virus. An effective vaccine and treatments may arrive sooner than expected. Or maybe not, but there are definitely risks for sitting out the next 9 months.

manatee2005
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Re: Why not stand on the sidelines for a little while?

Post by manatee2005 » Wed Mar 25, 2020 4:59 am

fitterhappier wrote:
Wed Mar 25, 2020 4:33 am
manatee2005 wrote:
Wed Mar 25, 2020 4:23 am
Do it and let us know how much money you lost by being on sidelines for 9 months :-)
To quantify: loss of dividend income (except, well, nobody's gonna pay dividends), plus 9 months of destruction of the value of the cash pile by inflation. So I'm more or less locking in a 2% loss for 9 months. Right?

Market volatility *every day* is well in excess of that. Do you think the surprises we encounter are more likely to be good or bad? (this is the question I'm asking myself)

Just to take one example: one of the most populous states, Florida, currently has no lockdown of any kind - if you plug the numbers just for that state into this

http://gabgoh.github.io/COVID/index.html

in very little time it gets very ugly. Probably a very unpleasant surprise building there. Kinda doubt this risk is being built in by the market. In general I think we've seen that the market is not doing super well dealing with exponential growth problems.

All that vs a certain 2% hit. Hmm.
Your reply tells me you don’t understand investing. Missing out on gains is the same as a loss. If you have 10k and are in cash, and you would have had 15k in November if you stayed invested, you lost 5k.
Yes, things are uncertain, but if you failed to predict this 30% drop, what makes you an expert now that you can predict next 9 months? I don’t know what will happen, I just know in 5 years I’ll be glad I stayed invested.
Last edited by manatee2005 on Wed Mar 25, 2020 5:03 am, edited 2 times in total.

Pinotage
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Re: Why not stand on the sidelines for a little while?

Post by Pinotage » Wed Mar 25, 2020 5:00 am

OP - do it.

You’ve made up your mind and likely any narrative you create over the unfolding months will hinge on “I knew”. “I knew and should have acted” or “I knew and it was better to be safe than sorry”

OP - do it.

Some people will agree, others will disagree. This can be substantiated by reading the seemingly DOZENS of other threads exactly like this.

OP - do it.

You know your own financial and emotional situations far better than internet strangers. You know your own relative job security. You know how solid your emergency fund is. You know how old you are, how many people depend on you, and your near vs long term goals

You know all of this and you are posting this question.

OP - do it.

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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 5:07 am

Stef wrote:
Wed Mar 25, 2020 4:47 am
And what if the market recovers in those 9 months and you missed out on +35%?
I'm trying to imagine a 35% recovery when the economy is undergoing a major reorganization, consumer spending is affected by best-case 10% unemployment, further temporary lockdowns are necessary.

Even if you hand people checks, they're obviously going to hoard the money without job prospects. Getting people employed again is a process that plays out over years, and jobs only become available when employers have viable businesses. Airlines won't be hiring anytime soon, for one.

Restaurant bookings are YoY -100% across the western world
https://www.opentable.com/state-of-industry

These are not well-capitalized businesses, they're gonna fail.

35% up in 9 months. Having a really hard time with that.

35% down in 9 months because Florida hospitals are overwhelmed and the consequential lockdown lasts much longer than anyone expected? Yeah I can imagine that. 35% down because of unprecedented political instability in poorer countries that just don't have the ability to respond to the crisis? I can imagine that too.

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Re: Why not stand on the sidelines for a little while?

Post by GoldenFinch » Wed Mar 25, 2020 5:14 am

Emotional investing primes one to make a bunch of behavioral errors that will negativity affect future performance. You really need to put on your robot hat here, otherwise you risk buying high selling low. Don’t do that. Unless you need this money in the next few years, just auto invest your money and find a hobby.

As far as your argument about not understanding the world economy, think that one through a little more. Supply and demand. The supply / demand items might shift a bit, but there will continue to be both and the economy and the world will both keep turning.

manatee2005
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Re: Why not stand on the sidelines for a little while?

Post by manatee2005 » Wed Mar 25, 2020 5:15 am

fitterhappier wrote:
Wed Mar 25, 2020 5:07 am
Stef wrote:
Wed Mar 25, 2020 4:47 am
And what if the market recovers in those 9 months and you missed out on +35%?
I'm trying to imagine a 35% recovery when the economy is undergoing a major reorganization, consumer spending is affected by best-case 10% unemployment, further temporary lockdowns are necessary.

Even if you hand people checks, they're obviously going to hoard the money without job prospects. Getting people employed again is a process that plays out over years, and jobs only become available when employers have viable businesses. Airlines won't be hiring anytime soon, for one.

Restaurant bookings are YoY -100% across the western world
https://www.opentable.com/state-of-industry

These are not well-capitalized businesses, they're gonna fail.

35% up in 9 months. Having a really hard time with that.

35% down in 9 months because Florida hospitals are overwhelmed and the consequential lockdown lasts much longer than anyone expected? Yeah I can imagine that. 35% down because of unprecedented political instability in poorer countries that just don't have the ability to respond to the crisis? I can imagine that too.
How old are you and what’s your current AA? Very important to know.

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Re: Why not stand on the sidelines for a little while?

Post by onourway » Wed Mar 25, 2020 5:15 am

fitterhappier wrote:
Wed Mar 25, 2020 5:07 am
Stef wrote:
Wed Mar 25, 2020 4:47 am
And what if the market recovers in those 9 months and you missed out on +35%?
I'm trying to imagine a 35% recovery when the economy is undergoing a major reorganization, consumer spending is affected by best-case 10% unemployment, further temporary lockdowns are necessary.

Even if you hand people checks, they're obviously going to hoard the money without job prospects. Getting people employed again is a process that plays out over years, and jobs only become available when employers have viable businesses. Airlines won't be hiring anytime soon, for one.

Restaurant bookings are YoY -100% across the western world
https://www.opentable.com/state-of-industry

These are not well-capitalized businesses, they're gonna fail.

35% up in 9 months. Having a really hard time with that.

35% down in 9 months because Florida hospitals are overwhelmed and the consequential lockdown lasts much longer than anyone expected? Yeah I can imagine that. 35% down because of unprecedented political instability in poorer countries that just don't have the ability to respond to the crisis? I can imagine that too.
The market already knows everything you are thinking. Remember that the market is forward-looking - it has priced in all of that uncertainty into today’s price. If there is new information that turns out more or less positive than currently expected, the price will move to reflect that. However, the only way to reliably make extra money in the market by timing your moves in and out is if you have access to reliable information before the rest of the market - and it happens to be illegal to trade on that.

Yes, your hunch may turn out to be right and you might make some extra money by stepping out now - but the more likely outcome is that you lose money - possibly a lot.

Remember that buy and hold investing is not intended to maximize returns - the goal is to minimize the chance of failure. And over the long term, staying invested is the surest path to a positive outcome.

vipertom1970
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Re: Why not stand on the sidelines for a little while?

Post by vipertom1970 » Wed Mar 25, 2020 5:19 am

The market is leading indicator of future economic developments so by the time this virus come down then you way behind.

manatee2005
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Re: Why not stand on the sidelines for a little while?

Post by manatee2005 » Wed Mar 25, 2020 5:25 am

You’re about a month too late to go on the sidelines.

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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 5:32 am

Your reply tells me you don’t understand investing.
Sure buddy.
Missing out on gains is the same as a loss. If you have 10k and are in cash, and you would have had 15k in November if you stayed invested, you lost 5k.
Yes, things are uncertain, but if you failed to predict this 30% drop, what makes you an expert now that you can predict next 9 months? I don’t know what will happen, I just know in 5 years I’ll be glad I stayed invested.
Yes of course, you can play opportunity cost games all day. I don't care about making the right bet, I care about the model. We're not simply investing in a pretty chart that goes up and to the right over 100 years. I can think like an actuary and mentally account for bubbles popping, everyday market corrections, financial crises etc. But right now it seems to me that we're re-inventing the actuarial model (for at least the next 5 years) from the ground up - and there are things that will play out for the first time in history over the next 9 months that are key factors in constructing that new model.

I don't understand how to reason about the restarting of the economy after a full worldwide halt to consumer activity, nor how vicious cycles from a record increase in unemployment play out, nor what will happen due to possible political instability as this thing works its way into poorer countries...

How do you invest in what you don't understand? This is my key question for myself.

nehawk87
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Re: Why not stand on the sidelines for a little while?

Post by nehawk87 » Wed Mar 25, 2020 5:36 am

Lots of shaky hands on this forum lately. Do it, OP.
Last edited by nehawk87 on Wed Mar 25, 2020 5:39 am, edited 1 time in total.

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Re: Why not stand on the sidelines for a little while?

Post by cinghiale » Wed Mar 25, 2020 5:37 am

OP,

I have to agree with Pinotage. Go ahead and cash out. You have marshaled what you consider to be compelling and overwhelming evidence that the markets are going to tank in the months to come.

May we assume you have reviewed the key threads that warn against this form of market timing? Poster White Coat Investor has complied an excellent collection of threads on the wisdom of staying the course. See at: https://www.bogleheads.org/forum/viewt ... 3#p5121643.

Also, there’s an informative video by Ben Felix https://youtu.be/9PYsVkPtcXk, a recent “Humble Dollar” article by Jonathan Clements viewtopic.php?t=308774, and everything being posted by Taylor Larimore these days.

Sell today and you lock in a 26% YTD loss on the total US stock market. That’s the classic “selling low” error.

Do your homework. Or, if you have carefully read and reviewed a good sampling of articles like the ones suggested above, just let us know that you have. From your original post and replies, it doesn’t sound like you have.
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell

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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 5:37 am

How old are you and what’s your current AA? Very important to know.
Young, no issues with short-term liquidity, 100% equities, mostly very broad index funds.

GoldenFinch
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Re: Why not stand on the sidelines for a little while?

Post by GoldenFinch » Wed Mar 25, 2020 5:39 am

So are we talking you out of it or are we talking you into it? :happy

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Re: Why not stand on the sidelines for a little while?

Post by dumbbunny » Wed Mar 25, 2020 5:40 am

manatee2005 wrote:
Wed Mar 25, 2020 5:25 am
You’re about a month too late to go on the sidelines.
This^^
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"

manatee2005
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Re: Why not stand on the sidelines for a little while?

Post by manatee2005 » Wed Mar 25, 2020 5:43 am

fitterhappier wrote:
Wed Mar 25, 2020 5:37 am
How old are you and what’s your current AA? Very important to know.
Young, no issues with short-term liquidity, 100% equities, mostly very broad index funds.
Ok, as someone who’s gone through 2001 and 2008 recessions and made mistakes, I can tell you that the best thing to do is to do nothing. But sometimes you have to make your own mistakes to learn from them.
Also just because you think the market will drop by 35% it doesn’t mean it will. It’s an election year, do you think politicians want to go to election being 65% down from the peak?

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Re: Why not stand on the sidelines for a little while?

Post by SouthernFIRE » Wed Mar 25, 2020 5:57 am

Getting out down 25-30% is classic capitulation / buy high sell low regardless of how you frame it. The market can see all of the uncertainty and risk that you’ve identified and adjusted. Where we go from here is anyone’s guess but don’t base your decision on the idea that you have some special insight.

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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 5:58 am

Sell today and you lock in a 26% YTD loss on the total US stock market. That’s the classic “selling low” error.
That just as true as claiming that someone is "locking in" a gain or loss in the 10 minutes it takes to execute a couple of transactions to shift money around between index funds. I think it's pretty clear from the subject and my post that I'm a buy and hold investor and completely buy into the idea of owning the haystack. But there are reasons for it - it's not some absolute dogma.
Do your homework. Or, if you have carefully read and reviewed a good sampling of articles like the ones suggested above, just let us know that you have. From your original post and replies, it doesn’t sound like you have.
Yes I'm well versed in bogle-ism and understand the risks of timing the market. In short the option I'm considering is clipping out a small part of history that I don't understand. What happens in the next nine months will, moreso than any 9-month span I have experienced, be a strong determinant of the next 5-20 years of economic history. "Things are bad for 5 years" is a lot different from "things will be bad for 20 years".

Arguably the drop isn't even that bad at this point, we've only really given back a few years of growth.

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Re: Why not stand on the sidelines for a little while?

Post by onourway » Wed Mar 25, 2020 6:01 am

fitterhappier wrote:
Wed Mar 25, 2020 5:58 am
Yes I'm well versed in bogle-ism and understand the risks of timing the market. In short the option I'm considering is clipping out a small part of history that I don't understand. What happens in the next nine months will, moreso than any 9-month span I have experienced, be a strong determinant of the next 5-20 years of economic history. "Things are bad for 5 years" is a lot different from "things will be bad for 20 years".

Arguably the drop isn't even that bad at this point, we've only really given back a few years of growth.
Uh, this is exactly the line of thinking that people have during every serious market crash. I mean, it could be applied word for word to any crash I can think of. It’s why people capitulate and lose a bunch of money.

That said, I strongly disagree that this will make things bad for 20 years. However, I recognize I don’t know either way, which is why I won’t be acting - I’m perfectly happy to stand still.

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Re: Why not stand on the sidelines for a little while?

Post by minimalistmarc » Wed Mar 25, 2020 6:05 am

fitterhappier wrote:
Wed Mar 25, 2020 5:58 am
Sell today and you lock in a 26% YTD loss on the total US stock market. That’s the classic “selling low” error.
That just as true as claiming that someone is "locking in" a gain or loss in the 10 minutes it takes to execute a couple of transactions to shift money around between index funds. I think it's pretty clear from the subject and my post that I'm a buy and hold investor and completely buy into the idea of owning the haystack. But there are reasons for it - it's not some absolute dogma.
Do your homework. Or, if you have carefully read and reviewed a good sampling of articles like the ones suggested above, just let us know that you have. From your original post and replies, it doesn’t sound like you have.
Yes I'm well versed in bogle-ism and understand the risks of timing the market. In short the option I'm considering is clipping out a small part of history that I don't understand. What happens in the next nine months will, moreso than any 9-month span I have experienced, be a strong determinant of the next 5-20 years of economic history. "Things are bad for 5 years" is a lot different from "things will be bad for 20 years".

Arguably the drop isn't even that bad at this point, we've only really given back a few years of growth.
I think you need to go back to basics. It is dangerous to invest with such limited understanding and significant misunderstanding.

Sell out now, then read everything and then get back in with a much more conservative allocation that suits your low tolerance for risk.

100% equities is only appropriate for a small, select group of investors who often have pensions/emergency funds/depression proof careers

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Re: Why not stand on the sidelines for a little while?

Post by Chip » Wed Mar 25, 2020 6:07 am

fitterhappier wrote:
Wed Mar 25, 2020 5:07 am
I'm trying to imagine a 35% recovery when the economy is undergoing a major reorganization, consumer spending is affected by best-case 10% unemployment, further temporary lockdowns are necessary.
Oh, you mean like in 2009? Except substitute major financial institutions failing for temporary lockdowns.

The Russell 3000 total return was 69% between the bottom (3/6/09) and the end of that year. 69% in 10 months! Let that sink in.

Sorry, but you aren't a buy and hold investor if you only buy and hold when the market is going up. Hanging in there through times like this is how you make real money long term.

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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 6:14 am

SouthernFIRE wrote:
Wed Mar 25, 2020 5:57 am
Getting out down 25-30% is classic capitulation / buy high sell low regardless of how you frame it. The market can see all of the uncertainty and risk that you’ve identified and adjusted. Where we go from here is anyone’s guess but don’t base your decision on the idea that you have some special insight.
The natural response to this is that "the market" knew very well about the nature of exponential growth problems, the market knew very well about the experience in Wuhan around Feb 20th when the first deaths were reported in Italy, and yet the S&P has gone from 3100 to 2100 between Feb 20th and now.

This is a straight-up math problem easily model-able on a simple spreadsheet. There are few times in history when a more certain series of events was knowable (and believe me, I definitely should have known better). It's so simple that you can just plug in a few factors on a webpage like this

http://gabgoh.github.io/COVID/index.html

and see what happens.

Why was the S&P not at 2100 by, say, March 1st? Is your theory of the wisdom of the market - that it has priced in what's possible to reasonably price in - a little off?

Personally I believe that "the market", defined as the average Goldman Sachs trader, does price in world events pretty well. I think it's because these people have a bunch of spreadsheets handed to them by "corporate" that account for a bunch of variables like the odds of the fed cutting rates etc. And my problem now is that I think the spreadsheets that they all blindly trade off of are mostly irrelevant.

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Re: Why not stand on the sidelines for a little while?

Post by watchnerd » Wed Mar 25, 2020 6:19 am

fitterhappier wrote:
Wed Mar 25, 2020 4:16 am

I'm just having a hard time seeing the scenario in which the market rockets in that time and I miss out on some massive gain. The downside risk, however, seems...titanic.
You have the same number of share as before.

Or more if you've continued buying.
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Re: Why not stand on the sidelines for a little while?

Post by watchnerd » Wed Mar 25, 2020 6:21 am

Chip wrote:
Wed Mar 25, 2020 6:07 am


Sorry, but you aren't a buy and hold investor if you only buy and hold when the market is going up. Hanging in there through times like this is how you make real money long term.
+1

To earn the risk premium you have to take the risk.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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Re: Why not stand on the sidelines for a little while?

Post by onourway » Wed Mar 25, 2020 6:24 am

fitterhappier wrote:
Wed Mar 25, 2020 6:14 am

The natural response to this is that "the market" knew very well about the nature of exponential growth problems, the market knew very well about the experience in Wuhan around Feb 20th when the first deaths were reported in Italy, and yet the S&P has gone from 3100 to 2100 between Feb 20th and now.

This is a straight-up math problem easily model-able on a simple spreadsheet. There are few times in history when a more certain series of events was knowable (and believe me, I definitely should have known better). It's so simple that you can just plug in a few factors on a webpage like this

http://gabgoh.github.io/COVID/index.html

and see what happens.

Why was the S&P not at 2100 by, say, March 1st? Is your theory of the wisdom of the market - that it has priced in what's possible to reasonably price in - a little off?

Personally I believe that "the market", defined as the average Goldman Sachs trader, does price in world events pretty well. I think it's because these people have a bunch of spreadsheets handed to them by "corporate" that account for a bunch of variables like the odds of the fed cutting rates etc. And my problem now is that I think the spreadsheets that they all blindly trade off of are mostly irrelevant.
This is straight-up revisionist history. It was not in any way absolutely clear that things would develop the way they have back in February. There have been many threats of similar pandemics in the past that have never spread in a meaningful way beyond a few areas.

If this is such a simple math problem, why don’t you act on it and document your trades in a dedicated thread. We’d love to follow along.

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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 6:29 am

100% equities is only appropriate for a small, select group of investors who often have pensions/emergency funds/depression proof careers
I think you and others on here are reflexively assuming that I'm freaking out about my future and I'm "panic-selling". I get that, a lot of the buy-and-hold advice in threads around here is just reinforcing Bogle admonitions. It's a valuable public service overall.

If you read my original post closely, that's not what I'm doing. I'm not into dogmas. I am into understanding my investments, and accounting for risk, and adjusting for the world as it currently stands and not the one that existed 3 months ago or that we might wish existed now. Yes we should all ignore what the Fed does with interest rates, we should ignore election outcomes, and all that. Not so sure about ignoring a world-historical event that a lot of key people in leadership positions could get really wrong (e.g. exactly what's happening now in FL). We should incorporate new information into our models and adjust if necessary, including Bogleism (assuming it's not just a dogma).

I'm not decided, but I am seriously wondering is this is one of those moments. The behavior of "the market" hasn't exactly been stellar in the face of a simple math problem. At this moment I seriously doubt the market is "smarter" or "wiser" than anyone on reading this thread.

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Re: Why not stand on the sidelines for a little while?

Post by bottlecap » Wed Mar 25, 2020 6:45 am

Sorry to burst your bubble, but you didn’t have a handle on the "world situation" before this crisis, either.

The difference now is that you are aware of a crisis and think it’s somehow different from other crises and feel like the difference demands action.

People feel this way about EVERY crisis. They are not all the same yet, practically speaking, they always are.

Many got out the last time and never got back in. Most of those who did get back in couldn’t time it right and lost out. That will happen again this time. People always overestimate their knowledge and the control they have.

Sticking to a plan keeps you from outsmarting yourself.

The choice is yours, but the odds are against you.

Good luck,

JT

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Re: Why not stand on the sidelines for a little while?

Post by watchnerd » Wed Mar 25, 2020 6:46 am

fitterhappier wrote:
Wed Mar 25, 2020 6:29 am


I'm not decided, but I am seriously wondering is this is one of those moments. The behavior of "the market" hasn't exactly been stellar in the face of a simple math problem. At this moment I seriously doubt the market is "smarter" or "wiser" than anyone on reading this thread.
You have a choice:

1. Take more emotional pain in the short term, with higher probability of better investment returns in the long term

vs.

2. Take less emotional pain in the short term, with higher probability of lower investment returns in the long term


It's really that simple.

If you're finding yourself concerned and its troubling you, maybe #2 is better for you.
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fitterhappier
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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 6:52 am

This is straight-up revisionist history. It was not in any way absolutely clear that things would develop the way they have back in February. There have been many threats of similar pandemics in the past that have never spread in a meaningful way beyond a few areas.

If this is such a simple math problem, why don’t you act on it and document your trades in a dedicated thread. We’d love to follow along.
Sure it was, it's just most people aren't used to dealing with exponential growth problems (compound interest is one but people are trained to think of that in timescales of years and not days). Epidemiologists and computer scientists and a few others are. GS traders: guess not.

On March 1st the trends were all well-established and quite clear. We (meaning, "the market") knew what had to happen in Wuhan to contain the spread, we knew the virus was not contained - deaths had begun in Italy, and we knew that the pandemic problem has an inexorable logic to it.

http://nrg.cs.ucl.ac.uk/mjh/covid19/#w

The US even wargamed it

https://www.nytimes.com/2020/03/19/us/p ... break.html

"The markets" did some pretty clearly-stupid "factoring in" of the math problem from March 4th to now. Almost seems like the market hadn't accounted for simple information that was right there in front of its face. Or, maybe the market was right on March 4th, and wrong now? Anyway, efficient markets hypothesis isn't looking so hot in the last 30 days.

I don't even know what it means for the market to account for the information in this environment. No participants have any way of thinking about what will play out. Specific events that will occur in the near future will certainly have large influences over 5-20 year trajectories.

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watchnerd
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Re: Why not stand on the sidelines for a little while?

Post by watchnerd » Wed Mar 25, 2020 6:54 am

fitterhappier wrote:
Wed Mar 25, 2020 6:52 am


Sure it was, it's just most people aren't used to dealing with exponential growth problems (compound interest is one but people are trained to think of that in timescales of years and not days). Epidemiologists and computer scientists and a few others are. GS traders: guess not.

On March 1st the trends were all well-established and quite clear. We (meaning, "the market") knew what had to happen in Wuhan to contain the spread, we knew the virus was not contained - deaths had begun in Italy, and we knew that the pandemic problem has an inexorable logic to it.

http://nrg.cs.ucl.ac.uk/mjh/covid19/#w

The US even wargamed it

https://www.nytimes.com/2020/03/19/us/p ... break.html

None of this matters to your current decision tree.

The past is prologue.
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Re: Why not stand on the sidelines for a little while?

Post by onourway » Wed Mar 25, 2020 6:57 am

fitterhappier wrote:
Wed Mar 25, 2020 6:52 am
This is straight-up revisionist history. It was not in any way absolutely clear that things would develop the way they have back in February. There have been many threats of similar pandemics in the past that have never spread in a meaningful way beyond a few areas.

If this is such a simple math problem, why don’t you act on it and document your trades in a dedicated thread. We’d love to follow along.
Sure it was, it's just most people aren't used to dealing with exponential growth problems (compound interest is one but people are trained to think of that in timescales of years and not days). Epidemiologists and computer scientists and a few others are. GS traders: guess not.

On March 1st the trends were all well-established and quite clear. We (meaning, "the market") knew what had to happen in Wuhan to contain the spread, we knew the virus was not contained - deaths had begun in Italy, and we knew that the pandemic problem has an inexorable logic to it.

http://nrg.cs.ucl.ac.uk/mjh/covid19/#w

The US even wargamed it

https://www.nytimes.com/2020/03/19/us/p ... break.html

"The markets" did some pretty clearly-stupid "factoring in" of the math problem from March 4th to now. Almost seems like the market hadn't accounted for simple information that was right there in front of its face. Or, maybe the market was right on March 4th, and wrong now? Anyway, efficient markets hypothesis isn't looking so hot in the last 30 days.

I don't even know what it means for the market to account for the information in this environment. No participants have any way of thinking about what will play out. Specific events that will occur in the near future will certainly have large influences over 5-20 year trajectories.
I’m quite sure the many people on staff at most investment banks and hedge funds with PhD’s in mathematics understand exponential growth just fine.

So what did you do at the end of February given this was so obvious to you? If you’d leveraged up you’d be extraordinarily wealthy right now. Yet here you are asking us if it’s the right time to get out now - a month later.

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Re: Why not stand on the sidelines for a little while?

Post by bottlecap » Wed Mar 25, 2020 6:59 am

The same things could likely have been said about SARS, yet that didn’t quite pan out that way.

Accepting that you aren’t knowledgeable enough to game the markets is a tough thing to do. Yet it applies to everyone save those that have been extremely lucky.

JT

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Re: Why not stand on the sidelines for a little while?

Post by technovelist » Wed Mar 25, 2020 6:59 am

fitterhappier wrote:
Wed Mar 25, 2020 4:16 am
To recap: we are facing a world-historic crisis situation, much of which depends on how the US pandemic plays out, and various economic vicious cycles play out after an unprecedented small-business wipeout and massive unemployment...while at the same time we have (without getting too deep into politics) what everyone will agree is a highly unusual US administration in place, and are in an election year.

Multiply all those factors together and I understand the extreme market volatility. This current situation is so world-historic insane vs any crisis I remember that it's hard to hold it in my head at all.

I'm a buy-and-hold long-term indexing investor, but I also strongly believe in investing in what I understand. I do not understand the world economy right now at all.

So we have a nice bump here from the stimulus announcement. Why not take, say, a 9-month break (past the initial lockdowns, unemployment numbers, earnings announcements, US election), sit in cash, and get back in when we're back to an economic situation in some ballpark of "normal"?

I'm just having a hard time seeing the scenario in which the market rockets in that time and I miss out on some massive gain. The downside risk, however, seems...titanic.

So it's market timing, I know. But what are the arguments against the sensibility of an idea like this - given the circumstances?
Typical posters here, if there is such a thing, seem to believe the following (among other beliefs, of course):
1. This time it is never different.
2. No one can know what is going to happen.
3. We can make successful investment plans based on less than 100 years' data for one economy.
4. The dollar is unique in history in being the only unbacked paper currency that will not fail.

I'm not sure how one can reconcile these beliefs, but they don't seem to have a problem doing so.
In theory, theory and practice are identical. In practice, they often differ.

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Re: Why not stand on the sidelines for a little while?

Post by MotoTrojan » Wed Mar 25, 2020 7:00 am

fitterhappier wrote:
Wed Mar 25, 2020 5:37 am
How old are you and what’s your current AA? Very important to know.
Young, no issues with short-term liquidity, 100% equities, mostly very broad index funds.
So explain to me why you shouldn’t be buying right now instead?

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Re: Why not stand on the sidelines for a little while?

Post by technovelist » Wed Mar 25, 2020 7:02 am

fitterhappier wrote:
Wed Mar 25, 2020 5:37 am
How old are you and what’s your current AA? Very important to know.
Young, no issues with short-term liquidity, 100% equities, mostly very broad index funds.
If I were in your situation, I would consider the Permanent Portfolio.

It has done far better in this crisis than a standard Boglehead portfolio, and its long-term record has nearly the same CAGR with much shallower drawdowns and far lower volatility.
In theory, theory and practice are identical. In practice, they often differ.

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Re: Why not stand on the sidelines for a little while?

Post by watchnerd » Wed Mar 25, 2020 7:02 am

We see so many threads like this now.

Someone wants to market time because they're concerned.

But instead of saying, "Hey guys, I'm worried, this isn't for me, I'm out"...

They try to rationalize why what they're doing is entirely logical.

And then people debate the logic.

When really it's an emotion-driven decision.

And the OP should be okay with embracing that emotion if it helps them sleep well at night.
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Re: Why not stand on the sidelines for a little while?

Post by technovelist » Wed Mar 25, 2020 7:05 am

watchnerd wrote:
Wed Mar 25, 2020 6:21 am
Chip wrote:
Wed Mar 25, 2020 6:07 am


Sorry, but you aren't a buy and hold investor if you only buy and hold when the market is going up. Hanging in there through times like this is how you make real money long term.
+1

To earn the risk premium you have to take the risk.
You don't earn the risk premium by taking the risk.
If that were true, there wouldn't be any risk.
In theory, theory and practice are identical. In practice, they often differ.

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Re: Why not stand on the sidelines for a little while?

Post by tvubpwcisla » Wed Mar 25, 2020 7:05 am

This would be a good article for you to read.

https://www.thesimpledollar.com/investi ... r-returns/
The secret to building wealth is to have a plan, keep expenses low, become an expert in your craft, consistently buy the market, diversify, establish multiple income streams, and always smile.

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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 7:05 am

GoldenFinch wrote:
Wed Mar 25, 2020 5:39 am
So are we talking you out of it or are we talking you into it? :happy
Haha great question GoldenFinch. I appreciate the replies. I figured I'd get a lot of buy-and-hold Bogle-antibodies-descending posts, which is fine. I'm sure if the missiles were flying, in the 30 minutes we all had left there'd be some buy-and-hold posts talking about how you shouldn't try to time the market.

I think this is a great event in a sense because it forces one to reconsider one's rationales from the bottom up. Maybe Bogleism is a great idea 98% of the time, but just maybe, every once in a while, the world throws you a curve ball that makes you rethink some things.

In any case, I'm with you all in the long term. I don't see this as simply betting but also a model-building and incorporating risks, and the model and the risks have been scrambled. I think "the market" is doing a piss-poor job in the last month of dealing with those, which is more evidence that what we refer to as a "wise market" probably doesn't really exist on such small timescales, and is probably only a useful notion at a granularity of a minimum of a year, maybe two or even more, with time for the humans involved to grapple with shocks to the model.

This is where I get my ~9 month idea. I'm not looking to make money on market timing (though obviously that'd be nice), just get out and then re-bet on something I understand better.

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Re: Why not stand on the sidelines for a little while?

Post by watchnerd » Wed Mar 25, 2020 7:10 am

fitterhappier wrote:
Wed Mar 25, 2020 7:05 am


Haha great question GoldenFinch. I appreciate the replies. I figured I'd get a lot of buy-and-hold Bogle-antibodies-descending posts, which is fine. I'm sure if the missiles were flying, in the 30 minutes we all had left there'd be some buy-and-hold posts talking about how you shouldn't try to time the market.
If you're going to do it, then do it.

Why waffle about it?
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Re: Why not stand on the sidelines for a little while?

Post by bottlecap » Wed Mar 25, 2020 7:11 am

technovelist wrote:
Wed Mar 25, 2020 7:05 am
watchnerd wrote:
Wed Mar 25, 2020 6:21 am
Chip wrote:
Wed Mar 25, 2020 6:07 am


Sorry, but you aren't a buy and hold investor if you only buy and hold when the market is going up. Hanging in there through times like this is how you make real money long term.
+1

To earn the risk premium you have to take the risk.
You don't earn the risk premium by taking the risk.
If that were true, there wouldn't be any risk.
You changed what Watchnerd said.

JT

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Re: Why not stand on the sidelines for a little while?

Post by MotoTrojan » Wed Mar 25, 2020 7:12 am

fitterhappier wrote:
Wed Mar 25, 2020 7:05 am
GoldenFinch wrote:
Wed Mar 25, 2020 5:39 am
So are we talking you out of it or are we talking you into it? :happy
Haha great question GoldenFinch. I appreciate the replies. I figured I'd get a lot of buy-and-hold Bogle-antibodies-descending posts, which is fine. I'm sure if the missiles were flying, in the 30 minutes we all had left there'd be some buy-and-hold posts talking about how you shouldn't try to time the market.

I think this is a great event in a sense because it forces one to reconsider one's rationales from the bottom up. Maybe Bogleism is a great idea 98% of the time, but just maybe, every once in a while, the world throws you a curve ball that makes you rethink some things.

In any case, I'm with you all in the long term. I don't see this as simply betting but also a model-building and incorporating risks, and the model and the risks have been scrambled. I think "the market" is doing a piss-poor job in the last month of dealing with those, which is more evidence that what we refer to as a "wise market" probably doesn't really exist on such small timescales, and is probably only a useful notion at a granularity of a minimum of a year, maybe two or even more, with time for the humans involved to grapple with shocks to the model.

This is where I get my ~9 month idea. I'm not looking to make money on market timing (though obviously that'd be nice), just get out and then re-bet on something I understand better.
Get out with a loss though, don’t ignore that.

Will you get back in purely based on a 9 month clock? What if we get back to S&P500 3800? 3000? New all-time high? If we hit 1400 will you get back in? Have a strict plan.

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Re: Why not stand on the sidelines for a little while?

Post by fitterhappier » Wed Mar 25, 2020 7:13 am

You don't earn the risk premium by taking the risk.
If that were true, there wouldn't be any risk.
To make money on risk you have to understand it, like an actuary. Ironically, this is an event in which insurance companies mostly refuse to cover because they can't model it.

Maybe it's just me but risks only make sense to take if you have a model you're working with which says it's worth it. If you never question the model in the face of novel information - like even in the face of events that actuaries can't deal with - maybe you don't have a model at all, and it's all just dogma/faith.

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Re: Why not stand on the sidelines for a little while?

Post by HEDGEFUNDIE » Wed Mar 25, 2020 7:15 am

fitterhappier wrote:
Wed Mar 25, 2020 7:13 am
You don't earn the risk premium by taking the risk.
If that were true, there wouldn't be any risk.
To make money on risk you have to understand it, like an actuary. Ironically, this is an event in which insurance companies mostly refuse to cover because they can't model it.

Maybe it's just me but risks only make sense to take if you have a model you're working with which says it's worth it. If you never question the model in the face of novel information - like even in the face of events that actuaries can't deal with - maybe you don't have a model at all, and it's all just dogma/faith.
Which is more likely:

1. You had a good model for understanding the markets, and it’s breaking down.

2. Your model was never any good to begin with.

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Re: Why not stand on the sidelines for a little while?

Post by watchnerd » Wed Mar 25, 2020 7:16 am

fitterhappier wrote:
Wed Mar 25, 2020 7:13 am

Maybe it's just me but risks only make sense to take if you have a model you're working with which says it's worth it. If you never question the model in the face of novel information - like even in the face of events that actuaries can't deal with - maybe you don't have a model at all, and it's all just dogma/faith.

Warren Buffet is buying.

Think about that.
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