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

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SkepticalGuy
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Post by SkepticalGuy » Tue Nov 25, 2008 9:57 pm

retired at 48 wrote:
SkepticalGuy wrote:R48 wrote:
I'll briefly close with this: The richest man in the world in terms of income, over $2,700,000,000 in 2007, is a person named James H. Simons. He has a Wall Street hedge fund that makes hundreds of small arbitrage bets on hourly stock trends, based on his computer algorithms and momentum. He averages about 24% annually (documented.). A former math professor, he was told it couldn't be done.

Now he is one of the major philanthropists in the world.
That's interesting but I don't think there are any lessons for the rest of us there. Simons runs Renaissance, one of many outfits that depend on complex algorithmic trading executed at very high speeds. Not stuff that you and I can realistically hope to emulate.

Those guys actually rent space in the trading exchange data centers so that they can ace out competitors (like us) by shaving milliseconds or even microseconds from the time it takes to detect pricing patterns and execute transactions accordingly.

There are probably a number of ways to beat the market (at least in small increments) if you have unlimited computing speed and connectivity, but you and I can't participate in most of those games except as the losers.
I didn't suggest we can. Obviously we can't compete in Simons' arena. Just like we can't compete in Buffett's arena of buying whole businesses, or major stake player investments (getting 10% plus equity kicker from GE). But the point is these guys beat the buy and hold strategies.

Why do people think comparable, improved strategies can't be developed for the more knowledgeable investors on this forum? Sure, buy and hold will serve many who can and do only devote a few hours a year to investing, often leaving it to others. But those taking an active interest...why not better ways.

In the thread on 200 day moving averages linked above, I cited some suggested practical, doable, better ways for: rebalancers, 401.k participants, early retirees and accumulators. Readers can ponder.

R48
Sure, I think it's possible you'll be able to develop "comparable, improved strategies" and it's fascinating to think about.

On the other hand, thousands of finance PhDs, money managers, and assorted rocket scientists regularly strike out trying to find and apply those improved strategies. Even the guys who manage to spot real patterns in the historical data usually get their lunches eaten pretty soon when they try to exploit their discoveries.

I salute your personal success and I admire the energy and intellectual curiosity of the folks looking for angles. I'm just saying that the odds are bad.

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Petrocelli
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Post by Petrocelli » Tue Nov 25, 2008 10:05 pm

taxman wrote:
Petrocelli wrote:A $5,000 watch holds it value better than an index fund.
Not to Hijack again but ROTFLMAO........late 40s=50! j/k :wink:
My post was only half in jest.

I have learned that everyone knows very little about the future. You can scrimp, plan and save, and you may still be screwed at age 70.

The solution: invest and save, but live a little too.
Petrocelli (not the real Rico, but just a fan)

HerbertSitz
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Post by HerbertSitz » Tue Nov 25, 2008 10:12 pm

retired at 48 wrote:I didn't suggest we can. Obviously we can't compete in Simons' arena.
Assuming Renaissance is actually returning 24% a year, it is only a matter of time until there are equally competent competitors competing for the profits that can be generated by computerized algorithmic trading based on small momentum moves. Why should we not expect that to drive their returns down to something approaching the market return?

Moreover, I'm skeptical that the Renaissance returns are actually being generated without increased risk. Anyone remember LTCM?
retired at 48 wrote:Why do people think comparable, improved strategies can't be developed for the more knowledgeable investors on this forum? Sure, buy and hold will serve many who can and do only devote a few hours a year to investing, often leaving it to others. But those taking an active interest...why not better ways.
I think the reason people (here) think that is because it's what the data shows. The majority of mutual funds are actively managed, and there is return data from well over fifty years of management. Investment managers who rise to level of managing a mutual fund are in general among the best managers in the industry. Yes, there is an issue of mammoth size reducing fund returns, but the vast majority of funds have easily manageable sizes. And these managers, who are generally among the best paid and most skillful managers that exist, have devoted their full time to trying to find ways of beating the market. The vast majority have failed.

That is basically what a big part of the argument against active management consists of. Active fund managers have for well over half a century explored every way under the sun of trying to beat the market, and most have failed.

With that in mind I ask myself: Regardless of how much time I spend managing my investments, how likely do _I_ think it is that _I_ can do a better than those active fund managers, who were by and large just as smart as me and who devoted their full-time jobs to trying to beat the market return and who -- with a few exceptions -- failed? (And how likely do I think it is that the ones who have beaten the market return have succeeded based on skill and not luck?)

The reasonable attitude to take: There is virtually nothing really new under the sun in investing. Everything has been tried. Be very aware of the role that overconfidence and other behavioral traits play in undermining our investment success. Best to just take the market return, which is in comparison to the lesser returns of the vast majority of investors an excellent return, and be done with it.

All of this is not to deny that there are investors out there who can legitimately beat the market. The question to answer is what there is about yourself (or whatever adviser or manager you've identified) that makes them more likely to succeed than the thousands and thousands of active fund managers who have already demonstrably failed.

I personally know at least one guy who I believe has significantly outperformed the market for almost 40 years based on his skill at investing. I have talked with him in detail about his methods; I know exactly what he does and I have as good an idea as he does what he looks for and analyzes in picking his stocks and making buy/sell decisions. Yet I have no confidence that I could invest as successfully as he does. There is something ineffable in what he does, something that can't be communicated.

I expect there is something similar in W. Buffett's investing, too. God knows there are thousands of people out there who have studied Buffett's methods. Is it not strange that there are not more people around with records similar to Buffett's? To me, that just adds another reason to focus on getting the market return using a strategy that diversifies broadly among asset classes. Forget about being the next Buffett, or even the next mini-Buffett. The vast, vast majority of people who have that as a goal are going to end up being disappointed, and will be lucky if in the process they don't harm their financial futures.

On a related note, although some aspects of Buffett's current method of investing with Berkshire is not one that average individual can copy, his core method of identifying undervalued companies is one he used for many years before he became ultra-rich, and in fact is what created his wealth. He has said, "“it's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” ( http://vinvesting.com/docs/bg/buffett_int071205.html ) I think that involves a bit of bragging, but I have no doubt that he woud outperform the market by a large amount. The question remains, why are there not more managers that can do that?

I do think that if someone wants to put legwork in to try and outperform the market then forget about finding something fancy and new; something like the old boring tried and true Graham/Buffett method is the most promising, and his Superinvestors speech points the way: http://en.wikipedia.org/wiki/The_Superi ... Doddsville
Still, I think there's more than analysis that's needed to come close to their results, you need to have _judgment_ as good as theirs, and I don't tthink many of us do.

Just my two cents.
Last edited by HerbertSitz on Tue Nov 25, 2008 11:57 pm, edited 3 times in total.

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nisiprius
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Post by nisiprius » Tue Nov 25, 2008 10:55 pm

Petrocelli wrote:
taxman wrote:
Petrocelli wrote:A $5,000 watch holds it value better than an index fund.
Not to Hijack again but ROTFLMAO........late 40s=50! j/k :wink:
My post was only half in jest.

I have learned that everyone knows very little about the future. You can scrimp, plan and save, and you may still be screwed at age 70.

The solution: invest and save, but live a little too.
Some for the Glories of This World; and some
Sigh for the Prophet's Paradise to come;
Ah, take the Cash, and let the Credit go,
Nor heed the rumble of a distant Drum!

Look to the blowing Rose about us--"Lo,
Laughing," she says, "into the world I blow,
At once the silken tassel of my Purse
Tear, and its Treasure on the Garden throw."

And those who husbanded the Golden grain,
And those who flung it to the winds like Rain,
Alike to no such aureate Earth are turn'd
As, buried once, Men want dug up again.

The Worldly Hope men set their Hearts upon
Turns Ashes--or it prospers; and anon,
Like Snow upon the Desert's dusty Face,
Lighting a little hour or two--is gone.

--Edward FitzGerald, The Rubaiyat of Omar Khayyam
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.

retired at 48
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Post by retired at 48 » Tue Nov 25, 2008 11:34 pm

Taxman wrote:
Thank you(R48)....I too had considered inflation having a bearing on this fund. It was a small move I'll correct, since rates just went lower lucky for me. I'd been considering 50/50 VFITX/VTIPS, I think I'll just hold off i've another 10yrs.
_________________
I think the TIPs investments are very good right now...a yield backed by some inflation protection.

You could also shorten the duration, or time period to maturity, of your treasury bond funds, or corp bond funds. For example, limit maturities to 3 years or less. Then, should rates rise, the NAV will be less affected in these funds.

Do some reading on duration/maturities etc if unfamiliar with this area. There's an excellent Bond book , Guide to Winning Bond Strategy by Larry Swedroe, for refreshing in this area.

Otherwise, glad to have helped clarify risks, and that you plan to adjust your asset allocation.

Good luck.

retired at 48

cmarino
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Post by cmarino » Tue Nov 25, 2008 11:40 pm

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Gekko
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Post by Gekko » Tue Nov 25, 2008 11:53 pm

i have a small confession to make. i solely have had the VG prime MM and a VG muni MM for my "super safe" money for many years. i know these are insured until mid-Dec. but last Fri morning when the world looked like it was about to end, i opened up the VG treasury MM and have begun to allocate money towards this fund. i wanted to start this fund in case i need to dump the muni MM money there quickly. sleeping well is expensive - i found out it doesn't pay a whole lot though (yield). but, nevertheless, i've added VG treasury MM to my cash arsenal for extra safety. anybody else have or open the VG treasury MM fund?

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Post by retired at 48 » Tue Nov 25, 2008 11:55 pm

SkepticalGuywrote:

On the other hand, thousands of finance PhDs, money managers, and assorted rocket scientists regularly strike out trying to find and apply those improved strategies. Even the guys who manage to spot real patterns in the historical data usually get their lunches eaten pretty soon when they try to exploit their discoveries.
Let me be skeptical here. I for one do not know of anyone who got their lunches eaten buying mutual funds to any strategy. Stock buying schemes, yes, anecdotal evidence exists of losers.

OTOH, those thousands of finance PhDs and rocket scientists you say have sought improved strategies, several are here in south Florida. Many have succeeded; one just can't back test it. Average age in my golf course community initial build was 52 years, 350 homes with 3 children. Someone had successes somewhere.

For me, my investing days are winding down, now 50/50 AA, so I seek mostly an academic interest in improved strategies. Just trying to encourage the younger, more aggressive investors to consider these things.

BTW one of my main golfing partners owned about $500,000 of Citibank stock last year, with a stop loss order at $44. It executed. Whew. More than one road to Dublin.

R48

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Post by retired at 48 » Wed Nov 26, 2008 12:00 am

Gekko wrote:i have a small confession to make. i solely have had the VG prime MM and a VG muni MM for my "super safe" money for many years. i know these are insured until mid-Dec. but last Fri morning when the world looked like it was about to end, i opened up the VG treasury MM and have begun to allocate money towards this fund. i wanted to start this fund in case i need to dump the muni MM money there quickly. sleeping well is expensive - i found out it doesn't pay a whole lot though (yield). but, nevertheless, i've added VG treasury MM to my cash arsenal for extra safety. anybody else have or open the VG treasury MM fund?
I did exactly the same thing, although more at Fidelity...in September, with my 89 year old mother in law doing the same. :) We moved some money, though, too.

R48

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Post by White Coat Investor » Wed Nov 26, 2008 12:39 am

One thing I will always remember about 2008 is the daily volatility. I never thought I'd see 7-18% changes on a daily basis in index funds. I remember thinking 2% was a big day and I had better "check to see if I need to rebalance." Ha! It moves twice that routinely in the last 30 minutes of trading.
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 SkepticalGuy » Wed Nov 26, 2008 4:53 am

Retired at 48 wrote:
Let me be skeptical here. I for one do not know of anyone who got their lunches eaten buying mutual funds to any strategy. Stock buying schemes, yes, anecdotal evidence exists of losers.

OTOH, those thousands of finance PhDs and rocket scientists you say have sought improved strategies, several are here in south Florida. Many have succeeded; one just can't back test it. Average age in my golf course community initial build was 52 years, 350 homes with 3 children. Someone had successes somewhere.
I can't imagine why you "don't know of anyone who got his lunch eaten buying mutual funds to any strategy", R48. Haven't investors racked up big losses buying and selling mutual funds according to strategies based on sectors, regions, valuations, macroeconomic indicators, manager characteristics, and (probably) phases of the moon?

Of course you're right that some investors have done well. The tough problem is figuring out which of them did it by chance and which by design. Maybe this is part of what you mean by "can't back test it".

After all, if there are 10 million investors at work, several million will probably get higher than average returns even if they're all investing randomly. If you can't prove which guys were lucky and which guys were smart, then you don't know for sure whose strategy is worth trying to repeat.

In addition to the merely lucky guys, you also have to filter out the traders who exploit information that you and I can't use effectively. For example, Wall Street firms sometimes use information from their internal crossing networks to detect price movements from info that never arrives at the exchanges. A lot of the guys you see on the golf course made their dough with some comparable technique instead of investing "the old-fashioned way". You don't know which guys are which unless they tell you, and (human nature being as it is) people tend to describe their own successes in the most flattering ways possible.

None of this is directed specifically at your 200-day average thing, R48--for all I know it may be the best thing ever.

I'm just doubtful about how many people outsmart the market using techniques that are practical over the long term for small investors.

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Post by jeffyscott » Wed Nov 26, 2008 9:30 am

SkepticalGuy wrote: I can't imagine why you "don't know of anyone who got his lunch eaten buying mutual funds to any strategy", R48.
Could it be that the unlucky ones, who lost, are not building houses in his golf course community?
press on, regardless - John C. Bogle

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Kenster1
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Post by Kenster1 » Wed Nov 26, 2008 10:56 am

Between this fall and over the next year or so as jobs and work hours are being cut there will probably be a job hiring boom in certain areas --> Collection Agencies !!! :roll:
SURGEON GENERAL'S WARNING: Any overconfidence in your ability, willingness and need to take risk may be hazardous to your health.

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Post by Ron » Wed Nov 26, 2008 11:25 am

Petrocelli wrote:...you may still be screwed at age 70.
OK - I'll keep my "little blue pill" ready :wink: ...

- Ron

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Post by Ron » Wed Nov 26, 2008 11:26 am

EmergDoc wrote:One thing I will always remember about 2008 is the daily volatility. I never thought I'd see 7-18% changes on a daily basis in index funds. I remember thinking 2% was a big day and I had better "check to see if I need to rebalance." Ha! It moves twice that routinely in the last 30 minutes of trading.
Great! Now you have something to tell your grandchildern about the "crash" of '08!

- Ron

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Post by Gekko » Wed Nov 26, 2008 4:00 pm

EmergDoc wrote:One thing I will always remember about 2008 is the daily volatility. I never thought I'd see 7-18% changes on a daily basis in index funds. I remember thinking 2% was a big day and I had better "check to see if I need to rebalance." Ha! It moves twice that routinely in the last 30 minutes of trading.
Meantime, note the absurd percentage moves in big names since Friday's bottom: Citi up 135 percent...GM up 183 percent...Home Depot up 34 percent...JP Morgan up 54 percent...Alcoa up 42 percent....GE (our parent) up 26 percent.

You can go your whole career and not see percentage moves like that in a year, let alone half a week.

http://www.cnbc.com/id/27929785

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Post by taxman » Wed Nov 26, 2008 7:29 pm

retired at 48 wrote:
taxman wrote:
retired at 48 wrote:
taxman wrote:VFITX~
Is this the same VFITX, Vang'd Interm. Treasury Fund, that went from $11.50/share to $10.00 in 1999-2000 (down 15%) and that went from $12.00/share to 10.50 in 2003 to 2006 (down about 15%)?

Caution flag...here's the chart:

http://finance.yahoo.com/q/ta?s=VFITX&t ... l&p=&a=&c=

R48
Why do you caution VG interm/term/treasuries index R48 ? Maybe I should reconsider? It was minimal but a bucks a buck. Low rates I believe will go lower, I just learned aboutVFAIX also, _100k min,_ or that would have been my play despite adding to my equity %. NOT TO Hijack the OPs thread.
Here's a chart:

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

You're approaching a peak in NAV. Now, let's say rates go lower as you predict. How much lower? Doubt rates get to zero...so one's gain is limited.

Now here's a 45 year historical curve of 10 year treasury bond rates:

http://www.forecast-chart.com/interest- ... xwodnBlQJA

Rates peaked at 15% in the 1970's. A return to that level would devastate your treasury NAV. And we did not have near the financial crisis then to resolve, as today.

What if inflation, as predicted as the cost for all the bailouts, returns someday. It likely will...double digit in 1970's.

What happens when people stop fleeing to quality, exiting treasuries for the higher rates becoming available in corporate bonds? Treasuries drop.

It's been 40 years since treasury rates were this low...and the currency is not backed by hard assets.

Your buying something at peak demand, usually a time of high prices. Thus, these cautions should not be ignored.

Don't mean to scare...(maybe just frighten!)

R48
Thanks R48 I exited today +248.00 into VGPMMF.. I researched your input and you were correct sir!

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Post by retired at 48 » Wed Nov 26, 2008 8:47 pm

taxman wrote:
Thanks R48 I exited today +248.00 into VGPMMF.. I researched your input and you were correct sir!
You're welcome...you made my day :!:

R48

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Post by retired at 48 » Wed Nov 26, 2008 9:27 pm

HerbertSitz wrote:
retired at 48 wrote:I didn't suggest we can. Obviously we can't compete in Simons' arena.
Assuming Renaissance is actually returning 24% a year, it is only a matter of time until there are equally competent competitors competing for the profits that can be generated by computerized algorithmic trading based on small momentum moves. Why should we not expect that to drive their returns down to something approaching the market return?

Moreover, I'm skeptical that the Renaissance returns are actually being generated without increased risk. Anyone remember LTCM?
retired at 48 wrote:Why do people think comparable, improved strategies can't be developed for the more knowledgeable investors on this forum? Sure, buy and hold will serve many who can and do only devote a few hours a year to investing, often leaving it to others. But those taking an active interest...why not better ways.
I think the reason people (here) think that is because it's what the data shows. The majority of mutual funds are actively managed, and there is return data from well over fifty years of management. Investment managers who rise to level of managing a mutual fund are in general among the best managers in the industry. Yes, there is an issue of mammoth size reducing fund returns, but the vast majority of funds have easily manageable sizes. And these managers, who are generally among the best paid and most skillful managers that exist, have devoted their full time to trying to find ways of beating the market. The vast majority have failed.

That is basically what a big part of the argument against active management consists of. Active fund managers have for well over half a century explored every way under the sun of trying to beat the market, and most have failed.

With that in mind I ask myself: Regardless of how much time I spend managing my investments, how likely do _I_ think it is that _I_ can do a better than those active fund managers, who were by and large just as smart as me and who devoted their full-time jobs to trying to beat the market return and who -- with a few exceptions -- failed? (And how likely do I think it is that the ones who have beaten the market return have succeeded based on skill and not luck?)

The reasonable attitude to take: There is virtually nothing really new under the sun in investing. Everything has been tried. Be very aware of the role that overconfidence and other behavioral traits play in undermining our investment success. Best to just take the market return, which is in comparison to the lesser returns of the vast majority of investors an excellent return, and be done with it.

All of this is not to deny that there are investors out there who can legitimately beat the market. The question to answer is what there is about yourself (or whatever adviser or manager you've identified) that makes them more likely to succeed than the thousands and thousands of active fund managers who have already demonstrably failed.

I personally know at least one guy who I believe has significantly outperformed the market for almost 40 years based on his skill at investing. I have talked with him in detail about his methods; I know exactly what he does and I have as good an idea as he does what he looks for and analyzes in picking his stocks and making buy/sell decisions. Yet I have no confidence that I could invest as successfully as he does. There is something ineffable in what he does, something that can't be communicated.

I expect there is something similar in W. Buffett's investing, too. God knows there are thousands of people out there who have studied Buffett's methods. Is it not strange that there are not more people around with records similar to Buffett's? To me, that just adds another reason to focus on getting the market return using a strategy that diversifies broadly among asset classes. Forget about being the next Buffett, or even the next mini-Buffett. The vast, vast majority of people who have that as a goal are going to end up being disappointed, and will be lucky if in the process they don't harm their financial futures.

On a related note, although some aspects of Buffett's current method of investing with Berkshire is not one that average individual can copy, his core method of identifying undervalued companies is one he used for many years before he became ultra-rich, and in fact is what created his wealth. He has said, "“it's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” ( http://vinvesting.com/docs/bg/buffett_int071205.html ) I think that involves a bit of bragging, but I have no doubt that he would outperform the market by a large amount. The question remains, why are there not more managers that can do that?

I do think that if someone wants to put legwork in to try and outperform the market then forget about finding something fancy and new; something like the old boring tried and true Graham/Buffett method is the most promising, and his Superinvestors speech points the way: http://en.wikipedia.org/wiki/The_Superi ... Doddsville
Still, I think there's more than analysis that's needed to come close to their results, you need to have _judgment_ as good as theirs, and I don't tthink many of us do.

Just my two cents.
Hi Herbert

Since I agree with many of your factual points and civil presentation, it would be easy to stop here, and let you have the final word, but the dialogue interests me. So here's some counter arguments:

First, whether Simons at Renaissance can continue his performance, this will be the test year. But I note his technique sells short as often as buys, the average position held for hours. His game is to get a 51 to 49% advantage, conduct thousands of trades, to come out ahead. We shall see for 2008.

You have extensive discussion re mutual fund managers unable to beat the market. Again, this is an apples/oranges comparison. I would find it most difficult as a fund manager to beat the market. But as individual investors we invest in funds...the fund managers must buy the individual stocks.

We do not marry funds; rather we can go to the best one. What's the best one, you ask? The one with a portfolio that is performing best, NOW. Period. Even legendary Wm. Miller (who beat S&P 500 for a decade and a half), started to have his fund lag the S&P for several quarters, before a large under performance. Guess what...he had a bad portfolio that was lagging. Exit individual investor. No need to stick around.

You say the reasonable attitude is "everything has been tried." I agree, much has been tried in buying stocks to beat the market...from technical analysis signals to fundamentals...and on and on. But you can't make that statement about individual investors buying mutual funds, because no source of information/data to measure exists.

One might say, oh yes, we have measured all those investors buying mutual funds, as a group, and find they buy high, sell low, under performing the funds they invest in. They are trying market timing, and losing. The performance is factually true, but I feel is misrepresented.

You see, rather than market timers, most of those investors buying funds are trying to make a sound investment. But investing is counter intuitive. They buy M* five star funds...the ones least likely to have continued high performance; they pay for management, after all, one gets what they pay for, right?; they buy when the market seems "good", aka, at tops; they sell when fear exists, like now; they are "sold" such funds by salesman, usually at the wrong time. So the deck is stacked against these people.

But if one becomes a reasonable student of the market, a 180 degree opposite approach evolves. Just like Boglehead/Diehard philosophy is learned by more astute investors, to put into practice. I feel many on this forum are capable of and able to develop their own investment styles and portfolios using some advanced methodologies...like small, value bias.

Lastly, I and others are not saying one just goes into and out of the market based solely on something like the 200 day moving average. Rather it can be tool to enhance ones re balancing, point the proper direction in 401.k paycheck withholding investing, and identifying such times to take more off the table, or add more onto it. These are potential alpha contributors without extreme portfolio risk versus buy and hold. And I'm heartened that extensive back testing by other Bogleheads bore this out.

Good to chat.

R48

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Post by nisiprius » Fri Nov 28, 2008 2:54 pm

The most obvious takeaway: never assume that you can afford house or car payments because "they'd never lend me the money if they didn't think I could make the payments."

This didn't occur to me until recently. But as a matter of fact the two biggest loans I ever received were my first car loan--I'm calling it the biggest because it was a $2000 loan when I was a graduate student on an annual stipend of $3600 a year!--and my mortgage.

I tend to forget just how unsophisticated you can be even as a "young married." In both cases, I wasn't honestly 100% sure I could afford the payments and in both case, yes, one of the factors in my decision was that they were so big, so official, and were asking me so many prying questions about my income, etc. that gosh, they'd never make me a loan unless they were sure I could afford it.

(Of course, in those days they did exercise some due diligence... and, while I was not 100% sure I could afford the loans, I had enough numeracy to be pretty I could afford them--and I was right).
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Post by chaz » Mon Dec 15, 2008 1:10 pm

Ron wrote:
Petrocelli wrote:...you may still be screwed at age 70.
OK - I'll keep my "little blue pill" ready :wink: ...

- Ron
Or a lot of little white pills. HaHa.
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chaz
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Post by chaz » Mon Dec 15, 2008 1:13 pm

A prayer that 2009 won't be as bad as 2008.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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runthetrails
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Post by runthetrails » Mon Dec 15, 2008 1:26 pm

Valuations matter, but not necessarily in the short (or even intermediate) term.

Market timing beats buy-and-hold at least part of the time. But you always have to wonder how fine-tuned your timing strategy is to the past, and how well it will actually work in the future.

Recency bias is huge, even among well-educated investors. When a particular strategy has recently outperformed, we all want to switch gears.

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Simple

Post by Xenophon » Mon Dec 15, 2008 5:27 pm

What did I learn:

I owe a lot to John Bogle.

Plus, I'm digging the hell out of him saying I can go play with no more than 10%. I'm long on some that I think will pay back nicely (perhaps several years, but eventually).

But, I'm AA-ed in Target Retirements that hold Indexes that are audited by PriceWaterhouse, and though I am down (much less than the market - good idea that AA thing), I am not out, and especially, I have not been swindled.

And, I didn't need to read Rick Ferri on what to do because I already knew (although I did read one of his books once).
I've seen the blogsphere, and it looks nothing like Hamlet.

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Post by Fear and Loathing » Mon Dec 15, 2008 5:30 pm

SkepticalGuy wrote:

On the other hand, thousands of finance PhDs, money managers, and assorted rocket scientists regularly strike out trying to find and apply those improved strategies.
They probably make it a lot more complicated than it needs to be.....

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Post by chaz » Mon Dec 15, 2008 5:37 pm

kb0fhp wrote:
SkepticalGuy wrote:

On the other hand, thousands of finance PhDs, money managers, and assorted rocket scientists regularly strike out trying to find and apply those improved strategies.
They probably make it a lot more complicated than it needs to be.....
There is no perfect plan.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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Post by snowman9000 » Mon Dec 15, 2008 5:38 pm

I wonder what we will take away from the Crash of 2009?
:wink:

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Post by Fear and Loathing » Mon Dec 15, 2008 5:42 pm

snowman9000 wrote:I wonder what we will take away from the Crash of 2009?
:wink:
Madoff? Seeing him do the "perp walk" - or am I just being delusional. He will probably retire nicely to his fancy boat in international waters...

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Post by chaz » Mon Dec 15, 2008 6:10 pm

kb0fhp wrote:
snowman9000 wrote:I wonder what we will take away from the Crash of 2009?
:wink:
Madoff? Seeing him do the "perp walk" - or am I just being delusional. He will probably retire nicely to his fancy boat in international waters...
His boat and other non-exempt assets have all been taken from by the authorities.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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Post by Fear and Loathing » Mon Dec 15, 2008 6:16 pm

chaz wrote:
kb0fhp wrote:
snowman9000 wrote:I wonder what we will take away from the Crash of 2009?
:wink:
Madoff? Seeing him do the "perp walk" - or am I just being delusional. He will probably retire nicely to his fancy boat in international waters...
His boat and other non-exempt assets have all been taken from by the authorities.
at least those that they found... but I wouldn't be a bit surprised to find out that he was able to quietly slip out of the country....

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Post by Gekko » Sun Sep 27, 2009 8:14 am

this thread is interesting to read in retrospect.

"Someday we'll look back on this and it will all seem funny." - Bruce Springsteen

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Post by livesoft » Sun Sep 27, 2009 8:34 am

It appears that Madoff didn't have enough money to pay for healthcare, so he figured out a way to get the feds to pay for it.

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

Post by 500Kaiser » Tue Jan 21, 2014 2:33 am

After 2013's outstanding equity returns, and a challenging fixed income environment where there is the temptation to chase yields, it would be good to consider these lessons learned again. I am amazed at how poor my own emotional memory is, and my ability to remember how difficult it was.
Higher risk = higher HOPEFUL returns, not expected returns.

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

Post by obgyn65 » Tue Jan 21, 2014 4:08 am

A post above mentioned that one should not be invested in stocks unless one is prepared to lose 50% - or something along those lines. Well - I am not prepared to lose 50% of my savings, therefore I don't invest in stocks. That is the lesson I learned and I have been sticking to it, especially since 2008.
"The two most important days in someone's life are the day that they are born and the day they discover why." -John Maxwell

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

Post by sambb » Tue Jan 21, 2014 5:05 am

not much "stay the course" in this thread..

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

Post by Rodc » Tue Jan 21, 2014 8:11 am

sambb wrote:not much "stay the course" in this thread..
And yet in the end (or at least so far) buy and hold, rebalance, keep plowing new money into your portfolio, worked pretty well.

Sure, no guarantee for the future.

It is interesting and instructive to reread this thread. Shows how hard it is to implement even a simple strategy through thick and thin.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Valuations Matter

Post by Jay69 » Tue Jan 21, 2014 8:30 am

grayfox wrote: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.
Going back and reading some of these life lessons, not picking on grayfox but being I still see grayfox posting I wonder if he/she stills feels the same from 2008? In other words have some rethought about 2008 and look at it in a different light today?
"Out of clutter, find simplicity” Albert Einstein

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Re: Valuations Matter

Post by VictoriaF » Tue Jan 21, 2014 8:35 am

Jay69 wrote:Going back and reading some of these life lessons, not picking on grayfox but being I still see grayfox posting I wonder if he/she stills feels the same from 2008? In other words have some rethought about 2008 and look at it in a different light today?
I don't think anyone would argue that valuations matter. The important questions are:
(1) At what level of valuations they become "high"?
(2) When will high valuations come down to "normal" (and beyond normal to "low")?

Are valuations high now? Should we compare current valuations to those in 2007 PLUS inflation adjustment? Should we assume that people will keep money in equities for as long as fixed income is low-earning? Should we play safe all the time? Should we try to guess when the hell will break lose?

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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

Post by Harold » Tue Jan 21, 2014 9:04 am

Rodc wrote:And yet in the end (or at least so far) buy and hold, rebalance, keep plowing new money into your portfolio, worked pretty well.
As true as that turned out to be, people tend to forget how precarious of a situation that was.

The outcome could easily have been otherwise. We were on a precipice, and could have gone straight over the edge. Good fortune and prudent central bank decisions led the way from disaster.

The message most people received is that diversification works and markets always recover, when the real message should be that risk is real and needs to be gravely respected.

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Re: Keep cash for a down period

Post by SnapShots » Tue Jan 21, 2014 9:13 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.
+2
the best decision many times is the hardest to do

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Re: Keep cash for a down period

Post by VictoriaF » Tue Jan 21, 2014 9:16 am

SnapShots wrote:
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.
+2
I have more than 3 years of projected expenses in accessible cash. My highest priority for the initial years of retirement is to engage in many activities I can't do while working. I don't want to curtail my activities and related expenses if the markets drop. If I wanted to have more money I would continue working. Right now I want more experiences--and adequate funds to pay for them.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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

Post by Rodc » Tue Jan 21, 2014 9:25 am

Harold wrote:
Rodc wrote:And yet in the end (or at least so far) buy and hold, rebalance, keep plowing new money into your portfolio, worked pretty well.
As true as that turned out to be, people tend to forget how precarious of a situation that was.

The outcome could easily have been otherwise. We were on a precipice, and could have gone straight over the edge. Good fortune and prudent central bank decisions led the way from disaster.

The message most people received is that diversification works and markets always recover, when the real message should be that risk is real and needs to be gravely respected.
Fair enough. I do think it could have turned out differently. (indeed, I don't think things have worked out as well in Europe, but I have not recently tracked exactly how they are doing.)

But what then is your lesson?

Mine would be that one should set up an allocation that makes sense financially and emotionally for when things look bleak as they just might and be brave enough to implement that plan, even though there are no guarantees.

Another might be that once well along towards or in retirement, setting allocation by dollar amount rather the percentages might be sensible. That is, make sure you have a base of safe income locked up; use more risky assets for discretionary income.

I personally don't think the lesson is to try to time the market. That tends to work a whole lot better in backtesting (where you get to pick the method and tune to what already happened and emotions play no role) than going forward.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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

Post by YDNAL » Tue Jan 21, 2014 9:44 am

Gekko » Fri Nov 21, 2008 11:21 pm 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)
What is most interesting is that this thread started 11/21/2008 and posters were active through 12/15/2008.
  • From this point, the S&P 500 continued diving approximately 22% by 3/9/2009*.
  • Not ONE single soul posted, and the first post after December 2008 was in September 2009.
Perhaps everyone claiming to have a plan, the right AA, stay the course, etc., were scared silly and running for the hills. :)

* closed 868.67 on 12/15/2008 and 676.53 on 3/9/2009.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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

Post by Harold » Tue Jan 21, 2014 9:59 am

Rodc wrote:But what then is your lesson?
The lesson is that risk is the central issue in investing. The main focus of one's financial planning should be on how much risk one can seriously tolerate.

Once an investor truly and deeply understands that, everything else just falls into place.

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

Post by lws6772 » Tue Jan 21, 2014 10:05 am

That stupidity is exacerbated by greed. :greedy

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

Post by sls239 » Tue Jan 21, 2014 10:48 am

At the risk of being too political for this board -

That the stigma of unemployment can be so high that workers will accept negative net wages if they believe it is only temporary.

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

Post by garlandwhizzer » Tue Jan 21, 2014 11:18 am

Victoria and others wrote:y VictoriaF » Tue Jan 21, 2014 10:16 am

SnapShots wrote:
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.


+2


I have more than 3 years of projected expenses in accessible cash. My highest priority for the initial years of retirement is to engage in many activities I can't do while working. I don't want to curtail my activities and related expenses if the markets drop. If I wanted to have more money I would continue working. Right now I want more experiences--and adequate funds to pay for them.

Victoria
Me too. Three years of cash on hand reduces anxiety greatly during a market crash and allows you, I believe, to be less emotionally driven and to make more rational decisions like not selling into panic. The downside, zero return on a sum equal to 3 years of living expenses, is annoying during a bull market but during difficult times it seems a small price to pay for those of us without ongoing income streams who are forced to meet living expenses solely from selling investments.

Garland Whizzer

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

Post by SamB » Tue Jan 21, 2014 11:24 am

All you need is 20 good years. I started in 1978.

Nothing has happened in the last 14 years in equities. Is it 1978 again, who knows?

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

Post by zaboomafoozarg » Tue Jan 21, 2014 12:08 pm

SamB wrote:All you need is 20 good years. I started in 1978.

Nothing has happened in the last 14 years in equities. Is it 1978 again, who knows?
I sure hope so, but I doubt anything will be as good as those 20 years were for a long, long time.

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

Post by 1210sda » Tue Jan 21, 2014 12:16 pm

What a very interesting thread to read five years later. Thanks for starting it Gekko. (you too 500kaiser for reviving it)

Thinking back, I learned that my IPS was appropriate for me.

While the drop in my equities made me uncomfortable, I did not consider selling.

That my cash reserve allowed me to maintain my lifestyle (perhaps some little belt tightening) intact.

That one year into the great recession was too short a time to declare "stay the course" dead.


From Harold:
"The message most people received is that diversification works and markets always recover, when the real message should be that risk is real and needs to be gravely respected. "

I agree, risk is real. Stay the course is not a guarantee. However, If my AA is appropriate for me, then I'd rather take my chance on stay the course than cutting and running (i.e. after the fact market timing)

1210

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