Get ready for crash?

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sillysaver
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Get ready for crash?

Post by sillysaver » Mon Oct 26, 2015 9:48 am

http://www.thestreet.com/story/13336995 ... crash.html

I don't worry about stuff like this anymore. I just make sure I have a reasonable plan:

1) AA is appropriate for my age and other considerations
2) New investments are on auto-pilot (401k, taxable account where I have automatic monthly investments)
3) Emergency fund. For me that's 9 months of living expenses in the bank. This will be more or less depending on your job security, whether you have dependents, whether you own a home and need to fund upkeep and repairs, etc.
4) Rebalance at opportune times or periodically

Scared money don't make money!

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warowits
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Re: Get ready for crash?

Post by warowits » Mon Oct 26, 2015 10:09 am

I have to remind myself that with my 30+ year outlook on stocks the most beneficial thing that could happen to me right now is a crash. Then I can get some cheap stocks! When it finally happens I will freak out I am sure, but I will freak out while buying stocks!
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YttriumNitrate
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Re: Get ready for crash?

Post by YttriumNitrate » Mon Oct 26, 2015 10:10 am

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Last edited by YttriumNitrate on Sat Mar 12, 2016 1:03 pm, edited 1 time in total.

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sheneron
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Re: Get ready for crash?

Post by sheneron » Mon Oct 26, 2015 10:37 am

warowits wrote:I have to remind myself that with my 30+ year outlook on stocks the most beneficial thing that could happen to me right now is a crash. Then I can get some cheap stocks! When it finally happens I will freak out I am sure, but I will freak out while buying stocks!


+1. I wouldn't freak out, though. I was born in a crash, molded by it. I didn't see a bull market until I was already a man, and by then it was nothing to me.

jpelder
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Re: Get ready for crash?

Post by jpelder » Mon Oct 26, 2015 10:39 am

sheneron wrote:+1. I wouldn't freak out, though. I was born in a crash, molded by it. I didn't see a bull market until I was already a man, and by then it was nothing to me.


I picture Clint Eastwood saying this before he hops onto his horse and rides out of town

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daytona084
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Re: Get ready for crash?

Post by daytona084 » Mon Oct 26, 2015 10:57 am

"Here are just a few of the articles describing its forecasts that were published before the market's behavior confirmed them"...

Right. And here are just a few of the acorns found by the blind squirrel in my yard!

Dandy
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Re: Get ready for crash?

Post by Dandy » Mon Oct 26, 2015 11:11 am

The devil is in the details - e.g. what is an appropriate asset allocation for your age/risk tolerance. How much debt do you have. How secure to you think your job is, etc. Beware of how you feel about risk after a nice 4 or 5 year bull run.

Wishing for a crash so you can buy low reminds me of the old phrase "be careful what you wish for". You won't feel so elated by a really bad prolonged crash if you lose your job, house and half of your assets -- maybe having to forget college for you kids and eventually get a job paying much less. There were lots of people who thought they wouldn't be affected by what happened in 2008 and had a big wake up call. Most of us were fortunate that the recovery was rather quick, sharp and long lasting - no guarantees about the next one.

IlliniDave
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Re: Get ready for crash?

Post by IlliniDave » Mon Oct 26, 2015 11:19 am

There's always going to be a next crash, and chances are it's not all that far in the future. OP's pretty much got the script down. My only remark is that it's one think to know what to do, another entirely to keep your head and do it when surrounded by fear and turmoil. I've been through a couple bears and still am not entirely confident how I'll handle the inevitable next one.

Having a plan is a big part--it means you have something to at least try to stick to.
Don't do something. Just stand there!

sillysaver
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Re: Get ready for crash?

Post by sillysaver » Mon Oct 26, 2015 11:34 am

Dandy wrote:Wishing for a crash so you can buy low reminds me of the old phrase "be careful what you wish for". You won't feel so elated by a really bad prolonged crash if you lose your job, house and half of your assets -- maybe having to forget college for you kids and eventually get a job paying much less.


Good points. I know a guy caught by surprise and he and his wife lost their house and cars during the 2008-2009 crisis. They moved to my city a few years ago and he still hasn't found a job. They're living in a 1 BR rental apartment with their young daughter.

The timing was really poor, as he was in his early 50's and now he's at an age where it's almost impossible to get hired in his field.

It really makes me think ahead to the uncertain future. Besides having ample cash savings / emergency fund, I want to establish some other income streams so I'm not so completely dependent on my job for my livelihood.

As far as investment strategy goes, I was much younger during 2001-2003 (I basically had no investments at this time), and during the 2008-2009 I got shellacked like everyone else. The problem is I have been all over the map with no plan, shifting strategies, actively trading, taking too much risk, etc. -- all the usual behavioral mistakes. Even until recently I had money in play in the stock market that I shouldn't have. I cashed out those investments (individual stocks) and plan to stick to my long-term plan going forward, while also building those buffers / margins of safety like an emergency fund -- I want to get it up to at least one year -- and passive income streams.

sillysaver
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Re: Get ready for crash?

Post by sillysaver » Mon Oct 26, 2015 11:35 am

The mistake most people make I think is taking too much risk. They discover during a crisis panic that they are not as risk-tolerant as their advisor or their own greed had led them to believe.

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Maynard F. Speer
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Re: Get ready for crash?

Post by Maynard F. Speer » Mon Oct 26, 2015 11:44 am

Dandy wrote:Wishing for a crash so you can buy low reminds me of the old phrase "be careful what you wish for". You won't feel so elated by a really bad prolonged crash if you lose your job, house and half of your assets -- maybe having to forget college for you kids and eventually get a job paying much less. There were lots of people who thought they wouldn't be affected by what happened in 2008 and had a big wake up call. Most of us were fortunate that the recovery was rather quick, sharp and long lasting - no guarantees about the next one.


Yes - it's much easier looking back at past crashes and knowing how well you'd have played them .. Unless of course you hit a crash like Japan's (1990) - where equities fell 80% over 2 decades - in which case you'd have been much better off out of the market

The old adage that every bear market is different from the last ... I remember hoping for a crash when I started investing (everyone wants to start at the 'bottom' of the market) ... Since then I've learnt a lot of respect for capital preservation ... Against an unknown future, the only certainty is your profit/loss column

Or as Warren Buffett puts it:
"Rule No.1: Never lose money. Rule No.2: Never forget rule No.1"
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

small_index
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Re: Get ready for crash?

Post by small_index » Mon Oct 26, 2015 11:48 am

Had to stop reading the article after this quote: "The right kind of technical analysis can yield useful predictions, however."

One of the most interesting things I've seen back testing in portfolio visualizer is both the maximum draw down, coupled with the time to recover. I'm surprised how quickly most of the portfolios I test recover within a few years. With back to back corrections and a lost decade there will be other problems, but at least in terms of a crash, recovery is a few years rather than decades. That's no guarantee against the 1929 market crash, but it puts that crash in context as being unusual.

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Maynard F. Speer
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Re: Get ready for crash?

Post by Maynard F. Speer » Mon Oct 26, 2015 12:15 pm

small_index wrote:Had to stop reading the article after this quote: "The right kind of technical analysis can yield useful predictions, however."

One of the most interesting things I've seen back testing in portfolio visualizer is both the maximum draw down, coupled with the time to recover. I'm surprised how quickly most of the portfolios I test recover within a few years. With back to back corrections and a lost decade there will be other problems, but at least in terms of a crash, recovery is a few years rather than decades. That's no guarantee against the 1929 market crash, but it puts that crash in context as being unusual.


But then, strictly speaking, every crash is unusual (and doubly so at the time)

What perhaps makes Portfolio Visualizer's time period quite accommodative to equity/bond portfolios is interest rates doing this (since the 70s):

Image

Which has kept pushing bond prices up and up, and made them the perfect diversifiers, often outpacing equity returns .. Before this, bonds had had a multi-decade-long period in which they struggled to keep up with inflation ... We perhaps get a glimpse at why investors in the 1950s and 60s often had large gold allocations ... We're always facing new markets under new circumstances doing new things
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

sillysaver
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Re: Get ready for crash?

Post by sillysaver » Mon Oct 26, 2015 12:22 pm

I have a small allocation to gold and commodities, as well as a floating rate fund. Not sure how much that will help. Perhaps should back-test to see (although the particular ETF's and closed end funds I'm using didn't exist until a few years ago).

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warowits
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Re: Get ready for crash?

Post by warowits » Mon Oct 26, 2015 1:13 pm

sheneron wrote:
warowits wrote:I have to remind myself that with my 30+ year outlook on stocks the most beneficial thing that could happen to me right now is a crash. Then I can get some cheap stocks! When it finally happens I will freak out I am sure, but I will freak out while buying stocks!


+1. I wouldn't freak out, though. I was born in a crash, molded by it. I didn't see a bull market until I was already a man, and by then it was nothing to me.


Cool Bane quote, Am I batman in this scenario? Boglehead Batman- the boring indexing investor Gotham deserves.

Seriously though if stock prices don't come down we are looking at prolonged muted returns, and that is killing my early retirement fantasies.
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

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rustymutt
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Re: Get ready for crash?

Post by rustymutt » Mon Oct 26, 2015 1:20 pm

I've been ready the entire time. Buy and hold works. I ignore the investing porn, as some call it.
Know your risk tolerance, be consistent with savings, work hard, and do your best, and time becomes your best friend.
Been through all the major declines since 1974, and yes the bottom did look like it had been removed a few of those times, but I had faith in the free markets, and it all ended well. We had jobs everywhere in the 70's, as the mass exit of manufacturing jobs overseas hadn't moved forward yet. Trade agreements were being built. That's just the way I live my life. I trust things to work in an honest manner. There isn't any other way to invest wisely, than to do it! Make it happen, and hopefully that's rewarding, and fun. For me it was all about attitude.
Knowledge is knowing that the Tomato is a fruit. Wisdom is knowing better than to put the tomato in a fruit salad.

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fourwedge
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Re: Get ready for crash?

Post by fourwedge » Mon Oct 26, 2015 3:39 pm

Bring it on!!! Loving a 5-10 year crash about right now.
Max out your tax sheltered retirement accounts with inexpensive, well diversified, index funds and you will beat 90% of all investors.

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knpstr
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Re: Get ready for crash?

Post by knpstr » Mon Oct 26, 2015 3:50 pm

Looking at that chart, who would go 100% bonds if you could lock in 15% interest for 30 years?
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

brad.clarkston
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Re: Get ready for crash?

Post by brad.clarkston » Mon Oct 26, 2015 4:58 pm

I just can't take anything from "thestreet.com" seriously without remembering who owns it.

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unclescrooge
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Re: Get ready for crash?

Post by unclescrooge » Mon Oct 26, 2015 5:17 pm

If you publish enough bearish articles eventually you will be right.

And you can even point to the few cases where you were right and use that to bolster your credibility with newbie investors.

And then you can sell more subscriptions.

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DonCamillo
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Re: Get ready for crash?

Post by DonCamillo » Mon Oct 26, 2015 5:43 pm

Today, I got my quarterly portfolio review where my provider gave me the star ratings for each of my funds and the consensus analyst opinion for my other holdings. Since the only thing I am certain about the market is that nobody knows the future, I was just annoyed.

As a Boglehead, "Nobody knows the future" means "Be prepared for anything."

So I will just concentrate on asset allocation, limiting risk, staying out of debt, and living below my means.

Definitions of "Expert"

X = "Unknown Quantity" Spurt = "Drip under pressure" ergo Expert = "Unknown drip under pressure"

I also like the definition of an expert as "anyone who is more than forty miles from home," which seems to have Biblical origins when Jesus said; "A prophet is without honor in his own country."
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)

Chiliad
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Re: Get ready for crash?

Post by Chiliad » Mon Oct 26, 2015 5:59 pm

If one believes that they can't forecast the future, then doesn't being prepared for a crash makes some sense. Same for being prepared for another market bubble (equity, bond, whatever). In the end only those that are broadly diversified really seem to adhere to the idea that they can't time the market or forecast the future. I'd say that any over or under-allocation to bonds, equities, cash, etc. contains an implicit assumption about the future.

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warowits
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Re: Get ready for crash?

Post by warowits » Mon Oct 26, 2015 7:05 pm

knpstr wrote:Looking at that chart, who would go 100% bonds if you could lock in 15% interest for 30 years?


I don't currently have a bond allocation (30+ years until retirement) but if I see solid companies offering 15% bonds I will sure get some.
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saltycaper
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Re: Get ready for crash?

Post by saltycaper » Mon Oct 26, 2015 7:43 pm

You should already be ready for a crash. You should always be ready. If you need to take action to "get ready", reconsider your strategy.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

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Re: Get ready for crash?

Post by gkaplan » Mon Oct 26, 2015 8:48 pm

warowits wrote:I have to remind myself that with my 30+ year outlook on stocks the most beneficial thing that could happen to me right now is a crash. Then I can get some cheap stocks! When it finally happens I will freak out I am sure, but I will freak out while buying stocks!


It's difficult to get buy when you're unemployed.
Gordon

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digarei
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Re: Get ready for crash?

Post by digarei » Mon Oct 26, 2015 8:48 pm

The decision support engine is warning strongly that this is not the time to be using buying actions in your portfolio (except for marrying some put options to your beloved long positions). Rather, selling actions are indicated, which means [...]

Although freely admitting that I have read few articles from the popular financial press I did feel some resonance with this one.  Something rhymed but it was not the prescience of the author, the magnificence of his prediction machine or the cheap assurance that the prediction model had—wait for it—been correct since August 2015!   (hooray!)

There was a time when I held a certain generalized conviction ('belief' would be too strong) that stellar movements could be ascertained and interpreted by specially gifted persons for the benefit and guidance of other humans, less gifted, less special. 

This article uses some of the same phrasing as the astrological guides I consumed with interest:  Use of the passive voice "actions are indicated"; obscure attributions to a source of wisdom "the decision support engine"; the importance of making a change or taking some action at an opportune or favored moment "this is not the right time"; didactic interpretation "which means [...]"

The aromatic flavor of tea leaves is irresistible. 
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tyler_cracker
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Re: Get ready for crash?

Post by tyler_cracker » Mon Oct 26, 2015 9:52 pm

saltycaper wrote:You should already be ready for a crash. You should always be ready. If you need to take action to "get ready", reconsider your strategy.


:thumbsup

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Taylor Larimore
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Investment Pornography

Post by Taylor Larimore » Mon Oct 26, 2015 9:59 pm

Sillysaver:

No one can consistently forecast the stock market.

Bogleheads call scare articles like this "Investment Pornography."

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

small_index
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Re: Get ready for crash?

Post by small_index » Mon Oct 26, 2015 11:53 pm

Maynard F. Speer wrote:
small_index wrote:I'm surprised how quickly most of the portfolios I test [in Portfolio Visualizer] recover within a few years.

What perhaps makes Portfolio Visualizer's time period quite accommodative to equity/bond portfolios is interest rates doing this (since the 70s):
[graph shows falling rates since 1970s]

You hinted at an alternative to an equity/bond portfolio before 1970s. Is that a reference to a permanent portfolio type allocation? More interestingly, what time period before the 70s do you think holds a valuable lesson for investors?

I recommend people view 1972-1979 in Portfolio Visualizer. Even with 100% equities, the return looks good in nominal terms (+53% growth), but after inflation it's a loss of -18%. And with 60% Total Stock / 40% Total Bond, a similar situation of +59% nominal growth but a roughly -14% loss in real terms. It's interesting to see the illusion of growth while a portfolio actually buys less than when it started. I also find it interesting that 100% stocks and 60% stocks didn't make much difference. What I gather from that is a period of ~8 years where inflation can be out of my control, and my portfolio has poor returns that are out of my control as well.

AKdream
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Re: Get ready for crash?

Post by AKdream » Tue Oct 27, 2015 12:03 am

"Sell, sell, sell!"

Just make sure you do SOMETHING right now!!!

Or don't.

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stemikger
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Re: Get ready for crash?

Post by stemikger » Tue Oct 27, 2015 12:27 am

Dandy wrote:The devil is in the details - e.g. what is an appropriate asset allocation for your age/risk tolerance. How much debt do you have. How secure to you think your job is, etc. Beware of how you feel about risk after a nice 4 or 5 year bull run.

Wishing for a crash so you can buy low reminds me of the old phrase "be careful what you wish for". You won't feel so elated by a really bad prolonged crash if you lose your job, house and half of your assets -- maybe having to forget college for you kids and eventually get a job paying much less. There were lots of people who thought they wouldn't be affected by what happened in 2008 and had a big wake up call. Most of us were fortunate that the recovery was rather quick, sharp and long lasting - no guarantees about the next one.


+1 Very true! Also, as you get older, you tend to worry more. It is always a good idea to make sure you have the proper asset allocation for your risk tolerance.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

hnzw rui
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Re: Get ready for crash?

Post by hnzw rui » Tue Oct 27, 2015 12:38 am

digarei wrote:The aromatic flavor of tea leaves is irresistible. 

That's probably not tea leaves but weed. :sharebeer

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digarei
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Re: Get ready for crash?

Post by digarei » Tue Oct 27, 2015 4:21 am

hnzw rui wrote:
digarei wrote:The aromatic flavor of tea leaves is irresistible. 

That's probably not tea leaves but weed. :sharebeer

The aromatic flavor of tea leaves is and many other substances are irresistible. 

Predictions = Soothsaying Catnip = Click Bait = Drug of Choice [for many]:

The allure of the unknowable, the unobtainable, the perpetual high and free money.

...
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

wassabi
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Re: Get ready for crash?

Post by wassabi » Tue Oct 27, 2015 4:33 am

sillysaver wrote:
Dandy wrote:Wishing for a crash so you can buy low reminds me of the old phrase "be careful what you wish for". You won't feel so elated by a really bad prolonged crash if you lose your job, house and half of your assets -- maybe having to forget college for you kids and eventually get a job paying much less.


Good points. I know a guy caught by surprise and he and his wife lost their house and cars during the 2008-2009 crisis. They moved to my city a few years ago and he still hasn't found a job. They're living in a 1 BR rental apartment with their young daughter.

The timing was really poor, as he was in his early 50's and now he's at an age where it's almost impossible to get hired in his field.



It always bothers me to read comments about people in the 40-50 age range who have been unemployed for years. I'm not in my 50s yet, but also not in a stable career field. Comments like this one always put a little fear and anxiety into me to find something more stable.

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iceport
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Re: Get ready for crash?

Post by iceport » Tue Oct 27, 2015 6:08 am

saltycaper wrote:You should already be ready for a crash. You should always be ready. If you need to take action to "get ready", reconsider your strategy.

Yes, exactly. Your asset allocation is supposed to account for a deep market crash.

Just out of curiosity, I skimmed the article and practically blew my coffee all over the keyboard.

Ken Goldberg first wrote:The market itself is the final arbiter, though, and there is no guarantee that this echo will become the repeat, or even the rhyme, of 2007. Nevertheless, to remain fully invested in the market, not to mention leveraged, for the marginal reward of a slightly higher new high, while taking on the risk of what came in 2008 could be reckless.

(yes, as serious investors, we must all strive to avoid recklessness with our life savings...)

Ken Goldberg then wrote:The decision support engine is warning strongly that this is not the time to be using buying actions in your portfolio (except for marrying some put options to your beloved long positions). Rather, selling actions are indicated, which means selling long positions, using sell stops to protect profits and selling short. Sell, sell, sell!

(...to avoid the recklessness of allocating sensibly and staying the course...) :wink:

In all seriousness, it's a crying shame that someone with analyses this idiotic has access to mass media. How many hundreds or thousands of fools are being enticed to SELL,SELL,SELL?

Ken Goldberg was a twice-weekly contributor on Real Money Silver between 2010 and 2012, specializing in the Elliott Wave and Fibonacci perspectives on stocks, bonds, and futures markets under the "Catching The Wave" header.

He is a 30-year veteran of the investment business, having taught over 800 traders, appeared on CNBC, and been recommended by Technical Analysis of Stocks and Commodities Magazine. He has also produced three video courses on using decision support models for short-, intermediate-, and long-term trading strategies.

"Leading investors astray for 30 years and counting..."
"Discipline matters more than allocation.” ─William Bernstein

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