Stock Market Didn't Get Tested You Did - WSJ Zweig

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EvelynTroy
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Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by EvelynTroy » Wed Feb 07, 2018 8:56 am

Occasionally an article that is a keeper that I will read and reread over time - for the timeless educational value - a treasured investing reference. Another example would be the sticky, "A Time To Evaluate Your Jitters"
Subscription required - I can direct you to a copy - pm me.

From Jason Zweig - https://blogs.wsj.com/moneybeat/2018/0 ... d-you-did/

Takeaways:
- Stop trying to make sense of the stock market - impossible. Just as no one knows, to this day, why the stock market crashed in September 1929 or October 1987, searches for a rational explanation of Monday’s madness are futile.

-Monday’s madness is a reminder that investing in stocks doesn’t automatically make people rich. Twice in the past 20 years—between 2000 and 2002, and again between 2007 and 2009—the stock market has cut investors’ wealth roughly in half.

-No one can say when that will happen again, but everyone should know that it can—and very well might. If a 6% daily drop makes you squirm, then you probably have too much invested in stocks for your own psychological good.​​​​​​​


Evelyn

RRAAYY3
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by RRAAYY3 » Wed Feb 07, 2018 9:30 am

All I did was buy more. Guess I was right about my risk tolerance

I don’t really view equities as risky (overtime). Very volatile in the short term - but not necessarily “risky”

It helps having 20 years to ride out obviously

EvelynTroy
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by EvelynTroy » Wed Feb 07, 2018 9:42 am

RRAAYY3 wrote:
Wed Feb 07, 2018 9:30 am
All I did was buy more. Guess I was right about my risk tolerance

I don’t really view equities as risky (overtime). Very volatile in the short term - but not necessarily “risky”
This article explains equities and risk over time - Meir Statman is highly respected investing educator:

https://www.marketwatch.com/story/stock ... 2017-06-20

Evelyn

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by azanon » Wed Feb 07, 2018 10:13 am

I can't read the article because I'm not a WSJ subscriber, but given the past tense title, I find it interesting that Zweig thinks it's over. Forced to guess, I'd say investors haven't seen anything yet.

RRAAYY3
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by RRAAYY3 » Wed Feb 07, 2018 10:34 am

EvelynTroy wrote:
Wed Feb 07, 2018 9:42 am
RRAAYY3 wrote:
Wed Feb 07, 2018 9:30 am
All I did was buy more. Guess I was right about my risk tolerance

I don’t really view equities as risky (overtime). Very volatile in the short term - but not necessarily “risky”
This article explains equities and risk over time - Meir Statman is highly respected investing educator:

https://www.marketwatch.com/story/stock ... 2017-06-20

Evelyn
Small probability with extreme examples that actually turned out well if you didn’t panic / sell during a crash. Nice reminder of why I will be nowhere near 100/0 as I near retirement though ... but for the next decade I’ll just keep feeding the beast. It’ll go up - or we likely have bigger issues than asset allocation.

I only worry about what I can control - fees, savings rate, etc. good read though, thanks for sharing.

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AtlasShrugged?
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by AtlasShrugged? » Wed Feb 07, 2018 12:17 pm

Occasionally an article that is a keeper that I will read and reread over time - for the timeless educational value - a treasured investing reference. Another example would be the sticky, "A Time To Evaluate Your Jitters"
Evelyn...Thank you. I did manage to get behind the paywall. It was a great article. I liked the point where Zweig talks about people getting acclimated to a 'new normal' [of low volatility] for a time, and then WHAMMO! A 5% decline. OUCH! Speaking for myself, I just keep buying. I have human labor capital. I basically 'lost' a month of wages 'on paper'. My reaction: No big deal. But if I were a retiree, I might feel differently. Very differently. I talked to my Dad (age 82) just to see if he was 'spooked'. Nope. If anything, he was annoyed with Tim Cook. Sort of like, "Yo Tim....less talk and more action. Sell those damned IPhones, will ya?! And do more for your country!" I had to laugh, listening to him. He was unfazed. You should be too.

Wake-up calls like this are helpful, IMO. They break through your consciousness, and make you address any inertia. I know I cracked open my ISP earlier this week, and took a look. It was oddly comforting. It was like my security blanket. Right there, in big bold font: Stay the course! And so I have.
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by rkhusky » Wed Feb 07, 2018 12:32 pm

RRAAYY3 wrote:
Wed Feb 07, 2018 9:30 am
All I did was buy more. Guess I was right about my risk tolerance

I don’t really view equities as risky (overtime). Very volatile in the short term - but not necessarily “risky”

It helps having 20 years to ride out obviously
It all depends on how you define risk. Dispersion of stock returns increases as a function of time.

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by rudeboy » Wed Feb 07, 2018 12:38 pm

RRAAYY3 wrote:
Wed Feb 07, 2018 9:30 am
All I did was buy more. Guess I was right about my risk tolerance

I don’t really view equities as risky (overtime). Very volatile in the short term - but not necessarily “risky”

It helps having 20 years to ride out obviously
Equities are risky not because they can drop but because they can drop right when you need them, which has nothing to do with the risk tolerance your are describing because you didn't need your stocks on Monday.

RRAAYY3
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by RRAAYY3 » Wed Feb 07, 2018 1:15 pm

rudeboy wrote:
Wed Feb 07, 2018 12:38 pm
RRAAYY3 wrote:
Wed Feb 07, 2018 9:30 am
All I did was buy more. Guess I was right about my risk tolerance

I don’t really view equities as risky (overtime). Very volatile in the short term - but not necessarily “risky”

It helps having 20 years to ride out obviously
Equities are risky not because they can drop but because they can drop right when you need them, which has nothing to do with the risk tolerance your are describing because you didn't need your stocks on Monday.
this is also why I fully acknowledge my risk tolerance will be significantly different as i near retirement [ i have no idea how people remain 100/0 in retirement, I know I couldn't] . Every dollar I currently invest is not being touched for 20+ years. Barring another "meltdown" anytime soon, I'm on autopilot with 1/3 of my net going to investing, another 1/3 going to savings, and 1/3 going to bills/good times [another drop and I will put more towards investing rather than savings]. As retirement approaches - those monthly / annual contributions will most likely be in bonds/high yield savings/CD ladders - with the money I invested now likely growing significantly. if it hasn't, oh well the world has likely come to an end as we know it.

with a 20 year outlook, volatility and it's perceived risk are irrelevant to me - other than providing me with the option to buy even more for cheaper share price. my risk tolerance was somewhat put to the test over this past week [its kinda scary when market swings start involving commas, i admit] - but all I did was invest another 10K into the market and thank the robots for the discount.

it should work out well for me long term. if it doesn't, I'm gonna go ahead and assume this world has bigger problems than my asset allocation. I will reassess my risk tolerance @ 40 and adjust accordingly. my plan is to essentially "downshift" my equity/FI ratio every 5-10 years. 100/0, 80/20, 70/30, 60/40. Stay tuned.

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by Wakefield1 » Wed Feb 07, 2018 2:04 pm

rudeboy wrote:
Wed Feb 07, 2018 12:38 pm
RRAAYY3 wrote:
Wed Feb 07, 2018 9:30 am
All I did was buy more. Guess I was right about my risk tolerance

I don’t really view equities as risky (overtime). Very volatile in the short term - but not necessarily “risky”

It helps having 20 years to ride out obviously
Equities are risky not because they can drop but because they can drop right when you need them, which has nothing to do with the risk tolerance your are describing because you didn't need your stocks on Monday.
The market can break down,offer you much less than your investments should be worth because of lemmings trying to market time unsuccessfully with computer trading trying to get through the door all at the same time-
-or perhaps speculators are trying to use the stock market as another type of Bitcoin -
reason to keep enough in the Credit Union to pay for a new house?

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by siamond » Wed Feb 07, 2018 2:35 pm

EvelynTroy wrote:
Wed Feb 07, 2018 8:56 am
-No one can say when that will happen again, but everyone should know that it can—and very well might. If a 6% daily drop makes you squirm, then you probably have too much invested in stocks for your own psychological good.
I totally respect Jason Zweig, he wrote amazing books and is always the voice of reason in the midst of 'financial porn' (including from the WSJ). This recent article was indeed very good, but I have to strongly disagree with this specific point.

I used the recent drop as an opportunity to discuss with my elder children (in their mid-20s, each of them with a small Roth-IRA I helped them to start). One of them was squirming a bit. THAT WAS GOOD. He has to live through such experience to get used to it, and be better prepared for more meaningful crises. Discussing his feelings, fears, and putting a 6% drop in historical context was a great opportunity to learn. As he ended up saying 'I have to desensitize myself'. Exactly right. One's psychology and behavior is NOT a constant. Hiding one's head in the sand (e.g. overloading on bonds at the first hiccup making you nervous) is no way to learn to improve. Going through such experiences with your eyes wide open, and learn to think with your head and not your gut, is a much better approach.

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by CULater » Wed Feb 07, 2018 3:41 pm

Anyone who thinks this little 2-day drop was any kind of "test" of their risk tolerance is just plain deluded. I'd guess that most of the bozos running around out there didn't even notice it until it was over. Think about a grinding 50%+ loss in your equity portfolio that doesn't end for months or years if you want to play the "risk tolerance" game. No heroes were made during this one.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by itstoomuch » Wed Feb 07, 2018 3:55 pm

i was on Amtrak on Monday.
Log in was slow into TDA in the last hour of regular trading :x
Data downloads was very slow and undependable quotes. I don't think if I had placed stock buys, they would be executed. I saw some good opportunities and I am high cash balance :twisted: .
I did make some buys early Tuesday. :moneybag
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by siamond » Wed Feb 07, 2018 4:05 pm

CULater wrote:
Wed Feb 07, 2018 3:41 pm
Anyone who thinks this little 2-day drop was any kind of "test" of their risk tolerance is just plain deluded. I'd guess that most of the bozos running around out there didn't even notice it until it was over. Think about a grinding 50%+ loss in your equity portfolio that doesn't end for months or years if you want to play the "risk tolerance" game. No heroes were made during this one.
For sure. But any kind of pain tolerance is better built step by step. Little pain first, then bigger pain, etc. Moving from zero learning to maximum pain in one go is what truly triggers the behavioral issues.

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by indexfundfan » Wed Feb 07, 2018 4:10 pm

Monday was hardly a test. Do that 10 days in a row and then we will see.
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by Fallible » Wed Feb 07, 2018 4:53 pm

Thanks for the article. Zweig is among top financial authors I turn to when the market goes mad if only to be reassured and reminded of what I already know - think long term, stay the course. I sought the same reassurance in the '90s and early '00s with Jonathan Clements when he was a WSJ columnist.

FWIW, I got interested in Zweig's recounting of an episode in Conrad's book, "A Personal Record," in which peasants looking for money destroyed the house of his wealthy grand-uncle. Most of the peasants were leaving the house when some accidentally discovered gold coins there and the rampage began. Zweig compares the peasant behavior to investors acting irrationally to new information about the stock market. Both cases are about irrational behavior, but I couldn't quite make that comparison so found the book online, read the chapter and discovered that generally Zweig has it right, but that there was more to it, in particular events leading to the total destruction, and the fact that most of the peasants were leaving the house when a few remaining inside accidentally found the coins, a rarity then in Russia, and called out to them to come back in and search for more. Anyway, after reading it, I still can't quite make the comparison between the Russian peasants and investors who, as Zweig says, "don't always act rationally in response to new information." Like I say, "FWIW."

In case anybody else might be interested in the chapter III: http://www.gutenberg.org/files/687/687-h/687-h.htm
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by CULater » Wed Feb 07, 2018 5:41 pm

siamond wrote:
Wed Feb 07, 2018 4:05 pm
CULater wrote:
Wed Feb 07, 2018 3:41 pm
Anyone who thinks this little 2-day drop was any kind of "test" of their risk tolerance is just plain deluded. I'd guess that most of the bozos running around out there didn't even notice it until it was over. Think about a grinding 50%+ loss in your equity portfolio that doesn't end for months or years if you want to play the "risk tolerance" game. No heroes were made during this one.
For sure. But any kind of pain tolerance is better built step by step. Little pain first, then bigger pain, etc. Moving from zero learning to maximum pain in one go is what truly triggers the behavioral issues.
That's also how to boil a live frog. Maybe some behavioral issues aren't necessarily a bad thing, compared to being boiled alive. :D
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by Fallible » Wed Feb 07, 2018 6:03 pm

CULater wrote:
Wed Feb 07, 2018 3:41 pm
Anyone who thinks this little 2-day drop was any kind of "test" of their risk tolerance is just plain deluded. I'd guess that most of the bozos running around out there didn't even notice it until it was over. Think about a grinding 50%+ loss in your equity portfolio that doesn't end for months or years if you want to play the "risk tolerance" game. No heroes were made during this one.
Risk tolerance is deeply personal and individual. What is a minor event or non-event to one person may be a major one to another. What's important is that investors learn to understsnd their unique tolerances from market volatility.
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by SeeMoe » Wed Feb 07, 2018 11:41 pm

We have been investing now over 34 years, and I kept track of our reactions every time there was a fast, deep downturn on the DOW. We did some strange things like holding tight in 1987, then (I) had a premonition 3 months later of Bad coming, and sold out! In 2001 we had just received a Vanguard analysis weeks before 9-11 which gave us the courage to hold tight, and buy on the sharp, fast V as the DOW dropped and rose again fast. Really made out then big. In 2008-09 we held tight, but stopped the AIP for 2 years! A mistake! Live and learn...
SeeMoe.. :annoyed
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by Call_Me_Op » Thu Feb 08, 2018 8:25 am

My brother called me in a panic to ask me what was going on. I told him I really had no idea and didn't care. He was upset that I didn't give him a better explanation and that I wasn't concerned.

I really think the key is having a written plan. As part of writing the plan, you think a lot about what allocation you should have to stocks and why. Part of the "why" is the behavioral aspect. Having a carefully-considered plan should allow you to yawn through market turbulence.
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Re: Stock Market Didn't Get Tested You Did - WSJ Zweig

Post by ZumZabo » Thu Feb 08, 2018 8:56 am

Call_Me_Op wrote:
Thu Feb 08, 2018 8:25 am
My brother called me in a panic to ask me what was going on. I told him I really had no idea and didn't care. He was upset that I didn't give him a better explanation and that I wasn't concerned.

I really think the key is having a written plan. As part of writing the plan, you think a lot about what allocation you should have to stocks and why. Part of the "why" is the behavioral aspect. Having a carefully-considered plan should allow you to yawn through market turbulence.
Similar experience here. I have actually had people question me because I didn’t get worried about a sharp drop or called it minor in the big picture.
What made me think I could start clean slated? The hardest to learn was the least complicated: Emily Saliers / And if I claim to be a wise man, it surely means that I don't know: Kerry Livgren

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