Watty wrote: ↑Fri Apr 16, 2021 12:35 am
You are making this too complicated.
If you have a fixed stock and bond asset allocation then you will automatically be selling bonds to buy stocks after a stock market crash.
+1 Exactly!
-1/2
The OP's method is overly complicated, arbitrary in its action points, extreme in the allocation spreads between top and bottom, and lacking a bond floor to prevent portfolio failure.
But there have been studies on using valuation metics to do tactical AA adjustments to a standard 60/40 portfolio, with improved risk/reward profile resulting.
Portfolio Visualizer even has a crude simulator of these techniques built-in if you want to play around with the idea.
Later studies attempted to combine valuation and momentum trigger points, but the outcomes weren't greatly improved.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
gblack wrote: ↑Fri Apr 16, 2021 3:23 pm
How about the opposite scenario when stocks increase nearly 50% in the past year (like it has). Would you argue for moving to a more conservative asset allocation. Does not all the same logic apply?
If you're using valuation-based logic (as opposed to drop/gain percentages), it should apply in both directions.
I like it, but I think I'd like to modify it to be a bit more aggressive and buy stocks in a dip if it makes sense (PH doesn't have you buy anything - it's worth reading about - it offsets the lack of rebalancing with a long chance for stocks to rebound).
Or, another way of looking at this is that I think I'd be happy being 90/10 or so long term, but now feels like a terrible time to move there, and I want to do it in an ordered way based on valuations.
Watty wrote: ↑Fri Apr 16, 2021 12:35 am
You are making this too complicated.
If you have a fixed stock and bond asset allocation then you will automatically be selling bonds to buy stocks after a stock market crash.
+1 Exactly!
-1/2
The OP's method is overly complicated, arbitrary in its action points, extreme in the allocation spreads between top and bottom, and lacking a bond floor to prevent portfolio failure.
But there have been studies on using valuation metics to do tactical AA adjustments to a standard 60/40 portfolio, with improved risk/reward profile resulting.
Portfolio Visualizer even has a crude simulator of these techniques built-in if you want to play around with the idea.
Later studies attempted to combine valuation and momentum trigger points, but the outcomes weren't greatly improved.
Do you have a link to these studies? Or some google terms I should be trying?
A few of us did this last March. Over rebalance. You can check my post history to read about it. I was supposed to get back to my AA once stock recovers to 90% all time high but I did not do it. I let it run a while more and went back to 75/25 a couple of months ago.
embwbam wrote: ↑Thu Apr 15, 2021 11:07 pm
Ok, fair, some (most?) people will be scared and won't be able to commit to buying during a crash. I don't think I'm one of them. I used all my cash to buy stocks in the covid crash, and I'm very confident when the math is on my side.
What if you lose your job?
You realize that the economy tanking, stock market crashing, and you losing your job might be related events, right?
Last edited by HomerJ on Sat Apr 17, 2021 12:25 am, edited 1 time in total.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
HomerJ wrote: ↑Sat Apr 17, 2021 12:23 am
Explain how one does the negative numbers, please...
The third column is negative cash aka debt aka portfolio leverage. Though I'm not sure that levering up while catching a falling knife is necessarily a good idea....
embwbam wrote: ↑Thu Apr 15, 2021 11:07 pm
Ok, fair, some (most?) people will be scared and won't be able to commit to buying during a crash. I don't think I'm one of them. I used all my cash to buy stocks in the covid crash, and I'm very confident when the math is on my side.
What if you lose your job?
You realize that the economy tanking, stock market crashing, and you losing your job might be related events, right?
I'm retired and have many years ahead of me, I have a lot of time for good bets to pay off.
HomerJ wrote: ↑Sat Apr 17, 2021 12:23 am
Explain how one does the negative numbers, please...
The third column is negative cash aka debt aka portfolio leverage. Though I'm not sure that levering up while catching a falling knife is necessarily a good idea....
I quoted Ben Carlson on March 1st 2020
“ Every investor is told to buy low and sell high. But most don’t realize that buy low typically works out to buy low, then buy lower, then buy even lower, and once you really hate yourself, buy lower than you thought was possible.”
How do you do that if you are fully invested? Rebalance into opportunities by selling bonds or buying equities with incoming cash, or both (which I did). I admit I knew our income was gonna be solid in 2020 so we were willing to take risk.
HomerJ wrote: ↑Sat Apr 17, 2021 12:23 am
Explain how one does the negative numbers, please...
The third column is negative cash aka debt aka portfolio leverage. Though I'm not sure that levering up while catching a falling knife is necessarily a good idea....
I quoted Ben Carlson on March 1st 2020
“ Every investor is told to buy low and sell high. But most don’t realize that buy low typically works out to buy low, then buy lower, then buy even lower, and once you really hate yourself, buy lower than you thought was possible.”
How do you do that if you are fully invested? Rebalance into opportunities by selling bonds or buying equities with incoming cash, or both (which I did). I admit I knew our income was gonna be solid in 2020 so we were willing to take risk.
Yeah, 2020, leverage into the dip worked great.
Try that in 2001-2002 and see how long you have to keep paying for that margin while you wait for the market to come back.
And your leveraged positions are doubling or tripling your losses on the way down.
Leveraged NASDAQ is still like a 99% loss (or even total wipeout depending on exact timing) in that period early 2000s period and still hasn't recovered vs vanilla QQQ.
Full disclosure: I'm using 2.5% leverage, as a portion of my whole portfolio, 4% of stocks, right now, so 62.5/40.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
HomerJ wrote: ↑Sat Apr 17, 2021 12:23 am
Explain how one does the negative numbers, please...
The third column is negative cash aka debt aka portfolio leverage. Though I'm not sure that levering up while catching a falling knife is necessarily a good idea....
I quoted Ben Carlson on March 1st 2020
“ Every investor is told to buy low and sell high. But most don’t realize that buy low typically works out to buy low, then buy lower, then buy even lower, and once you really hate yourself, buy lower than you thought was possible.”
How do you do that if you are fully invested? Rebalance into opportunities by selling bonds or buying equities with incoming cash, or both (which I did). I admit I knew our income was gonna be solid in 2020 so we were willing to take risk.
Yeah, 2020, leverage into the dip worked great.
Try that in 2001-2002 and see how long you have to keep paying for that margin while you wait for the market to come back.
And your leveraged positions are doubling or tripling your losses on the way down.
Leveraged NASDAQ is still like a 99% loss (or even total wipeout depending on exact timing) in that period early 2000s period and still hasn't recovered vs vanilla QQQ.
Full disclosure: I'm using 2.5% leverage, as a portion of my whole portfolio, 4% of stocks, right now, so 62.5/40.
It worked awesome. I did not say it was not scary . And I did not even use leverage (I do carry a mortgage). It was painful hitting buy mid March 2020.
I was prepared for a 2000-2002 event. I was prepared to act for a 40, 50% drop and go all in but it did not happen so I ended up with some leftover bonds after the low on March 23. I did not rebalance bonds to stock after that date. I rebalanced stock to bonds again Feb 2021 (guilty of not following my IPS, which states to rebalance when stock reach 90% previous all time high).
Technically accurate but the PE of the NIkkei 225 in 1989 was about 60. The Q4 estimated forward PE of the S&P 500 is 21. The pre-Covid 19 PE was around 24. Humungous difference.
stocknoob4111 wrote: ↑Sat Apr 17, 2021 11:06 am
Technically accurate but the PE of the NIkkei 225 in 1989 was about 60. The Q4 estimated forward PE of the S&P 500 is 21. Humungous difference.
Well, if you want to get into valuation rat holes...
You could also say the CAPE 10 is 85% of what is was at its peak of 44 in 1999.
Cue argument about vanilla CAPE vs Fair Value CAPE in light of current rates, valuations vs future long term return outcomes, etc.
The script writes itself from there.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
embwbam wrote: ↑Thu Apr 15, 2021 10:24 pm
However, for someone currently in retirement and making withdrawals, wouldn't it theoretically make sense to move to a higher equity allocation in a crash?
while I love seeing my nest egg tick higher, the real number I look at is my yearly income.
Would the emotional component change if you had an income number that was ticking UP as you executed a strategy like this, even while the portfolio value was down?
I'm retired and have many years ahead of me, I have a lot of time for good bets to pay off.
So... you're retired and have an alternate income source separate from your portfolio that covers your expenses and increases yearly? That's kind of pertinent to the whole thing, don't you think?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
embwbam wrote: ↑Thu Apr 15, 2021 11:07 pm
Ok, fair, some (most?) people will be scared and won't be able to commit to buying during a crash. I don't think I'm one of them. I used all my cash to buy stocks in the covid crash, and I'm very confident when the math is on my side.
What if you lose your job?
You realize that the economy tanking, stock market crashing, and you losing your job might be related events, right?
I'm retired and have many years ahead of me, I have a lot of time for good bets to pay off.
If you're retired, then you already have enough money.
You don't need to make any more bets.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
flyingaway wrote: ↑Thu Apr 15, 2021 11:11 pm
How about the market only drop 49%?
In March I decided I was going to buy some if the market dropped 40% from the top. Eventually I pulled the trigger. Only later had I figured out that the market hadn't quite dropped 40% and not sure it ever did.
Thank goodness for my error.
In the end it probably mostly amounted to an aggressive rebalance.
I was waiting for the market to drop 50% and it did not. So I missed that opportunity.
At least I did not sell when the market went down. So I think I am good.