TheBogleWay wrote: ↑Fri Mar 13, 2020 10:01 pm
...However... all of my investing life and life at Bogleheads, everyone tells you to mentally prepare yourself. They say it's the hardest part of investing, to control the fears and jitters when the inevitable corrections/recessions happen. Here we are, I've lost maybe 20% of my net worth in ~45 days. I've lost upwards of $300,000 on paper. Yet, I almost couldn't care less. I have zero fear about this.... Is anyone else out there proud of themselves and how they're handling this drop?
Watch out! The first thing I notice is that you have let yourself decide that it's over. Otherwise, it would never occur to you that this is a suitable time to assess
your own reactions.
From a combination of my own experience of 2008-2009 and other things I've read, here's what I think you are missing.
1) Due to the fractal behavior of the stock market, you have movements within movements within movements. Dips within rallies within plummets. The broad outline of what happened doesn't become visible until after it's all over. While it's happening, you are constantly being taken by surprise. Even the difference between how things look if you're watching intraday and how things look if you only look at the closes is huge, as was shown by yesterday. A 20% drop could be the end or just the beginning. A 10% rise could be a recovery or a dead cat bounce. During a long decline you will be seeing many
such events; at each time people will argue about which it is; at each time it could
go either way.
2) I don't know if this is a staple of basic training, but I have read about "the sickener." This is a deliberate training strategy in which soldiers are told that they are going on a march of some certain length, an exhausting stretch-you-to-the-limits distance, and allowed to mentally prepare themselves for a difficult but known challenge. Only as the exhausted soldiers reach the end is it revealed that it is not the end and they have twenty more miles to go.
If you read accounts of e.g. the 1929 crash, repeated disappointment
occurs over and over again. Long-forgotten daily and weekly movements seemed huge at the time.
Early in September the stock market broke... A bad break, to be sure, but there had been other bad breaks, and the speculators who escaped unscathed proceeded to take advantage of the lessons they had learned in June and December of 1928 and March and May of 1929: when there was a break it was a good time to buy. In the face of all this tremendous liquidation, brokers' loans as compiled by the Federal Reserve Bank of New York mounted to a new high record on October 2nd, reaching $6,804,000,000--a sure sign that margin buyers were not deserting the market but coming into it in numbers at least undiminished... those who picked up Anaconda at 109 3/4 or American Telephone at 281 would count themselves wise investors. And sure enough, prices once more began to climb... Something was wrong, however. The decline began once more.
Hoover famously met in 1930 with a group urging a public works program and said "Gentlemen, you are sixty days too late. The depression is over." And based on conditions at the moment Hoover said it, it was not a crazy thing to say.
3) In 2008-2009, and even more so now, the extreme behavior of the stock market was taking place against a backdrop
of extreme external events. The hair-short-of-20% drop in 2011 was pretty much a stock market event. The hair-short-of-20% drop in late 2018 was pretty much a stock market event. Both could be seen as the "normal" occasional irrational behavior of crowds. 2008-2009 was accompanied by the successive collapse, month after month, of giant household name "always there" financial institutions--the most dramatic being Lehman Brothers, 1850-2008, RIP, aged 158. But the point is that it wasn't one thing. Just as you'd absorbed the failure of IndyMac, Fannie Mae and Freddie Mac collapsed. Just when the shock had faded, there were giant headlines about AIG (particularly rattling since we have an annuity from an AIG company). Then Lehman Brothers. Then the original, oldest money market fund "breaks the buck." The "sickener" effect was in full operation.
4) There's a qualitative
difference. It's not like 20% drop, 21% drop, 22% drop. It's like the difference between "bumpy ride, look at those wings flex" and "there's a limit, the wings are close to breaking off." It's the difference between your car rocking slightly as a semi whooshes by at high speed in the opposite lane, and the semi being a little over the center line.
Right now, as I write this, I, too, can say "I almost couldn't care less, I have zero fear about this." That is partly because I'm in a good situation: retired, secure income from Social Security and annuities, and a very conservative asset allocation. Another reason is that I am more fearful about the possibility that Covid-19 will not disappear like a miracle than I am about the stock market.
I don't know if the drop will stop any time soon. Whether it does or not, it could be followed by another drop. Or not. What I'm much surer of is that we're in the middle of a volatility cluster and that
isn't going to stop.
Don't judge how you are handling this while you're in the middle of it. We are all almost certainly going to experience several false dawns, several moments of thinking the worst is over and being proved wrong, several "sickeners," before it is all done and gets a name.
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.