What's your one big takeaway from the Crash of 2008?

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Gekko
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What's your one big takeaway from the Crash of 2008?

Post by Gekko » Fri Nov 21, 2008 10:21 pm

my lesson learned and promise to myself is this -

“I will never be caught again with my pants down." (in the market or elsewhere)

PatrickS
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Post by PatrickS » Fri Nov 21, 2008 10:29 pm

Buy & hold works, but might require a long lifespan to accomplish.

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cflannagan
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Post by cflannagan » Fri Nov 21, 2008 10:29 pm

For me, I learned my risk tolerance (somewhat).

My AA plan calls for 80/20, and it's currently 70/30. Will rebalance back to 80/20 with new money first thing in 2009 (Roth IRA contribution). Even with about 50% losses.. I think I'm okay with 80/20 (surprising to myself).

I said "somewhat" because my AA port is in its first year, so I probably wouldn't feel as violated as owners of other much older AA portfolio do. Maybe the next bear market after this one, I'll be better able to evaluate my risk tolerance again when my AA portfolio is much bigger (hopefully!)

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Sheepdog
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Keep cash for a down period

Post by Sheepdog » Fri Nov 21, 2008 11:04 pm

If you are retired and are selling investments for expenses, have at least three years of your normal distribution needs in cash accounts so that you don't have to sell when the markets, both stock and bonds, are low. If you don't have that cushion, you will have no choice but to sell. You can't even count on short term bond funds to be safe. When the valuations are down, take your needs from your cash accounts and hope that the market recovers before your cushion is gone.
Jim
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

lazyday
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Post by lazyday » Fri Nov 21, 2008 11:06 pm

Don't keep doubling down on a stock as it falls.

You can argue if it's "OK" or not to hold .5% or 1% of your portfolio in an individual stock, and if you hold many, you should have industry diversification.

But if you keep adding more as WaMu falls, it really hurts when it goes to 0.

Today I did buy a little more BAC (Bank of America.) But only a tiny little bit. I learned that lesson.

Some of you are now saying that I will learn another lesson... maybe! ;)

retiredjg
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Re: Keep cash for a down period

Post by retiredjg » Fri Nov 21, 2008 11:13 pm

Sheepdog wrote:If you are retired and are selling investments for expenses, have at least three years of your normal distribution needs in cash accounts so that you don't have to sell when the markets, both stock and bonds, are low.
Me too.

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gatorman
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Post by gatorman » Fri Nov 21, 2008 11:23 pm

Buy and hold doesn't work.
gatorman

Hemispheres
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Post by Hemispheres » Fri Nov 21, 2008 11:30 pm

Are you sure that using the past tense is valid right now? With GM and Citi on the edge this weekend we may have more lessons about risk tolerance to learn next week. Things are as ugly right now as they were in September. VFSTX was down 0.08 today. That's not a good sign.

September
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Post by September » Fri Nov 21, 2008 11:32 pm

gatorman wrote:Buy and hold doesn't work.
gatorman
Agreed.

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ken250
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Post by ken250 » Fri Nov 21, 2008 11:43 pm

B&H is working fine for me, I keep building up my share base in dividend paying funds at ever increasing rates.

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dmcmahon
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Post by dmcmahon » Fri Nov 21, 2008 11:45 pm

The trend is your friend.

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market timer
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Post by market timer » Fri Nov 21, 2008 11:50 pm

What, there is no restart button?

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baw703916
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Re: What's your one big takeaway from the Crash of 2008?

Post by baw703916 » Fri Nov 21, 2008 11:51 pm

Gekko wrote:my lesson learned and promise to myself is this -

“I will never be caught again with my pants down." (in the market or elsewhere)
Uh, so you got caught with your pants down somewhere besides the stock market this past year? :shock: Do tell!

My lesson can be expressed mathamatically: as prices go to zero, correlations go to one.

Best wishes,
Brad
Most of my posts assume no behavioral errors.

DP
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Post by DP » Fri Nov 21, 2008 11:52 pm

Hi,
Good question.

Diversification did not provide the level of protection I was expecting. There is a reason for the saying the only thing that goes up in a bear market is correlation.

More attention should be paid to market timing. Using a simple long term moving average isn't complicated and it generally reduces risk significantly with no reduction in returns, except in a strong bull market when returns are generally only slightly less.

Don

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DiscoBunny1979
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Post by DiscoBunny1979 » Sat Nov 22, 2008 12:01 am

Don't fall in love with a stock and don't keep it just for 'sentimental' reasons (i.e. a former employer you enjoyed working for or because you inherited it from some relative)

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Henry Sadovsky
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Stay the course!

Post by Henry Sadovsky » Sat Nov 22, 2008 12:14 am

.
gatorman wrote:Buy and hold doesn't work.
Hi gatorman.

What you are really saying is, "When I established my buy and hold plan, I didn't plan on encountering a severe bear market." Now why would you have gone and done a thing like that? :cry:

I started out the year at 45% equities (as per my AA). I have been aggressively rebalancing during this time of extreme volatility within very tight bands. I have been lucky to bank some profits from doing so (see
http://www.bogleheads.org/forum/viewtop ... highlight= if interested in some details). As desired, I have slowly built up my equity allocation (now at 53%). Wed and Thursday of this week were quite painful, and I don't think I need/can go any higher on percent equities. I will thus now continue to rebalance with alacrity to 53% global equities.

Without a plan that one can stick to, one is completely at sea. If one bails, when do you they get back in? If they jump back in when things are looking up and then they turn nasty, they are prone to bail again. Bailers have thus set themselves onto the buy-high/sell-low/buy-higher/sell-lower cycle of fear, capitulation, and loss.

To answer the OP: what I have learned (so far) is how very difficult it is to stick to an investment plan when things are looking truly dismal. It can feel very lonely, and scary.

Anyway... I don't know what the market will do, but I do know what I will do- stay the course! (Thank you Mr. Bogle.)

H.
"What we can't say we can't say, and we can't whistle it either." | Frank P. Ramsey" | | (f.k.a. Zalzel)

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docneil88
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Re: One big takeaway from the Crash of 2008?

Post by docneil88 » Sat Nov 22, 2008 12:17 am

100% or more in equities, no matter how diversified, is a dumb idea for the vast majority of people, especially for those beyond their 20's. It certainly was a profoundly dumb idea for me.

And I like Brad's takeaway:
My lesson can be expressed mathamatically: as prices go to zero, correlations go to one.

bearcub
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Post by bearcub » Sat Nov 22, 2008 12:24 am

I learned not to ever watch CNBC ever again. Nauseating.

Paladin

Re: Keep cash for a down period

Post by Paladin » Sat Nov 22, 2008 12:24 am

Sheepdog wrote:If you are retired and are selling investments for expenses, have at least three years of your normal distribution needs in cash accounts so that you don't have to sell when the markets, both stock and bonds, are low. If you don't have that cushion, you will have no choice but to sell. You can't even count on short term bond funds to be safe. When the valuations are down, take your needs from your cash accounts and hope that the market recovers before your cushion is gone.
Jim
I think ST TE would be safe. It has been during this episode.

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grayfox
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Valuations Matter

Post by grayfox » Sat Nov 22, 2008 12:30 am

There are so many lessons to learn from this economic crisis and this bear market. Even restricting it to only the stock market or S&P 500, there are still many many lessons.

So I will just choose one big one. There have about a billions words of debate about whether valuations matter or not. Well now the matter has been has been settled once and for all by the market. Valuations Matter.

When valuations are very high, reduce your stock allocation. When we are setting new all time highs on the index, reduce your stock allocation. When we are in a bubble, reduce your stock allocation. When Bogel says be cautious, reduce your stock allocation.
Last edited by grayfox on Sat Nov 22, 2008 12:31 am, edited 1 time in total.

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bolivia
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Post by bolivia » Sat Nov 22, 2008 12:31 am

never trust large financial institutions and the policies that govern them.

dgrdfd
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Post by dgrdfd » Sat Nov 22, 2008 12:38 am

I learned that my appropriate AA really is 90%+ stocks right now. I really don't feel that bad that I lost the money. In a masochistic way I kind of enjoy seeing it do down. As I am only 24 this is a good thing for me.

I learned that as I accumulate more money, I would have a very difficult time seeing a 20%+ drop. So I certainly won't be 80 or 90% stocks up until my 60s and beyond like I once thought.

Oh, and I learned that most people are stupid (re: the sky is falling, bail out now, I saw this coming, etc)

detifoss
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Post by detifoss » Sat Nov 22, 2008 1:28 am

1.) credit risk is real - I was in Treasuries and TIPS because it was said to be safer, but never in my wildest dreams did I think that credit risk could be this severe - I will never forget this lesson and am glad I learned it by watching, and not by getting mauled by it (like my father did :cry: )

2.) As an early acummulator, up is down, and down is up - this crash hurt, but it is better that it happened now than when I was on the verge of retirement
thus my risk tolerance has not changed at all, but I certainly won't be anywhere near 80/20 when I near retirement

3.) REITs are incredibly volatile, and since they are leveraged asset class, perhaps I really didn't understand their massive downside risk. I am continuing to rebalance into my 12% REIT allocation, but it has been the only part of this mess that has been difficult. Sometimes I think REITs may have been a mistake, but it was part of my original plan, and I can't wrap my head around changing that plan now.

4.) Any thoughts I ever had of getting back into the individual stock picking game are gone forever. Individual stocks can and have gone to zero. Indexes don't.

5.) Credit ratings for bonds not explicitly backed by the US government are meaningless. The ratings are just like throwing darts at individual stocks.

6.) We just had our lost decade, and I had a great time. 22-33 years old during that time. Wouldn't give up those memories for 1000% returns on my portfolio. Money turns out to be a tiny part of life.

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Post by SkepticalGuy » Sat Nov 22, 2008 1:33 am

I used to visit guys on the Street to talk with them about IT stuff--how they value MBS, how they calculate VaR, how counterparty risk is assessed, etc.

I had a hard time believing that a lot of the stuff I saw was reliable or even made sense, but I figured they must know more than I did. I also figured that, in any case, it was mostly their money on the line and not mine.

This crisis has taught me that I was so, so utterly wrong on both counts. Whatever they knew, it wasn't enough. And it was my money on the line after all.

MBS pricing was crap, VaR was grotesquely misleading, and counterparty risk wasn't tracked worth a damn where it really mattered. I guess I'm wiser now but I'd sure rather live in my previous state of bemused uncertainty.

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cflannagan
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Post by cflannagan » Sat Nov 22, 2008 1:35 am

gatorman wrote:Buy and hold doesn't work.
gatorman
Pray tell, what works then in the current markets?

Nothing. B&H will be rewarded.

gchan
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Post by gchan » Sat Nov 22, 2008 2:27 am

you should have industry diversification.
Hmm, I took away something else. Diversification did NOT work when we would have liked it to work.
Domestic equities, foreign equities, REITs... all moving together. Large cap, small cap, both moving together.

Plot VTI, VWO, and VNQ for example (go to Google finance). It looks like random walk, and then suddenly they start mirroring each other very closely.

2- Just a guess: Individual investors have a tendency for buying high and selling low. Many people are thinking about lowering the stock allocations... this is (effectively) selling low.

3- Commodities were not negatively correlated. There wasn't really a flight to gold. Many other commodities are down.

retired at 48
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takeaway from 08 crash

Post by retired at 48 » Sat Nov 22, 2008 2:28 am

First, I second the endorsement of grayfox regarding "Valuations Matter."

However, number one for me, though, is the neverending usefulness of the 200 day moving average in mitigating risk.

This is the one thing in my investing lifetime, if I could have a do-over, is to pay even more attention to the 200 day moving average for my mutual funds. This year, it helped a lot, but I was like a deer in the headlights when it came to the downturn for international stock funds.

Here is a chart of VEIEX (EMerg Mkt) showing 200 day MA in action. Simplistically, be overexposed to stocks when NAV is trending above 200 day MA; underexposed when trending below 200 day MA. (Like all of 2008):

http://finance.yahoo.com/q/ta?s=VEIEX&t ... m200&a=&c=

There is a teriffic ongoing thread of this forum titled "200 day moving average market timing, by JW Nearly Retired.

In the thread, bogleheads JW, DP, Speedie, kb0fhp and gummy ran additional back testing, using various time frames, moving averages and buy/sell triggers. The work results were surprising to many, showing indeed that both performance and standard deviation improved with the use of moving averages. Furthermore the results were robust around various parametric changes. Gummy summed it up best with words like: Fascinating, huh; and The Plot Thickens...Mamma Mia!

In summary, for all periods, using the 200 day MA increased performance while also reducing volatility, standard deviation and risk. Any Boglehead using it this year has saved a lot of money. Here is the thread:

http://www.bogleheads.org/forum/viewtop ... sc&start=0

retired at 48
Last edited by retired at 48 on Sat Nov 22, 2008 11:16 am, edited 1 time in total.

Dreef1999
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Post by Dreef1999 » Sat Nov 22, 2008 2:29 am

cflannagan wrote:
gatorman wrote:Buy and hold doesn't work.
gatorman
Pray tell, what works then in the current markets?

Nothing. B&H will be rewarded.
The B&H fortress will be burned to the ground before salvation.

Is there such a thing as a trading bubble? The only way to make money in this market is to trade on volatility and capture the immediate profit. B&H will always be waiting for you once you have turned a few profitable trades.

Lessons learned?
Most people should be invested in treasuries or CDs.
My risk tolerance is through the roof.
This is likely the greatest investing opportunity of my life.

Eureka
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Post by Eureka » Sat Nov 22, 2008 2:38 am

1) Bob Brinker's Marketimer doesn't. I could have lived for a year on the cat food I could have bought with the $1,850 I sent him over the past 10 years.

2) Bob Brinker was right about retiring with a balanced portfolio.

3) Bob Brinker was right about the Vanguard GNMA Fund being a great core fixed-income holding. It is the shining star of my portfolio.

4) The people who run the government and financial markets are not any smarter than the rest of us. They just have the money and power to do more harm.

Pincher Martin
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Post by Pincher Martin » Sat Nov 22, 2008 2:54 am

The most important lesson I've learned is that I can stick through a major bear market with an asset allocation heavily weighted towards stocks. I wasn't in the market eight years ago, so this was the first opportunity I've had to be sure.

Bigfoothunter
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Post by Bigfoothunter » Sat Nov 22, 2008 7:04 am

Money is not something to put your faith in. It is here today and gone tomorrow. Use it as an enabler and only an enabler for what you wish to achieve and invest diversified manner to allow this objective. Bigfoot.

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gatorman
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Re: Stay the course!

Post by gatorman » Sat Nov 22, 2008 7:29 am

Henry Sadovsky wrote:.
gatorman wrote:Buy and hold doesn't work.
Hi gatorman.

What you are really saying is, "When I established my buy and hold plan, I didn't plan on encountering a severe bear market." Now why would you have gone and done a thing like that? :cry:

I started out the year at 45% equities (as per my AA). I have been aggressively rebalancing during this time of extreme volatility within very tight bands. I have been lucky to bank some profits from doing so (see
http://www.bogleheads.org/forum/viewtop ... highlight= if interested in some details). As desired, I have slowly built up my equity allocation (now at 53%). Wed and Thursday of this week were quite painful, and I don't think I need/can go any higher on percent equities. I will thus now continue to rebalance with alacrity to 53% global equities.

Without a plan that one can stick to, one is completely at sea. If one bails, when do you they get back in? If they jump back in when things are looking up and then they turn nasty, they are prone to bail again. Bailers have thus set themselves onto the buy-high/sell-low/buy-higher/sell-lower cycle of fear, capitulation, and loss.

To answer the OP: what I have learned (so far) is how very difficult it is to stick to an investment plan when things are looking truly dismal. It can feel very lonely, and scary.

Anyway... I don't know what the market will do, but I do know what I will do- stay the course! (Thank you Mr. Bogle.)

H.
Henry- What I am really saying is: Buy and hold doesn't work. Please don't attribute anything to me I did not state or offer opinions as to what I must have meant. You are a very smart guy, but you are not a mindreader. I meant what I said. BTW, I did not have a "buy and hold plan."
gatorman

guest42
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Post by guest42 » Sat Nov 22, 2008 7:55 am

Pincher Martin wrote:The most important lesson I've learned is that I can stick through a major bear market with an asset allocation heavily weighted towards stocks. I wasn't in the market eight years ago, so this was the first opportunity I've had to be sure.
I learned this lesson, from the 2000-2002 Bear, but I wasn't quite as cheery about it, as this poster, until I had risen up again in value. But as it turns out, that while I did it in 2000-2002 - what I learned was never again. I am down in this market, but not down as far as I was in 2002 - I am not back to 1997 value (as I was in 2002), I am back to 1999 value - and I hope this will make all the difference; down 50% needs 100% return to come back, down 25% needs 30% to come back. Oh, and I am utterly relieved, I rescued my parents inheritence from this market, before the market ate it - they would have been appalled, having never invested in equities their entire life - their money is safely back in CD's from which it came (back in 2002).

DblDoc
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Post by DblDoc » Sat Nov 22, 2008 7:58 am

#1 what the risk of losing 50% really means :shock:

#2 investing in the Boglehead way is all about discipline.

#3 I'll get back to you about the "Death of buy and hold" in about 20 years.

DD

Ron
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Re: Keep cash for a down period

Post by Ron » Sat Nov 22, 2008 8:25 am

retiredjg wrote:
Sheepdog wrote:If you are retired and are selling investments for expenses, have at least three years of your normal distribution needs in cash accounts so that you don't have to sell when the markets, both stock and bonds, are low.
Me too.
Me, Me, Too, Too :lol: ....

Hey, what ever happened to the threads on "saving too much :roll: ?"

- Ron

George-J
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Post by George-J » Sat Nov 22, 2008 8:32 am

What did I learn?
That once again Warren Buffett was correct - when some time ago he advised: "Don't invest in equities if from time to time you are not prepared to see the market value drop by 50%" - or words to that effect.

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Rager1
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Post by Rager1 » Sat Nov 22, 2008 8:42 am

The importance of having an asset allocation plan and having the stomach to stay with it.

Ed

finster869
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Post by finster869 » Sat Nov 22, 2008 8:44 am

cflannagan wrote:
gatorman wrote:Buy and hold doesn't work.
gatorman
Pray tell, what works then in the current markets?

Nothing. B&H will be rewarded.
Look at Japan (Nikkei 250 down 78% from 1989 to present).

Image



Did buy and hold work there?
Last edited by finster869 on Sat Nov 22, 2008 11:42 am, edited 1 time in total.

Gregory
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Post by Gregory » Sat Nov 22, 2008 8:58 am

finster869 wrote:
cflannagan wrote:
gatorman wrote:Buy and hold doesn't work.
gatorman
Pray tell, what works then in the current markets?

Nothing. B&H will be rewarded.
Look at Japan (Nikkei 250 down 78% from 1989 to present).

Did buy and hold work there?
Buy and Hold works if you've got a lifespan approaching Methuselah.
Pecuniae imperare oportet, non servire. | Fortuna vitrea est; tum cum splendit frangitur. -Syrus

dumbmoney
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Post by dumbmoney » Sat Nov 22, 2008 9:06 am

I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

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jeffyscott
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Post by jeffyscott » Sat Nov 22, 2008 9:16 am

I'm hoping it won't be that a post titled: What's your one big takeaway from the Crash of 2008?, ensures that this is not over yet.
press on, regardless - John C. Bogle

George-J
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Post by George-J » Sat Nov 22, 2008 9:20 am

finster869 wrote: Look at Japan (Nikkei 250 down 78% from 1989 to present).

Did buy and hold work there?
My view is that nothing is 100% certain or guaranteed to work at all time and in all time periods.
But like the often quoted phrase that - "while democracy is not perfect it is better than any other alternative" - I would argue that buy and hold is better than any other known alternative at producing real gains over any time period. [Mainly because it reduces costs - the one variable you have some control over. Unless of course you believe we all are Warren Buffetts or can see into the future a la market timing. :wink: ]

fundtalk
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Post by fundtalk » Sat Nov 22, 2008 9:29 am

Fixed income/safe money needs to be in money markets, treasuries, CD's or short term muni's.
Last edited by fundtalk on Sat Apr 19, 2014 9:44 am, edited 1 time in total.

brainstem
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Post by brainstem » Sat Nov 22, 2008 9:33 am

the truth of this really good quote:

Rudi Dornbusch: In Financial markets things always take longer to happen than you would expect, but once they happen, events unfold faster than you expect

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VictoriaF
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Losing 50% in equities

Post by VictoriaF » Sat Nov 22, 2008 9:36 am

George-J wrote:What did I learn?
That once again Warren Buffett was correct - when some time ago he advised: "Don't invest in equities if from time to time you are not prepared to see the market value drop by 50%" - or words to that effect.
The problem is that 50% is iterative. A year ago, my equity allocation was X dollars. I lost a half of it, and now I have 0.5X.

From this point on I am running a risk of losing 50% of this, i.e., getting equities down to 0.25X. At that point the "Buffet risk" will be to go down to 0.125X. And so on.

And so essentially Buffet's advice is to be prepared for the market value to drop by 100%.

This is a corollary of Brad's (baw703916) statement "My lesson can be expressed mathematically: as prices go to zero, correlations go to one."

Victoria

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Greenewashed
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Post by Greenewashed » Sat Nov 22, 2008 9:42 am

I learned that the people advising paying off debt before investing may be on to something. With the world panicking around me, I would feel a lot better if my home were paid for.

james22
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Re: Valuations Matter

Post by james22 » Sat Nov 22, 2008 9:43 am

grayfox wrote:When valuations are very high, reduce your stock allocation.
+eleventy-billion.

Hemispheres
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Post by Hemispheres » Sat Nov 22, 2008 9:46 am

So far, considering this ain't over yet, what I've learned is:

1) When an investment doesn't behave the way you expect it to, bail out. I've learned this twice in the past year. First with STADX starting to tank in late 2007. I bailed out early on it. Unfortunately, I moved that money to the "safer, higher quality" VFSTX. I did not bail out of VFSTX soon enough and got hurt. Still, I avoided the majority of the VFSTX plunge.

2) Normal "rules" don't work in abnormal times. A normal bear would wipe out 50% of the previous bull run. That meant the SP500 bottom in a normal bear should have been around 1200 ( (1600+800)/2 ). I bought in at this level a couple of times before the real bear started growling.

3) There's nothing wrong with taking baby steps when getting into the market. I've done this and it is helping reduce the pain of this continued bear.

4) Look for divergences in behavior to determine when "this time is different". The huge divergence in behavior of VFSTX and VFISX in September should have been a clue to me that this crisis was unlike all the others. A warning to not buy stocks when they appeared to "bottom" yet again. Note that this divergence continues today. What is that telling us?

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Post by mithrandir » Sat Nov 22, 2008 9:47 am

Why are people calling for the death of buy and hold?

We are about 1 year into this market "crash". I cannot withdraw from my tax-advantaged accounts without paying a penalty for another 25 years so what's happening now in the markets is less important than what happens in the market over the next 25 years.

With equity prices at current levels you can certainly argue that the future price growth potential is much greater than a year ago. Also, I am continuing to purchase shares regularly so I am accumulating shares much faster than before; they are cheaper.

Talk to me in 10 years. My current account balances are very frustrating for sure but I keep telling myself, "but you are still buying and now you're getting more for your money".

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Location: Southeast Texas Boonies

Post by ziggy29 » Sat Nov 22, 2008 10:03 am

1) My risk tolerance isn't *quite* as high as I thought, and after a recovery I think my AA will move closer to 60/40 than 70/30 or 75/25.

2) It's a reminder that as I get to within about five years of retirement, I need to make sure I have at least ten years of income in "safer" stuff so a craptastic market like this one won't derail my retirement plans.

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