Study: Who Sold Stock During the 2008-9 Crash?

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SimpleGift
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Study: Who Sold Stock During the 2008-9 Crash?

Post by SimpleGift » Thu Aug 03, 2017 8:59 pm

We’ve had numerous Forum discussions about investor behavior during the 2008-9 market crash, with plenty of anecdotal reports from individual Bogleheads — but only recently has a study been published with empirical evidence of investor selling patterns during the crash. Using Internal Revenue Service data on taxable accounts for 2008 and 2009, the researchers matched assets sales reported for capital gains taxation (anonymized) with various demographic information on each taxpayer.

What they found was, though the selling volume of all taxpayer groups increased during the crash, the effect was most strongly concentrated among, a) investors at the very top of the income distribution (the top 1%), and b) those older investors who were close to or beyond the retirement age (chart below).
A couple of conclusions from the study:
  • 1) The strong selling reaction of older investors is explained by life-cycle portfolio models, as retirees have fixed consumption commitments and little human capital left to help pay for them — and thus a reduced capacity to bear stock market risk after steep market declines.

    2) The positive relationship between high income and increased selling is more puzzling. Consumption commitments should be less relevant to high income individuals. Some explanations offered are that high-income investors perhaps have overconfidence in their market timing abilities and they also pay greater attention to their portfolios.
Your thoughts?
Last edited by SimpleGift on Thu Aug 03, 2017 9:04 pm, edited 1 time in total.
Cordially, Todd

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by livesoft » Thu Aug 03, 2017 9:04 pm

Tax-loss harvesting.

I have no positions/lots purchased before March 2009 anymore. They were all sold and replaced.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Dottie57 » Thu Aug 03, 2017 9:07 pm

I sold part of stock funds during the crash. I could not sleepat night. So moved to bonds. Somewhere between 10-20%. At the same time I upped my stock purchases in 401k. Kinda schizo.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by KlangFool » Thu Aug 03, 2017 9:07 pm

Simplegift wrote:
2) The positive relationship between high income and increased selling is more puzzling. Consumption commitments should be less relevant to high income individuals. Some explanations offered are that high-income investors perhaps have overconfidence in their market timing abilities and they also pay greater attention to their portfolios.[/list]
Your thoughts?
Simplegift,

I will give you one possible explanation. High Income is not equal to high net worth. Many of my peers are "House Poor". When one or both spouses are unemployed for a while, they have to sell their investment in order to keep their houses.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by jebmke » Thu Aug 03, 2017 9:09 pm

I still have a few older holding but probably 75-80% is 2009 or younger. Since I took more than one round trip on the way down, I wonder how they count the multiple sales of the same dollars.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by avalpert » Thu Aug 03, 2017 9:19 pm

livesoft wrote:Tax-loss harvesting.

I have no positions/lots purchased before March 2009 anymore. They were all sold and replaced.
That explanation doesn't match up with the data - they found that net sales aligned with the gross sales on the tax return.

Maybe access to perceived alternative investments motivated some of it.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Toons » Thu Aug 03, 2017 9:28 pm

I sold nothing.
I was steadily buying equity fund shares.
Still own them.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Blue » Thu Aug 03, 2017 9:39 pm

We tax loss harvested six figures but were net purchasers through the period.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Emily1980 » Thu Aug 03, 2017 9:40 pm

Nice Unparticular Man had a thread about myopic loss aversion and what was referred to as rebalancing behavior a while back. Rebalancing behavior just meant changing one's portfolio allocation in some way. The implication was that investors who frequently observed their portfolios and, more importantly, were inclined to make changes in response to their observations tended to end up with lower returns over time due to their heightened fear of short term losses.

I'm not surprised that it's the wealthiest investors and investors whose portfolios are immediately important to them (like investors on the verge of retiring) who are most inclined to engage in this behavior. The study Nice Unparticular Man linked, in my opinion, indicated this might be the case. At least I read it that way. Others disagreed. It's admittedly beyond my purview, and I was just guessing based on my life experiences. Who knows what it all means...

viewtopic.php?f=10&t=220537&hilit=myopi ... n#p3397239

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by AllieTB1323 » Thu Aug 03, 2017 9:56 pm

To us it was a hair on fire buying opportunity.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by itstoomuch » Thu Aug 03, 2017 10:18 pm

Two outcomes:
1) what ever you did, wouldn't matter in the state of US and World economy.
2) a nice strong recovery.
We we're planning to retire in 2009. We we're caring for 3 parents in 2 homes, all 90yo+.

Moved out of W funds (-40%) into all equity GLWB VA annuity. The 5% solution hedge with step up and rollups. Remaining bought a couple of stocks. The 401k moved from near Target date to far Target date (most aggressive).

Moved to a funding ratio model from an asset model.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by whodidntante » Thu Aug 03, 2017 10:36 pm

I'm sure some here have researched it more than me, but I don't think the majority of money in the market is being managed by welders and nurses. And the rich are more likely to use "sophisticated" strategies like tactical allocation and leverage. Institutional investors are also a major player. So when the market moves bigly, you're mostly looking at the impact of what they did.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by nedsaid » Thu Aug 03, 2017 11:16 pm

I should have rebalanced from bonds to stocks during the 2008-2009 financial crisis but I was just too scared. I did the next best thing and put 100% of my new monies for investment into stocks for about a year. After that, I went back to my regular program of putting in new monies at 60% stocks and 40% bonds.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by smectym » Thu Aug 03, 2017 11:21 pm

I was paying attention to the so-called "Death Cross" (50-Day EMA crosses below 200)--a technical analysis methodology anathema to this board--

http://stockcharts.com/h-sc/ui?s=%24SPX ... 8583542027

and so did start gradually selling in modest increments during the market fall. Then as things turned around, started gradually buying. In hindsight, of course, I'd have done better just to play Rip Van Winkle. But we did fine, and the "illusion of control" kept me from panic-selling everything, and/or missing the subsequent rapid recovery in equity prices which continues lo these many years later.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by FrugalInvestor » Thu Aug 03, 2017 11:55 pm

No I bought, BUT....

I sold and re-bought to tax loss harvest but as a practical matter that was not selling.

I actually sold bonds and purchased stocks during the downturn to rebalance but I couldn't bring myself to rebalance all the way to my target asset allocaiton. So although I bought, I didn't buy enough to meet my plan. I took that as a clear sign that my allocation was too aggressive. I remain at the "new" allocation to this day.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Big Dog » Fri Aug 04, 2017 12:17 am

I wish I knew about tax loss harvesting back then, since I would have sold and bought something similar. Of course, net-net, that's just moving equities around and not sure it counts as "selling.'

Nevertheless, I didn't sell a thing. Was 100%/0% AA before and after.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Pajamas » Fri Aug 04, 2017 12:42 am

livesoft wrote:Tax-loss harvesting.

I have no positions/lots purchased before March 2009 anymore. They were all sold and replaced.
They analyzed gross sales but also found a correlation between gross and net sales that they believe rules out that explanation.
KlangFool wrote:
Simplegift,

I will give you one possible explanation. High Income is not equal to high net worth. Many of my peers are "House Poor". When one or both spouses are unemployed for a while, they have to sell their investment in order to keep their houses.

KlangFool
That explanation and several others were ruled out:
We also investigated whether the relationship of volatility varied by other aspects of
investors: gender, marital status, region, state, presence and amount of a mortgage interest
deduction, and 2007 zip-code level house price growth. No noteworthy effects were detected.
It seems to me that richer and older people should have more stocks in the first place vs. the poor and young. They looked at gross sales, not percentage of holdings sold, so that seems like the simplest explanation to me. People with more stocks likely sell more stocks than people with fewer stocks. If this explanation was ruled out in the paper, someone please let me know.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by SimpleGift » Fri Aug 04, 2017 12:54 am

One secondary finding of the OP study is that equity mutual fund investors disproportionately sold off their shares compared with individual stock investors during the crisis. The chart below depicts the share of all sales (subject to 1099-B reporting) in either stock mutual funds or individual stocks during 2008 and 2009.
The share of stock mutual fund sales (in red) increased substantially during the crisis, from roughly 30% to 50% of all sales, before falling back gradually through 2009. Retail investors were apparently the “weak hands” — as might be expected.
Cordially, Todd

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by celia » Fri Aug 04, 2017 1:43 am

Simplegift wrote:Using Internal Revenue Service data on taxable accounts for 2008 and 2009, the researchers matched assets sales reported for capital gains taxation (anonymized) with various demographic information on each taxpayer.
I didn't read the report, but why did they only look at taxable accounts?
1) The strong selling reaction of older investors is explained by life-cycle portfolio models, as retirees have fixed consumption commitments and little human capital left to help pay for them — and thus a reduced capacity to bear stock market risk after steep market declines
Why not say that retirees found it advantageous to do Roth conversions when there was a "sale" going on? They could have sold in taxable accounts in order to pay the taxes, even when they might have gone up to a higher tax bracket. That's what we did when we saw the [likely] once-in-lifetime opportunity!
2) The positive relationship between high income and increased selling is more puzzling. Consumption commitments should be less relevant to high income individuals. Some explanations offered are that high-income investors perhaps have overconfidence in their market timing abilities and they also pay greater attention to their portfolios.
Why not instead claim that high net worth investors were partly tax loss harvesting (to cancel out capital gains in future year) and partly using the proceeds to purchase other equities that looked more advantageous for future growth?


I don't know why they even did such a study when the conclusions just seem to be conjecture.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by smectym » Fri Aug 04, 2017 1:52 am

That's right. I am managing the money, and on behalf of other stakeholders than myself. During the crisis, I wasn't about to serenely preach a boglehead lecture to my wife and kids. They would have expected me to pursue a capital preservation strategy during that extraordinary period, and so I did. Nor do I regret it. Selling on the way down during Armageddon is always the better part of valor. Then when the new day dawns, buy on the way back up: I did that too.

Those who look to you as the guardian of their financial future aren't troubled by signs of loss aversion in your investment approach. Zen-like serenity and "stay-the-course" mantras in the face of 50% losses, based on something you read on a blog, might well trigger concern on the part of those who must bear the brunt.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by smectym » Fri Aug 04, 2017 2:51 am

The point is, nothing about "boglehead" or any other investment approach gets you, as the investor responsible for results for your loved ones, off the hook for serious and irreversible bad consequences. The buck stops with you: not with "they said buy and hold and stay the course," "they said just invest in low-cost index funds," "they said 60-40," factor investing, technical analysis, fundamental indexing...no. YOU are responsible. The fact is, if you remain inert during a 70% drawdown, and then try to justify the ensuing disaster, citing finger-wagging cliches against market-timing etc., to those who were dependent upon you and counting on you: expect a distressed and distressing reception from those you love.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by best2u » Fri Aug 04, 2017 3:32 am

I moved 90% of our money into the market in November of 2008 when I saw Warren Buffet on tv saying it was time to buy. The problem was we were 80% exposed before the crash. So in the end it did not move the needle much.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by MathWizard » Fri Aug 04, 2017 3:41 am

Somebody had to be selling, since I was buying.

Retirees were probably forced to sell some to satisfy RMDs, unless they
were pulling RMDs solely out of their bond allocation.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by best2u » Fri Aug 04, 2017 3:44 am

Smectym your chart looked to me like it advised selling in Oct of 2008 then buying sometime in 2010. That would not have protected your wealth.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by asif408 » Fri Aug 04, 2017 4:29 am

Simplegift wrote:The positive relationship between high income and increased selling is more puzzling. Consumption commitments should be less relevant to high income individuals. Some explanations offered are that high-income investors perhaps have overconfidence in their market timing abilities and they also pay greater attention to their portfolios.[/list]
Your thoughts?
Part of that might have been that those high income individuals were afraid of losing their high income jobs as well. I remember my employer's business went way down during that time, and many people were let go in 2009 and 2010 following the chaos. At times like that, I imagine the fight or flight response kicks in, and people think about protecting what they do have.

As far as portfolios, I definitely think people with more money in their portfolios pay more attention. I speak from personal experience when I say that during the crisis I was in my 20s and had a small amount of money in a 401K at that time. But I did not look closely at a statement anytime between 2007-2011, just kept doing my normal contributions. Only in the last few years, when I started to gain an interest in investing, did I look back at those statements and see how much the money I had in there went up and down at that time. I did the right thing by ignoring it, but in all honesty, at that time I had many other things going on in my life that I considered much more important, and investing was near the bottom of the list. I knew it was something I needed to do, but not something I found particularly interesting at the time.

And I have to admit that part of the reason I become interested in investing in because of the increasing amount of money in retirement accounts. So I now pay a lot more attention than I used to.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by oldcomputerguy » Fri Aug 04, 2017 5:27 am

I guess I'm the strange one... not only did I not sell during the crash, I wasn't even aware of the crash, and was 100% equities during the crash. I can't take credit for either of these facts, at the time I was completely ignorant of investing, had been contributing to my 401k for many years, and blindly took the advice of "someone" as to what to invest in. So I didn't have any trouble sleeping at night, and although I was aware of some financial difficulties from newspaper headlines, I didn't connect it to myself personally.

Now, DW and I taken together are right at 60/40 stocks/bonds, I pay much more attention to national and world events, and worry (just a bit) about the next downturn now that I am in retirement.

I wonder sometimes whether the old saying "ignorance is bliss" might not have a grain of truth to it.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Iliketoridemybike » Fri Aug 04, 2017 6:44 am

My take is some is tax loss harvesting and in my case, I moved brokerages from a manger to self managed. Both would count as selling, though my total dollars in the market never changed. I continued to invest all the way though it.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Dandy » Fri Aug 04, 2017 7:02 am

I sold out my substantial 401k in my previous employer and put it in VG Admiral Money Market IRA. The amount that I couldn't transfer to the IRA went into a 4% 1 year CD. I was 60, forced to retire and had a nice pension, health insurance and Stable Value investment with large insurance company (former employer). Harry Reid said a large insurance company in my region is thinking of filing for bankruptcy. I couldn't take a chance that it was mine. So that prompted the asset preservation move.

Several months later when I knew the VG funds I was interested in I automated a DCA into those funds and doubled up when the market dropped. Didn't sell any taxable funds. Funded the wait to collect full second pension and the wait to collect SS at age 70 (next year). My current assets have never been higher -- but could have been if I had moved the 401k directly to equities instead of a money market. But, when in an asset preservation mode the value of keeping assets often outweighs the benefit of future higher assets. I never sold during other market plunges because I was in the accumulation stage.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by Grt2bOutdoors » Fri Aug 04, 2017 7:04 am

Tax loss harvesting, i bought and sold during that time period.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by rkhusky » Fri Aug 04, 2017 7:10 am

I bought on the way down and sold on the way up via rebalancing. However, I was far from financially independent and not thinking about retiring. The market bounced back rather quickly and so all of us who stayed the course can pat ourselves on the back. However, next time the market might not bounce back as quickly. Suppose the market still wasn't back to even 10 years later? Would we still be congratulating ourselves for staying the course? Those that retired during the last 10 years might not think so.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by White Coat Investor » Fri Aug 04, 2017 7:29 am

I also bought and sold to TLH, but I doubt that's the cause of the effects seen in the study.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by B. Wellington » Fri Aug 04, 2017 7:34 am

KlangFool wrote:
Simplegift wrote:
2) The positive relationship between high income and increased selling is more puzzling. Consumption commitments should be less relevant to high income individuals. Some explanations offered are that high-income investors perhaps have overconfidence in their market timing abilities and they also pay greater attention to their portfolios.[/list]
Your thoughts?
Simplegift,

I will give you one possible explanation. High Income is not equal to high net worth. Many of my peers are "House Poor". When one or both spouses are unemployed for a while, they have to sell their investment in order to keep their houses.

KlangFool
KlangFool makes a good point here. I have written in the past that my DB and BIL cashed out of their 401(k). My brother later LOST his house. (Both were in their early 50's.)

Many bought houses at the top of the market which many could not afford. A layoff or cut in hours/pay added to the stress, as well as expensive cars and lifestyle. Retired neighbor sold EVERYTHING out of fear. (Early 70's and expensive lifestyle.)

We continued to buy slowly and cautiously. But I admit it was not easy. (Age, mid 40's at the time.)

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by birdy » Fri Aug 04, 2017 7:37 am

Did nothing but wait it out.....was scary but I didn't panic.

birdy

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by sschullo » Fri Aug 04, 2017 7:48 am

birdy wrote:Did nothing but wait it out.....was scary but I didn't panic.

birdy
I learned my lesson from the tech bubble crash when I was 100% technology sector. I stayed with my horrible allocation and waited until 2004 after the market recovered, my late spouse and I constructed a balanced portfolio that was completed just before 2008. Had a 30/70 allocation, and stuck with it. Did not sell anything, and I still have a 30/70 allocation. I am ready for the next crash.

Regarding this study, Celia asked good questions.
I heard from one of Paul Merriman's podcasts that Vanguard investors stayed put during 2008, more so than investors in other mutual fund companies. I cannot find that study, however.
My hunch about older workers selling out is that it might have been from high net worth investors who have a broker and Mr. or Ms. broker might have sold their client's assets because of 2:00 am phone calls (of course, pure speculation). It's too bad that we don't know the number of phone calls made to brokers during that terrible and scary time, and what the broker did.
Last edited by sschullo on Fri Aug 04, 2017 9:34 am, edited 1 time in total.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by jbolden1517 » Fri Aug 04, 2017 8:00 am

Simplegift wrote: What they found was, though the selling volume of all taxpayer groups increased during the crash, the effect was most strongly concentrated among, a) investors at the very top of the income distribution (the top 1%), and b) those older investors who were close to or beyond the retirement age (chart below).

2) The positive relationship between high income and increased selling is more puzzling. Consumption commitments should be less relevant to high income individuals. Some explanations offered are that high-income investors perhaps have overconfidence in their market timing abilities and they also pay greater attention to their portfolios.[/list]
Your thoughts?
Well first off I'd disagree with the comment that retail investors were the "weak hands". The core of the selling was institutional investors who were making semi-forced sales. The bond market and the short term credit market had locked up and given the choice between selling into a depressed market and going into default they choose to sell stock below fair value. Individuals directly or indirectly (mutual funds especially) were responding to the bear, they played little role in causing it.

As for the high income I don't find it puzzling. For middle class investors often they have fairly large inflows into their investment accounts (401Ks, saving)... They are employing a DCA strategy for risk protection. High volatility is extremely beneficial to DCA investors. As they near retirement they often chose fairly conservative allocations (way too conservative to be safe if you look at the data on holdings). The net result is retail investors had much more limited exposure to stock volatility and those that did were on average likely to be benefited from it more than harmed. It is also worth noting that middle class investors have base asset allocations are are on average somewhat more conservative than the wealthy and much more conservative than many institutional investors.

Conversely the wealthy are disproportionately using a wealth preservation strategy. The money has already been made. They don't have high inflows relative to their portfolio to allow them to DCA. If they take a 30% hit, they invest with 30% less from that point on (think how long it takes stock mutual funds to recover, rather than whole portfolios). They have less conservative base allocations then middle class investors. So they tend to use a lot more tactical and global asset allocation which sells into declining markets. They can afford to give up the rapid upward surges that follow bear markets in exchange for getting less of the downside. Maximizing total return is less of a goal than reducing volatility.

Now I think most Bogleheads would argue if one can afford to give up a percent or two of total return, then the solution for wealthy investors shouldn't be tactical/global asset allocation and market timing but rather just holding more low volatility assets (like bonds) and wider diversification. And... I tend to think the Bogleheads are mostly right on this one. On the other side, the TAA/GAA strategies seem to allow for very high draw rates perpetually with some portfolio growth which CRAAL portfolios don't tend to hold up as well against.

But regardless of whether they are right or wrong the reality is wealthy investor do often use these strategy as their core while they are much less common among middle class investors. I think they were more common a few decades ago for middle class investors when mutual funds saw themselves as as core exclusive holdings for middle class investors and were less interested in comparisons to benchmark indexes. Mostly the world before Fidelity, Vanguard... introduced the mainstream to no load open ended mutual funds.

As an aside for Bogleheads / CRAAL investors. I personally have a GAA fund as a satellite not the core. If you think of GAA as an asset and not a strategy 20% of it does a lot to reduce portfolio volatility, and either leaves unchanged or only slightly reduces return.
Last edited by jbolden1517 on Fri Aug 04, 2017 8:05 am, edited 1 time in total.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by jbolden1517 » Fri Aug 04, 2017 8:03 am

sschullo wrote: I heard from one of Paul Merriman's podcasts that Vanguard investors stayed put during 2008, more so than investors in other mutual fund companies. I cannot find that study, however.
I don't find that surprising at all. Vanguard has done a wonderful job preparing their clients for bear markets and volatility. They have been and continue to be extremely responsible in that regard. It wouldn't shock me if Vanguard saw net inflows.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by livesoft » Fri Aug 04, 2017 8:07 am

This paper is a work in progress. What I got from reading it is that the folks who were net sellers of individual stocks during 2008-2009 were the folks most likely to own individual stocks in the first place. Those same people were also so wealthy that reducing stock exposure would not change much in their financial lives.

The authors are careful to present the flaws in their study and made no really strong conclusions. I will guess that they will continue to edit the paper as they receive comments.
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by david99 » Fri Aug 04, 2017 8:27 am

I sold and bought due to TLH. I also bought some stocks to re-balance.

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marti038
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by marti038 » Fri Aug 04, 2017 8:47 am

I can't defend this as a reasonable strategy, but my wife and I moved everything to cash in September of 2008 when the Dow was around 11,000.

At the time things were trending down and there was absolutely zero optimism. It seemed clear to me that things were not going to improve any time soon. So, we stepped out for a while.

When the Dow dropped below 7000 in March, we jumped back in. Our portfolio increased about 60% in 2009, but we only had about $45,000 in our accounts at that time so the payoff wasn't as huge as you might think. I was 27 then.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by lostdog » Fri Aug 04, 2017 8:53 am

From what I remember I was just starting out. In 2007 when the Dow was at 13000 I opened a Roth IRA and bought the fidelity freedom target retirement fund(not the index). During the crash I watched the value of the fund get cut in half. I didn't touch it and paid more attention to working. I think my 401k contributions were at 10 or 15 percent. I didn't touch the 401k and continued the contributions during the recession. This was all before I was a boglehead. I can say I didn't panic sell but at the time I was not well educated as I am now. Maybe ignorance helped me not panic sell?

It was a long journey of learning for me with stock picking in my taxable at fidelity. I finally found bogleheads and it was another long journey for which I ended up with simplicity. Vanguard Total World Index.
100% Vanguard Total World Equity Index. Simplicity 100%.

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William4u
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by William4u » Fri Aug 04, 2017 9:20 am

I was in Vanguard Retirement funds during the crash (plus a few random DRIPS), and was too busy to bother with my investments then. I left it alone until 2011, when I went 100% stocks (all index funds). So far so good.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by SimpleGift » Fri Aug 04, 2017 9:32 am

If there’s one lesson to be learned from the OP study, it seems to be that older investors nearing or in retirement need to be especially sure that their portfolio allocations match their risk tolerances — that they are prepared for and can financially survive a 50% drop in the stock market at any time.

Certainly investors of any age can misjudge their risk tolerance and be subject to panic selling. But due to their diminished human capital, older investors may not realize just how much their capacity to bear market risk will be affected after a steep selloff. Personally, just nearing retirement in 2008, I was surprised by the degree of my emotional distress — though I ended up holding on and riding it out. Forewarned is forearmed!
Cordially, Todd

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by sschullo » Fri Aug 04, 2017 9:32 am

duplicate
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by pshonore » Fri Aug 04, 2017 10:25 am

The vast majority of these studies are suspect because they don't have purchase data, only sales. What you did with the cash is much more important? Did you leave it in cash, invest in another fund, TLH, etc?

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celia
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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by celia » Fri Aug 04, 2017 12:50 pm

pshonore wrote:The vast majority of these studies are suspect because they don't have purchase data, only sales. What you did with the cash is much more important? Did you leave it in cash, invest in another fund, TLH, etc?
Agreed. I would have loved to see the original 3-D chart not just for sales, but also purchases.

In regards to the high net worth investors, how were they determined? Just from tax bracket on tax returns? Or were tax-deferred and Roth balances and real estate sales/income and second houses and charitable donations (QCDs) and self-employed business equity and estate tax returns considered (and lots of other things too)? By definition, some taxpayer has the highest income, but that does not mean she is a high net worth individual.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by SimpleGift » Fri Aug 04, 2017 1:41 pm

pshonore wrote:The vast majority of these studies are suspect because they don't have purchase data, only sales. What you did with the cash is much more important? Did you leave it in cash, invest in another fund, TLH, etc?
Not defending the study design, but the researchers did find a strong relationship between gross stock sales (visible in the 1099-B data) and net stock sales (derived from other brokerage and dividend data):
Hoopes, et. al. wrote:The data set is not perfect, though. The data set covers only reported taxable sales, but not purchases of stocks and mutual funds. Additional analyses show, however, that there is a strong relationship between gross selling, which we observe, and net selling (i.e., sales minus purchases), which we do not observe. First, we examine data from a discount brokerage that reports both gross and net sales (Barber and Odean 2000). We find a very strong positive relationship between gross and net sales. Furthermore, net sales of brokerage customers rise with changes in the VIX in similar ways as the gross sales of taxpayers in our data.

Second, in the IRS data, we examine changes in dividend income reported on individual tax returns. Here we find a strong negative relationship between gross sales in a given year (e.g. 2008) and the change in dividend income from the previous year (2007) to the subsequent year (2009). Despite coming from different sources and time periods, the quantitative results from discount brokerage data and from changes in dividend income on tax returns are highly consistent with one another, suggesting that $1 of gross sales corresponds to about $0.33 in net sales.
celia wrote:In regards to the high net worth investors, how were they determined? Just from tax bracket on tax returns?
Net worth was not a part of this analysis, just adjusted gross income averaged over the 2000-2007 period, taken from the anonymized IRS data. Most of your other questions can be answered by a quick review of the paper itself. :wink:
Last edited by SimpleGift on Fri Aug 04, 2017 3:33 pm, edited 1 time in total.
Cordially, Todd

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by jdb » Fri Aug 04, 2017 3:21 pm

It was at the same time I discovered this site (then called Diehards) and Vanguard Index funds and portfolio allocation and diversification. I was 100 percent individual stocks, full service broker. Suspect I helped send his kids to private school. Did not know what TLH was, but sold all individual stocks and invested proceeds in Vanguard index equity funds and muni bond funds. Took 6 years to burn off the carryforward capital losses. But happpy that made the switch to index funds.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by G12 » Fri Aug 04, 2017 4:24 pm

I sold my entire allocation in PCRIX in June, 2008 for multiple reasons and realized a significant gain, it was over 8% of my portfolio, and had sold all my REITs and had gotten down to 48% equity and yet the pain over the next 8 months was real. Bought individual TIPS for the first time in November 2008 as they were being hammered and had started buying into some equities from that point through May 2009. Some was way too early, some was better timed, dabbled in some one off stocks but primarily when in at 4 different levels. I do recall buying VSS the second week it became available in April 2009. In the aftermath the tax losses were nice to have, made financial planning much easier from a tax perspective. I recall the "Plan B" thread and feeling for people who were really having a tough go, things were all over the place on here for quite awhile, nothing like "Yo, can I buy this house and get 5 roommates to pay for it?" threads. Maybe that is a sign of an imminent SHTF scenario, maybe not. The real estate/mortgage bubble was easy to identify back then, especially if you lived in an area with ongoing multi-year mega McMansion buildout. I recall reading a 10Q and investor presentation from Wachovia in early 2008 that just made me shake my head in disgust yet the expected magnitude of negative impact on financial markets, long term job losses, etc not so easy to foretell.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by dodecahedron » Fri Aug 04, 2017 4:36 pm

celia wrote:
pshonore wrote:The vast majority of these studies are suspect because they don't have purchase data, only sales. What you did with the cash is much more important? Did you leave it in cash, invest in another fund, TLH, etc?
Agreed. I would have loved to see the original 3-D chart not just for sales, but also purchases.
Strongly agree that we can't conclude very much from this type of study. The only data the IRS has available to share with researchers are sales data and the cost basis of the securities sold in taxable accounts.

The IRS has NO data whatsoever about anyone who sold stock held in 401k's or IRAs because custodians are not required to report those sales. And even in taxable accounts, the IRS has no data whatsoever about whether sales of equity funds were followed by purchases of other equity funds by those who were simply TLHing without planning to change their asset allocation.

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Re: Study: Who Sold Stock During the 2008-9 Crash?

Post by jimgour » Fri Aug 04, 2017 7:26 pm

We are in the category of people who didn't sell anything, in any downturn, ever, but I did rebalance (without changing my asset allocation). But some "background" information might be of use here.

My wife and I were always good "savers", but like many here, we were not good "investors" in the early days. Like many back then we were chasing the hottest mutual funds. We had twenty to thirty small mutual funds like Mutual Beacon, SafeCo, Brandywine, Janus, Berger, Oakmark, etc. Then, in the 1990s I became a Boglehead. I discovered "The Diehards" while reading Money Magazine while trying to discover the next hot fund. I kept reading articles about low cost index investing, on the Morningstar Diehards site, and elsewhere, and it made very good sense to me. I decided to move all our investments to Vanguard. It took a few years.

We had hurdles to overcome in moving our investmens. In the late 1990s I was having trouble selling the funds we owned because they were doing so well. Luckily we didn't have a whole lot in mutual funds at that time (we just had a lot of mutual funds). As an example, one fund I struggled to sell was Janus Mercury. It was a very hot tech fund and it was doing unbelievably well. How do you sell a great fund when it is doing so well? We had over $12,000 in that fund, and I decided divide the total by 12 and sell that much every month over the next year and move the money to Vanguard index funds. I followed through on my plan. I sold that amount every month and moved it to Vanguard. By the end of that one year period, I had moved the entire original amount out of Janus Mercury and into Vanguard. The trouble was, the balance in the Janus Mercury fund at the end of that year was then still over $10,000! I finally bit the bullet and sold it all, just before the tech bubble burst. Skill? Great market timing? No way. Just dumb luck, which came from reading all the stuff the Diehard's had to say. We also got out of Legg Mason Value Trust and almost all of our other funds before the market imploded. Of course the index funds went down too, but not nearly as much as the funds I had been in. Again, luck, and reading the Diehards posts. So, when the 2008/2009 crash occurred, we just held pat and within a year or two the market bounced back and we were amazed at how well we did. It was a simple strategy, but as the saying goes, "it was simple, but it wasn't easy".

If we had pulled out of the market on any downturns, we wouldn't be where we are today.

I retired in October of 2001, right in the middle of the tech bubble implosion, with a pension that met some, but not all, of our immediate needs. Not a good time to retire, market-wise, but we were almost fully indexed by then and we just did it. All has worked out well. We have never sold during market downturns. The only actions we took were to rebalance. We have now been retired for sixteen plus years and at this time I don't see any need to change our tactics.

As a side note, I was never a high earner and never made it to the $100,000 per year in salary (wife made maybe 25% of what I made). However, we did achieve Flagship status a few years after we retired, again thanks to Boglehead philosophy. During our working years I maintained an asset allocation of 80/20, but after we retired I throttled it way back to 75/25, and we are still at 75/25. I'm getting conservative in my old age.

I write all this to thank not only the Bogleheads, but also the Diehards. Ya'll deserve the credit! Stay the course.

Jim

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