Reliving the Nightmare of the Crisis

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whodidntante
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Reliving the Nightmare of the Crisis

Post by whodidntante »

With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?
NMJack
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Re: Reliving the Nightmare of the Crisis

Post by NMJack »

whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?
What nightmare? I was 100% equities and I just let it ride and kept on shoveling more in.

You could be talking about 1987, 2000, 2008 and whenever the next "nightmare" occurs. Don't people learn anything?? :confused
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Re: Reliving the Nightmare of the Crisis

Post by Engineer250 »

Frontline documentary Inside the Meltdown is one of my faves. It was finished early 2009 so doesn't capture the end of it. I think that makes it more appropriate, expresses the concern and uncertainty we all felt early 2009.

That said I was 100% equities like the person above and not worried about my investments. I was more worried about the economy and whether things were going to get worse and for how long.
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Re: Reliving the Nightmare of the Crisis

Post by MathWizard »

whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?

I rebalanced in. I learned how intertwined everything is in the financial sector, and how that can affect me.

My wife and I were certain that housing prices were spiraling up, people were getting loans with negative down,
with adjustable rates, and no verification of income. We expected that they would likely lose their homes, and
prices would drop, but we were neither buying nor selling, so it was unclear how this would affect us.

I learned later about mortgage backed securities, credit default swaps, tranches, and the high amount of
leverage banks and insurance companies were taking on. This is what brought the financial crisis on.

However, that does not change my investment strategy much, except for bulking up my EF.
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Re: Reliving the Nightmare of the Crisis

Post by Levett »

I learned to have a great deal of respect for Hyman Minsky--

https://en.wikipedia.org/wiki/Minsky_moment

as well as Benoit Mandelbrot's The (Mis)behavior of Markets--

https://www.amazon.com/Misbehavior-Mark ... B004PYDBEO

Lev
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Re: Reliving the Nightmare of the Crisis

Post by coachz »

NMJack wrote:
whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?
What nightmare? I was 100% equities and I just let it ride and kept on shoveling more in.

You could be talking about 1987, 2000, 2008 and whenever the next "nightmare" occurs. Don't people learn anything?? :confused
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Re: Reliving the Nightmare of the Crisis

Post by carolinaman »

The 2009 Frontline documentary was very good. I also enjoyed the book "The Big Short" which gave an insider view of the mortgage mess.

2008 was not a normal bear market. I do not think a lot of people realize how close we came to another great depression. It was bad but could have been a lot worse.
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Re: Reliving the Nightmare of the Crisis

Post by cherijoh »

whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?
I thought this podcast was a great explanation of the mortgage crisis.

I don't think I actually learned anything new from the crisis, but it reinforced some of my core beliefs. I am risk adverse and believe the way to FI is by living below my means and investing prudently - not taking large risks for the chance of outsized gains. Other than a brief foray with single stocks (and then well under 5% of my portfolio), I have never touched anything on your list. In other words, my financial life is BORING! :wink:

Pre-crisis, it seemed like I was out of sync with most people (outside of the Bogleheads forum). I thought the housing market was insane and that using your home equity like an ATM was a sure fire way to get in trouble. But several of my friends, neighbors and coworkers bought into the "real estate has no where to go but up" nonsense and have since suffered the consequences. Lots of them are stuck, since the house is still worth less than they paid for it and closing costs would eat up what little (if any) home equity they have. So much for downsizing and using the home equity to fund their retirement. :oops:
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Re: Reliving the Nightmare of the Crisis

Post by Watty »

whodidntante wrote:What did you learn that you continue to apply today?
That for someone that is still in the accumulation phase a bad market is actually a good thing for them. (assuming that it eventually recovers).

I was in my early 50's in 2008 and seeing the value of my 401k shrink when I was not far from from retirement was concerning. I ended up increasing my 401k contributions a lot to try to make up for the loss. The extra money that I put in the 401k near the market low has more than doubled.
NMJack wrote:You could be talking about 1987, 2000, 2008 and whenever the next "nightmare" occurs.
Or the flash crash in 2010.
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Re: Reliving the Nightmare of the Crisis

Post by Flashes1 »

I'll never forget how it seemed like every morning waking up to hear about another large financial institution going under or about to: Lehman Brothers, Wachovia, National City, AIG, Citibank, Countrywide. Many of them were old enough to survive the Great Depression but couldn't survive the Great Recession. There is no doubt in my mind that there would have been a second Great Depression had Bernanke not stepped in.

Most Bogleheads don't appreciate how close they were to losing 90% of equities for a long time period.
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Re: Reliving the Nightmare of the Crisis

Post by MnD »

I like re-reading my 2008/09 posts! One of my favorite responses to a post titled

"Disbelief, yearning, anger, depression and acceptances......"
viewtopic.php?f=10&t=30756&p=373026#p373026

Postby MnD » Sat Jan 10, 2009 11:14 pm

Oh please.....
I'd feel worse over the loss of a pet than the quarter mill of paper losses over the past 14 months. Relating this to the death of a loved one isn't even remotely comparable.

I'm still accumulating so I'm buying and rebalancing in to equity on the cheap. I've made spectacular deals lately with several home improvement contractors (they return calls immediately) and picked up some ultra-fancy electronics this x-mas we always wanted at 50% off from a bankrupt retailer.

Traffic is way down, commutes are easier, they quit paving over paradise for a while at least, I can get hotel and plane reservations at decent prices on short notice. Getting a table at a nice place for dinner is EZ.

The wifes 97 Subaru has seen better days, I can't wait to go new car shopping. How mant thousands below invoice should I offer? 8)

The only thing that chaps my arse are the "struggling" people that maybe could afford a $150K townhome but bought a $500K house with zero down instead, and now "mortgage relief" is going to enable them to steal it via principal reduction courtesy the taxpayer. I feel sorry for the renters and potential trade-up buyers that refused to go for ridiculous prices and garbage loans. they are the ones that should get those houses now at a deep discount, not the deadbeats that paid far too much with no skin in the game.

This one too - late Feb 2009
viewtopic.php?f=2&t=33278&p=409462#p409462
Postby MnD » Mon Feb 23, 2009 11:29 am

By spreading your investments along the risk spectrum, one should do very well in the next several years.
The worst thing one can do is pull back on risk exposure, which is exactly the advice you see now in most "investing during the crisis" type articles.
The time to do that (in retrospect) was Fall 2007 when risk premiums were low to non-existent.
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Re: Reliving the Nightmare of the Crisis

Post by Tycoon »

MnD wrote: Relating this to the death of a loved one isn't even remotely comparable.
This sums it up. Money can't replace life.
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Re: Reliving the Nightmare of the Crisis

Post by AtlasShrugged? »

whodidntante....I would strongly recommend reading the Sheepdog thread. That was a classic, and toward the end the thread, Sheepdog was kind enough to reflect back (7 years later) and offer his perspective (would he do the same thing again, what did he learn, what can we learn from his experience). That thread captures the essence of what many of us were thinking and feeling at the time.

Rightly or wrongly, my wife and I actually significantly increased our spending in 2009 for bigger ticket items. For instance, we bought a new car. We bought appliances (washer, dryer, etc). We continued to invest. Why? We felt that we should do our part to 'buy American' and help keep people in jobs (which were being lost by the hundreds of thousands quarterly), and the prices had fallen to the point where it just made sense to 'pull the trigger'. It helped that I was in a pretty stable job....but it was still scary.

Thinking back, I think we dodged a huge bullet. It is not at all clear to me we will get that lucky the next time we see a decline like that.
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Re: Reliving the Nightmare of the Crisis

Post by Johnnie »

I learned that I'm capable of not peeking for months and months. By the time I did look the bleeding was staunched, the wounds had begun to heal, and it appeared like maybe we weren't all gonna die after all.

And I thought a lot about this bit of timeless wisdom from an earlier era's solon, Louis Rukeyser the week of the 1987 mystery crash. We eagerly awaited Friday evening that week to hear what comfort Lou might offer, and he didn't disappoint:
“Let’s start with what’s really important tonight: It’s just your money, not your life. Everyone who really loved you a week ago still loves you tonight, and that’s a heckuva lot more important than the numbers on a brokerage statement. The robins will still sing, crocuses will bloom, babies will gurgle, and puppies will curl up in your lap and drift happily to sleep, even when the stock market goes temporarily insane.

“(And now that that’s all properly in perspective, let me say, Ouch! and Eek! and Medic!)”
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Re: Reliving the Nightmare of the Crisis

Post by gundlached »

whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?

I remember a family friend who was big-time overweight the banks before the crisis began. A serious lesson in diversification...his portfolio is still nowhere close to even.
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Re: Reliving the Nightmare of the Crisis

Post by nisiprius »

Warning, car analogy! :D

A semi trailer is 8-1/2 feet wide. A highway lane is 12 feet wide. A car is six feet wide.

Normally, a semi approaching you on a two-lane road clears you by 1-3/4 + 3 = 4-3/4 feet. Semis are not always exactly in the center of the lane, so there is fluctuation in the clearance distance, and it normally doesn't bother us much. A truck crowds the lane on a turn? Annoying, not scary.

Suppose an approaching truck weaves, crosses the center line, and comes eight inches into your lane, reducing the clearance distance to 2-1/3 feet.

The closest approach was 2.34/4.75 = 49% of normal.

The truck whizzes by, your car rocks from the air turbulence, there's no damage, and seven years later you don't even remember it. It wasn't even a near miss. It was a miss, period, and "objectively" no harm done. But psychologically?

While it's happening, you don't perceive it as "our clearance was reduced by 51%. Five sigmas from the mean, how 'bout that?"

You perceive it as "HOLY ----, THAT TRUCK WAS IN MY LANE, IT COULD HAVE HIT ME!" For a fraction of a second, the risk you normally tolerate--almost ignore--became seen as a real possibility. It could really happen. To you.

You might make an emergency maneuver yourself and depending on your own reflexes, emotions, and whether your car has VSC, your own maneuver might reduce or add to your risk.

You can argue forever about how much risk there really was. If you overreacted and almost lost control of your own car you can argue about how to attribute that extra risk. The problem is that it was far enough out of the normal to invalidate your risk model. You can't measure it by the risk model of alert, sober truck driver behavior. You know that the model no longer applies and you suspect that the risk was probably greater than indicated by the clearance distance.

That's what 2008-2009 was like.
Last edited by nisiprius on Sat Jul 23, 2016 9:18 am, edited 10 times in total.
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Re: Reliving the Nightmare of the Crisis

Post by SimpleGift »

In my experience, the 2008-2009 market crash was so unique because it had such a strong element of "existential" fear about the continued viability of the global financial system. In 1987, the market crash was brief and soon inconsequential. The 2000 tech crash certainly had a big emotional and portfolio impact, but I was able to rebalance through the whole event.

However in 2008-2009, because of the deep, widespread concerns about the stability of the financial system worldwide, I just froze in place. I wasn't able to rebalance out of bonds and into stocks. I quit reading my portfolio statements and updating my rebalancing spreadsheet. I essentially hunkered down, with the sole consolation that I had a substantial allocation (50%) to high-quality bonds.

The lesson: My appetite for risk had changed as I'd aged. In retirement now, I've become a one-way rebalancer: if equities do well, I will rebalance out of stocks and into bonds — but I'm never going to be comfortable again selling safe assets to purchase equities, no matter how low they may go in price.
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Re: Reliving the Nightmare of the Crisis

Post by Stonebr »

nisiprius wrote:
You can argue forever about how much risk there really was. The problem is that far out of the normal that it doesn't fit the normal risk model of alert, sober truck driver behavior. Therefore you suspect that the model no longer applies and that the risk was probably greater than indicated by the clearance distance.

That's what 2008-2009 was like.
Well, that's what it was like to a Boglehead who did not lose his job, pension, home and company stock. Oh, and his marriage too. I remember a fellow that we hired in 2010 who'd been through all that. He was lucky to get a job after losing his at Lehman. He didn't last long with us -- the wrong fit. He was remarkably philosophical about the whole thing and assumed that things would work out somehow. I wish him the best. But he lost everything in 2008-9.
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Re: Reliving the Nightmare of the Crisis

Post by TheTimeLord »

whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?
For me the answer is simple 4 things:
1) Manage Risk
2) Manage Risk
3) Manage Risk
4) Be prepare to take advantage of opportunities

And Bob's your uncle.
Last edited by TheTimeLord on Sat Jul 23, 2016 9:37 am, edited 1 time in total.
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Re: Reliving the Nightmare of the Crisis

Post by nedsaid »

Stonebr wrote:
nisiprius wrote:
You can argue forever about how much risk there really was. The problem is that far out of the normal that it doesn't fit the normal risk model of alert, sober truck driver behavior. Therefore you suspect that the model no longer applies and that the risk was probably greater than indicated by the clearance distance.

That's what 2008-2009 was like.
Well, that's what it was like to a Boglehead who did not lose his job, pension, home and company stock. Oh, and his marriage too. I remember a fellow that we hired in 2010 who'd been through all that. He was lucky to get a job after losing his at Lehman. He didn't last long with us -- the wrong fit. He was remarkably philosophical about the whole thing and assumed that things would work out somehow. I wish him the best. But he lost everything in 2008-9.
It reminds me of the bear market joke I heard during 2000-2002 and again 2008-2009. The joke was now that a bear market had hit that there were a lot of good buys on Wall Street. Good bye Rolex, good bye Mercedes, good bye house, good bye spouse.

But the effects weren't so funny in real life as the joke was more true than we ever knew.
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Re: Reliving the Nightmare of the Crisis

Post by cfs »

Good conversation.

Here is all you need to know. Check the documentary [series] from Frontline on Money, Power and Wall Street, followed by Frontline's The Untouchables [this one takes no prisoners].

Frontline: Money, Power and Wall Street **and** Frontline: The Untouchables.

When I worked as [part-time] Leadership Teacher [for international students], we did a good review on both, and both should be required reading/viewing for U.S Business Students.

Thanks for reading.
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Re: Reliving the Nightmare of the Crisis

Post by technovelist »

I have perhaps a unique (or nearly unique) perspective on this, for this forum at least.

2008-2009 had no significant effect on my portfolio, because it held neither stocks nor bonds.

At that time I was working at a megacorp that did not get in any trouble, so my job wasn't endangered either.

However, I was still quite worried that the financial system would collapse and take much of the economy along with it.

And looking at the current situation, I believe that this risk is still present because none of the problems that caused the Great Recession have been solved or even lessened. We have another housing bubble and the federal government's deficits stretch out as far as the eye can see with no credible plan by any major party to do anything about this.

So I think everyone should be prepared for another event like that, or worse.
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Re: Reliving the Nightmare of the Crisis

Post by ikowik »

I remember the sense of unease (and maybe a little bit envy) when several friends' wives took up "day trading" by computer in the years before the crisis, and hearing about their sophisticated systems and the money they made.
After the crisis, all this talk suddenly disappeared. The crisis taught a of of people some sharp lessons and weeded out the naive.
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Re: Reliving the Nightmare of the Crisis

Post by nedsaid »

ikowik wrote:I remember the sense of unease (and maybe a little bit envy) when several friends' wives took up "day trading" by computer in the years before the crisis, and hearing about their sophisticated systems and the money they made.
After the crisis, all this talk suddenly disappeared. The crisis taught a of of people some sharp lessons and weeded out the naive.
It is the classic case of shoe shine boys giving stock tips to Bernard Baruch in 1928 or so. Or what Peter Lynch called the Cocktail party market-timing theory. At cocktail parties, Lynch could tell the stage of the markets when being introduced at Cocktail parties. In the beginning stages of a bull market, Lynch would introduce himself as manager of the Fidelity Magellan Mutual fund. He might get a response of something like, "Oh, that's nice." In the middle stages of the bull market, people would ask him for stock tips; in the late stages of the bull market, people would give him stock tips.

I had an uneasy feeling upon hearing people almost panicked into buying real estate, they felt like if they didn't buy in now that they would never be able to afford anything in the future. Then I would hear about sky high prices for beach front property. Later, I learning about landscapers and nursery workers being able to take out big mortgages. Something was clearly wrong in 2007 or so but I had no clue that a real estate crash was coming.
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Re: Reliving the Nightmare of the Crisis

Post by Barefootgirl »

As I approach early retirement, I'm getting somewhat philosophical about these boom and bust cycles. I've spent my entire career either inside or buzzing around the Capital Beltway.

At the risk of coming across as a pompous jerk, people here are somewhat immune - not from dropping porfolios of course, or some tempered volatility in the housing market, but from fears about the future, particularly fears about future income.

Probably the only advantage to toiling here.

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Re: Reliving the Nightmare of the Crisis

Post by Abe »

I learned that there are a lot of things that are out of my control.
I learned that it's hard to regulate the financial industry.
I learned that what goes around comes around.
I learned that the big boys do stupid stuff too.
I learned not to get too greedy.
I learned that interest rates can go down and stay down for a very long time.
I learned that life is like a box of chocolates.
That's all I can think of right now. :beer
Slow and steady wins the race.
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Re: Reliving the Nightmare of the Crisis

Post by whodidntante »

Though I was not a participant in this forum at the time, a favorite of mine is the thread by market timer. Most useful is that he continued to post updates even as the market moved against him like a 100 year flood. A lot can be learned from his posts.
viewtopic.php?t=5934

One can imagine the outcome if he had implemented his strategy at the market bottom of March 2009 instead of in 2007. But that is easy to say, and impossible to do. The crisis didn't show up in the market as a single massive drop. It happened as a series of severe drops. -11%, -17%, -10%, -17%, -36%, -29%, and another -29% drop to make the bottom. Each one of these drops, except for the last, was followed by an impressive relief rally that didn't have staying power. Picking the bottom would be a high stakes game of pin the tail on the donkey.
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Re: Reliving the Nightmare of the Crisis

Post by arcticpineapplecorp. »

I remember seeing the headlines and it seemed like every day there were 100,000 people being laid off. It had to be since I think there were at least 14 million people out of work (maybe more if you count those not being counted). It just seemed like 100,000 people here, 200,000 people there and yet these were real people's lives that were being affected. The numbers were staggering and sobering as I added them up in my mind with each passing day. They were losing their (in many cases) good paying jobs and then losing their homes because they couldn't find work in the (previous) typical 3-6 month period.

I remember "experts" saying the typical 3-6 months in savings they had forever recommended no longer applied. Now the "experts" were telling people to keep 1 year or more in savings. That would have been helpful to tell people that BEFORE the crash, rather than after.

I remember sitting across from a co-worker who was only a few years older than me (and 20 years to retirement) who panicked everytime the DOW lost hundreds of points at a time. She moved out of stocks (after they dropped obviously) and moved her money into a stable value fund. I was 100% in equities at the time, realized there was nothing I could do to recover losses except be patient and hope the market recovered (which--spoiler alert-- it did :happy ) and listen to people like Warren Buffett who wrote in an OP ED, "Buy American. I am." He said it was the potential buying opportunity of a lifetime for a worker in his/her 20s, 30s and even beyond. Dag gonnit if he wasn't right about that one!

I had just started investing in 1998 so the losses from 2000-2002 which were comparable were negligible, but I started to understand in 2008 what losses looked like. Still I kept to my plan, continued investing realizing I was now buying shares much cheaper that I was happy to buy when they were previously higher (so I should be happier now and happier when the market goes back up).

When the dust settled, I had way more than I did prior to the crash and I realized that investing is a very powerful force for those who are patient and continue to invest at all times, but especially when everyone else is rushing for the exits.

I also was living below my means (and continue to do so) and this has always provided comfort. If in a worse case scenario, money now not being spent because it's used for investing can cover expenses in a hyperinflation environment where wages aren't rising fast enough.

Oh, one last thought. I worked with a man who was in his 80s at that time. He didn't need to work, he was just doing it seasonally to keep active. I remember hearing him talk on the phone with his son who "managed" his investments. The man was practically screaming at his son, saying, "I thought you said AIG was SAFE!!??". See the charts below to see what happened to his money and why despite the largest bailout at that time, he learned a valuable lesson about the "safety" of stocks.

The Price of AIG Stock from 2000 to present:

Image

$10,000 invested in Vanguard Total Stock Market Index Fund (admiral) vs. AIG from 2000-present:
Vangaurd Total Stock market index fund (in blue) now worth $21,964.62. Aig (in orange)--$507.46 :oops:

Image
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Re: Reliving the Nightmare of the Crisis

Post by Fallible »

In '08' I learned, finally, that staying the course in one market crash does not assure staying the course in the next, simply because crashes and crises differ and will test emotional risk tolerances in different and unexpected ways. They are alike mainly in being what investors fear most - uncertainty. But while we can't know what the next crash will be like, we can determine how much we can afford to lose before a market rebound and then set an allocation accordingly.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Reliving the Nightmare of the Crisis

Post by TravelforFun »

Not related to the market crashes but I always remember the thread about people putting all their money in the wrong basket. I'm talking about GTAT, a then rising company that was making glass for iPhone but got the rug pulled out from under them leaving a bunch of investors dead in the water. Here is the thread, a long thread, but start reading from Page 500. This thread stays in my bookmark.

http://forum.thecontrarianinvestor.com/ ... 9/page-501
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Re: Reliving the Nightmare of the Crisis

Post by Ninegrams »

What I remember was locking in some juicy 5% rates on five and seven year CDs. Oh the memories.
paper200
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Re: Reliving the Nightmare of the Crisis

Post by paper200 »

I was in the audience for the long movie epic 2000-2010, it was was long, chilling, exhilarating, free fall, white knuckle, strapped to seat with unsure ending and no exit lights working. Bulk of my accumulation was during this period and made me a very conservative investor. The light at the end of the tunnel was this site and the regular contributors from 2007/2008 to date. My salute to all.
Having freedom, food and roof is being 90% lucky in life and so is index investing. So, don't let the remaining 10% bother you.
island
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Re: Reliving the Nightmare of the Crisis

Post by island »

No nightmares since I paid no attention to it and majoring in stock funds. We just kept living, working, saving and investing as usual.
Unfortunately didn't know about TLH at the time. Would have been a good opportunity to get out of some American Funds in taxable that we purchased in the 90's.
Last edited by island on Sat Jul 23, 2016 2:26 pm, edited 1 time in total.
malabargold
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Re: Reliving the Nightmare of the Crisis

Post by malabargold »

Always 95%+ stocks, then and now- it wasn't a nightmare but a dream come true - equities prices were rolled back a decade plus.

Maybe the greatest fire sale we will see in our investing lifetime.

We saw it for the terrific buying opportunity it was and
made a bundle.

Can only hope for another!
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John151
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Re: Reliving the Nightmare of the Crisis

Post by John151 »

I added enough to stocks to maintain my stock allocation. I also thanked God that my stock allocation was fairly modest (35%), and that my stock investments were all in index funds. I have a cousin who was about 90% in stocks, and most of that was in the stock of just one bank. The bank went bust, and her portfolio dropped like a stone.

So settle on a stock allocation you’re comfortable with, put most if not all of it in index funds, and rebalance as needed. That’s what I did, and that’s what I plan to do going forward.
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burt
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Re: Reliving the Nightmare of the Crisis

Post by burt »

Flashes1 wrote:I'll never forget how it seemed like every morning waking up to hear about another large financial institution going under or about to: Lehman Brothers, Wachovia, National City, AIG, Citibank, Countrywide. Many of them were old enough to survive the Great Depression but couldn't survive the Great Recession. There is no doubt in my mind that there would have been a second Great Depression had Bernanke not stepped in.

Most Bogleheads don't appreciate how close they were to losing 90% of equities for a long time period.
Exactly. Especially devastating for those heavy in equities, near or in retirement.
I don't normally consider myself "lucky" but in this case I certainly recognize I was "very lucky", as I was 7 years from retirement.
90% drop in equities for a long time, near retirement..... put that into your VPW (varible percentage withdrawal) calculator and see what happens.

burt
Shallowpockets
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Re: Reliving the Nightmare of the Crisis

Post by Shallowpockets »

It is hard to believe the cavalier and gleeful attitude expressed here frequently by BHs about that economic timeframe.
Hard to believe that they just sat happily by and either did not even look at the economic news and then their portfolios. That they instead just took it in stride and sat in the sideline knowing that all would work itself out with no emotional involvement. No angst, no changes. As if they were watching a movie.
We all weathered that timeframe. No choice. Looking back it all seems like it did, of sorts, work itself out, but as some have expressed, it was a time of concern. It was not a time to chuckle and think it was a great investment opportunity. Not emotionally anyway.
I guess the big takeaway from all that is to live below your means, all the time, all the years.
You need that buffer of ability to see you through the years and years it takes to get back.
Now we all realize that such things can happen and with the speed and connectiveness of the world there is no telling how bad it could get. I hope in my lifetime it never goes that far. I am afraid all the lessons we thought we learned are being swept aside as things get better.
How many years has it been for the return trip? The reversion to mean doesn't always have a palatable timeframe.
In the meantime I will stick with living below my means. I will stay the course per BHs, but that doesn't mean there was not some anxiety during those years. Complacency is maybe just fear with a forced smile.
camden
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Re: Reliving the Nightmare of the Crisis

Post by camden »

Abe wrote:I learned that there are a lot of things that are out of my control.
I learned that it's hard to regulate the financial industry.
I learned that what goes around comes around.
"I learned that the big boys do stupid stuff too. "
I learned not to get too greedy.
I learned that interest rates can go down and stay down for a very long time.
I learned that life is like a box of chocolates.
That's all I can think of right now. :beer

Isn't that the truth. When the bright boys running Lehman Bros. with their exotic new financial instruments managed to bankrupt a company that had been around since before the Civil War, it reinforced my belief not to trust anyone else to manage my money and not to invest in anything I do not understand.

It was a scary time. I froze in place. Did not panic and sell, but did not have the nerve to aggressively buy. Learned to shut off the financial shows on TV, a good idea that I have maintained since.
Ninegrams
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Re: Reliving the Nightmare of the Crisis

Post by Ninegrams »

Shallowpockets wrote:It is hard to believe the cavalier and gleeful attitude expressed here frequently by BHs about that economic timeframe.
Hard to believe that they just sat happily by and either did not even look at the economic news and then their portfolios. That they instead just took it in stride and sat in the sideline knowing that all would work itself out with no emotional involvement. No angst, no changes. As if they were watching a movie.
We all weathered that timeframe. No choice. Looking back it all seems like it did, of sorts, work itself out, but as some have expressed, it was a time of concern. It was not a time to chuckle and think it was a great investment opportunity. Not emotionally anyway.
I guess the big takeaway from all that is to live below your means, all the time, all the years.
You need that buffer of ability to see you through the years and years it takes to get back.
Now we all realize that such things can happen and with the speed and connectiveness of the world there is no telling how bad it could get. I hope in my lifetime it never goes that far. I am afraid all the lessons we thought we learned are being swept aside as things get better.
How many years has it been for the return trip? The reversion to mean doesn't always have a palatable timeframe.
In the meantime I will stick with living below my means. I will stay the course per BHs, but that doesn't mean there was not some anxiety during those years. Complacency is maybe just fear with a forced smile.


I'd say live below your means, but also developing some sense of sangfroid helps to weather rough patches. It doesn't mean being an automaton or complacent, but neither does it mean panicking. Disasters of all kinds, man-made or not will always be with us, there are no guarantees of a good outcome. If one sold out in panic , then one's stock allocation( in hindsight ) was too high.
Ninegrams
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Re: Reliving the Nightmare of the Crisis

Post by Ninegrams »

Ninegrams wrote:
Shallowpockets wrote:It is hard to believe the cavalier and gleeful attitude expressed here frequently by BHs about that economic timeframe.
Hard to believe that they just sat happily by and either did not even look at the economic news and then their portfolios. That they instead just took it in stride and sat in the sideline knowing that all would work itself out with no emotional involvement. No angst, no changes. As if they were watching a movie.
We all weathered that timeframe. No choice. Looking back it all seems like it did, of sorts, work itself out, but as some have expressed, it was a time of concern. It was not a time to chuckle and think it was a great investment opportunity. Not emotionally anyway.
I guess the big takeaway from all that is to live below your means, all the time, all the years.
You need that buffer of ability to see you through the years and years it takes to get back.
Now we all realize that such things can happen and with the speed and connectiveness of the world there is no telling how bad it could get. I hope in my lifetime it never goes that far. I am afraid all the lessons we thought we learned are being swept aside as things get better.
How many years has it been for the return trip? The reversion to mean doesn't always have a palatable timeframe.
In the meantime I will stick with living below my means. I will stay the course per BHs, but that doesn't mean there was not some anxiety during those years. Complacency is maybe just fear with a forced smile.


I'd say live below your means, but also developing some sense of sangfroid helps to weather rough patches. It doesn't mean being an automaton or complacent, but neither does it mean panicking. Disasters of all kinds, man-made or not will always be with us, there are no guarantees of a good outcome. If one sold out in panic ( or was mightily tempted ), then one's stock allocation( in hindsight ) was too high.
Engineer250
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Re: Reliving the Nightmare of the Crisis

Post by Engineer250 »

whodidntante wrote:Though I was not a participant in this forum at the time, a favorite of mine is the thread by market timer. Most useful is that he continued to post updates even as the market moved against him like a 100 year flood. A lot can be learned from his posts.
viewtopic.php?t=5934
That thread was fascinating. Early on you see LH making some cynical predictions that make me think I would like to buy his news letter.

Sep 16 2007 6:24pm
LH wrote:I like these option topics.

So you buy 100K worth of 2 year leaps options tied to the sp500 with borrowed money at 5 percent(five seems cheap), and right after you buy them, the market tanks for 4 years straight.

Your 100K worth of LEAPS is then worth zero? you have a -100K(minus your interest costs as well) worth and no assets?

Sounds very risky. Is Bankruptcy how one funds the downside?
Sep 16 2007 8:48pm (bolded mine)
LH wrote:Ok,

So he borrows 150K then? And he invests in what? LEAPS is pretty vague. Say he invests in a LEAP that mirrors the sp500 that expires in 2 years. He buys 150K worth of calls that lets him buy SP500 at a price 1 dollar greater than the current SP500 market price tommorrow at 10am.

AT 1001am tommorrow, the "subprime issue", then becomes the "subprime crisis", stocks plummet.

The sp500 goes down 10 percent by end of december. The next year it goes down 20 more percent, then next year 10 more percent.


So you guys has 50K net worth, and his 150K options just expired underwater. I dunno what the 50K is in, TIPS? ST treasuries? Heaven forbid stocks. He owes 150K dollars, at best if his 50K is still intact, he still owes 100K dollars.

The young man is hugely overleveraged, and is simple financially screwed.

You cannot free ride, you have to take risk to achieve gain, and if you are are leveraged, the risk may show up, overwhelm you, and blow you up.

Anyway, if you give a specific option structure in mind, please tell us what it is.

Thanks,

LH
Fascinating!
Where the tides of fortune take us, no man can know.
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burt
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Re: Reliving the Nightmare of the Crisis

Post by burt »

burt wrote:
Flashes1 wrote:I'll never forget how it seemed like every morning waking up to hear about another large financial institution going under or about to: Lehman Brothers, Wachovia, National City, AIG, Citibank, Countrywide. Many of them were old enough to survive the Great Depression but couldn't survive the Great Recession. There is no doubt in my mind that there would have been a second Great Depression had Bernanke not stepped in.

Most Bogleheads don't appreciate how close they were to losing 90% of equities for a long time period.
Exactly. Especially devastating for those heavy in equities, near or in retirement.
I don't normally consider myself "lucky" but in this case I certainly recognize I was "very lucky", as I was 7 years from retirement.
90% drop in equities for a long time, near retirement..... put that into your VPW (varible percentage withdrawal) calculator and see what happens.

burt
And guess what ? It ain't over. We are still paying for it.......with more to come.

burt
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celia
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Re: Reliving the Nightmare of the Crisis

Post by celia »

I converted like crazy, until all my traditional IRA funds were Roths (each time into a new, empty, Roth). In December I recharacterized the ones that lost the most.

It was as if there was a "sale on taxes" since you could convert twice the shares for the same tax hit. 50% OFF!
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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HomerJ
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Re: Reliving the Nightmare of the Crisis

Post by HomerJ »

NMJack wrote:
whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?
What nightmare? I was 100% equities and I just let it ride and kept on shoveling more in.
I'm guessing you had very little money invested (compared to your salary) in 2008. And I'm guessing you're not married either :)

If I'm wrong, then you are a manly man indeed.

My family dropped from $750,000 net worth to $500,000, and my wife was freaking out. $250,000 loss in a year is a lot of freaking money. Especially when two of your close friends lost their jobs.

I managed to keep her calm enough to not sell, and we even changed our NEW money (contributions to 401k every two weeks) to 100% stocks, but there was never a thought to rebalance... We had $250,000 in bonds, and we were not going to risk that. Especially since we still had a $200,000 mortgage at the time.
Last edited by HomerJ on Sat Jul 23, 2016 6:56 pm, edited 1 time in total.
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HomerJ
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Re: Reliving the Nightmare of the Crisis

Post by HomerJ »

Flashes1 wrote:I'll never forget how it seemed like every morning waking up to hear about another large financial institution going under or about to: Lehman Brothers, Wachovia, National City, AIG, Citibank, Countrywide. Many of them were old enough to survive the Great Depression but couldn't survive the Great Recession. There is no doubt in my mind that there would have been a second Great Depression had Bernanke not stepped in.

Most Bogleheads don't appreciate how close they were to losing 90% of equities for a long time period.
This.

The young people today took the wrong lesson away... They think the next 50% drop will recover in 18 months because that's "normal".

Great Depression II could have happened. I truly believe it was close. It could happen in the future... I plan for a 50% drop and a 5-10 year recovery because I believe it's definitely a possible event. Not likely... but certainly possible.
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HomerJ
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Re: Reliving the Nightmare of the Crisis

Post by HomerJ »

nisiprius wrote:Warning, car analogy! :D

A semi trailer is 8-1/2 feet wide. A highway lane is 12 feet wide. A car is six feet wide.

Normally, a semi approaching you on a two-lane road clears you by 1-3/4 + 3 = 4-3/4 feet. Semis are not always exactly in the center of the lane, so there is fluctuation in the clearance distance, and it normally doesn't bother us much. A truck crowds the lane on a turn? Annoying, not scary.

Suppose an approaching truck weaves, crosses the center line, and comes eight inches into your lane, reducing the clearance distance to 2-1/3 feet.

The closest approach was 2.34/4.75 = 49% of normal.

The truck whizzes by, your car rocks from the air turbulence, there's no damage, and seven years later you don't even remember it. It wasn't even a near miss. It was a miss, period, and "objectively" no harm done. But psychologically?

While it's happening, you don't perceive it as "our clearance was reduced by 51%. Five sigmas from the mean, how 'bout that?"

You perceive it as "HOLY ----, THAT TRUCK WAS IN MY LANE, IT COULD HAVE HIT ME!" For a fraction of a second, the risk you normally tolerate--almost ignore--became seen as a real possibility. It could really happen. To you.

You might make an emergency maneuver yourself and depending on your own reflexes, emotions, and whether your car has VSC, your own maneuver might reduce or add to your risk.

You can argue forever about how much risk there really was. If you overreacted and almost lost control of your own car you can argue about how to attribute that extra risk. The problem is that it was far enough out of the normal to invalidate your risk model. You can't measure it by the risk model of alert, sober truck driver behavior. You know that the model no longer applies and you suspect that the risk was probably greater than indicated by the clearance distance.

That's what 2008-2009 was like.
Nisi... if no one has told you lately, you are awesome.

What a great analogy. So easy to forget a scary event 7 years later.
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HomerJ
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Re: Reliving the Nightmare of the Crisis

Post by HomerJ »

Shallowpockets wrote:It is hard to believe the cavalier and gleeful attitude expressed here frequently by BHs about that economic timeframe.
Hard to believe that they just sat happily by and either did not even look at the economic news and then their portfolios. That they instead just took it in stride and sat in the sideline knowing that all would work itself out with no emotional involvement. No angst, no changes. As if they were watching a movie.
There were a ton of threads of people panicing. Even the famous "Plan B" thread from Taylor Larimore himself.

Very few of us were calm during the actual event. But many of us did indeed preach "stay the course", including Taylor. And rightly. But we were not happy or calm.
NMJack
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Re: Reliving the Nightmare of the Crisis

Post by NMJack »

HomerJ wrote:
NMJack wrote:
whodidntante wrote:With all the mentions of margin, options, single stocks, market timing, futures, and 100% stock portfolios lately, I thought the forum could use some context in the form of reliving the financial crisis. What are your favorite threads or news stories from that time? What are some memories that stuck with you about the crisis? What did you learn that you continue to apply today?
What nightmare? I was 100% equities and I just let it ride and kept on shoveling more in.
I'm guessing you had very little money invested (compared to your salary) in 2008. And I'm guessing you're not married either :)

If I'm wrong, then you are a manly man indeed.
Wrong on both counts my friend. Married over 25 years and within a few years from retirement eligibility (both as of 2008). :beer

I can tell you the story of Investor H (hare) and Investor T (tortoise) again, but I think the last time I did that the tread got locked. :)
Last edited by NMJack on Sat Jul 23, 2016 7:16 pm, edited 2 times in total.
Teague
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Re: Reliving the Nightmare of the Crisis

Post by Teague »

I remember our entire organization being completely de-funded, and getting 30-day notice pink slips. We were shocked, many of us had been there a long time, 20+ years for some. Some would have been forced to sell their homes at depressed prices and move elsewhere for work. Pension accruals would have been wiped out, lives and families would have been upended. It was a very stressful time. (Fortunately, a last-minute state budget amendment, combined with some federal matching funds, saved us.)
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TheTimeLord
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Re: Reliving the Nightmare of the Crisis

Post by TheTimeLord »

Something everyone should learn from crashes is Leverage Kills.
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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