In a Bear Market, What Are Some Best Practices

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renue74
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In a Bear Market, What Are Some Best Practices

Post by renue74 » Wed Dec 05, 2018 4:03 pm

I'll be honest. I started investing in January 1997 and really didn't focus on it until 2013 when I sold a business.

I haven't "actively" witnessed a bull market where a significant portion of my worth was tied to the market. Yes...I went through the 2008 recession, but only a small amount of worth really took a hit and I wasn't really worried about it then.

Right now, I'm 44 and I tend to run about a 65/35 allocation.

So what are some of the best practices from those who know more than I do?

For example....if the market really goes down and my allocation hits 55/45 or some significant #....best practice I assume is to buy stock funds by using my bond funds...right. Do most folks use a normal 5% band before making any changes?

What other "you should or could be doing X?"
Last edited by renue74 on Wed Dec 05, 2018 4:11 pm, edited 1 time in total.

retiringwhen
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Re: In a Bull Market, What Are Some Best Practices

Post by retiringwhen » Wed Dec 05, 2018 4:08 pm

I think you mean Bear market, you may want to retitle the original post.

My advice is stay the course, make sure before hand you have an AA you can stomach, then set a rebalance strategy and stick to it.

My rebalance strategy is 5% divergence from target AA triggers a rebalance, also i rebalance in JAN every year to wishin a 1-2% band of target if necessary.

This year, the 5% rule hit a bit in the summer time only. I did change my payroll deduction back to stocks from bonds at that time too.

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Re: In a Bear Market, What Are Some Best Practices

Post by 3funder » Wed Dec 05, 2018 4:15 pm

Either stay put, or buy a little more stock. Either strategy will work out fine in the long run.

retiringwhen
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Re: In a Bear Market, What Are Some Best Practices

Post by retiringwhen » Wed Dec 05, 2018 4:24 pm

BTW, I used to use a 3% window, but found I that band is so tight that it caused me to rebalance almost quarterly in up and down markets, basically all the time.

After reading lots of studies on rebalancing I came to the conclusion it was really doing anything but using up my time....

Now that I use 5%, the AA bounces around a lot especially in the 2018 choppy market, but I dont’ do anything. It is actually kind of calming.


For example last week before thanksgiving the bands looked to be crossed, then it bounced back, and even yesterday did not put it that far off around 2.5% on stocks vs. bonds.....

I am checking by portfolio regularly for TLH opportunities, but the rebalancing is almost not thought about.

If i hadn’t put a fairly big windfall in the market last winter, the TLH wouldn’t even be on the table, but it is sigh.

l1am
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Re: In a Bear Market, What Are Some Best Practices

Post by l1am » Wed Dec 05, 2018 4:36 pm

It makes sense to just have an AA and stick to it. That way you're naturally reallocating from bonds -> stocks (or directing new investment towards stocks) during a downturn. And it's agnostic to timing - whether the market has bottomed out, or not - doesn't matter, you just stick to AA regardless.

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Re: In a Bear Market, What Are Some Best Practices

Post by arcticpineapplecorp. » Wed Dec 05, 2018 4:40 pm

rebalance back to your AA which would mean exchanging bonds for stocks and/or using new contributions to buy stocks on sale. By the way, read the following to see
Between the "normal" range of 30-80% allocation to stocks, it takes a drop of 18% to 25% to move the needle by 5 percentage points.
https://thefinancebuff.com/5-percent-re ... -band.html

so throwing your AA off by 10% or more would require even larger losses in stocks.
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Re: In a Bear Market, What Are Some Best Practices

Post by WhiteMaxima » Wed Dec 05, 2018 4:40 pm

Dollar cost average.

KlangFool
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Re: In a Bear Market, What Are Some Best Practices

Post by KlangFool » Wed Dec 05, 2018 4:45 pm

OP,

1) Do you plan for unemployment? If yes, for how long?

2) Do you set a limit on your rebalancing? Aka, I will rebalance until my fixed income is equal to X years of expense. Then, I will not rebalance.

3) Normally, bear market and recession come together. So, your plan should be for you to survive Y years of recession with unemployment. What is Y?

My answer for X and Y is 5. How about you?

KlangFool

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ruralavalon
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Re: In a Bear Market, What Are Some Best Practices

Post by ruralavalon » Wed Dec 05, 2018 4:54 pm

renue74 wrote:
Wed Dec 05, 2018 4:03 pm
I'll be honest. I started investing in January 1997 and really didn't focus on it until 2013 when I sold a business.

I haven't "actively" witnessed a bull market where a significant portion of my worth was tied to the market. Yes...I went through the 2008 recession, but only a small amount of worth really took a hit and I wasn't really worried about it then.

Right now, I'm 44 and I tend to run about a 65/35 allocation.
In my opinion your 65/35 asset allocation is within the range of what is reasonable at age 44.

A reasonable asset allocation is the first step in "best practices" ahead of a bear market.

Before the bear market starts have a reasonable emergency fund in light of the stability or instability of your job, your employer, and the industry you work in.


renue74 wrote:So what are some of the best practices from those who know more than I do?

For example....if the market really goes down and my allocation hits 55/45 or some significant #....best practice I assume is to buy stock funds by using my bond funds...right. Do most folks use a normal 5% band before making any changes?
We use 5% bands.

Your idea of rebalancing at 55/45 is reasonable in my opinion. (For what it's worth that's a 15% drop in the stock market, 10/65 = 15.4%, which is not quite a bear market.) Exchange from bond funds to stock funds inside a tax-advantaged account.

renue74 wrote:What other "you should or could be doing X?"
Ignore the "noise" on cable TV from financial commentators.

Ignore "the sky is falling" posts on any investing forums.

Go to work every morning and try to do a good job in your employment.

Continue regular contributions every pay period.

Make additional contributions if practical.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

deltaneutral83
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Re: In a Bear Market, What Are Some Best Practices

Post by deltaneutral83 » Wed Dec 05, 2018 5:17 pm

One of the Bogle books really spelled it out for me in a way that hit home mechanically and it took the emotion out of it. The returns of the stock market over long periods of time are based on forward earnings and dividends and the speculative component is nearly 0. Again, this is for 30 year periods or longer. The evening headlines of "Blood in the streets" as we saw last night are simply noise. This isn't to say we will get the 9-10% CAGR that we've gotten the last 100+ years going forward, but that we will get what the market collectively produces, and I don't have a better alternative than that all things considered whether it's 5%/7%/15% nominal CAGR. I feel fortunate to buy equity in United States companies and a smaller portion in International at low cost via index funds. I'll take what those companies give me over 30-40 years and call it a day. While the ratios we all talk about as to where equities are headed are entertaining, I just want what the economy of the US and the global economy produce over a LONG period of time.

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Re: In a Bear Market, What Are Some Best Practices

Post by staythecourse » Wed Dec 05, 2018 5:29 pm

Best practice in a bear market?
1. Don't get fired.
2. If you can't control no. 1 then have a good EF (1 year) and keep it liquid and principle stable.
3. Get a good hobby that doesn't involve watching the financial news because every day will be about the world collapsing unless you do x, y, or z.
4. Keep you IPS readily available to look at if you don't follow no. 3 advice and start rethinking the master plan.

Good luck.

p.s. No. 5 is the most important and keep in mind Mr. Bogle's words of wisdom, "When everybody is doing something stand there and do nothing."
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: In a Bear Market, What Are Some Best Practices

Post by radiowave » Wed Dec 05, 2018 5:36 pm

OP to add an additional data point: I am late accumulation phase with a current 60/40 AA on glide scope to 50/50 in 5 years and a +/- 2.5% band for rebalancing. I have typical 3 fund portfolio. I usually rebalance every 6 mo or so. I don't worry about whether it is a bull or bear market, just follow my IPS plan.
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serbeer
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Re: In a Bear Market, What Are Some Best Practices

Post by serbeer » Wed Dec 05, 2018 5:38 pm

staythecourse wrote:
Wed Dec 05, 2018 5:29 pm
Best practice in a bear market?
1. Don't get fired.
2. If you can't control no. 1 then have a good EF (1 year) and keep it liquid and principle stable.
3. Get a good hobby that doesn't involve watching the financial news because every day will be about the world collapsing unless you do x, y, or z.
4. Keep you IPS readily available to look at if you don't follow no. 3 advice and start rethinking the master plan.

Good luck.

p.s. No. 5 is the most important and keep in mind Mr. Bogle's words of wisdom, "When everybody is doing something stand there and do nothing."
Well, don't keep us in suspense about No. 5 then, what is it?

Glockenspiel
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Re: In a Bear Market, What Are Some Best Practices

Post by Glockenspiel » Wed Dec 05, 2018 5:41 pm

1. Don't sell stocks.
2. Keep your job.
3. Keep your skills updated and marketable. Show your employer that you are valuable.
4. Re-balance within your balance bands, if needed.
5. Keep investing with every paycheck. If you have spare cash, up your contributions or plow it into taxable accounts.

alex_686
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Re: In a Bear Market, What Are Some Best Practices

Post by alex_686 » Wed Dec 05, 2018 5:48 pm

A semi-serious question - how do you know you are in a bear or bull market? Sure - the market is down. All that means is that we were in a bear market, not that we are in a bear market.

The Efficient Market Hypothesis is one of those misunderstood and abused things here at Bogleheads. It states that all information has been incorporated into market prices. If that is true, than past stock movements do not provided any information about future movements. This is one prediction which has mostly been born out. The fact that the market has been down tells us nothing about what the market will do in the future.

So, what does your IPS say about rebalancing? That should tell you what to do.

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Re: In a Bear Market, What Are Some Best Practices

Post by Grt2bOutdoors » Wed Dec 05, 2018 5:57 pm

Hold your nose, keep buying according to your asset allocation plan that is stated in your Investment Policy Statement. You do have one, right?
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Re: In a Bear Market, What Are Some Best Practices

Post by retiredflyboy » Wed Dec 05, 2018 6:06 pm

Just go on with your life and no that this to will pass. Focus on your career by being indispensable at work and always increasing your ability and credentials. Focus on family and friends — build relationships. Keep paying those pre tax dollars that you pay off the top and if your AA gets way out of wac, sell some bonds and buy stock. Ignore all the financial news which always suggest you need to be doing something. Most of the news you hear is not actionable. Stay the course!
Facts are stubborn things. Everything works until it doesn’t.

staythecourse
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Re: In a Bear Market, What Are Some Best Practices

Post by staythecourse » Wed Dec 05, 2018 6:25 pm

serbeer wrote:
Wed Dec 05, 2018 5:38 pm
staythecourse wrote:
Wed Dec 05, 2018 5:29 pm
Best practice in a bear market?
1. Don't get fired.
2. If you can't control no. 1 then have a good EF (1 year) and keep it liquid and principle stable.
3. Get a good hobby that doesn't involve watching the financial news because every day will be about the world collapsing unless you do x, y, or z.
4. Keep you IPS readily available to look at if you don't follow no. 3 advice and start rethinking the master plan.

Good luck.

p.s. No. 5 is the most important and keep in mind Mr. Bogle's words of wisdom, "When everybody is doing something stand there and do nothing."
Well, don't keep us in suspense about No. 5 then, what is it?
No. 5 is simply do nothing. When in doubt in investing Mr. Bogle is correct the best move is to do nothing even when everyone around you is doing something.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: In a Bear Market, What Are Some Best Practices

Post by dogagility » Wed Dec 05, 2018 6:30 pm

Four things: 1) don't sell; 2) keep buying; 3) turn off all financial news; 4) don't check your balances (except when time to rebalance to meet your AA).
Taking "risk" since 1995.

tigermilk
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Re: In a Bear Market, What Are Some Best Practices

Post by tigermilk » Wed Dec 05, 2018 6:33 pm

In a bear market, buy, buy, buy.

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Re: In a Bear Market, What Are Some Best Practices

Post by Peculiar_Investor » Wed Dec 05, 2018 7:12 pm

Grt2bOutdoors wrote:
Wed Dec 05, 2018 5:57 pm
Hold your nose, keep buying according to your asset allocation plan that is stated in your Investment Policy Statement. You do have one, right?
Totally agree. There was another recent topic, What's in your Investor Policy Statement about Bear Markets?, that might have some additional insight for the OP.

From that topic
Peculiar_Investor wrote:
Tue Nov 20, 2018 11:48 am
wolf359 wrote:
Tue Nov 20, 2018 11:44 am
Your investor policy statement should describe what you do under different market conditions.
Why do you think that?

My investment policy statement describes my risk tolerance and asset allocation targets and ranges. It says nothing about market conditions.

From the BH wiki Investment policy statement
BH wiki wrote:An Investment policy statement (IPS) is a statement that defines general investment goals and objectives. It describes the strategies that will be used to meet these objectives and contains specific information on subjects such as asset allocation, risk tolerance, and liquidity requirements.
I don't see a reference to market conditions there either.
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Re: In a Bear Market, What Are Some Best Practices

Post by jalbert » Wed Dec 05, 2018 7:21 pm

If I’m feeling jittery because the market seems to have gone up too much too fast, I rebalance.

When the market punches me in the gut, I rebalance. I’ve not generally tax-loss harvested in the past as aggressively as I probably should have, but that is an additional response with a steep loss in a taxable account.

I also rebalance at other times, but rebalancing is the safe thing to do when your emotions have you spoiling to do something because of market action.

You do not have this option if you are 100% stock.
Risk is not a guarantor of return.

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Re: In a Bear Market, What Are Some Best Practices

Post by andrew99999 » Wed Dec 05, 2018 10:45 pm

KlangFool wrote:
Wed Dec 05, 2018 4:45 pm
2) Do you set a limit on your rebalancing? Aka, I will rebalance until my fixed income is equal to X years of expense. Then, I will not rebalance.
Hi KlangFool,

Could you tell me your thoughts on this idea?
As I understand it, the original 60/40 came form the idea of being 10 years of expenses based on a 4% withdrawal rate, so then if you really wanted 10 years of expenses in fixed income, then you would not be able to rebalance into stocks in a bear market this way which kind of throws the whole idea of 10 years idea right out the window.

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Re: In a Bear Market, What Are Some Best Practices

Post by KlangFool » Wed Dec 05, 2018 11:17 pm

andrew99999 wrote:
Wed Dec 05, 2018 10:45 pm
KlangFool wrote:
Wed Dec 05, 2018 4:45 pm
2) Do you set a limit on your rebalancing? Aka, I will rebalance until my fixed income is equal to X years of expense. Then, I will not rebalance.
Hi KlangFool,

Could you tell me your thoughts on this idea?
As I understand it, the original 60/40 came form the idea of being 10 years of expenses based on a 4% withdrawal rate, so then if you really wanted 10 years of expenses in fixed income, then you would not be able to rebalance into stocks in a bear market this way which kind of throws the whole idea of 10 years idea right out the window.
andrew99999,

<<As I understand it, the original 60/40 came form the idea of being 10 years of expenses based on a 4% withdrawal rate,>>

1) That works when your portfolio is at 25 times of your annual expense. Aka, right before you retire.

2) You need a different number during the accumulation phase. Your portfolio would be a lot smaller at that time.

3) It is normal for a person to hit a few recessions during the accumulation phase. And, the person may be unemployed in one or more recession.

4) So, during the accumulation phase, the person should prepare to set a limit of 1 to 5 years. This is dependent on the portfolio size and the risk of unemployment.

5) I am in between the accumulation phase and FI number. My portfolio is at 20 times of my annual expense with an AA or 60/40. I have 8 years of fixed income before the market drop.

KlangFool

andrew99999
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Re: In a Bear Market, What Are Some Best Practices

Post by andrew99999 » Wed Dec 05, 2018 11:29 pm

Ah ok, so it's a number of years when you can/should not be withdrawing from equities while they are low, but with the idea of how long until you can find another job added in, making it much shorter, but still important. Thanks KlangFool.

renue74
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Re: In a Bear Market, What Are Some Best Practices

Post by renue74 » Thu Dec 06, 2018 12:01 am

KlangFool wrote:
Wed Dec 05, 2018 4:45 pm
OP,

1) Do you plan for unemployment? If yes, for how long?

2) Do you set a limit on your rebalancing? Aka, I will rebalance until my fixed income is equal to X years of expense. Then, I will not rebalance.

3) Normally, bear market and recession come together. So, your plan should be for you to survive Y years of recession with unemployment. What is Y?

My answer for X and Y is 5. How about you?

KlangFool
My wife is a teacher..so we get insurance through her employment. She’s a math teacher, which is an extreme need subject. I’m pretty sure we could live on her salary and the rental property income we have.


In our Ira accounts, we have only bond funds and about 15% of our portfolio is a bond fund in our taxable account. So we have some room to transition funds in our IRAs.

To answer your question about Y.....I feel like we’re frugal enough to make it long term through a recession. I’m not sure how many years.
Last edited by renue74 on Thu Dec 06, 2018 8:13 am, edited 1 time in total.

AlphaLess
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Re: In a Bear Market, What Are Some Best Practices

Post by AlphaLess » Thu Dec 06, 2018 12:04 am

I'd say, the following are always best practices: STAY THE COURSE.

That includes:
- sleep well,
- wake up in the morning. Brush your teeth,
- have a nice breakfast,
- go to gym (preferably before breakfast),
- get ready,
- go to work,
-put in a good day's of work,
- come home,
- watch some TV, play with your kids or dog,
- brush your teeth,
- go to bed.

And then, rinse and repeat.
"You can get more with a kind word and a gun than with just a kind word." George Washington

KlangFool
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Re: In a Bear Market, What Are Some Best Practices

Post by KlangFool » Thu Dec 06, 2018 8:54 am

renue74 wrote:
Thu Dec 06, 2018 12:01 am
KlangFool wrote:
Wed Dec 05, 2018 4:45 pm
OP,

1) Do you plan for unemployment? If yes, for how long?

2) Do you set a limit on your rebalancing? Aka, I will rebalance until my fixed income is equal to X years of expense. Then, I will not rebalance.

3) Normally, bear market and recession come together. So, your plan should be for you to survive Y years of recession with unemployment. What is Y?

My answer for X and Y is 5. How about you?

KlangFool
My wife is a teacher..so we get insurance through her employment. She’s a math teacher, which is an extreme need subject. I’m pretty sure we could live on her salary and the rental property income we have.


In our Ira accounts, we have only bond funds and about 15% of our portfolio is a bond fund in our taxable account. So we have some room to transition funds in our IRAs.

To answer your question about Y.....I feel like we’re frugal enough to make it long term through a recession. I’m not sure how many years.
renue74,

<<My wife is a teacher..so we get insurance through her employment. She’s a math teacher, which is an extreme need subject. I’m pretty sure we could live on her salary and the rental property income we have.>>

Your worst case is she loses her job too and you cannot rent out any of the rental properties.

<<To answer your question about Y.....I feel like we’re frugal enough to make it long term through a recession. I’m not sure how many years.>>

You still have to pay the property tax of the rental properties.

It is up to you whether you want to calculate and understand how long that you want to survive in the worst case. Then, use that to set the limit for your fixed income.

KlangFool

P.S.: The best practice is to plan for the worst. Then, you are prepared.

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corn18
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Re: In a Bear Market, What Are Some Best Practices

Post by corn18 » Thu Dec 06, 2018 9:06 am

I might just retire if we hit a bear market. At least I will have hard data on SOR risk.

Other than that, follow my IPS which is an incredibly BoringHead 60/40 with 25% international and 5% rebalancing bands.

And keep reading the freefall thread.

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Re: In a Bear Market, What Are Some Best Practices

Post by JW-Retired » Thu Dec 06, 2018 9:50 am

dogagility wrote:
Wed Dec 05, 2018 6:30 pm
Four things: 1) don't sell; 2) keep buying; 3) turn off all financial news; 4) don't check your balances (except when time to rebalance to meet your AA).
My twist on this that's worked great over many-many years:
Four Two things: 1) don't sell; 2) keep buying equities(with new money only); 3) turn off all financial news; 4) don't check your balances (except when time to re-balance to meet your AA).

I don't bother with 3 & 4 because they are no fun and next to impossible to do. The financial news is everywhere (like here). Also, you might miss a TLH opportunity.
JW
ps: in my now fully retired case this boils down to doing nothing except perhaps TLH! :D
Retired at Last

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dogagility
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Re: In a Bear Market, What Are Some Best Practices

Post by dogagility » Thu Dec 06, 2018 5:26 pm

JW-Retired wrote:
Thu Dec 06, 2018 9:50 am
My twist on this that's worked great over many-many years:
Four Two things: 1) don't sell; 2) keep buying equities(with new money only); 3) turn off all financial news; 4) don't check your balances (except when time to re-balance to meet your AA).

I don't bother with 3 & 4 because they are no fun and next to impossible to do. The financial news is everywhere (like here). Also, you might miss a TLH opportunity.
I haven't been through a 2000 or 2008 market while reading Bogleheads, but I just might turn off this forum too should the situation arise. :twisted: :sharebeer
Taking "risk" since 1995.

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Toons
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Re: In a Bear Market, What Are Some Best Practices

Post by Toons » Thu Dec 06, 2018 5:37 pm

Ignore the noise.
:happy
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