It's Not Different This Time

[nedsaid]

I have done nothing.

I haven't either. Except I did peek at our investments yesterday after I said I wouldn't. Ouch! Oh well, nothing to do but stay the course. I am tempted to rebalance, but I only do it once a year, so I guess I'll wait on that too. Maybe I'll just bake some cookies.

Unlike the two of you I "stayed the course" and rebalanced two times and tax loss harvested thrice.

I thought the policy was "stay the course and rebalance". The course is you AA plan. Since mine is +/- 5% bands not once a year I stayed the course. If the two of you had an annual rebalance "course" you stayed the course also.

I execute my stock to bond rebalancing when the stock market hits new highs. That is what I have always said.

[BolderBoy]

Jim, has this crisis made you question your large allocation to munis yet?

I'm curious about this, too.

I'm not Jim but I have a large allocation to munis and am not changing a thing.

[nps]

Yes, money that cannot afford to be lost should not be put into stocks. I certainly agree.

Will, can you reconcile your position now in the midst of this bear market with this one you posted in better times?

I would argue that many are taking the maxim of "don't put money in stocks that you can't afford to lose," which I find quite dubious, too far. Not only is the likelihood of a greater than 50% decline in stocks historically rare (50% declines have only happened three times in 100+ years), but as I posted earlier, if your stocks go down to zero, you have bigger problems than retirement income. Exceptionally few people dependent on their retirement portfolio for income can get all of said income from bonds. And as Buffet has pointed out, a bond heavy portfolio carries its own risks, inflation being a big one.

I've already posted an example of what I was referring to when I said to not put funds into stocks that cannot be lost: an investor who has no emergency fund. I have often espoused high stock allocations for long-term investors on the basis of historic data and am not backing off of that now. Certainly bonds are very likely to go pretty much nowhere for the next decade in terms of building one's wealth. And I for one am unlikely to retire when I want to without getting some positive real returns from stocks. But my espousal of stocks assumes that the investor already has enough non-volatile, liquid assets to cover their own needs. Heck, I started a thread to attempt to dissuade people from dumping their emergency fund into stocks because doing so is wantonly reckless in most situations.

Since you seem to be trying to 'dig up' something I've said before to twist against me and aren't focused on the current issue at hand, I'll not discuss this with you further.

I am focused on the issue at hand, which is whether "this time it's different," as the title of the thread states. It's not about "don't invest your emergency fund," which by the way I think is great advice.

However, for those with a sufficient emergency fund, should they also not invest what they cannot afford to lose? If so, is it because "this time it's different"?

[JKA45]

This has been one of the hardest things I ever had to do, but this thread helps to reaffirm my decision to stay the course. In total, I'm down about $150k(20% of my net worth and 30% of my investments). I've bought in to bogleheads investing, but I must admit that this coronavirus struck fear in me early on, but I couldn't fully follow my convictions and withdraw all my money. So instead, I moved about 150k(30%) of my money into cash right at start of all this mess(some through 5% stop loss orders which triggered fairly quickly). I figured, if this was nothing, I could just buy back higher, but if it was truly something, this would give me ammunition to "buy low" and average down. So, I've buying buying all the way down and here I am sitting on a fat $150k loss, with only 60k in bullets left.

It's not easy to think that "it's not different this time". Everyday the situation gets more grim and I'm going to admit, I am scared-I'm scared about my family's health, I'm scared about losing my job, and I'm scared about being in a deeper hole than I am with my investments. HOWEVER, I'm going to stick to my plan and continue to buy. I suspect(or hope) that this we will find a way to fight this sooner rather than later, and when we do, there will be a massive revival the likes of which has never been seen before.

[Seasonal]

Regarding nothing in stock you can't afford to lose:

A number of BHs have a 50/50, 75/25 or higher asset allocation and profess much faith in the 4% SWR. I'm not sure they're following the nothing in stocks you can't afford to lose. How much they'd adjust, or could adjust, is unclear.

[mrspock]

Maybe it isn't different this time.

Maybe it is.

Are you willing to take Pascal's wager?

Make no mistake: whatever choice you make, you are making some kind of assumption about the future.

All day long... though to really use your analogy, it’s a bit like I’ve been dead about 3 times and already figured out the answer to the wager, with the deity changing slightly each time (because u know... maybe I was just worshiping the wrong one). So making the wager again isn’t that hard. Like MAYBE 4th is a charm.... but not very likely .

[Watty]

There is a subtle difference between this aspects of

"Stay the course"

and

"It's Not Different This Time".

That is the assumption that you were on the right course to start with. Even several months ago there were lots of post advocating 100% stocks and other strategies that were likely not the right course.

For some people this has been a wakeup call that they were on the wrong course so making change would be a good idea.

[vineviz]

In the absence of knowledge, the best thing to do is to stay put. We knew that in wartime, and this is no different. Those who make rash moves well usually pay a steep price.

When a train is coming towards you at high speed do you stay put?

Well, this train has already come and gone.

The real question is this: how helpful is it to shut the barn door after the horse has bolted?

[greentrees]

I’m loading up equities and nearly eliminating bonds, I edited my IPS on the fly though to accommodate for this asset rotation , so this doesn’t count as a boglehead approach either I guess.

That said, population growth being one of the drivers of long term equity returns, a deadly virus is a serious contender for a “this time is different” sort of event.
I don’t believe it to be the case because friends who are senior doctors tell me it’s not the end of the world. If they’re wrong and it is, then I don’t care about my investment portfolio.

[One Ping]

The narrative is always different.

The outcome is has always been the same.

Long term, stocks have always gone go up.

Fixed that for you.

I agree, though. While the narrative may different this time, I see nothing yet that would lead me to believe the outcome will be different this time.

[Thesaints]

Quail hunting in the Belgian countryside is a delightful pastime. Sure, one has to take the right precautions: wear a bright orange vest, keep your gun pointed upward, never fire when you see people in front of you, periodically clean chamber and barrel, refrain from excessive drinking until dinner time.
By abiding these simple rules, you and your friends will be absolutely safe during your October outings, year after year.
Unless the year happens to be 1917.

[no simpler]

In the most empirical, literal, quantitative sense things are different though. We are setting records in measures of many financial time series.
This is the volatility of 10 year treasuries: https://fred.stlouisfed.org/series/VXTYN. It is the absolute highest in the history of the TYVIX.
Likewise, equity markets had record volatility last week.,
US corporate debt is at record level, at 47% of GDP.
Yields on treasuries are at the lowest levels ever.

Not even commenting on COVID-19, we are seeing numbers outside of any historical range.

Do I think we will have permanent destruction of capital? Probably not. But we are experiencing something without precedent in modern history. I would advise trying to keep volatility exposure roughly equal to some fixed target, since volatility of all asset classes is so high and typical correlations are breaking down. This means moving some holdings into cash but not panic selling.

To put it another way: by being fully invested right now, you are taking similar levels of risk to being highly leveraged during more normal times. This is because of a confluence of factors: record volatility across all asset classes, over leveraged balance sheets, valuations high enough that there is no margin of safety, and of course the coming economic contraction. It's fine to take this risk if you're young, but it's a real risk.

[iceport]

A lot of newer forum participants have been surprised to see so many supposed Bogleheads panicking, selling low, market timing, picking individual stocks etc. They are surprised because they thought Bogleheads didn't do this stuff...

Some of them are wondering if this mass Boglehead panic happened in 2008 too. While I'm nowhere near the oldest or most experienced Boglehead, I just wanted to reassure these newer members that yes, this happened in 2008 as well. There were lots of people who professed to be Bogleheads but didn't stay the course in 2008.

I've said it a few times and I will repeat it here.

There is a difference between intellectually grasping the BH philosophy and having the fortitude to follow through during grim times. But fortitude is like intelligence, nobody likes to admit they don't have it. Unfortunately, accurately assessing your personal strengths and weaknesses is difficult. We all have blind spots. If you think intelligence makes up for a lack of fortitude you will learn a painful lesson.

For those of you who prefer to listen to Warren Buffett:

“To invest successfully does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework.”

BH gives you a framework, but it can't give you the fortitude to stick with it.

Very well said, GCD.

A page and a half in, lots of good insights all around, but this one is a gem.

(Yet I'm still open to the possibility that this time really is different... Nothing much I know to do to address that, but I do feel like it's possible.)

[nps]

I wasn't alive then but I think I would have been a lot more worried about the Cuban Missile Crisis.

I do remember many people saying "this time it's different" in 2008-2009. And leading up to Y2K.

[columbia]

Quail hunting in the Belgian countryside is a delightful pastime. Sure, one has to take the right precautions: wear a bright orange vest, keep your gun pointed upward, never fire when you see people in front of you, periodically clean chamber and barrel, refrain from excessive drinking until dinner time.
By abiding these simple rules, you and your friends will be absolutely safe during your October outings, year after year.
Unless the year happens to be 1917.

Wow. That’s great.

[Ferdinand2014]

I have done nothing. The news and the markets have been so crazy that I wouldn't draw any conclusions about the longer term behavior of asset classes based upon the last month. Not sure lessons can be drawn from the last month regarding market behavior because each bear market has its unique causes, no two are exactly the same. It is like the markets have just lost their minds and we are in a period of temporary insanity. We just have to wait until rationality returns. If you had a well constructed portfolio before all of this hit, just wait it out. Selling your stocks at or near the bottom could doom your future retirement. The thing is, we are seeing crazy things happen not only in the stock market but also in the bond market. The market can panic in ways that you never dreamed.

Also amazed at all the doom and gloom here. I visited Poland in 2016 and if you are a student of history, you realize that the Polish people had the misfortune of being located between the Germans and the Russians. They were also not too far away from the Hapsburg empire. Another thing you have to realize is that a huge stretch of Northern Europe is pretty flat, all the way from Moscow, Russia to Northern France. Really no geographic barriers save for rivers to stop armies from rolling back and forth. Poland even had a period during which it didn't even exist as a country.

Learning more about World War II and post war history from my trip, I learned that Poland lost 20% of its population during the war. Their capital, Warsaw was 86% destroyed during the war and just abandoning the site was considered but the Poles decided to rebuild. Auschwitz is in Poland. Poland had a large Jewish population pre-war and this influence was a huge part of their culture. The Jewish population there was almost entirely destroyed. Then after the Nazis were driven out, the Soviets occupied Poland for another 45 years or so after that. So the Poles faced about 50 years of oppression from outside powers.

Now on to American Economic history. Particularly in the pre-Federal Reserve Bank days, our economic history is full of economic and market panics. From boom to depression and back to boom again. To become our own nation, we fought a Revolutionary War and then sort of had to do much of it all over again in the War of 1812. But the economy bounced back from various crisis and sometimes pretty quickly. We have pretty much convinced ourselves that a Coronavirus quarantine for maybe a few months will damage our economy beyond repair and produce and endless recession. When I look at the broad sweep of history and then look at US economic history, we sort of sound like a bunch of babies today. We are not occupied by foreign armies, no one is bombing our cities from the air, and we are not subject to artillery bombardment. Our problems seem pretty small in comparison.

I am not making light of the current situation with the Coronavirus. We do have a big problem, we are trying to save a good part of our elderly population and many of those with chronic health problems. We should heed what Medical professionals are telling us. The point is, we will get through this. This will end at some point. When the markets see clarity regarding this issue, the markets will recover.

I agree 100%. I have posted several times that a knowledge of history puts it all in perspective. The coronavirus is no doubt a bad thing (I am a physician and very much in the front line thick of it right now) with likely large economic displacement, however it is nowhere near what has transpired in the past of human history. Not even in the top 100. I used the example of the U.S. civil war. Can you imagine 5% of the young adult male population dying. Literally half our country destroyed physically by war, whole cities, communities, states destroyed. Entire transportation systems wiped out, social fabric ripped apart both in the north and south and yet it is a blip on the inexorable rise of the standard of living and economy of the U.S. The creativity, ingenuity and human spirit in both the U.S. and the world will overcome this.

[investingdad]

I don't know how much our portfolio is down because I haven't looked. If it were 7 figures, I would not be surprised.

I do not like this.

I foresaw issues here such that we stocked up on food and other stuff weeks before crap hit the fan.

But I didn't make investment changes. Because, honestly, I didn't know I should do. I elected to do nothing. I'm questioning that now, but in for a penny, in for a pound.

[Thesaints]

I wasn't alive then but I think I would have been a lot more worried about the Cuban Missile Crisis.

I do remember many people saying "this time it's different" in 2008-2009. And leading up to Y2K.

You mean when you couldn't leave the house because of all those toxic assets floating around ?

[Ferdinand2014]

If you are not an optimist about the future, one should never invest in stocks.

[Thesaints]

If you are not an optimist about the future, one should never invest in stocks.

If you project a positive expected return, but with a huge volatility, are you optimist about the future, or pessimist ?

[bi0hazard]

The OP is NOT saying the underlying situation is “not different”, he’s referring to financial outcome . The market will bounce back, if capitalism prevails. If capitalism fails, then you don’t need to worry about your investments as much. Turn off CNN and hang on.

[Ferdinand2014]

If you are not an optimist about the future, one should never invest in stocks.

If you project a positive expected return, but with a huge volatility, are you optimist about the future, or pessimist ?

I find volatility a useless metric for risk. It is why I do not rebalance nor have an asset allocation. I am an optimist.

[nps]

I wasn't alive then but I think I would have been a lot more worried about the Cuban Missile Crisis.

I do remember many people saying "this time it's different" in 2008-2009. And leading up to Y2K.

You mean when you couldn't leave the house because of all those toxic assets floating around ?

There's a post above addressing this. It's "different," but is it really "different"? The details of the crises are different. Is the conclusion that because the details are different this time that this means we're headed toward permanent destruction of capital?

[Thesaints]

The OP is NOT saying the underlying situation is “not different”, he’s referring to financial outcome . The market will bounce back, if capitalism prevails. If capitalism fails, then you don’t need to worry about your investments as much. Turn off CNN and hang on.

I'm sure you agree that investing everything in a single company the possibility of never recovering is certainly there.
Investing in the entire market is different, because events that can fell even the larger company cannot affect so negatively all of the companies and there will always be some (many, actually) ready to pick up and increase the index value, eventually.

What if instead there were an event able to affect in a profoundly negative way most of the companies ?

[columbia]

It’s extremely different if you lose your job, but didn’t the last time. Bogleheads platitudes won’t be much of consolation, for those affected - and it looks like it will be a lot.

[Thesaints]

I find volatility a useless metric for risk. It is why I do not rebalance nor have an asset allocation. I am an optimist.

Mmmh... "optimist" is not the first thing that comes to mind...

[Unladen_Swallow]

I find volatility a useless metric for risk. It is why I do not rebalance nor have an asset allocation. I am an optimist.

This is me in a nutshell.

[Thesaints]

There's a post above addressing this. It's "different," but is it really "different"? The details of the crises are different. Is the conclusion that because the details are different this time that this means we're headed toward permanent destruction of capital?

Not "details, but causes are profoundly different and those are causes that indeed could destroy a whole lot of capital. Think an "unprecedented amount" of it.

[averagedude]

Great post WCI. It will be another historic event that will be looked at in the future, and will be yet another example of not being negative on the innovation and ingenuity of business.

[CnC]

A lot of newer forum participants have been surprised to see so many supposed Bogleheads panicking, selling low, market timing, picking individual stocks etc. They are surprised because they thought Bogleheads didn't do this stuff. Indeed, their mentor, Jack Bogle, said

I've said "Stay the course" a thousand times, and I meant it every time.

He meant it this time too, even if he isn't around to say it. Some of them are wondering if this mass Boglehead panic happened in 2008 too. While I'm nowhere near the oldest or most experienced Boglehead, I just wanted to reassure these newer members that yes, this happened in 2008 as well. There were lots of people who professed to be Bogleheads but didn't stay the course in 2008. Here are some examples. Feel free to add your own to the list.

viewtopic.php?t=33253

viewtopic.php?t=32624

viewtopic.php?t=32623

viewtopic.php?t=5934

viewtopic.php?t=25126

viewtopic.php?t=33849

Stay the course. We don't know how deep this bear will go. We don't know when it will end. But we do know two things:

# 1 It will end.
# 2 Those who continue to follow their reasonable written plan will be glad they did so on the other side of it while those who panicked and sold low will regret their actions.

Good luck investing. Stay healthy.

Yes no more than 50% drop and no more than 10 years to get back up to previous highs.


It's all good.


In all seriousness, selling all now and hoping it keeps going down is too risky, you are really playing with fire.

Sell while things are high is one thing, selling after a bloodbath is just foolishness.

[Ferdinand2014]

I find volatility a useless metric for risk. It is why I do not rebalance nor have an asset allocation. I am an optimist.

Mmmh... "optimist" is not the first thing that comes to mind...

Thank you for your thoughts. I have been investing for 30 years and am very happy with my portfolio and investment plan. It has worked wonderfully for me. I keep $X of cash (t-bills) at all times that represents at least 3 years of expenses and the rest goes into a super low cost S&P 500 index every Friday automatically debited. I do not care if my $X represents 5% or 50% of my portfolio. I do care that it represents 3 years of expenses if both my DW and I cannot work. Why has it worked for me? Because there are no choices to make. No rebalancing. No decisions on allocations. No manually investing. No ETF worries. In essence my portfolio accounts for the behavioral mistakes that I know I would make if it were otherwise. This has protected me in the past and is protecting me now during these times. I know that I would behaviorally destroy any theoretical advantages to what is more frequently suggested on this forum. Everyone is unique. This works for me. I make no illusions to COVID-19 and its possible effect. I am a ICU/hospitalist physician and am in the middle of it right now. Donning and doffing and using up N95's like the coffee that I drink. I just finished a 168 hour shift. Yet I remain firmly an optimist. I see the unbelievable nurses and staff working their hearts out and not complaining. I see the amazing resources that we have compared to 100 years ago. So yes, I am an optimist.

[sf_tech_saver]

Hug your dividend checks and muni-bond payments I say. You don't get those unless you stay in the market. Those little crumbs help me to never sell except in cases where personal expenses dictate it and I can afford it. I know the bonds are callable and the dividends may plummet in a recession but I still like the little proof that I own part of something and I have access to some long term liquidity and value from it even if the short term liquidity is coming at an extreme price.

That said I haven't seen how the market will escape the -50% range and nearly test the 2016 bottom again here. The really positive news cycles seem at least a month out and that is a long long time for a market to generate a real-time price on what looks to be a challenging situation.

Just remember the difference between the real-time price and the long term value and you can sleep at night.

[tintin]

Agree with the OP.
As a reminder I like to read the book 'Reminiscences Of A Stock Operator' often and one of my favorite and
one of the most important passages in ‘Reminiscences Of A Stock Operator’.

In Fullerton’s there were the usual crowd.

All grades! Well, there was one old chap who was not like the others. To begin with, he was
a much older man. Another thing was that he never volunteered advice and never
bragged of his winnings. He was a great hand for listening very attentively to the others.
He did not seem very keen to get tips that is, he never asked the talkers what they’d
heard or what they knew. But when somebody gave him one he always thanked the
tipster very politely. Sometimes he thanked the tipster again when the tip turned out
O.K. But if it went wrong he never whined, so that nobody could tell whether he
followed it or let it slide by. It was a legend of the office that the old jigger was rich and
could swing quite a line. But he wasn’t donating much to the firm in the way of
commissions; at least not that anyone could see. His name was Partridge, but they
nicknamed him Turkey behind his back, because he was so thick-chested and had a habit
of strutting about the various rooms, with the point of his chin resting on his breast.
The customers, who were all eager to be shoved and forced into doing things so as to lay
the blame for failure on others, used to go to old Partridge and tell him what some friend
of a friend of an insider had advised them to do in a certain stock. They would tell him
what they had not done with the tip so he would tell them what they ought to do. But
whether the tip they had was to buy or to sell, the old chap’s answer was always the
same.
The customer would finish the tale of his perplexity and then ask: “What do you think I
ought to do?”
Old Turkey would cock his head to one side, contemplate his fellow customer with a
fatherly smile, and finally he would say very impressively, “You know, it’s a bull
market!”
Time and again I heard him say, “Well, this is a bull market, you know!” as though he
were giving to you a priceless talisman wrapped up in a million-dollar accident insurance
policy. And of course I did not get his meaning.
One day a fellow named Elmer Harwood rushed into the office, wrote out an order and
gave it to the clerk. Then he rushed over to where Mr. Partridge was listening politely to
John Fanning’s story of the time he overheard Keene give an order to one of his brokers
and all that John made was a measly three points on a hundred shares and of course the
stock had to go up twenty-four points in three days right after John sold out. It was at
least the fourth time that John had told him that tale of woe, but old Turkey was smiling
as sympathetically as if it was the first time he heard it.
Well, Elmer made for the old man and, without a word of apology to John Fanning, told
Turkey, “Mr. Partridge, I have just sold my Climax Motors. My people say the market is
entitled to a reaction and that I’ll be able to buy it back cheaper. So you’d better do
likewise. That is, if you’ve still got yours.”
Elmer looked suspiciously at the man to whom he had given the original tip to buy. The
amateur, or gratuitous, tipster always thinks he owns the receiver of his tip body and
soul, even before he knows how the tip is going to turn out.
“Yes, Mr. Harwood, I still have it. Of course!” said Turkey gratefully. It was nice of
Elmer to think of the old chap. “Well, now is the time to take your profit and get in again
on the next dip,” said Elmer, as if he had just made out the deposit slip for the old man.
Failing to perceive enthusiastic gratitude in the beneficiary’s face Elmer went on: “I have
just sold every share I owned!”
From his voice and manner you would have conservatively estimated it at ten thousand
shares. But Mr. Partridge shook his head regretfully and whined, “No! No! I can’t do
that!”
“What?” yelled Elmer.
“I simply can’t!” said Mr. Partridge. He was in great trouble.
“Didn’t I give you the tip to buy it?”
“You did, Mr. Harwood, and I am very grateful to you. Indeed, I am, sir. But ”
“Hold on! Let me talk! And didn’t that stock go op seven points in ten days? Didn’t it?”
“It did, and I am much obliged to you, my dear boy. But I couldn’t think of selling that
stock.”
“You couldn’t?” asked Elmer, beginning to look doubtful himself. It is a habit with most
tip givers to be tip takers.
“No, I couldn’t.”
“Why not?” And Elmer drew nearer.
“Why, this is a bull market!” The old fellow said it as though he had given a long and
detailed explanation.
“That’s all right,” said Elmer, looking angry because of his disappointment. “I know this
is a bull market as well as you do. But you’d better slip them that stock of yours and buy
it back on the reaction. You might as well reduce the cost to yourself.”
“My dear boy,” said old Partridge, in great distress “my dear boy, if I sold that stock now
I’d lose my position; and then where would I be?”
Elmer Harwood threw up his hands, shook his head and walked over to me to get
sympathy: “Can you beat it?” he asked me in a stage whisper. “I ask you!”
I didn’t say anything. So he went on: “I give him a tip on Climax Motors. He buys five
hundred shares. He’s got seven points’ profit and I advise him to get out and buy ’em
back on the reaction that’s overdue even now. And what does he say when I tell him? He
says that if he sells he’ll lose his job. What do you know about that?”
“I beg your pardon, Mr. Harwood; I didn’t say I’d lose my job,” cut in old Turkey. “I said
I’d lose my position. And when you are as old as I am and you’ve been through as many
booms and panics as I have, you’ll know that to lose your position is something nobody
can afford; not even John D. Rockefeller. I hope the stock reacts and that you will be
able to repurchase your line at a substantial concession, sir. But I myself can only trade
in accordance with the experience of many years. I paid a high price for it and I don’t
feel like throwing away a second tuition fee. But I am as much obliged to you as if I had
the money in the bank. It’s a bull market, you know.” And he strutted away, leaving
Elmer dazed.
What old Mr. Partridge said did not mean much to me until I began to think about my
own numerous failures to make as much money as I ought to when I was so right on the
general market. The more I studied the more I realized how wise that old chap was. He
had evidently suffered from the same defect in his young days and knew his own human
weaknesses. He would not lay himself open to a temptation that experience had taught
him was hard to resist and had always proved expensive to him, as it was to me.
I think it was a long step forward in my trading education when I realized at last that
when old Mr. Partridge kept on telling the other customers, “Well, you know this is a
bull market!” he really meant to tell them that the big money was not in the individual
fluctuations but in the main movements that is, not in reading the tape but in sizing up
the entire market and its trend.
And right here let me say one thing: After spending many years in Wall Street and after
making and losing millions of dollars I want to tell you this: It never was my thinking
that made the big money for me. It always was my sitting. Got that? My sitting tight! It
is no trick at all to be right on the market. You always find lots of early bulls in bull
markets and early bears in bear markets. I’ve known many men who were right at
exactly the right time, and began buying or selling stocks when prices were at the very
level which should show the greatest profit. And their experience invariably matched
mine that is, they made no real money out of it. Men who can both be right and sit tight
are uncommon. I found it one of the hardest things to learn. But it is only after a stock
operator has firmly grasped this that he can make big money. It is literally true that
millions come easier to a trader after he knows how to trade than hundreds did in the
days of his ignorance.
The reason is that a man may see straight and clearly and yet become impatient or
doubtful when the market takes its time about doing as he figured it must do. That is
why so many men in Wall Street, who are not at all in the sucker class, not even in the
third grade, nevertheless lose money. The market does not beat them. They beat
themselves, because though they have brains they cannot sit tight. Old Turkey was dead
right in doing and saying what he did. He had not only the courage of his convictions but
the intelligent patience to sit tight.

[LadyGeek]

^^^ FYI - The book is available at Project Gutenberg here: Reminiscences of a Stock Operator by Edwin Lefevre

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[birdog]

Thank you for your thoughts. I have been investing for 30 years and am very happy with my portfolio and investment plan. It has worked wonderfully for me. I keep $X of cash (t-bills) at all times that represents at least 3 years of expenses and the rest goes into a super low cost S&P 500 index every Friday automatically debited. I do not care if my $X represents 5% or 50% of my portfolio. I do care that it represents 3 years of expenses if both my DW and I cannot work. Why has it worked for me? Because there are no choices to make. No rebalancing. No decisions on allocations. No manually investing. No ETF worries. In essence my portfolio accounts for the behavioral mistakes that I know I would make if it were otherwise. This has protected me in the past and is protecting me now during these times. I know that I would behaviorally destroy any theoretical advantages to what is more frequently suggested on this forum. Everyone is unique. This works for me. I make no illusions to COVID-19 and its possible effect. I am a ICU/hospitalist physician and am in the middle of it right now. Donning and doffing and using up N95's like the coffee that I drink. I just finished a 168 hour shift. Yet I remain firmly an optimist. I see the unbelievable nurses and staff working their hearts out and not complaining. I see the amazing resources that we have compared to 100 years ago. So yes, I am an optimist.

Cheers to you and thank you for fighting on the front lines for all of us!

As for WCI, good thread and thank you for starting it. I agree with the title. And thank your for fighting for us all well!

[garlandwhizzer]

nedsaid wrote:

It is like the markets have just lost their minds and we are in a period of temporary insanity. We just have to wait until rationality returns. If you had a well constructed portfolio before all of this hit, just wait it out. Selling your stocks at or near the bottom could doom your future retirement. The thing is, we are seeing crazy things happen not only in the stock market but also in the bond market. The market can panic in ways that you never dreamed.

1+

I believe nedsaid states the problem very well. There is very high degree of uncertainty about the future now and this inevitably leads to a wide range of potential outcomes on issues like how deep will it go, how long will it last. Uncertainty of outcome opens the door to investor emotional responses which can be self-reinforcing. Panic selling leads to greater losses which in turn lead to more panic selling. The truth IMO is that no one knows exactly how long it will last or how deep it will go. An individual investor who buys or sells now based on his/her belief about how the future will play out is likely to be no more accurate, probably less so than the flip of a coin. Selling equity now may offer emotional balm at a time when you need it, but is likely to make a significant hit on your bottom line in the long run. Juicy equity returns will be IMO hard to come by over the next decade and selling a large portion of your equity at fire sale prices may put you behind the 8 ball for reaching financial goals like retirement. Buying equity now if you're not sitting on huge wads of safe fixed income and/or a bullet proof secure high paying job increases your risk at a tough time, something that many of us are uncomfortable with in a bear market. Buying cheap equity on margin now is playing with fire--potential great gains, potential disaster--and there is no way to reliably tell which in advance. Take it from one who learned the hard way.

nedsaid also wrote:

The point is, we will get through this. This will end at some point. When the markets see clarity regarding this issue, the markets will recover.

Personally, I believe this fully and that along with having a properly balanced portfolio is what allows me to sleep at night. I do not believe the world is ending or that we're becoming Japan or any of the other nightmare scenarios. We've lived through many nightmares already in this country. We've survived the the GD, the GR, 2 World Wars, multiple other wars, severe inflation, stagflation, etc., and those who stayed the course through the worst of it have benefited greatly for holding on. I see no reason why we shouldn't expect the same this time. If you just discovered that don't have the right balance in your portfolio that reflects your true risk tolerance, try to delay fixing it until the market wind changes and optimism prevails again. The fix will cost you much less then.

Garland Whizzer

[pennywise]

For one there’s not a time in the last 50 years that I can remember that I could not buy toilet paper for three weeks straight. So that is different

Only because you don't live in South Florida . I've spent many weeks without being able to buy food much less toilet paper, along with no electricity.

Obviously the entire country hasn't shut down before but as has been said this is just a different initator of the same pattern.

It will come back.

[FI4LIFE]

Hate to break it to you sports fans, Bogleheads is a form of social media.

Yes but I self-identify as anti-social media.

[Triple digit golfer]

If you just discovered that don't have the right balance in your portfolio that reflects your true risk tolerance, try to delay fixing it until the market wind changes and optimism prevails again. The fix will cost you much less then.

This mostly describes me, except that I am not overly concerned with equity prices. Rather, I am concerned about potential unemployment and am regretting not having 2.5 or 3 years in bonds/cash. Our 80/20 portfolio comes out to
about 20 months of expenses in bonds in tax deferred accounts. 3 months in savings but that's not part of AA. We have what used to be a large taxable equity portfolio that is now about 26 months of expenses. In an emergency I would sell these for cash and exchange the bonds in tax deferred for equities.

My regret is having only 3 months in the emergency fund. I'd like to set a floor of 2.5 years in cash or bonds moving forward, preferably 9+ months in savings and the rest in bonds in the portfolio, at 80/20 but not lower than the total of 2.5 years total in bonds/cash.

A fear is that the taxable equities drop to say only 15 months of expenses when I need the money, so even though I have 20 months of bonds in tax deferred, I won't be able to access them all because I'll have less than that in taxable.

Do I sell the taxable equities and exchange for bonds, and do the opposite in tax deferred, holding all my bonds in taxable, to prevent this issue? Do I wait until the taxable equities drop to a level equal to that of my bonds in tax deferred before doing so? Do I sell equities at a big loss to get to my desired 2.5 year floor now (this I'm highly averse to doing).

My plan currently is this. Would love your input:

1. Contribute max to all tax advantaged accounts per 80/20 AA per usual. Or should I contribute to only bonds until I hit the 2.5 year floor?

2. Stop taxable investing and add to cash savings instead until cash savings is 9+ months of expenses.

3. Do not rebalance out of bonds and into equities anymore because it would reduce bond allocation even farther below my desired 2.5 year floor.

4. If equities fall farther and taxable equity account falls below tax deferred bond balance, sell and exchange to bonds, and do the opposite in tax deferred to effectively move bonds to taxable and equities to tax deferred.

5. Once 2.5 year bonds/cash floor is reached, however long it takes, leave 9 months of cash in savings, and continue to hold bonds in taxable until taxable account is 42 months of expenses (double 21 months). At that point can reassess shifting bonds back to tax advantaged and holding equities in taxable. Reason for 42 months is that if equities take a 50% haircut, I'll still have 21 months in taxable plus 9 in savings = 2.5 year floor.

[Poorman]

I still go to work 40 hours a week. I still go buy my groceries once or twice a week. One time I couldn't get the bread I wanted. So had to settle with low carb. I still go to parks on weekends, and spend time at my bros. Life is no different.

I'm buying in with every penny I have. If you think the world and markets are going to collapse then currency won't be worth anything anyways. Go ahead and pull it out, buy toilet paper.

[Scooter57]

I agree 100%. I have posted several times that a knowledge of history puts it all in perspective. The coronavirus is no doubt a bad thing (I am a physician and very much in the front line thick of it right now) with likely large economic displacement, however it is nowhere near what has transpired in the past of human history. Not even in the top 100. I used the example of the U.S. civil war. Can you imagine 5% of the young adult male population dying. Literally half our country destroyed physically by war, whole cities, communities, states destroyed. Entire transportation systems wiped out, social fabric ripped apart both in the north and south and yet it is a blip on the inexorable rise of the standard of living and economy of the U.S. The creativity, ingenuity and human spirit in both the U.S. and the world will overcome this.

A historical note: the US economy recovered swiftly f rom the loss of those men in the Civil War because of the huge flood of skilled and unskilled immigrants who came to tbe US after the war. The 1870s and 80s were a period when there was no limit on European immigration save for health inspections.

But the problem posed by the virus is not the deaths it causes, but that it is revealing much of what investors chose to ignore about how cheap loans have been used for the past decade. Corporations have no emergency funds to get them through a couple of weeks of shutdown despite having borrowed record amounts. Neither do many citizens. We are seeing the predictable result of borrowing for nonproductive purposes.It has just been unveiled by an unpredictable event.

The stock market was booming before the virus appeared, but real corporate earnings were not, and there were many informed investors sounding the alarm about a coming recession, including those who move the bond market. Infrastructure has become a huge issue throughout the US after a decade where cost cutting has been the only public policy. Now, we notice we have no infrastructure to handle a health crisis that every epidemiologist knew would eventually happen. We have cities, already stretched by docial isdues ignored by tax-phobic governments, having a huge new burden placed on them they have no margin of safety for.. We have a population whose real take home pay has not risen except for in a small group of tech people and the already rich. The 90% do not have the means to get through a month without work. All revealed in a few weeks, globally.

As a student of history I think the period that followed will be seen as the logical outcome of governmental policies that favored giving corporations everything tbeir lobbyists asked for and propping up the stock market at the expense of society's other needs.

[JackoC]

In the most empirical, literal, quantitative sense things are different though. We are setting records in measures of many financial time series.
This is the volatility of 10 year treasuries: https://fred.stlouisfed.org/series/VXTYN. It is the absolute highest in the history of the TYVIX.
Likewise, equity markets had record volatility last week.,
US corporate debt is at record level, at 47% of GDP.
Yields on treasuries are at the lowest levels ever.

Not even commenting on COVID-19, we are seeing numbers outside of any historical range.

Do I think we will have permanent destruction of capital? Probably not. But we are experiencing something without precedent in modern history. I would advise trying to keep volatility exposure roughly equal to some fixed target, since volatility of all asset classes is so high and typical correlations are breaking down. This means moving some holdings into cash but not panic selling.

To put it another way: by being fully invested right now, you are taking similar levels of risk to being highly leveraged during more normal times. This is because of a confluence of factors: record volatility across all asset classes, over leveraged balance sheets, valuations high enough that there is no margin of safety, and of course the coming economic contraction. It's fine to take this risk if you're young, but it's a real risk.

You make good points IMO. Various objective measures of market turmoil like the VIX, sell off in even *slightly* risky bonds compared to nominal treasuries, etc are outside historical experience. It's surely not ridiculous to call it 'different', in respect of the market dynamics, or the underlying cause (there have been far worse plagues of course, but not a world economic shut down to save lives). Although the most important metric in many investors' minds might be total % drop in stock market from a recent high and that's run of the mill for bear markets...so far, albeit in a heck of a hurry.

Anyway it seems some here want to a apply a special definition of 'different' in this context that can only be reached if it's the end of the market economy altogether, which I'm personally pretty confident it's not. I would still say it's different, defined less extremely.

Also I agree that risk is not constant for a given number of share or % of stocks. It's much higher now, again not limiting to extremes like 'permanent destruction of capital' (meaning what, Imperial Russian stock market or Confederate bonds? ) but losses on 'rebalancing' purchases into a falling market that might not be made good for many many years (or could be made good in a couple of years, who knows? that's what risk is).

My 'course' is only to buy stocks with money in excess of a pretty large multiple of annual spending in 'safe' assets, though selling stocks if the % goes over a fixed level (withdrawals for spending, in retirement, accomplishes a good deal of that). It's what I did in 2008-9 and didn't regret it. So I'm 'staying' it. I don't think however you can necessarily hold consistency as an absolute virtue about all else. A little humility might be in order as to whether we can sure 'staying' our 'course' is 100% certainly the right thing.

[AlohaJoe]

Every major bear market I can remember has been associated with a recession or financial crisis and has been amenable to standard economic tools,

Come on, I mean this is obviously not true, as any economic history of 2008 makes clear. That's one reason why there was so much gnashing of the teeth over completely untested things like QE, nationalization of Fannie & Freddie, TARP, the Federal Reserve back-stopping foreign banks via nearly unlimited swap lines, etc.

From the now-released full transcript of the December 16, 2008, Federal Reserve committee meeting:

Mr. Bernanke acknowledges the usual policies that worked in the past aren’t working – in fact, this time is so different that a new approach is needed.

[JoMoney]

The reason for the panic has changed, but I'm not doing anything different, and my expectations going forward hasn't changed.

[Bfwolf]

If anything is different, it's that this time is better.

The full economic damage is self-inflicted by making the intentional choice to value saving old people's lives over free movement and commerce. If things got so bad as to start putting us into a deep depression, we have the solution available: remove the restrictions and let some people die.

I'm not advocating for that at all right now. But it's the backup plan we have at our disposal. We didn't have that kind of backup plan in 2008.

[Ferdinand2014]

I agree 100%. I have posted several times that a knowledge of history puts it all in perspective. The coronavirus is no doubt a bad thing (I am a physician and very much in the front line thick of it right now) with likely large economic displacement, however it is nowhere near what has transpired in the past of human history. Not even in the top 100. I used the example of the U.S. civil war. Can you imagine 5% of the young adult male population dying. Literally half our country destroyed physically by war, whole cities, communities, states destroyed. Entire transportation systems wiped out, social fabric ripped apart both in the north and south and yet it is a blip on the inexorable rise of the standard of living and economy of the U.S. The creativity, ingenuity and human spirit in both the U.S. and the world will overcome this.

A historical note: the US economy recovered swiftly f rom the loss of those men in the Civil War because of the huge flood of skilled and unskilled immigrants who came to tbe US after the war. The 1870s and 80s were a period when there was no limit on European immigration save for health inspections.

But the problem posed by the virus is not the deaths it causes, but that it is revealing much of what investors chose to ignore about how cheap loans have been used for the past decade. Corporations have no emergency funds to get them through a couple of weeks of shutdown despite having borrowed record amounts. Neither do many citizens. We are seeing the predictable result of borrowing for nonproductive purposes.It has just been unveiled by an unpredictable event.

The stock market was booming before the virus appeared, but real corporate earnings were not, and there were many informed investors sounding the alarm about a coming recession, including those who move the bond market. Infrastructure has become a huge issue throughout the US after a decade where cost cutting has been the only public policy. Now, we notice we have no infrastructure to handle a health crisis that every epidemiologist knew would eventually happen. We have cities, already stretched by docial isdues ignored by tax-phobic governments, having a huge new burden placed on them they have no margin of safety for.. We have a population whose real take home pay has not risen except for in a small group of tech people and the already rich. The 90% do not have the means to get through a month without work. All revealed in a few weeks, globally.

As a student of history I think the period that followed will be seen as the logical outcome of governmental policies that favored giving corporations everything tbeir lobbyists asked for and propping up the stock market at the expense of society's other needs.

Also as a student of history, one can always come up with a calamity for the doom and gloom crowd. I could list a thousand positives to your negatives. It all boils down to this: do you believe in an optimistic future or not? I choose to believe in an optimistic future and the power of the human spirit to overcome this.

"The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty."

"I am an optimist. It does not seem too much use being anything else."

Winston Churchill

"Tomorrow is always uncertain. Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential—a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War—remain alive and effective."

My Warren Buffett Bible: A Short and Simple Guide to Rational Investing: 292 Quotes From the World's Most Successful Investor (pp. 40-41). Skyhorse Publishing. Kindle Edition.

And with that, I am taking a break from Bogleheads as I am going to focus on my work ahead as a physician, parent, husband and optimistic contributor to the immediate needs of my community and this great country.


https://www.amazon.com/Rational-Optimis ... 168&sr=8-1

[JoMoney]

... And with that, I am taking a break from Bogleheads as I am going to focus on my work ahead as a physician, parent, husband and optimistic contributor to the immediate needs of my community and this great country. ...

[RandomWord]

This is the first time I've experienced a market crash from something that might also kill me.

I guess the world wars were like that, for European investors. But it seems pretty different from the more recent crashes.

[FS51]

#notdifferent

[LincolnTunnel]

https://www.buzzfeednews.com/article/la ... d-off-jobs



I don't know. I think it feels like it could be kind of different.