U.S. stocks in freefall

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backpacker
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Re: U.S. stocks in freefall

Post by backpacker » Mon Oct 05, 2015 8:37 pm

Hodor wrote:
Bustoff wrote:This is crazy.
The S&P is now up 5% in 4 days.


At this rate, we'll all be retired by Christmas :D


US stocks in...errrr...free climb?

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Uncle Pennybags
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Re: U.S. stocks in freefall

Post by Uncle Pennybags » Tue Oct 06, 2015 9:11 am

backpacker wrote:
Hodor wrote:
Bustoff wrote:This is crazy.
The S&P is now up 5% in 4 days.


At this rate, we'll all be retired by Christmas :D


US stocks in...errrr...free climb?
What's the opposite of trying to catch a falling knife; capture a rising balloon before it pops?

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Re: U.S. stocks in freefall

Post by linenfort » Tue Oct 06, 2015 12:56 pm

Uncle Pennybags wrote:What's the opposite of trying to catch a falling knife; capture a rising balloon before it pops?

Getting on the elevator before the door closes?
The problem is not that bitcoin is a sham. The problem is that people are nuts.

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Uncle Pennybags
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Re: U.S. stocks in freefall

Post by Uncle Pennybags » Tue Oct 06, 2015 3:28 pm

linenfort wrote:
Uncle Pennybags wrote:What's the opposite of trying to catch a falling knife; capture a rising balloon before it pops?

Getting on the elevator before the door closes?
With no door safety switch.

My complicated formula of regular investing to a 60/40 asset allocation made me buy total stock today. :shock:

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Uncle Pennybags
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Re: U.S. stocks in freefall

Post by Uncle Pennybags » Wed Oct 07, 2015 6:02 pm

So no obvious observations we should all know about? :mrgreen:

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backpacker
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Re: U.S. stocks in freefall

Post by backpacker » Wed Oct 07, 2015 7:05 pm

Uncle Pennybags wrote:So no obvious observations we should all know about? :mrgreen:


We're within spitting distance of 2000! :D

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Re: U.S. stocks in freefall

Post by fortyofforty » Wed Oct 07, 2015 7:11 pm

Dare I say "NASDAQ 10,000"? Haven't heard that one in quite a long time. :happy
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Re: U.S. stocks in freefall

Post by ofcmetz » Thu Oct 08, 2015 3:47 am

US Stocks in Liftoff! We have cleared the tower.

This thread does a great job of capturing the emotions that investors go through. It's OK to feel these things as long as you aren't making unnecessary changes that will be detrimental to one's longterm results.
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Re: U.S. stocks in freefall

Post by miles monroe » Thu Oct 08, 2015 9:25 am

back on topic :) YUM was certainly in freefall yesterday.

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Re: U.S. stocks in freefall

Post by ofcmetz » Sun Oct 25, 2015 1:04 am

Is it wrong to bump this after a couple of good weeks of stock returns. Seems the year's losses are erased now and we are a few percentage points into positive territory if dividends are added in. It already seems like a brief correction. I don't know what tomorrow will bring, but since the 2011 start date of this thread equities have done pretty well for those who stayed the course.
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Re: U.S. stocks in freefall

Post by GoldenFinch » Sun Oct 25, 2015 5:31 am

ofcmetz wrote:Is it wrong to bump this after a couple of good weeks of stock returns. Seems the year's losses are erased now and we are a few percentage points into positive territory if dividends are added in. It already seems like a brief correction. I don't know what tomorrow will bring, but since the 2011 start date of this thread equities have done pretty well for those who stayed the course.


One could argue it was technically not a free fall and only a dip. So you could have bumped a Stocks in a Dip thread, or Stocks Continue Upward Trend thread. :D If it was an actual free fall, it was one of those brief free falls which are much more preferable to the steep, seemingly one directional, potentially anxiety provoking long free falls. So, not bad at all. Some would even say it was a good free fall or that they missed it because they were too busy planting bulbs for spring (I still haven't planted spring flowers as I was distracted by the free fall/dip). I would quit paying attention altogether, but I kind of wonder what will happen this week.

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Re: U.S. stocks in freefall

Post by Sents » Sun Oct 25, 2015 5:49 am

Darn, I shouldn't have sold all my stocks at the bottom of the dip. Just kidding. :beer
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Re: U.S. stocks in freefall

Post by nisiprius » Sun Oct 25, 2015 6:47 am

The big lesson from all of this, which constantly needs to be re-learned and which we should never forget, is how exaggerated almost everybody's feelings have been been during the months of August, September, and October 2015.

It also shows the importance of tuning out the noise, because I could say to myself "Well, it's just down 10%," but whenever I turned on the TV news or any financial website, I would start to think "Maybe this 10% is scarier than I think it is, because everyone else really seems to be seriously worried about it."

It is certainly a wonderful opportunity now, when we are roughly back to the level we were at December 2014 through July 2015, which many of us had started to anchor on as some kind of "normal" level we were entitled to, to adjust our stock allocation now if we were seriously uncomfortable during the last three months.

I'm thinking an interesting question to ask would be this: December 2014 through July 2015 could be called a period of illusory stability. I don't know how you'd measure it, but it would be interesting to know how many times you get a period of that long when the Dow stays that level. Perhaps such a level period is dangerous to us non-speculative investors, because they numb us to normal volatility and magnify the effect of the next thing that happens.
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Re: U.S. stocks in freefall

Post by Levett » Sun Oct 25, 2015 8:55 am

Well, here's a chart, Nisi, that conveys quite a picture.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=VIX

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Re: U.S. stocks in freefall

Post by JW-Retired » Sun Oct 25, 2015 9:21 am

A small lesson I can't ever seem to learn is that you need to actually be prepared to TLH on a dip. This last dip I didn't realize we had a worthwhile $1k loss in one fund until the market was closed. Then it bounced back the next day. Missed several other smaller TLH chances later because of some distraction or another.

Next time I hope to be better prepared. This thread showing up is a nice alarm bell. :beer
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Re: U.S. stocks in freefall

Post by nedsaid » Sun Oct 25, 2015 9:44 am

Well we did see the bounce back in stocks. Just as I didn't foresee the August-September correction that took stocks down 15-16% or so, I did not predict the recovery in October. If I had slept through from mid-August until now and just woke up, I would have said, "Meh, no big deal." Thing of all the worry, the stomach rumbling emotions, all the forests that have been leveled to print all the stock pundits commentary that the end was near that would have been saved if we all had a longer term view. The world didn't end after all.
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Re: U.S. stocks in freefall

Post by Big Dog » Sun Oct 25, 2015 9:45 am

Stay The Course

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Re: U.S. stocks in freefall

Post by duffer » Sun Oct 25, 2015 11:29 am

Staying in 100% stocks since 2011 (in fact, since 2007 or before--back to 1983 for me) has been a good way to go, so far:

my returns since 2011:
2011---1%
2012---21%
2013---37%
2014---11%
YTD----2%

If you are diversified and if you do dollar cost averaging and if can afford to not sell (or at least not to sell much) during down periods, then there is no such thing as a permanent loss in equities.

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Re: U.S. stocks in freefall

Post by Leif » Sun Oct 25, 2015 1:05 pm

duffer wrote:Staying in 100% stocks since 2011 (in fact, since 2007 or before--back to 1983 for me) has been a good way to go, so far:

my returns since 2011:
2011---1%
2012---21%
2013---37%
2014---11%
YTD----2%

If you are diversified and if you do dollar cost averaging and if can afford to not sell (or at least not to sell much) during down periods, then there is no such thing as a permanent loss in equities.

How was your 2008 return? 100% stocks that year?
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: U.S. stocks in freefall

Post by duffer » Sun Oct 25, 2015 8:27 pm

Yes--as I thought I said in my post (perhaps not clearly enough), I have been all equities since the 1980s. Never sold a thing in 2008. I was completely whole by 2010 and then rode the rocket for the years following.

You don't only lose money when the market goes down. You also lose money when the market goes up and you are not invested.

You also lose money when inflation exceeds your returns. That is why there ARE permanent losses in fixed income--when inflation exceeds their returns, as has often been the case historically.

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Re: U.S. stocks in freefall

Post by Grt2bOutdoors » Sun Oct 25, 2015 9:56 pm

Uncle Pennybags wrote:I notice the mortgagee the ranch to play the market types are very quiet lately.


That's because they're too busy down at the courthouse arguing why their house shouldn't be foreclosed upon, they are just waiting for the market to double before they can pay off the house in full. :oops:
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Re: U.S. stocks in freefall

Post by Leif » Sun Oct 25, 2015 11:49 pm

duffer wrote:Yes--as I thought I said in my post (perhaps not clearly enough),

True, not quite clear. You mentioned three years 2011, 2007, and 1983.
duffer wrote:You don't only lose money when the market goes down. You also lose money when the market goes up and you are not invested.

Disagree here. If the market gains and you are not invested you don't lose money, you simply did not make any in the market. You could say lost opportunity. That's about it.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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Re: U.S. stocks in freefall

Post by cfs » Sat Dec 12, 2015 9:58 am

Santa Claus is Coming to Town

Just heard on the radio, get ready for the Santa Claus Rally in the last two weeks of the year! Reality check time, just hang in there, maintain course and speed, steady as she goes. Invest slowly and for the long run.

Have a Merry Christmas, Feliz Navidad.
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Re: U.S. stocks in freefall

Post by zaboomafoozarg » Sat Dec 12, 2015 11:26 am

The drop yesterday was fortuitous for me. I had TLH'd from VTIAX to VFWAX a few months ago, and this drop put VFWAX in the red so I could TLH back into VTIAX. I like not having extra funds laying around if I can avoid it.

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Re: U.S. stocks in freefall

Post by dougger5 » Sat Dec 12, 2015 11:30 am

Yeah, I felt a twinge at the conclusion of this past week. I recently rolled my wife's American Funds work account into a VG rollover IRA. It went in just over $90k, now it's just under $90k. Not a big delta, but the combination of the feeling of responsibility for managing the AA of the new account, and the psychology of traversing round numbers produced my first real gut check since I've started paying more attention to our retirement funds.

Just looking forward now to the end-of-year distributions to fire off my gray matter's reward center.

:dollar :dollar :dollar

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Re: U.S. stocks in freefall

Post by Rx 4 investing » Sat Dec 12, 2015 11:59 am

Ben Graham said: "People who habitually purchase common stocks at more than about 20 times their average earnings are likely to lose considerable money in the long run."


The current P/E ratio of the S & P 500 is 21.2.
http://www.multpl.com/

The "Rule of 20” reflects the important relationship between corporate earnings (cash flows) and discount rates (driven by marginal inflationary expectations.)

Here are the basics of this heuristic:

--The addition of the U.S. equity market’s price/earnings ratio and the current inflation rate as measured by the Consumer Price Index should trend around 20

-- P/E + Y-o-Y rate of inflation < 20

Current reading: 21.2 + 0.2 = 21.4

Rule of 20 "Fair value" calculation: P/E minus Y-o-Y rate of inflation = FV.

"Over the last 12 months, the all items index increased 0.2 percent before seasonal adjustment." http://www.bls.gov/news.release/cpi.nr0.htm

"Fair value" : 20 - 0.2 = 19.8.

Provided the economy does not slip into outright deflation, the S & P 500 is about 8 % over-valued. (21.4 - 19.8 = 1.6 ; 1.6 / 19.8 = 8 %)
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes

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Re: U.S. stocks in freefall

Post by cfs » Sat Dec 12, 2015 12:21 pm

dougger5 wrote:. . . I recently rolled my wife's American Funds work account into a VG rollover IRA . . .

Good move. Don't worry about Miss Market having a bad hair day/week/month. Things will get better. I hope.
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Re: U.S. stocks in freefall

Post by GoldenFinch » Sat Dec 12, 2015 4:01 pm

Oh good! I thought something was wrong when this thread wasn't revived and didn't pop up in my email notifications yesterday. Thanks. Now I know everything is okay. :D

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Re: U.S. stocks in freefall

Post by William4u » Sat Dec 12, 2015 4:05 pm

The S&P 500 is up about 70% since this thread started.

:D

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Re: U.S. stocks in freefall

Post by oldzey » Sat Dec 12, 2015 4:17 pm

Just need a livesoft-defined RBD™ or two and I can do my end-of-the-year TLH back into my preferred fund. :sharebeer
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Re: U.S. stocks in freefall

Post by Joe Jones » Sat Dec 12, 2015 4:25 pm

Is it unfashionable to scream BEAR! and run? I have a feeling a lot of people are going to do just that come Monday. Last chance to get off the boat. End of an economic cycle. Take your generous winnings and quit while you're ahead.

Why not sell and take a few percent loss off the top, and then buy again on the low? Market timing... still trying to get my head around how it doesn't work. I know on a daily or even weekly level it is impossible. But cyclically? We've got some pretty consistent waves of bubbles over the decades.

Why risk exposure to such tumultuous waters? It's easy enough just to take the chips off the table for a few weeks, then jump back in. What's the worst that can happen? You miss an upswing? If all indicators are for a downswing how does that logic make sense? Whether we stay in the market or step aside, we're gambling either way. :shock:

Somebody slap me in the face and tell me to get ahold of myself? :oops:

For now, I'll trust the voice of wisdom and be happy with my 48/12/40 Three Fund Portfolio as a bear-proof tank.
Scary as it may be. :wink:

JACK BOGLE WARNS: Prepare For Two Massive Market Declines In The Next Decade - Apr. 1, 2013
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Re: U.S. stocks in freefall

Post by just frank » Sat Dec 12, 2015 4:33 pm

Joe Jones wrote:Somebody slap me in the face and tell me to get ahold of myself? :oops:


:oops: Get ahold of yourself man! :oops:

Sure, market timing can work, but if you are always deciding to sell when the market is down (as now, below the 200 DMA) and buying back in when it is up (say, above the 200 DMA) then you are probably doing it wrong!

If you can't bring yourself to buy now, then at least stay the course! :sharebeer

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Re: U.S. stocks in freefall

Post by Leeraar » Sat Dec 12, 2015 5:09 pm

Joe,

It seems like you are the panicked passenger on "Airplane" and we are all lining up to slap your face (or worse).

https://www.youtube.com/watch?v=i0GW0Vnr9Yc

A few years ago there was a poster who sold in advance of the fiscal cliff. By my calculations, he lost 5% in a week. These were real, realized losses. He sold, then bought back in when prices were 5% higher.

Remember, with market timing you have to be correct twice: When to sell (or buy) and then when to buy (or sell).

It is particularly recommended that you do not make impulsive moves during December and January. And also, not in any month between and including February and November.

L.
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Joe Jones
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Re: U.S. stocks in freefall

Post by Joe Jones » Sat Dec 12, 2015 5:32 pm

Leeraar wrote:Joe,

It seems like you are the panicked passenger on "Airplane" and we are all lining up to slap your face (or worse).

A few years ago there was a poster who sold in advance of the fiscal cliff. By my calculations, he lost 5% in a week. These were real, realized losses. He sold, then bought back in when prices were 5% higher.

Remember, with market timing you have to be correct twice: When to sell (or buy) and then when to buy (or sell).

It is particularly recommended that you do not make impulsive moves during December and January. And also, not in any month between and including February and November.

L.


Haha! I get it. I'm not selling anything. Especially since I know so little about the market, economics etc. I'm flying purely by the instruments here. Just having a nervous laugh about it, playing a bit of devil's advocate and trying to make it a learning experience.

I mean... we don't know when the market is going to go up. But we always know when it just went down hard.
So we only really have to be right once. And all we have to do to be right that one time is look back and ask "Did we just make big gains?" If the answer is yes, then why not sell and wait for that very real signal of a hard drop?

And I have to admit, I just watched Enron: The Smartest Guys In The Room, read the section on bubbles in A Random Walk Down Wallstreet, and well, you know, there's panic in the air. Fingers crossed for good things happening to honest people.
0+2=1

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Re: U.S. stocks in freefall

Post by bayview » Sat Dec 12, 2015 6:06 pm

Joe, do you have a written IP (investment plan)? Instead of trying to make decisions on the fly, an IP that was researched, thought out, and written down in calmer times is great in times like these.

If it tells you to do something, you do it. If it doesn't, you don't. :beer
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

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Re: U.S. stocks in freefall

Post by cfs » Sat Dec 12, 2015 10:00 pm

Here is a link

In reference to bayview's note on the investment plan, here is a link to the Investment Policy Statement
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Re: U.S. stocks in freefall

Post by Leeraar » Sat Dec 12, 2015 11:34 pm

Joe Jones wrote: I'm flying purely by the instruments here. Just having a nervous laugh about it, ...

https://www.youtube.com/watch?v=uEywGpIt0vw

L.
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Re: U.S. stocks in freefall

Post by HomerJ » Sat Dec 12, 2015 11:49 pm

Rx 4 investing wrote:--The addition of the U.S. equity market’s price/earnings ratio and the current inflation rate as measured by the Consumer Price Index should trend around 20


Why?

Explain to me how you can reference THIS chart, and then claim the U.S. equity market's PE ratio "should" trend around 20.

Image

In what universe does this chart make 20 look like the trend?

The mean in that chart is closer to 15, and in fact, up until 20-30 years ago, your "RULE of 20" was a "RULE of 15".

But PE ratio has been nowhere near 15 for decades, and "RULE of 15" was changed because it didn't appear to work anymore.

So don't show a chart showing 120 years, and then claim it "proves" a rule that really has only "worked" in the last 30 years.

And "worked" is the wrong word because even in the last 30 years, the "RULE of 20" has been meaningless. Investing anywhere on that chart in the last 30 years at ANY PE ratio level has returned a decent to good return for investors.
Last edited by HomerJ on Sun Dec 13, 2015 12:21 am, edited 1 time in total.

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Re: U.S. stocks in freefall

Post by HomerJ » Sun Dec 13, 2015 12:04 am

Joe Jones wrote:Is it unfashionable to scream BEAR! and run? I have a feeling a lot of people are going to do just that come Monday. Last chance to get off the boat. End of an economic cycle. Take your generous winnings and quit while you're ahead.


Have you even read this thread?

Someone said the exact same thing you just posted in 2011, and 2012, and 2013, and 2014, and 2015...

And so far, they were all wrong.

Doesn't mean they will be wrong forever. Someday someone will proclaim that it's time to get off the boat and they will be right. Maybe it will even be you. That doesn't mean it's possible to time the market... Just that someday, yes the market will crash, and someone will claim, "they saw it coming".

We've got some pretty consistent waves of bubbles over the decades.


No we don't. Again, look at the beginning of this thread... People were SURE in 2011 that we were headed for another crash. Looking back, it's easy to spot the bubbles... Living through them, it's very hard. Every year, someone is spotting a bubble.

Why risk exposure to such tumultuous waters? It's easy enough just to take the chips off the table for a few weeks, then jump back in. What's the worst that can happen? You miss an upswing?


Doing this over and over can cost you a ton of money.

If all indicators are for a downswing how does that logic make sense?


Again, because we see indicators for a downswing every single year. And only sometimes do we actually see a downswing.

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Re: U.S. stocks in freefall

Post by Rx 4 investing » Sun Dec 13, 2015 9:54 am

Homer J asked: "The addition of the U.S. equity market’s price/earnings ratio and the current inflation rate as measured by the Consumer Price Index should trend around 20. Why? Explain to me how you can reference THIS chart, and then claim the U.S. equity market's PE ratio "should" trend around 20."


You missed the second half of the statement "... and the current inflation rate as measured by the consumer price index." "And" in this case was used in place of sum. Using data from multpl.com, here's the average P/E and US inflation rate over the long-term has fallen into these ranges:

Average P/E: 17

Average inflation rate: 3.0 %

Sum: 20

The theoretical under-pinning behind adding the two : It captures the relationship between corporate earnings (cash flows) and discount rates (interest rates primarily driven by marginal inflationary expectations.).
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Re: U.S. stocks in freefall

Post by LadyGeek » Sun Dec 13, 2015 10:40 am

Leeraar wrote:
Joe Jones wrote: I'm flying purely by the instruments here. Just having a nervous laugh about it, ...

https://www.youtube.com/watch?v=uEywGpIt0vw

L.

:D
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Re: U.S. stocks in freefall

Post by nedsaid » Sun Dec 13, 2015 12:26 pm

Oh my gosh, is this thing up again? My gosh the market has been in freefall since 2011! Now that this thread has popped up again, maybe the markets will rally again.

I joked that this thread was a great contrary indicator. The market quickly rallied whenever this thread would pop up. The indicator actually worked until the market swoon in August and September. So one of the "Nedsaid Market Indicators" hits the trash bin.

The point behind the joke however is valid. In a market, you want there to be bearish sentiment. Markets are made when market participants change their mind. You need a big reservoir of bearish folks out there who can potentially change their mind to bullish to keep a bull market going, that is a group of possible buyers. Pretty much bull markets end when you run out of buyers and bear markets end when everyone who wants to sell has sold.

I remember on Wall $treet Week, that each week Louis Rukeyser would show the sentiment survey of money managers. It was amazing how good this was as a market indicator. What was even funnier was the performance of the "elves" or the market technicians who were bullish when they should have been bearish and bearish when they should have been bullish. They were so consistently wrong, Rukeyser eventually fired the "elves" and ended that feature of the program.
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Re: U.S. stocks in freefall

Post by oldzey » Sun Dec 13, 2015 12:43 pm

Elves in their workshop... :D

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"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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Rx 4 investing
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Re: U.S. stocks in freefall

Post by Rx 4 investing » Sun Dec 13, 2015 1:15 pm

Market Vane's stock bulls has dropped 4% from 64% to 60%. Overall stock market sentiment readings are still very bullish in light of crashing commodity prices (oil, others) , negative Y-o-Y earnings trend, and jitters in the high yield bond market.

http://www.barrons.com/public/page/9_02 ... dings.html

Over the past several month (Faber chart at link) , the S & P 500's timing model has now completed a double top, and momentum (SMA 10 month) has turned negative. As analyst Lance Roberts cautioned in a recent blog , expensive markets with negative momentum are the kind of which risk-averse investors need to be the most wary.

http://mebfaber.com/timing-model/
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes

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Taylor Larimore
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Re: U.S. stocks in freefall

Post by Taylor Larimore » Sun Dec 13, 2015 1:43 pm

oldzey wrote:Elves in their workshop... :D

Image

oldzey:

Your cartoon requires a bit of time to appreciate, but it's a gem.

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Makaveli
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Re: U.S. stocks in freefall

Post by Makaveli » Sun Dec 13, 2015 2:22 pm

Taylor Larimore wrote:
oldzey wrote:Elves in their workshop... :D

Image

oldzey:

Your cartoon requires a bit of time to appreciate, but it's a gem.

Thank you and best wishes.
Taylor


+2, hilarious.

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nisiprius
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Re: U.S. stocks in freefall

Post by nisiprius » Sun Dec 13, 2015 2:53 pm

Joe Jones wrote:Why not sell and take a few percent loss off the top, and then buy again on the low? Market timing... still trying to get my head around how it doesn't work. I know on a daily or even weekly level it is impossible. But cyclically? We've got some pretty consistent waves of bubbles over the decades.

Why risk exposure to such tumultuous waters? It's easy enough just to take the chips off the table for a few weeks, then jump back in. What's the worst that can happen?...
First, if you're serious, you should seriously take the time to do this (several hours of medium-hard work). Write down a specific numerical rule that describes what you propose to do: "when prices have done exactly this, then sell and wait exactly X weeks, then buy in again." Then backtest it. The big key is that if it doesn't work, you don't get to keep trying a hundred variations on the rule until you find one that does.

Whenever I've tried something like this, I've always been surprised by the way the simple rule actually acted. There's always something weird in the pattern of stock markets that causes the rule to fire at some obviously wrong time.

The big problem I think almost everyone has is that we can't really get our heads around the chaotic behavior of price fluctuations. We imagine they are much similar and smoother and regular than they are.

In real life, it may be easy to "take the chips off the table for a few weeks," but amazingly hard to "jump back in." It never seems to be the right time.

To my mind, this is all a result of greed, a greedy desire to have the reward without really taking the risk. If you can't tolerate "exposure to such tumultuous waters," it means that you have too high a stock allocation for your risk tolerance. The solution isn't to jump in and out and think that what is risky for everyone else isn't risky for you, because you know how to avoid the tumultuous waters, it's to dial back your stock allocation to a number you can maintain steadily.
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.

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Joe Jones
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Re: U.S. stocks in freefall

Post by Joe Jones » Sun Dec 13, 2015 5:01 pm

nisiprius wrote:
Joe Jones wrote:Why not sell and take a few percent loss off the top, and then buy again on the low? Market timing... still trying to get my head around how it doesn't work. I know on a daily or even weekly level it is impossible. But cyclically? We've got some pretty consistent waves of bubbles over the decades.

Why risk exposure to such tumultuous waters? It's easy enough just to take the chips off the table for a few weeks, then jump back in. What's the worst that can happen?...
First, if you're serious, you should seriously take the time to do this (several hours of medium-hard work). Write down a specific numerical rule that describes what you propose to do: "when prices have done exactly this, then sell and wait exactly X weeks, then buy in again." Then backtest it. The big key is that if it doesn't work, you don't get to keep trying a hundred variations on the rule until you find one that does.


I'm definitely not serious about acting on it, just trying to grapple with the concepts and come to a better understanding. I'm already failing enough with my 1% "Funny Money!" The rest is in a 48/12/40 three fund portfolio, age in bonds, 20% of stocks in international. No funny stuff.

I'll toy with this experiment. I don't know if it would work with backtesting because "wait exactly X weeks, then buy again" would be triggered by a hard drop in the market, not a set amount of time. So maybe a percentage gain, then sell, then a percentage drop, then buy? Is that just ridiculous? Probably.

I appreciate your entertaining my idea in any case! :sharebeer
0+2=1

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nisiprius
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Re: U.S. stocks in freefall

Post by nisiprius » Sun Dec 13, 2015 5:23 pm

What's been amazing to me back in the days when I tried it is the way fixed rules that seem very plausible, foolproof, and common sense, will do the most bizarre things when you try them on actual data. You will say "let's do this on a 3% drop" and at a time when the rule really should fire, the drop will be only 2.79%, etc. When you look at the people who seriously promote these things, the market timing system, they are always plagued by "whipsawing" and keep layering rules on rules on rules to patch up the problems with the underlying rules, etc.

It is surprisingly difficult to answer questions like "3% down from what," for example.
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.

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Maynard F. Speer
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Re: U.S. stocks in freefall

Post by Maynard F. Speer » Sun Dec 13, 2015 5:58 pm

I posted Asness' article earlier, which makes the distinction between 'binary' market timing (all in or all out), and systematic approaches to adjusting equity exposure (in this case it's simply using the previous 12 month's return to determine where to be, between 50 and 150% equities - as a way to meaningfully measure performance against a 100% equities benchmark)

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http://www.institutionalinvestor.com/ar ... kYaD1WrTC0

Personally I prefer to think in terms of risk vs opportunity .. Bogle didn't exit the market in 1999 (when stock valuations were very high, and bonds were very cheap), but rather shifted exposure from something with a lot of risk and less potential upside, to something with less risk and a fairly attractive return .. So you could say there was some opportunity risk, but as it turned out there was also a lot of downside risk

If only we had such an attractive alternative today .. I've mentioned my own defection to hedge funds
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

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