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

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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cflannagan
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Post by cflannagan » Sat Nov 22, 2008 2:59 pm

gchan wrote:
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.
Diversification does not guarantee your assets will move up all the times. You knew that from the beginning, right?

Diversification is supposed to put you in multple asset classes, and at any given time, yes, it is possible for all asset classes to move up ro down at the same time.

cmarino
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Post by cmarino » Sat Nov 22, 2008 3:00 pm

I learned that the most you can lose is everything.

cheapskate
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Post by cheapskate » Sat Nov 22, 2008 3:27 pm

What I learned is when a lot of folks on this forum are saying 100% equity allocation is good, be at 50% :). When everyone is saying 100% equity allocation is bad, be at 100% equities. :D

lazyday
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Post by lazyday » Sat Nov 22, 2008 3:29 pm

wab wrote:But everybody saw the housing bubble.
Why didn't we at least see that irresponsible banks would get killed?

Many saw the dotcom crash coming, or at least knew better than to invest in them. I avoided the bubble sectors. As did many others.

This time, I saw the housing bubble, and avoided real estate, including REITS. But wasn't smart enough to extend that to banks, and exclude them from my portfolio. Not sure many people did.

Then after the crisis began, I started buying banks much too early (about a year ago) because I thought they already had fallen too much! Guess I'm the first mouse this time. :) (Someone else posted recently The early bird gets the worm but the second mouse gets the cheese.)

I suppose the problem there is that even financial analysts can't tell what some of these banks are really worth. But I'm hoping that the better banks were unfairly taken down far too much. And the junk banks too. :)

SilentThunder
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Post by SilentThunder » Sat Nov 22, 2008 3:54 pm

retired at 48 wrote:
SilentThunder wrote:
4) I learned that if I save more and invest in TIPS held to maturity that I stand the best chance of achieving a known, safe retirement.
Hi.

I have a few yellow caution flags for you to ponder.

First, Vanguard's TIPs fund, VIPSX, has fallen about 15% from recent peak. Hmmmm.

Second, can you be sure the government controlled inflation measurement indicator will really reflect true inflation costs? Several were complaining it wasn't the last few years. Bond guru Bill Gross of PIMCO has this concern.

Can you be sure that interest rates on competing bonds will not someday be very, very high, as the final adjustment to the credit crisis easy money bailout? During the 1970's, yields on Treasuries got to around 15%, well above actual inflation. What impact would this have on TIPs?

Just thinking out loud.

R48
Hi R48,

All good points.

1) I'm invested in individual TIPS as opposed to a TIPS mutual fund. I plan to hold the TIPS to maturity, 16 more years, so I'm trying to ignore daily price swings. Doesn't mean my TIPS haven't lost over 5% market value in just the last 2 days. They have! :shock: Ignoring price swings I believe I assumed a few risks. The US government defaults on its debt or there is net deflation over the next 16 years being the worst.

2) I agree that the CPI numbers may not reflect actual inflation. They could be poor reflections and/or cooked. Either is possible. I still decided that was the best I was going to do because I have less faith in stocks or even gold being pure inflation hedges.

I did some calculations today because people keep bringing up what will happen to TIPS in a taxable account if there is high inflation. That they will lose real purchasing power. Correct but stocks and bonds historically did poorly in the last high inflation period as well. If that's the alternative investment choices then I'll take my chances.

The S&P 500 index plus dividends returned 6.86% annual over the last high inflation period. The 10 years from 1973 to 1982 when inflation was at least 5.75% each year. A 10 year bond purchased January 1973 returned 6.46% annual during that time. Government reported inflation averaged 8.75% over that same 10 years. If 3.0% real yield TIPS existed in that time period and were held in a taxable account and taxed at the current 35% tax rate maximum of today they still would have hedged against inflation better than the S&P 500. They would have returned 7.46% annual after taxes (35% taxation rate) while the S&P 500 would have returned 5.84% (even at today's 15% capital gains/dividends rate).

3) I can't be sure what will happen to future interest rates. I can only invest in the present. If future nominal interest rates increase due to us baking in inflation today with our current monetary policy then each time I have a chance to invest in the future I will consider all my options again. At the moment I decided to take a 3.3% real YTM (adjusted by reinvestment risk) for the next 16 years. If high inflation comes nominal bonds may be a better future purchase but they certainly are not a good purchase today before that possible high inflation event.

So I know there are downsides to what I've decided. TIPS aren't a panacea but two years ago I agreed with Nicholas Taleb that I didn't understand the risk I was taking in the equities markets and most other people didn't either. This year I decided that an asset allocation of 90% as risk averse as possible with 10% highly risky made the most sense for me. I can double my savings. That is something I have control over. What I can't do is recoup a major haircut to a portfolio (which I fortunately avoided) if the equities market decides it's going to do something else than rise in the future.
Last edited by SilentThunder on Sat Nov 22, 2008 4:10 pm, edited 1 time in total.

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Rick Ferri
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Post by Rick Ferri » Sat Nov 22, 2008 4:10 pm

.
I learned again that many people say they are long-term investors but do not behave that way in a bear market.

Stop saying you are a long-term investor, PROVE IT!

Rick Ferri

SVariance
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Post by SVariance » Sat Nov 22, 2008 4:55 pm

My key take away is that executive compensation is far too great and should be regulated by the US government. Its is absurd that execs can be paid millions to lose billions. Plenty of people from various professions get paid far less than corp executives. Why should an executive get paid more than the President of the United States, whose job is far more important? Why should an executive be paid more than a hard working medical doctor.

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VictoriaF
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Post by VictoriaF » Sat Nov 22, 2008 5:05 pm

SVariance wrote:My key take away is that executive compensation is far too great and should be regulated by the US government. Its is absurd that execs can be paid millions to lose billions. Plenty of people from various professions get paid far less than corp executives. Why should an executive get paid more than the President of the United States, whose job is far more important? Why should an executive be paid more than a hard working medical doctor.
I share the sentiment.

I don't think it is possible to directly regulate executive pay. However, there probably should be more oversight over the membership in the Boards of Directors that make decisions about the CEO package.

Victoria

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wab
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Post by wab » Sat Nov 22, 2008 5:07 pm

lazyday wrote:I suppose the problem there is that even financial analysts can't tell what some of these banks are really worth. But I'm hoping that the better banks were unfairly taken down far too much. And the junk banks too. :)
Yeah, that's why there's so much volatility today. We *still* don't know the magnitude of the impact on banks and the economy, at least partly because we don't know how much further house prices will fall.

Who knows what anything is worth right now? We should be able to value companies based on their discounted future cash flows, right? With housing in motion, commodities in motion, the dollar in motion, the US economy in motion, and the global economy in motion, can anybody tell me what future corporate cash flows will be and what an appropriate discount rate might be?

peter71
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Post by peter71 » Sat Nov 22, 2008 5:28 pm

grayfox wrote:
dumbmoney wrote:
grayfox wrote: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.
The Vanguard Asset Allocation fund has been 100% stock through the bear market.

Apparently market timing is easy, except for highly paid professionals using thoroughly researched formulas.
Maybe they forget to switch their model on? :lol:

Hasn't everyone figured out yet that all the MBAs, PhD's, Nobel laureates, math geniuses, particle physicists turned quants, and highly paid professionals with computer models don't know their *** from a hole in the ground?

All they know how to do is blow up in the most spectacular way possible, and sometimes take the rest of the world with them. Seriously, those guys shouldn't be allowed to play with real money.
Hi Grayfox,

FWIW the most pro-timing academic paper I've seen is about "don't fight the Fed" timing rather than valuations-based timing, so perhaps that's what the asset allocation fund was up to . . .

http://www.google.com/search?q=market+t ... tartPage=1

Also, as I've posted before, I'm someone that listened to Shiller in 1996 and while that's looking like a good decision now I suspect it'd only take a few more days like Friday to make it look like a bad decision (at least in non-risk adjusted terms).

All best,
Pete

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Post by retired at 48 » Sat Nov 22, 2008 5:44 pm

Hi SilentThunder...we agree. I see you are fully aware of risks/rewards of TIPs. I, too, recently bought some.

Good luck...R48

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tfb
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Post by tfb » Sat Nov 22, 2008 5:57 pm

My biggest lesson from 2008 is "be patient."
Harry Sit, taking a break from the forums.

likegarden
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Post by likegarden » Sat Nov 22, 2008 6:20 pm

I learned to simplify my portfolio and have now less active mutual funds in my portfolio. I found it much interesting that the idea of diversifying to International to have less correlation to US did not work. And then to see all these firms and experts in Wall Street really fail miserably! That strengthened my resolve to do it DIY following Mr. Bogle and the Bogleheads.

Buy and Hold seems to be the way to go to avoid the crass failures of market timing, with the difference of adding some flexibility to AA. During high valuations the equity part of the AA should be reduced by 5-10%, and close to an expected bottom of a downturn the equity part of the AA increased by 5-10%.

The present economic situation made one forecast to become true. About 2 years ago Morningstar predicted that a few years from then the oil price would be below $50/ barrel again, and it is presently :).

I read often about retirees losing so much of their savings. But I realize that those are only paper losses, as long as we do not need the equities for several years, and as long as the US always recovers from a bear into a follow-up bull market!

Think positively!
Bernd

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jeffyscott
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Post by jeffyscott » Sat Nov 22, 2008 6:26 pm

peter71 wrote:Also, as I've posted before, I'm someone that listened to Shiller in 1996 and while that's looking like a good decision now I suspect it'd only take a few more days like Friday to make it look like a bad decision (at least in non-risk adjusted terms).
If you listentened to Shiller then, why would you not now be investing in stocks, since his P/E10 statistic would say that valuations are now below their historical average level?
press on, regardless - John C. Bogle

braceofbeagles
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What I learned....

Post by braceofbeagles » Sat Nov 22, 2008 6:49 pm

In February of 2007 I sold Fannie Mae because of all the rumors of mortgage problems. What I did not know was how Fannie could bring the US financial markets down. Now I'm asking myself, "Why did I stop there?"

I always thought the sleep factor was 40/60, but I think 20/80 is more realistic. And since I'm at 20/80, (without even rebalancing) the crash took care of that, I'll stay at 20/80. We are 4 years from retirement.

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Post by peter71 » Sat Nov 22, 2008 7:10 pm

jeffyscott wrote:
peter71 wrote:Also, as I've posted before, I'm someone that listened to Shiller in 1996 and while that's looking like a good decision now I suspect it'd only take a few more days like Friday to make it look like a bad decision (at least in non-risk adjusted terms).
If you listentened to Shiller then, why would you not now be investing in stocks, since his P/E10 statistic would say that valuations are now below their historical average level?
Hi Jeff,

I've certainly been thinking about it but have limited good options in my 401k and no other money to really put in at the moment . . . probably as soon as I do have some for an IRA I will though.

Of course Shiller's just one of many valuations bears out there, but I thought he was waiting for a P/E 10 of 12 . . . I just say "listened to Shiller" as a figure of speech . . . I listened to the wide variety of valuations bears and "greater fool theory" people on public radio during the mid 90's.

Speaking of which, I actually don't much like P/E 10 as a metric and I wonder if Shiller created it in the 90's becuase it would be bearish in the 90's but whether it's now going to look inappropriately bullish given potentially lower future earnings (an issue I've posted about before) but all of that's not to say I'm not still thinking of buying . . .

All best,
Pete
Last edited by peter71 on Sat Nov 22, 2008 7:13 pm, edited 1 time in total.

jh
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Post by jh » Sat Nov 22, 2008 7:12 pm

...
Last edited by jh on Thu Dec 11, 2008 5:37 pm, edited 1 time in total.

lazyday
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Post by lazyday » Sat Nov 22, 2008 7:21 pm

wab wrote:We *still* don't know the magnitude of the impact on banks and the economy, at least partly because we don't know how much further house prices will fall.
Heard an economist on NPR suggest big tax incentives (tax credit?) for buying a home, to slow the housing price fall, and more directly address the root of the problem.

braceofbeagles wrote:In February of 2007 I sold Fannie Mae because of all the rumors of mortgage problems. What I did not know was how Fannie could bring the US financial markets down. Now I'm asking myself, "Why did I stop there?"
At least you did that much, far better than most.
And since I'm at 20/80, (without even rebalancing) the crash took care of that, I'll stay at 20/80. We are 4 years from retirement.
With stock prices what they are, I have a little bit of a hard time hearing things like this.

I hope you, and others, at least could generally avoid selling equites.

But I'm not an adviser. I don't know enough about how people (1) behave or (2) feel in bear markets, and if I for example, tried to talk you into rebalancing back to what your plan was (40%?) maybe I'd be asking you, as you were saying, to lose sleep, and in the end, would you be able to stick to it if the bear market lasted another five years? (Rhetorical question.)

Anyway, I will just mention: you may have read the suggestion that one have a minimum of 25% in equities. Having a little in equities can actually reduce risk compared to no equities, in some kinds of portfolios, but I think 20% is already more than needed for that, depending on what kinds of risk, and what kinds of bonds you have, etc. But 25% compared to 20% historically I think has offered good return vs risk.

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VictoriaF
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Increase equity allocation?

Post by VictoriaF » Sat Nov 22, 2008 7:44 pm

Bernd wrote:Buy and Hold seems to be the way to go to avoid the crass failures of market timing, with the difference of adding some flexibility to AA. During high valuations the equity part of the AA should be reduced by 5-10%, and close to an expected bottom of a downturn the equity part of the AA increased by 5-10%.
Bernd,

This may be the hardest thing of all to do now. If one's "normal" asset allocation is, e.g., 70/30, and the current downturn has changed it to 55/45 - your rule would require to move enough fixed income (about 50% of the current fixed income holdings) into equities to get to 77.5/22.5.

This is incredibly difficult to do in the current decline, which seems bottomless. I am curious if that is what you are doing.

Thanks,
Victoria

hamishdad
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Post by hamishdad » Sat Nov 22, 2008 8:05 pm

Here are a few things that I have learned:

"Rule #1 Don’t lose money. Rule #2: Don’t forget Rule #1." Warren Buffet

Bear markets follow bull markets. Don't ignore signs of trouble. “Red sky in morning, sailor’s warning.”

When people tell you that the bad news has already been priced into the market, don't believe it.

Cash is king during a bear market.

Hopefully, the market will regain what it has lost before the next bear market occurs. :roll:
Last edited by hamishdad on Sun Nov 23, 2008 4:32 pm, edited 4 times in total.

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Post by woof755 » Sat Nov 22, 2008 8:29 pm

I've learned that the worst my portfolio had ever done since 1932 (as depicted on the VG site for portfolios of differing equity percentages) is not simply a stat at which to cringe, while hoping it never happens again.

This year, it's real.

I'm glad of two things:

I learned just how awful it can be early in my life, so I am absolutely determined to be truly conservative when nearing retirement (after all, it's savings that will make my retirement comfortable, not just portfolio returns).

I found this place early enough that I have never panicked. Haven't sold a penny.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Henry Sadovsky
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Re: Stay the course!

Post by Henry Sadovsky » Sat Nov 22, 2008 8:53 pm

.
Hi gatorman.
gatorman wrote:
Henry Sadovsky wrote:.
gatorman wrote:Buy and hold doesn't work.
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:
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.
Fair enough. I assumed you were saying "Buy and hold doesn't work for me." I can't otherwise imagine how anyone might say that buy and hold doesn't work. It clearly has for those who have implemented it properly. I can conceive of someone saying: "While properly implemented buy and hold has been the demonstrably best ex-ante investing strategy for the vast majority of individuals who have not wished to devote a significant part of their lives researching investment opportunities, it will, in my opinion, no longer hold that position from this point forward."

Is that what you are saying? In which case, my response would be: "That's interesting. Would you care to say a bit more about what you think has replaced buy and hold as the winning long-term strategy for the average Joe?" If you are willing, I think that would be an excellent topic for a new thread.

Later gator!

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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Robert T
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Post by Robert T » Sat Nov 22, 2008 9:31 pm

.
What's your one big takeaway from the Crash of 2008?
Nothing has beaten the diversifying power of longer term US nominal treasuries (at least so far).

Code: Select all

Returns (%) to November 20, 2008 

                                 YTD     12 months 
MARKET 
...Russell 3000                -48.66      -47.45     
...MSCI EAFE                   -51.93      -51.81      
...MSCI EM                     -61.87      -61.31      

VALUE 
...Russell MidCap Value        -52.39      -51.53 
...MSCI EAFE Value             -52.92      -53.11
...MSCI EM Value               -59.55      -59.03 

SMALL 
...Russell 2000                -49.07      -47.82                
...MSCI EAFE Small             -53.59      -54.53 
...MSCI EM Small               -65.86      -65.66 

DEFAULT/CREDIT 
...LB 1-3yr Credit              -0.94       -1.13 
...LB US Intermediate Credit    -6.42       -6.56 
...LB US Long Credit                ?           ?
...iBoxx $ Liquid High Yld     -29.56      -30.86  

-------------------------------------------------
TERM 
...LB 1-3yr Treasury            +5.98       +6.48 
...LB 3-7yr Treasury           +10.68      +11.61 
...LB 7-10yr Treasury          +10.93      +11.77 
...LB 10-20yr Treasury         +10.02      +10.54 
...LB 20+yr Treasury           +14.54      +15.27 
-------------------------------------------------

Source: MSCI, Lehman Brothers website, ishares website 
PS: At least in this downturn so far, performance seems consistent with Swensen's 2005 Unconventional Success book: "No other asset type comes close to matching the diversifying power created by long-term, noncallable, default-free, full-faith-and-credit obligation of the US government."
.

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Sonoran
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Post by Sonoran » Sat Nov 22, 2008 9:43 pm

My one big takeaway?

The importance living below my means and avoiding unnecessary debt.
Beware of little expenses. A small leak will sink a great ship - Benjamin Franklin

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Post by Pincher Martin » Sat Nov 22, 2008 9:55 pm

cflannagan wrote:
Pincher Martin wrote:
That depends, doesn't it?

If you invested all your money into Japanese equities in November 1989, then, yes, buy and hold didn't work out too well for you.

But if you began periodically investing money into Japanese stocks in 1975 or 1980 (or 1995 or 2000), and if you also allocated some portion of your portfolio to both bonds and international stocks (outside of Japan), then buy and hold would have worked just fine.

Anyone can set up an exercise by which they show buy-and-hold won't work, but most of these scenarios presume some combination of unlikely events -- i.e., the investor puts all his money in at the top of the market or that he doesn't diversify.
Exactly. Thank you. I don't know why some people think Japanese equities should make up the "whole AA" for any investors. That's like being invested in TSM and nothing else - no bonds, no internationals.
Hi CFlannagan,

Indeed. But not only asset class diversification, but also time diversification.

Why is it that we are supposed to believe that buy and hold doesn't work just because someone invested all their money in one asset class at the market top for that particular asset class (e.g., 1989 for Japanese stocks or March 2000 for the S&P 500 or last year for emerging markets)?

bargainhuntingking
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Post by bargainhuntingking » Sat Nov 22, 2008 9:57 pm

Maybe my age in bonds is a pretty good idea after all (instead of my age minus 20 as it was before). ;)

Paladin

Post by Paladin » Sat Nov 22, 2008 10:15 pm

Robert T wrote:.
What's your one big takeaway from the Crash of 2008?
Nothing has beaten the diversifying power of longer term US nominal treasuries (at least so far).

Code: Select all

Returns (%) to November 20, 2008 

                                 YTD     12 months 
MARKET 
...Russell 3000                -48.66      -47.45     
...MSCI EAFE                   -51.93      -51.81      
...MSCI EM                     -61.87      -61.31      

VALUE 
...Russell MidCap Value        -52.39      -51.53 
...MSCI EAFE Value             -52.92      -53.11
...MSCI EM Value               -59.55      -59.03 

SMALL 
...Russell 2000                -49.07      -47.82                
...MSCI EAFE Small             -53.59      -54.53 
...MSCI EM Small               -65.86      -65.66 

DEFAULT/CREDIT 
...LB 1-3yr Credit              -0.94       -1.13 
...LB US Intermediate Credit    -6.42       -6.56 
...LB US Long Credit                ?           ?
...iBoxx $ Liquid High Yld     -29.56      -30.86  

-------------------------------------------------
TERM 
...LB 1-3yr Treasury            +5.98       +6.48 
...LB 3-7yr Treasury           +10.68      +11.61 
...LB 7-10yr Treasury          +10.93      +11.77 
...LB 10-20yr Treasury         +10.02      +10.54 
...LB 20+yr Treasury           +14.54      +15.27 
-------------------------------------------------

Source: MSCI, Lehman Brothers website, ishares website 
PS: At least in this downturn so far, performance seems consistent with Swensen's 2005 Unconventional Success book: "No other asset type comes close to matching the diversifying power created by long-term, noncallable, default-free, full-faith-and-credit obligation of the US government."
.
Swensen also recommends TIPS!

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rcshouldis
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Post by rcshouldis » Sat Nov 22, 2008 10:30 pm

"Buy and hold and forget" doesn't work. Sometimes when you see headlights coming toward you, you must react, especially if you're close to retirement.

Diversified buy and hold is the way to go but you must keep an eye on the economy and develop a plan for pre-emptive asset protection in the event of major world developments. :)

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Post by nisiprius » Sat Nov 22, 2008 10:37 pm

cmarino wrote:I learned that the most you can lose is everything.
I believe Market Timer has shown that you can lose more than that.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Gregory
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Post by Gregory » Sat Nov 22, 2008 10:56 pm

The adage that diversification fails you when you need it most is indeed true.
Pecuniae imperare oportet, non servire. | Fortuna vitrea est; tum cum splendit frangitur. -Syrus

exeunt
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Post by exeunt » Sun Nov 23, 2008 1:03 am

I discovered my risk tolerance is extremely high. I'm pretty much indifferent to my losses. If I could leverage up a bit to buy stocks, I would.

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grayfox
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Post by grayfox » Sun Nov 23, 2008 1:26 am

peter71 wrote:FWIW the most pro-timing academic paper I've seen is about "don't fight the Fed" timing rather than valuations-based timing, so perhaps that's what the asset allocation fund was up to . . .

http://www.google.com/search?q=market+t ... tartPage=1
I didn't read the whole paper, but only the last sentence in the conclusion:
Therefore, our research suggests that it may be possible to use a simple rule-of-thumb to avoid some of the market downtown and to improve upon the widely preached buy-and-hold strategy.
But I guess it's all pretty academic at this point.

PlainJane
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Post by PlainJane » Sun Nov 23, 2008 2:08 am

Nothing is a substitute for cash.

If something bills itself as a cash equivalent, run for the hills.

The absolute most important part of asset allocation is the percentage of fixed income/stocks. The percentage of Cash or short term riskless instruments in a portfolio is the only thing that will let you sleep at night.

All the fine tuning and slice and dicing is truly irrelevent compared to the stock/bond allocation.

The real risk of an economic collapse is not stock decline but job loss. The only hedge against that is a cash cushion. Municipal bonds are not a substitute for cash.

The only way to save for retirement is to SAVE for retirement. Counting on equity returns is not a plan but a hope. A hope is not a plan.

My equity allocation was fine, but I misunderstood the role of FI and the risks of FI. I never really understood interest rate risk and what that might mean.

Notthing is a substitute for cash.

james22
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Post by james22 » Sun Nov 23, 2008 2:14 am

I think one of the better "tinkerings" one can do is to lean a bit against the market, increasing the total equity commitment in down markets and decreasing it in up markets.

- Scott Burns

http://assetbuilder.com/forums/p/1673/2996.aspx#2996

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Post by sar » Sun Nov 23, 2008 3:02 am

I remember once hearing a statistic that most investors only capture a fraction of the market's return. After reading some of the posts on this thread, I understand why that is.

mithrandir
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Post by mithrandir » Sun Nov 23, 2008 8:17 am

EmergDoc wrote: 3) I will be 50/50 or less when I retire.
Yea, I think a lot of us younger investors are thinking this way now. However, if we are to follow through on this notion, we better have substantial savings by the time we retire. 50/50 does not provide much of a real return (don't look at results from the past decade or so because we've been in a long-term bond market bull) so such an allocation (IMO) increases the risk of burning through your money before you die.

If TIPS were to always pay 3% real, however, 50/50 would probably be OK.

Ron
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Post by Ron » Sun Nov 23, 2008 8:26 am

mithrandir wrote:
EmergDoc wrote: 3) I will be 50/50 or less when I retire.
Yea, I think a lot of us younger investors are thinking this way now. However, if we are to follow through on this notion, we better have substantial savings by the time we retire. 50/50 does not provide much of a real return (don't look at results from the past decade or so because we've been in a long-term bond market bull) so such an allocation (IMO) increases the risk of burning through your money before you die.

If TIPS were to always pay 3% real, however, 50/50 would probably be OK.
Hey, I retired early last year. My AA at that time was 60/40 (what I considered conserative for a younger retiree).

Magically, without doing anything, my current holdings are at 50/50 :lol: ...

BTW, I'm doing nothing (other than reinvesting distributions). My holdings will either climb back to 60/40 - or automatically go to 40/60 - or less!

- Ron

mithrandir
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Post by mithrandir » Sun Nov 23, 2008 8:28 am

Robert T wrote:.
What's your one big takeaway from the Crash of 2008?
Nothing has beaten the diversifying power of longer term US nominal treasuries (at least so far).
Again, I'm not sure this will play out again (as well) in future market crises. The multi-decade bond market bull is going to run out of gas out of mathematical necessary. Nominal rates can only go down so far (they "can't" go negative) so when you are looking at 5yr @ 2.03, 10yr @ 3.20, 30yr @ 3.69, OK, bond prices can still go up from here but we are "running out of room".

Of course you can buy TIPS and hold them to maturity. Perhaps I am blinded by the light but TIPS appear to be the greatest "financial innovation" of the past 10-15 years.

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Post by jeffyscott » Sun Nov 23, 2008 8:46 am

peter71 wrote:Of course Shiller's just one of many valuations bears out there, but I thought he was waiting for a P/E 10 of 12 . . . I just say "listened to Shiller" as a figure of speech . . . I listened to the wide variety of valuations bears and "greater fool theory" people on public radio during the mid 90's.

Speaking of which, I actually don't much like P/E 10 as a metric and I wonder if Shiller created it in the 90's becuase it would be bearish in the 90's but whether it's now going to look inappropriately bullish given potentially lower future earnings (an issue I've posted about before) but all of that's not to say I'm not still thinking of buying . . .

All best,
Pete
I didn't know that he had a specific target of 12 as a buying signal, I only half "listened to him" (and GMO, Graham, Thaler etc.) and half listened to the efficient market proponents. Anyway, if his target was 12, I think that would be around 780 for the S&P 500, which was reached on Friday.
press on, regardless - John C. Bogle

Gregory
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Post by Gregory » Sun Nov 23, 2008 9:50 am

PlainJane wrote: All the fine tuning and slice and dicing is truly irrelevent compared to the stock/bond allocation.
Isn't it interesting how few posts we now see on what % SV should be in the portfolio?
Pecuniae imperare oportet, non servire. | Fortuna vitrea est; tum cum splendit frangitur. -Syrus

Gekko
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Post by Gekko » Sun Nov 23, 2008 9:52 am

Gregory wrote:
PlainJane wrote: All the fine tuning and slice and dicing is truly irrelevent compared to the stock/bond allocation.
Isn't it interesting how few posts we now see on what % SV should be in the portfolio?
what's SV?

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woof755
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Post by woof755 » Sun Nov 23, 2008 10:02 am

mithrandir wrote:
EmergDoc wrote: 3) I will be 50/50 or less when I retire.
Yea, I think a lot of us younger investors are thinking this way now. However, if we are to follow through on this notion, we better have substantial savings by the time we retire. 50/50 does not provide much of a real return (don't look at results from the past decade or so because we've been in a long-term bond market bull) so such an allocation (IMO) increases the risk of burning through your money before you die.

If TIPS were to always pay 3% real, however, 50/50 would probably be OK.
There is no mystery to this notion, to me.

We absolutely must have saved and saved and saved during the accumulation phase to be able to retire as early as we dream of, and not outlive our portfolio. SV tilt and stock : bond allocation won't overcome a failure to pay onesself first.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Post by Bharat » Sun Nov 23, 2008 11:05 am

Gekko wrote:
Gregory wrote:
PlainJane wrote: All the fine tuning and slice and dicing is truly irrelevent compared to the stock/bond allocation.
Isn't it interesting how few posts we now see on what % SV should be in the portfolio?
what's SV?
Small Value
Everything that you own, owns piece of you.

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astroturf
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Post by astroturf » Sun Nov 23, 2008 11:18 am

Old records can be broken, no matter how old.

If you use Portfolio Watch at the Vanguard site it will analyze your current asset allocation and give you the best and worst performance years since 1926 for such allocation. See if it says 1931 as the worst year for that allocation. Then measure your current performance (YTD). It will most likely indicate that the tool, starting sometime next year, will show 2008 as the worst performance year for that allocation. Of course, a dramatic turnaround during the rest of this year may reverse that outcome, but it has to be dramatic.

james22
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Post by james22 » Sun Nov 23, 2008 11:39 am

Gregory wrote:Isn't it interesting how few posts we now see on what % SV should be in the portfolio?
I'd have thought Larry's AA very popular now.

bozo
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My lesson

Post by bozo » Sun Nov 23, 2008 11:52 am

Take some "off the table" while the taking is good if you are at or near retirement. You may not catch the tippy-top of a cyclical bull market, but you'll sleep better. I suspect we'll see at least one more cyclical bull before the secular bear ends. I hope folks remember 2008 when that occurs.

Bozo

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Post by Apprentice_941 » Sun Nov 23, 2008 6:11 pm

I timed this bear market from Jan 2008 to October 2008.

My nascent portfolio has paper losses of 25%, instead of 50% had I remained 'buy and hold' all along. (Before it's all over, those paper losses may go down to 45%.)

I am now back to my normal asset allocation of 88/12 stocks/bonds in a buy and hold pattern until the next bubble seven years from now :D.

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Post by White Coat Investor » Sun Nov 23, 2008 8:46 pm

Apprentice_941 wrote:I timed this bear market from Jan 2008 to October 2008.

My nascent portfolio has paper losses of 25%, instead of 50% had I remained 'buy and hold' all along. (Before it's all over, those paper losses may go down to 45%.)

I am now back to my normal asset allocation of 88/12 stocks/bonds in a buy and hold pattern until the next bubble seven years from now :D.
Hopefully next year isn't like 2001 and 2002 for you.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Post by White Coat Investor » Sun Nov 23, 2008 8:48 pm

mithrandir wrote:
EmergDoc wrote: 3) I will be 50/50 or less when I retire.
Yea, I think a lot of us younger investors are thinking this way now. However, if we are to follow through on this notion, we better have substantial savings by the time we retire. 50/50 does not provide much of a real return (don't look at results from the past decade or so because we've been in a long-term bond market bull) so such an allocation (IMO) increases the risk of burning through your money before you die.

If TIPS were to always pay 3% real, however, 50/50 would probably be OK.
Yes. I'll have to save more/work longer. But there is no way I could have handled losing 50% of a $3 Million portfolio without capitulating at least partially.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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msi
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Post by msi » Sun Nov 23, 2008 9:23 pm

mithrandir wrote:
EmergDoc wrote: 3) I will be 50/50 or less when I retire.
Yea, I think a lot of us younger investors are thinking this way now. However, if we are to follow through on this notion, we better have substantial savings by the time we retire. 50/50 does not provide much of a real return (don't look at results from the past decade or so because we've been in a long-term bond market bull) so such an allocation (IMO) increases the risk of burning through your money before you die.

If TIPS were to always pay 3% real, however, 50/50 would probably be OK.
Investing in a riskier asset class so you don't have to save as much because historically that risk was rewarded over the long-term...I don't buy into that. I know that is the prevailing wisdom on this board, but my stock allocation has never been as high as 50%. I prefer to save more.

A high equity allocation to get a higher return for the next 40 some odd years makes a lot of assumptions:

-That the additional speculative return over the past 25 years will continue to exist, which even Bogle admits in his book is quite unlikely.

-In order for the Dow to return 5.4% annually in this current century, the Dow will have to be about 2 million by 2100. Maybe that will happen (...), but I would not base my retirement on that. Warren Buffett agrees it is unlikely http://money.cnn.com/2007/05/05/news/ne ... /index.htm

-That you will accurately pick the country you should have most of your equity allocation in because most Americans allocate a huge amount to US markets. The United States went through a phenomenal period of economic growth over the 20th century. Is patriotism clouding people's judgment on this? The 19th century belonged to Britain, the 20th century belonged to the US, the 21st may very well belong to China or India. Jim Rogers says China.

-That dividend yields going forward will be similar to what they were in the past, which does not seem likely. (I know, I know...the market has priced this in!)

If you knew right now that in the 21st century stocks would average only a .75% difference between bonds going forward but with much higher volatility, would you commit much to stocks?

All hypothetical...bonds may have weak returns going forward too, alternative energy and advances in technology may drive growth in US stocks to be much higher than it ever was, who knows. Something to consider for younger investors.

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