2020 COVID Crash Lessons

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ruralavalon
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Re: 2020 COVID Crash Lessons

Post by ruralavalon » Thu Mar 19, 2020 2:18 pm

Age 74, retired.

1) Our 50/50 asset allocation is fine for us, we sleep well at night.

2) That's all.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by WoodSpinner » Thu Mar 19, 2020 2:22 pm

OP,

I think you are on the right path...

If you look 6’ to your left or right you will see many of alongside you.

WoodSpinner

Random Walker
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Re: Sage forum people what are the right lessons to draw from this crash?

Post by Random Walker » Thu Mar 19, 2020 2:24 pm

Larry Swedroe says something to the effect “don’t treat the highly likely as certain or the highly unlikely as impossible”

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by livesoft » Thu Mar 19, 2020 2:25 pm

One lesson: Somebody will always do better than you. Get used it.
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Re: Sage forum people what are the right lessons to draw from this crash?

Post by vipertom1970 » Thu Mar 19, 2020 2:26 pm

relax, time like this you should add more money and look back in years from now with 2x your current portfolio.

I highly recement you take a look at the charts for the DOW and S&P 500 to see the reward for staying the coarse.
Last edited by vipertom1970 on Thu Mar 19, 2020 2:39 pm, edited 1 time in total.

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by Fallible » Thu Mar 19, 2020 2:27 pm

elliott1234 wrote:
Thu Mar 19, 2020 2:15 pm
... But when an earth shaking event happens... wouldn't it make sense to react? If I had gone all cash at the end of February and this thing had blown over then I could have gotten back in having not lost much. ...
When would be the right time to get back in before you didn't lose "much"? How would you know? [/quote]
Last edited by Fallible on Thu Mar 19, 2020 2:28 pm, edited 1 time in total.
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Re: Sage forum people what are the right lessons to draw from this crash?

Post by elliott1234 » Thu Mar 19, 2020 2:27 pm

I see folks on here saying they lost 100s of thousands of dollars and I think that might be easier to deal mentally with than folks just starting out because you could be down below where you started at this point.

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by vipertom1970 » Thu Mar 19, 2020 2:32 pm

elliott1234 wrote:
Thu Mar 19, 2020 2:27 pm
I see folks on here saying they lost 100s of thousands of dollars and I think that might be easier to deal mentally with than folks just starting out because you could be down below where you started at this point.
would you rather buy 2 apples for $1 now vs 1 apple for $1 dollar last year ? trust me, a guy down 800K hurts as much as a guy down 30K.
Last edited by vipertom1970 on Thu Mar 19, 2020 2:36 pm, edited 2 times in total.

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by bloom2708 » Thu Mar 19, 2020 2:34 pm

I think we need to wait until "it" is over before assessing. Too early.
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elliott1234
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Re: Sage forum people what are the right lessons to draw from this crash?

Post by elliott1234 » Thu Mar 19, 2020 2:38 pm

It makes sense and I know that the biggest factors for success in creating a nest egg are A) my contributions going forward and B) market returns. I ran the numbers earlier and even if I had pulled off getting in and out it wouldn't have changed the overall trajectory of my investments that much so that helps. I guess I need to just stop looking at the market and this forum for a good long while :happy

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by ray.james » Thu Mar 19, 2020 2:52 pm

There is a much active thread here

viewtopic.php?p=5111051#p5111051
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by bobcat2 » Thu Mar 19, 2020 2:54 pm

You need to realize that there will be times when the stock market will drop significantly, at least 30% and possibly much more than 30%, and that drop could occur quickly. The recovery from the drop could be quick or very slow over many years.

Before the drop you need a plan on what you are going to do when, not if, the drop occurs. Are you going to continue investing as if it didn't happen, or are you going to up your investments in risky assets (rebalance), or are you going to decrease your exposure to risky assets. If you are going to change your investment policy during a bear market what metrics will you establish for making changes, both with respect to when the changes occur and by what amounts.

Equally important, what metrics are you establishing for when the market begins recovering both with regard to when you react and also by how much.

Lastly, you need to have convinced yourself that your plan is realistic when a severe bear market hits. Mike Tyson spoke the wisest words on this last point. "Everybody has a plan until they get hit in the face."

BobK

Edited for leaving out a necessary pronoun. My editor was asleep. :)
Last edited by bobcat2 on Thu Mar 19, 2020 8:55 pm, edited 1 time in total.
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Re: Sage forum people what are the right lessons to draw from this crash?

Post by Atilla » Thu Mar 19, 2020 2:56 pm

Hindsight is 20/20.

We saw what happened in Wuhan back in January. They locked down an entire region and didn't care if they wrecked the economy doing it.

Meanwhile we were all over here not getting the message of what was coming.

Now we are voluntarily destroying jobs and wealth on a massive scale.

What you gonna do? The next virus outbreak will be interesting - how soon do the markets dive in anticipation?

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by boogiehead » Thu Mar 19, 2020 2:58 pm

Emergency fund is a must and cash is king :moneybag

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by Bluce » Thu Mar 19, 2020 3:38 pm

elliott1234 wrote:
Thu Mar 19, 2020 2:15 pm
[merged into existing topic - moderator prudent]

I am 37 and I think I am really fixated on my retirement accounts because I have some nominal control over them vs. having no control over this unfolding disaster we are living in but I could use help with how to process this psychologically...

On the one hand I have followed the playbook, I haven't sold and have no intention to, my safety fund is good, and I am continuing my regular investments. I recognize that either the market will come back at some point and my portfolio will recover or this time really is different and will never come back. I had about $72,000 before and now am down to ~$50,000. This is my first big wallop.

One the other hand, I feel like I was so locked into Buy and Hold investing that even as all these alarm bells were going off in my head I was completely paralyzed. I know 20/20 hindsight and all, but some things like this are just [OT comment removed] moments. It makes sense to ignore the warning of the week, Greek bonds defaulting, some chart doing something weird. But when an earth shaking event happens... wouldn't it make sense to react? If I had gone all cash at the end of February and this thing had blown over then I could have gotten back in having not lost much.

So did I do the right thing not reacting and over the course of the next 30 years not reacting will save me from making a bad decision down the road? Or is there wiggle room to leave yourself the option to act when the "[Oh No]!" moment happens? [edited by Moderator Misenplace]
See my post about halfway down on page 2, and check the link to the chart. It should answer your questions.
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Re: 2020 COVID Crash Lessons

Post by theplayer11 » Thu Mar 19, 2020 3:52 pm

fatFIRE wrote:
Wed Mar 18, 2020 11:25 pm
I'll add another observation/lesson.

It does seem that ETFs are more advantageous in times like this because I can place a limit order for opportunistic rebalancing when stuff drops below a certain threshold. Also given the volatility during the day itself makes it quite difficult to estimate losses for TLH purposes using mutual funds.

Does anyone agree with me on this?
absolutely. I would never hold a position where I couldn't buy or sell during the trading day.

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by Fallible » Thu Mar 19, 2020 3:57 pm

bobcat2 wrote:
Thu Mar 19, 2020 2:54 pm
You need to realize that there will be times when the stock market will drop significantly, at least 30% and possibly much more than 30%, and that drop could occur quickly. The recovery from the drop could be quick or very slow over many years.

Before the drop you need a plan on what you are going to do when, not if, the drop occurs. Are you going to continue investing as if it didn't happen, or are going to up your investments in risky assets (rebalance), or are you going to decrease your exposure to risky assets. If you are going to change your investment policy during a bear market what metrics will you establish for making changes, both with respect to when the changes occur and by what amounts.

Equally important, what metrics are you establishing for when the market begins recovering both with regard to when you react and also by how much.

Lastly, you need to have convinced yourself that your plan is realistic when a severe bear market hits. Mike Tyson spoke the wisest words on this last point. "Everybody has a plan until they get hit in the face."

BobK.
Hope everyone reads this carefully as it sums up the lessons to be learned from any crash, not just the current one.
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

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Re: 2020 COVID Crash Lessons

Post by DoubleClick » Fri Mar 20, 2020 3:23 am

Ben Mathew wrote:
Thu Mar 19, 2020 11:20 am
DoubleClick wrote:
Thu Mar 19, 2020 4:04 am
Ben Mathew wrote:
Thu Mar 19, 2020 2:48 am
Limit orders are more dangerous than market orders because you leave yourself open to better informed traders (typically a professional market maker, now usually algorithmic high frequency traders). They can pick off your open limit order when they detect a price change ahead of you. When volatility is high, it should become even more dangerous because the price swings are larger. IMO, the only people placing limit orders should be highly informed professional market makers who have co-located servers, messenger pigeons, and so on.
Can you give us a few illustrative examples of cases where limit orders end up with a worse outcome than market orders?
Sure. From a post I made here:
Thanks. It seems like as long as limit orders are cancelled within reasonably short time frames, they're okay, and arguably better than market orders.

But I'm still not seeing how a market maker, including algorithmic traders can pick off limit orders but not market orders. If I had a buy limit order open for $95, and the price falls from $100 to $90 across some time interval, wouldn't multiple algorithmic traders compete for my limit order? Wouldn't my order execute as soon as the first one fills it, and wouldn't that be close to $95? Algorithms have to be the first one to fill my order close to my limit, or risk losing to another algorithm, I'd imagine.

The other side of this is the protection against flash crashes that market orders don't give you. How can you do that without limit orders?
Last edited by DoubleClick on Fri Mar 20, 2020 4:03 am, edited 2 times in total.

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by Prahasaurus » Fri Mar 20, 2020 3:33 am

Atilla wrote:
Thu Mar 19, 2020 2:56 pm
Hindsight is 20/20.

We saw what happened in Wuhan back in January. They locked down an entire region and didn't care if they wrecked the economy doing it.

Meanwhile we were all over here not getting the message of what was coming.

Now we are voluntarily destroying jobs and wealth on a massive scale.

What you gonna do? The next virus outbreak will be interesting - how soon do the markets dive in anticipation?
The next virus outbreak? My God, I think a lot of people really think the worst is behind us, when in fact it hasn't even started, yet. The next virus???? You need to focus on this virus. And wait until some large countries with little capacity to fight this get hit, e.g. Brazil, India, Russia, Pakistan, perhaps an African country like Nigeria, etc. This has massive political ramifications. Massive.

I can still recall a handful of confirmed cases in Italy, and people thinking it was nothing too serious. And then 3 weeks later, the hospitals were a war zone. This will be the same for every country that refuses to take it seriously in time, and has the infrastructure help people. China has great technology and a well coordinated healthcare system. Many countries do not.

And the USA is still not taking the extreme measures required in most parts of the country.

Everyone seems to have moved on from this virus, as if we've suffered a bit, but we've learned a lot. Sure, we have to stay isolated for another week or two, but then it's business as usual! But we haven't even begun to witness the fallout.
Asset Allocation: 50% cash (USD), 30% VT, 20% Bitcoin

DoubleClick
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Re: Sage forum people what are the right lessons to draw from this crash?

Post by DoubleClick » Fri Mar 20, 2020 4:04 am

Prahasaurus wrote:
Fri Mar 20, 2020 3:33 am
And the USA is still not taking the extreme measures required in most parts of the country.

Everyone seems to have moved on from this virus, as if we've suffered a bit, but we've learned a lot. Sure, we have to stay isolated for another week or two, but then it's business as usual! But we haven't even begun to witness the fallout.
+10. First, it was denial that the virus could come to our shores. Now, it's denial that this could get insanely bad without extreme measures.

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Re: 2020 COVID Crash Lessons

Post by Laurizas » Fri Mar 20, 2020 5:57 am

ljb1234 wrote:
Thu Mar 19, 2020 7:18 am
I follow lots of timing systems (don't use them)
How do you do it? Portfoliovisualizer?

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by halfnine » Fri Mar 20, 2020 6:31 am

Prahasaurus wrote:
Fri Mar 20, 2020 3:33 am
Atilla wrote:
Thu Mar 19, 2020 2:56 pm
Hindsight is 20/20.

We saw what happened in Wuhan back in January. They locked down an entire region and didn't care if they wrecked the economy doing it.

Meanwhile we were all over here not getting the message of what was coming.

Now we are voluntarily destroying jobs and wealth on a massive scale.

What you gonna do? The next virus outbreak will be interesting - how soon do the markets dive in anticipation?
The next virus outbreak? My God, I think a lot of people really think the worst is behind us, when in fact it hasn't even started, yet. The next virus???? You need to focus on this virus. And wait until some large countries with little capacity to fight this get hit, e.g. Brazil, India, Russia, Pakistan, perhaps an African country like Nigeria, etc. This has massive political ramifications. Massive.

I can still recall a handful of confirmed cases in Italy, and people thinking it was nothing too serious. And then 3 weeks later, the hospitals were a war zone. This will be the same for every country that refuses to take it seriously in time, and has the infrastructure help people. China has great technology and a well coordinated healthcare system. Many countries do not.

And the USA is still not taking the extreme measures required in most parts of the country.

Everyone seems to have moved on from this virus, as if we've suffered a bit, but we've learned a lot. Sure, we have to stay isolated for another week or two, but then it's business as usual! But we haven't even begun to witness the fallout.
A pandemic has never been a case of if but rather a case of when. In that respect I am thankful that this virus is a relatively easy one. It's like a big softball lobbed up in the air that we still whiffed at. Imagine if it was more potent or killed all ages more indiscriminately which would render flattening the curve near impossible. I agree with you that we haven't even begun to witness the fallout and I can easily see a depression ensuing but at the same time will not be the "end of the world as we know it". Hopefully, lessons will be learned from this and a less cavalier approach will be taken in the future.

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by yoyo6713 » Fri Mar 20, 2020 6:49 am

halfnine wrote:
Fri Mar 20, 2020 6:31 am
Prahasaurus wrote:
Fri Mar 20, 2020 3:33 am
Atilla wrote:
Thu Mar 19, 2020 2:56 pm
Hindsight is 20/20.

We saw what happened in Wuhan back in January. They locked down an entire region and didn't care if they wrecked the economy doing it.

Meanwhile we were all over here not getting the message of what was coming.

Now we are voluntarily destroying jobs and wealth on a massive scale.

What you gonna do? The next virus outbreak will be interesting - how soon do the markets dive in anticipation?
The next virus outbreak? My God, I think a lot of people really think the worst is behind us, when in fact it hasn't even started, yet. The next virus???? You need to focus on this virus. And wait until some large countries with little capacity to fight this get hit, e.g. Brazil, India, Russia, Pakistan, perhaps an African country like Nigeria, etc. This has massive political ramifications. Massive.

I can still recall a handful of confirmed cases in Italy, and people thinking it was nothing too serious. And then 3 weeks later, the hospitals were a war zone. This will be the same for every country that refuses to take it seriously in time, and has the infrastructure help people. China has great technology and a well coordinated healthcare system. Many countries do not.

And the USA is still not taking the extreme measures required in most parts of the country.

Everyone seems to have moved on from this virus, as if we've suffered a bit, but we've learned a lot. Sure, we have to stay isolated for another week or two, but then it's business as usual! But we haven't even begun to witness the fallout.
A pandemic has never been a case of if but rather a case of when. In that respect I am thankful that this virus is a relatively easy one. It's like a big softball lobbed up in the air that we still whiffed at. Imagine if it was more potent or killed all ages more indiscriminately which would render flattening the curve near impossible. I agree with you that we haven't even begun to witness the fallout and I can easily see a depression ensuing but at the same time will not be the "end of the world as we know it". Hopefully, lessons will be learned from this and a less cavalier approach will be taken in the future.
If it were as deadly as you say, it would not have spread that fast and far because it won't get a good chance to spread. example: ebola.

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Re: Sage forum people what are the right lessons to draw from this crash?

Post by Call_Me_Op » Fri Mar 20, 2020 6:54 am

Prahasaurus wrote:
Fri Mar 20, 2020 3:33 am
And the USA is still not taking the extreme measures required in most parts of the country.
And this is my concern. Will people, especially younger people, abide by the strict measures?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

halfnine
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Re: Sage forum people what are the right lessons to draw from this crash?

Post by halfnine » Fri Mar 20, 2020 7:03 am

yoyo6713 wrote:
Fri Mar 20, 2020 6:49 am
halfnine wrote:
Fri Mar 20, 2020 6:31 am
Prahasaurus wrote:
Fri Mar 20, 2020 3:33 am
Atilla wrote:
Thu Mar 19, 2020 2:56 pm
Hindsight is 20/20.

We saw what happened in Wuhan back in January. They locked down an entire region and didn't care if they wrecked the economy doing it.

Meanwhile we were all over here not getting the message of what was coming.

Now we are voluntarily destroying jobs and wealth on a massive scale.

What you gonna do? The next virus outbreak will be interesting - how soon do the markets dive in anticipation?
The next virus outbreak? My God, I think a lot of people really think the worst is behind us, when in fact it hasn't even started, yet. The next virus???? You need to focus on this virus. And wait until some large countries with little capacity to fight this get hit, e.g. Brazil, India, Russia, Pakistan, perhaps an African country like Nigeria, etc. This has massive political ramifications. Massive.

I can still recall a handful of confirmed cases in Italy, and people thinking it was nothing too serious. And then 3 weeks later, the hospitals were a war zone. This will be the same for every country that refuses to take it seriously in time, and has the infrastructure help people. China has great technology and a well coordinated healthcare system. Many countries do not.

And the USA is still not taking the extreme measures required in most parts of the country.

Everyone seems to have moved on from this virus, as if we've suffered a bit, but we've learned a lot. Sure, we have to stay isolated for another week or two, but then it's business as usual! But we haven't even begun to witness the fallout.
A pandemic has never been a case of if but rather a case of when. In that respect I am thankful that this virus is a relatively easy one. It's like a big softball lobbed up in the air that we still whiffed at. Imagine if it was more potent or killed all ages more indiscriminately which would render flattening the curve near impossible. I agree with you that we haven't even begun to witness the fallout and I can easily see a depression ensuing but at the same time will not be the "end of the world as we know it". Hopefully, lessons will be learned from this and a less cavalier approach will be taken in the future.
If it were as deadly as you say, it would not have spread that fast and far because it won't get a good chance to spread. example: ebola.
There are a range of possibilities between COVID and Ebola. Or are you indicating that COVID is the perfect storm?

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Re: 2020 COVID Crash Lessons

Post by Ben Mathew » Fri Mar 20, 2020 11:04 am

DoubleClick wrote:
Fri Mar 20, 2020 3:23 am
But I'm still not seeing how a market maker, including algorithmic traders can pick off limit orders but not market orders. If I had a buy limit order open for $95, and the price falls from $100 to $90 across some time interval, wouldn't multiple algorithmic traders compete for my limit order? Wouldn't my order execute as soon as the first one fills it, and wouldn't that be close to $95? Algorithms have to be the first one to fill my order close to my limit, or risk losing to another algorithm, I'd imagine.
That is how it would happen. And that's the problem. You will buy for $95 when the price dropped to $90. So you paid too much.
DoubleClick wrote:
Fri Mar 20, 2020 3:23 am
The other side of this is the protection against flash crashes that market orders don't give you. How can you do that without limit orders?
You can spread out your trades over time. Do smaller batches at one time. And use marketable limit orders that will trigger only from the kind of drop associated with a flash crash. i.e. Every trade should execute unless there's a flash crash.

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Re: 2020 COVID Crash Lessons

Post by InvestingGeek » Fri Mar 20, 2020 11:10 am

For me, the lesson was that when people say be prepared to lose 50% of your equity value tomorrow completely out of the blue and without warning, they aren't kidding. I took it earlier as more an abstract academic exercise in risk management and portfolio allocation. I didn't actually believe that a crisis could show up without at least some warning signs like in 2000 or 2008, the two crashes I've been through.

From here on, when I sleep at night, I will try and plan with a real possibility of losing 50% the next morning and no expectation of unemployment benefits or anything for at least 2 years.

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Re: 2020 COVID Crash Lessons

Post by ljb1234 » Fri Mar 20, 2020 7:29 pm

Laurizas wrote:
Fri Mar 20, 2020 5:57 am
ljb1234 wrote:
Thu Mar 19, 2020 7:18 am
I follow lots of timing systems (don't use them)
How do you do it? Portfoliovisualizer?
I use that and I also have several Google Sheets setup with indicators. Its mostly an exercise to convince me that its almost impossible to consistently time using a system. I have not found one yet that works well enough.

regards,

mooudn
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Re: 2020 COVID Crash Lessons

Post by mooudn » Fri Mar 20, 2020 7:57 pm

i dont understand. what's wrong with investing in an etf for long term (30+ years)

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Re: 2020 COVID Crash Lessons

Post by EFF_fan81 » Fri Mar 20, 2020 9:06 pm

I have to say, I had the same reaction of another poster above that before now I was convinced that buy and hold was always the answer and that belief caused me to remain passive with respect to my investments in February when major alarm bells were ringing and in my personal life I was stocking up at Costco, buying extra food, water, propane and medicine. I was shaking my head at why the market was not falling after the Chinese locked down their economy and was stunned at why politicians weren't reacting quickly enough when this virus jumped the borders out of China into South Korea and then Italy. But while I was preparing for a disaster in my personal life, I just left my 88% stock / 12% bond allocation sit at all time market highs without making any moves because "it's a random walk down Wall Street." I wish had applied my foresight to the markets as well. I'm surprised at everyone just waking up to this in March, it should have been clear all throughout February that something major was happening and that preparing would be prudent. A lot of world leaders (e.g., WHO, major newspapers, investment funds, technology giants that censored videos from human rights activists in China, etc.) dropped the ball for this to unfold like it did, and I was floored to hear major world leaders speak on this virus and know less than Mike the hummus delivery guy on Reddit. I could go on but I'll focus on investments for now. Anyways, what did I learn:

1) Markets are not always rational (and world leaders don't always tell the truth), so if you have a strong belief that the markets are not pricing in something critical, it is OK to act on that AS LONG AS you do it in a way that doesn't wipe you out. I don't regret not buying puts against Disney as that's too risky for my hard earned cash. But I reserve the right to take a portion (say 10%) of my funds and allocate them to capture gains or avoid losses that the market is not pricing in, while keeping the bulk secure and diversified for the long run. (Aside: how many idiotic things has Elon Musk said in the past six months? How can I hedge against that?)

2) I feel so good having a relatively large emergency fund, and a stocked pantry with supplies. I'll never forget how that's helped me with my anxiety. I've always felt a large emergency fund was the cushion that allowed aggressive investments, and I still feel that's true. And I'm so thankful for some things I just stumbled into (deep freeze from my wife's parents, generator from former homeowner) and think I'll always remain just a bit more "prepped" from now on.

3) I don't capitulate in down markets, and I actually went and put more money in this week, even though I was simultaneously kicking myself for not reacting earlier. I just remembered the Warren Buffet line "be greedy when others are fearful" and was personally terrified to put in more money so figured it was probably a good time. I still don't even think this is the bottom, I am just going to dollar cost average in with my bond funds until eventually either the market starts recovering or I'm all-in. (I'm 36). I'll unwind back to 85-15 once we recover (hopefully in a few years, not like five or ten).

4) Even though I'm willing to roll the dice right now, ten years from now if we are in another bull market and I am in my mid-40s, I am going to remember this and (a) keep a more conservative asset allocation and (b) be OK with taking some winnings off the table if I'm getting jittery when the market is high. This is not just to rebalance (which I admit, I got sloppy about over the past few years) but also to have some firepower to deploy in the next downturn.

5) Something I've felt before, but not worthwhile to "buy the dip" until the market falls 20% or more and is officially a bear. Anything less than that is just normal gyrations. So, I'll continue to basically be on autopilot but then be prepared to pour some money into the market once it's really down.

6) Something I've felt before but is firm now, realizing this was bad weeks before the market and watching things unfold as I was grimly predicting them -- I am pretty smart and competent and I need to invest in myself. Once this crisis is over and things are stable I am going to lay the groundwork to stop being a W2 employee and start earning equity returns on my labor and putting some money into myself rather than just the market. Mostly, this is carving out time for deep learning, but also spending money on technology that will make me more efficient or save me time that I can redeploy elsewhere.

One thing I do need to figure out is (i) how these extraordinary actions being taken by the Fed (more QE, temporary elimination of fractional reserve banking, etc... ) could impact the market long term and (ii) if bond yields are going to be depressed for many years, what are options to diversify outside of equities without earning below inflation rates of return?

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Re: 2020 COVID Crash Lessons

Post by saver007 » Fri Mar 20, 2020 9:30 pm

My lessons..

Time to seriesly look at hedging equity market exposure when:

Options market volume spikes. I was wondering why options volume spiked in January.

When treasuries Yield sinks but equity market act cool.

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Re: 2020 COVID Crash Lessons

Post by Bluce » Fri Mar 20, 2020 9:37 pm

saver007 wrote:
Fri Mar 20, 2020 9:30 pm
My lessons..

Time to seriesly look at hedging equity market exposure when:

Options market volume spikes. I was wondering why options volume spiked in January.

When treasuries Yield sinks but equity market act cool.
The "signals" will probably be different next time.

Like the signal a year(?) or so ago when the yield curve briefly inverted -- which signaled a recession in 6-18 months. That really nailed it down! :beer
"There are no new ideas, only forgotten ones." -- Amity Shlaes

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Re: 2020 COVID Crash Lessons

Post by saver007 » Fri Mar 20, 2020 9:49 pm

Bluce wrote:
Fri Mar 20, 2020 9:37 pm
saver007 wrote:
Fri Mar 20, 2020 9:30 pm
My lessons..

Time to seriesly look at hedging equity market exposure when:

Options market volume spikes. I was wondering why options volume spiked in January.

When treasuries Yield sinks but equity market act cool.
The "signals" will probably be different next time.

Like the signal a year(?) or so ago when the yield curve briefly inverted -- which signaled a recession in 6-18 months. That really nailed it down! :beer

Things will be different but my working theory is the equity market flodded with passive funds is dumper - less reactive to events - than debt market atnd options market. So it may be worth to watch out for signals from other markets.

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Re: 2020 COVID Crash Lessons

Post by mrspock » Fri Mar 20, 2020 9:51 pm

First, great post and thank-you for sharing your thoughts. Here's some additional thoughts (in-line):
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
I have to say, I had the same reaction of another poster above that before now I was convinced that buy and hold was always the answer and that belief caused me to remain passive with respect to my investments in February when major alarm bells were ringing and in my personal life I was stocking up at Costco, buying extra food, water, propane and medicine. I was shaking my head at why the market was not falling after the Chinese locked down their economy and was stunned at why politicians weren't reacting quickly enough when this virus jumped the borders out of China into South Korea and then Italy. But while I was preparing for a disaster in my personal life, I just left my 88% stock / 12% bond allocation sit at all time market highs without making any moves because "it's a random walk down Wall Street." I wish had applied my foresight to the markets as well. I'm surprised at everyone just waking up to this in March, it should have been clear all throughout February that something major was happening and that preparing would be prudent. A lot of world leaders (e.g., WHO, major newspapers, investment funds, technology giants that censored videos from human rights activists in China, etc.) dropped the ball for this to unfold like it did, and I was floored to hear major world leaders speak on this virus and know less than Mike the hummus delivery guy on Reddit. I could go on but I'll focus on investments for now. Anyways, what did I learn:
This is called "resulting", you are judging the correct process by outcome (which isn't even known at this point), not on the fundamentals of the process itself. Good decisions, good processes or strategies can result in sub-optimal outcomes. It does not mean you give-up on the process. While this market decline may be obvious to you now, it clearly was not to the vast, vast majority of investors (professional and retail), otherwise the market would have moved downward sooner. The reality is, experts constantly warn us of all sorts of dire scenarios which can play out, as-is their role in society, but they are not always right. Indeed, many times they are wrong, and we cannot sell everything every time somebody with a PhD proclaims valuations are too high, or some dire disaster is upon us (you'd be selling every year!).

Secondly, in almost every Boglehead book or indexing investing book I've read, they've always been crystal clear (complete with gut wrenching examples) of the volatility the market has. They are very clear: the investor needs to be mentally prepared for such events. This time is no different, and COVID-19 is just the latest "trigger" for a recession...each has their own unique origin story.
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
1) Markets are not always rational (and world leaders don't always tell the truth), so if you have a strong belief that the markets are not pricing in something critical, it is OK to act on that AS LONG AS you do it in a way that doesn't wipe you out. I don't regret not buying puts against Disney as that's too risky for my hard earned cash. But I reserve the right to take a portion (say 10%) of my funds and allocate them to capture gains or avoid losses that the market is not pricing in, while keeping the bulk secure and diversified for the long run. (Aside: how many idiotic things has Elon Musk said in the past six months? How can I hedge against that?)
The reality is, you'd likely be losing more money on these puts than they'd ever protect you from a loss. The studies & math on this is pretty clear, you just aren't likely going to be that smart or good at timing & sizing your puts correctly.
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
2) I feel so good having a relatively large emergency fund, and a stocked pantry with supplies. I'll never forget how that's helped me with my anxiety. I've always felt a large emergency fund was the cushion that allowed aggressive investments, and I still feel that's true. And I'm so thankful for some things I just stumbled into (deep freeze from my wife's parents, generator from former homeowner) and think I'll always remain just a bit more "prepped" from now on.
Agreed, mine has helped me through this as well. There's nothing like staring at many, many years of living expenses sitting in bonds to make you feel secure at a time like this.
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
3) I don't capitulate in down markets, and I actually went and put more money in this week, even though I was simultaneously kicking myself for not reacting earlier. I just remembered the Warren Buffet line "be greedy when others are fearful" and was personally terrified to put in more money so figured it was probably a good time. I still don't even think this is the bottom, I am just going to dollar cost average in with my bond funds until eventually either the market starts recovering or I'm all-in. (I'm 36). I'll unwind back to 85-15 once we recover (hopefully in a few years, not like five or ten).
I think this is where having a taxable account helps. For many with large taxable accounts, "selling everything" for safety needs to be weighed against the reality that you will be triggering 100's of thousands in taxes. Would you be willing to give up 5 or 7 years worth of your earnings on a gut feeling? PLUS the growth on this 5 or 7 years of earnings for the next 20 or 30 years? As an example, had I sold everything I would have triggered a couple hundred k in taxes, this equates to about $3.5M in lost future gains over the next 30 years. Sounds like a bad deal to me, I'd have to be REALLY sure... as in a "Rubbing a bottle and having the Genie which came out of it telling me the future sure..." .
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
4) Even though I'm willing to roll the dice right now, ten years from now if we are in another bull market and I am in my mid-40s, I am going to remember this and (a) keep a more conservative asset allocation and (b) be OK with taking some winnings off the table if I'm getting jittery when the market is high. This is not just to rebalance (which I admit, I got sloppy about over the past few years) but also to have some firepower to deploy in the next downturn.
You should feel empowered to adjust you AA from anywhere you like...this is a personal choice. In fact, you should take the least amount of risk possible which achieves your financial goals. This might mean a 40/60 or 30/70 or even 10/90 portfolio depending how much money you have to invest.
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
5) Something I've felt before, but not worthwhile to "buy the dip" until the market falls 20% or more and is officially a bear. Anything less than that is just normal gyrations. So, I'll continue to basically be on autopilot but then be prepared to pour some money into the market once it's really down.
Use rebalance bands would be my advice here. You can avoid arbitrary rules and be more mechanical about it, you'd be surprised that on a 70/30 portfolio it takes near a -27% decline to trigger a rebalancing band, yielding a whopping 37% increase once you get back to even. Not bad for a single band hitting. Each successive band hitting becomes even more profitable.
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
6) Something I've felt before but is firm now, realizing this was bad weeks before the market and watching things unfold as I was grimly predicting them -- I am pretty smart and competent and I need to invest in myself. Once this crisis is over and things are stable I am going to lay the groundwork to stop being a W2 employee and start earning equity returns on my labor and putting some money into myself rather than just the market. Mostly, this is carving out time for deep learning, but also spending money on technology that will make me more efficient or save me time that I can redeploy elsewhere.

One thing I do need to figure out is (i) how these extraordinary actions being taken by the Fed (more QE, temporary elimination of fractional reserve banking, etc... ) could impact the market long term and (ii) if bond yields are going to be depressed for many years, what are options to diversify outside of equities without earning below inflation rates of return?
As for bond yields....I think the bond market is speaking: yields will climb, governments can't issue trillions more debt and people to buy the paper at 0.25%. I don't know if anyone noticed yet, but mortgage rates already rose today, they are up 50 basis points. As for your "grim predictions" this is a cognitive bias that is really well documented: you are remembering this one time your gut was right, and not remembering all the times it was completely out to lunch. If you bought and sold on based on that, you'd be broke in no time.

Hang in there, these Boglehead people -- particularly the older ones -- know a thing or two about bad times. Many of them have been through wars, multiple stock crashes, hyper inflation etc. Follow their lead, heed their wisdom. If folks like Bill Berstein, Rick Ferri, Larry Swedroe, Mel Lindauer, Taylor Larimore or Jim Dahle (WCI) start panicking and heading for the hills, you'll know this time is really different... so far, so good.
Last edited by mrspock on Fri Mar 20, 2020 11:35 pm, edited 2 times in total.

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Re: 2020 COVID Crash Lessons

Post by willthrill81 » Fri Mar 20, 2020 10:18 pm

I'm not sure if this is a 'lesson' or just an observation, but I thought that it would be interesting to see what stock/bond mix would currently have a YTD return of zero.

For TSM (VTSAX) and long-term Treasuries (VUSTX), a 30/70 would be even for the year.

For TSM (VTSAX) and intermediate-term Treasuries (VSIGX), a 15/85 would be even for the year.

For TSM (VTSAX) and TBM (VBTLX), a 0/100 would be even for the year.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 2020 COVID Crash Lessons

Post by EFF_fan81 » Fri Mar 20, 2020 10:24 pm

Thanks for your thoughtful response, @mrspock

I think refreshing my partially complete IPS from many years ago will help make sure I make good decisions, and if I had one I probably would have done a better job of rebalancing back to 85/15 and not just letting it slide upwards. That mistake is all mine. I do think I need to formalize my rebalancing plan into an IPS. What I was thinking for the future was a bit more aggressive than just rebalancing bands, something like "I'll be 70/30 normally but in a bear market I'll go to 75/25 and if the market falls by 40% I'll go to 80/20." So a flexible (but predetermined) asset allocation based on market conditions. I don't know if that's something that's kosher in the boglehead community, but I think the strategy makes sense.

As for the market timing, I do think there was something extraordinary going on here. Basically, the CCP was covering up the situation (and propping up their own stock market) and the WHO did not call them out on it for political reasons so the world was misinformed about the severity of the virus. Because China is powerful, many institutional actors did not want to dig too far and risk jeopardizing business relationships, and so stories and videos that would have been covered prominently if the outbreak started in, say, Thailand, were suppressed (but available to those who dug more deeply into the less mainstream, but thus also less censored, parts of the internet). I'm dead serious as to how firmly I believed that an impending disaster was unfolding, and if anything not touching my investments was the right move if only because I was so freaked out that I was very stressed out and perhaps not thinking clearly. (As an example, in late February, I would take my lunch break to visit stores just to make sure there was still food on the shelves because of how spooked I was from some of the leaked videos from China, which most of you probably have not seen. Go follow PhD Parody on Twitter, starting from the bottom, or visit https://archive.nothingburger.today/ and look at the videos and ask why this stuff was being deleted from the internet in February rather than reported from the front pages of the NY Times.) I'll admit I think this was a one-off thing and I don't expect these circumstances will ever unfold in quite the same manner, so I think you are right that if I try to start timing the market regularly that I will end up being jittery and pull out at random times and lose more in the process.

My comments about not being a W2 employee relate to some personal things at my job (where being the executive director's friend seems to be more important than doing great work) but I have to say I'm grateful for the health insurance and steady paycheck right now.

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Re: 2020 COVID Crash Lessons

Post by ImUrHuckleberry » Fri Mar 20, 2020 11:22 pm

I learned that instead of moving from 65:35 to 50:50 in mid February due to what was going on in China, I should have moved to 0:100 like I really wanted to.

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Re: 2020 COVID Crash Lessons

Post by WhiteMaxima » Sat Mar 21, 2020 12:16 am

My lesson leaned: Virus can kill people. Lose money on paper is difficult. But life is more precious. Life is more important than money.

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Re: 2020 COVID Crash Lessons

Post by louiethelilac » Sat Mar 21, 2020 4:45 am

I have learned that my tolerance for stock fund declines is much higher than for bond fund declines.

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Re: 2020 COVID Crash Lessons

Post by Call_Me_Op » Sat Mar 21, 2020 7:26 am

EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
I have to say, I had the same reaction of another poster above that before now I was convinced that buy and hold was always the answer and that belief caused me to remain passive with respect to my investments in February when major alarm bells were ringing and in my personal life
The problem is there are always major alarm bells ringing about something. You are being too hard on yourself. After all, you had a plan and were following your plan. I have been doing the same. My plan does not say "sell all equities when you feel there are major alarm bells ringing." If it did, I would be constantly selling and trying to get back in. Do you really think that is the road to wealth?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: 2020 COVID Crash Lessons

Post by ImmigrantSaver » Sat Mar 21, 2020 7:38 am

louiethelilac wrote:
Sat Mar 21, 2020 4:45 am
I have learned that my tolerance for stock fund declines is much higher than for bond fund declines.
Same for me. I agonized about losing a couple thousand in Muni holdings way more than losing over 100k in stocks. Makes no logical sense to me!

Investor1212
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Re: 2020 COVID Crash Lessons

Post by Investor1212 » Sat Mar 21, 2020 8:21 am

Don't fall prey to herd mentality. Don't buy stocks blindly.

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Bluce
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Re: 2020 COVID Crash Lessons

Post by Bluce » Sat Mar 21, 2020 9:10 am

ImmigrantSaver wrote:
Sat Mar 21, 2020 7:38 am
louiethelilac wrote:
Sat Mar 21, 2020 4:45 am
I have learned that my tolerance for stock fund declines is much higher than for bond fund declines.
Same for me. I agonized about losing a couple thousand in Muni holdings way more than losing over 100k in stocks. Makes no logical sense to me!
Stop checking your PF value!

Take a look in, say, September.
"There are no new ideas, only forgotten ones." -- Amity Shlaes

zwzhang
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Re: 2020 COVID Crash Lessons

Post by zwzhang » Sat Mar 21, 2020 9:25 am

One lesson I learned:
Bond ETFs can become very volatile during a panic crash. They won't provide the liquidity when that is most desired.
(In 2008-2009, I held bond mutual funds, switched to ETFs for lower MER)

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Re: 2020 COVID Crash Lessons

Post by paper200 » Sat Mar 21, 2020 10:09 am

ImmigrantSaver wrote:
Sat Mar 21, 2020 7:38 am
louiethelilac wrote:
Sat Mar 21, 2020 4:45 am
I have learned that my tolerance for stock fund declines is much higher than for bond fund declines.
Same for me. I agonized about losing a couple thousand in Muni holdings way more than losing over 100k in stocks. Makes no logical sense to me!
Same here. Partially exchanged for short term treasury and let the stocks be as is. Will rebalance once a definite path to handle the current situation is in sight worldwide. By then most likely markets would have got the message. Being 50:50 helps. Off by about 5-7% in the ratio with munis being the bulk of the bond portfolio. Was much poorly prepared in 2001-03 and 2008 market downturns.
Having freedom, food and roof is being 90% lucky in life and so is index investing. So, don't let the remaining 10% bother you.

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Re: 2020 COVID Crash Lessons

Post by tealeaves » Sat Mar 21, 2020 11:14 am

ImmigrantSaver wrote:
Sat Mar 21, 2020 7:38 am
louiethelilac wrote:
Sat Mar 21, 2020 4:45 am
I have learned that my tolerance for stock fund declines is much higher than for bond fund declines.
Same for me. I agonized about losing a couple thousand in Muni holdings way more than losing over 100k in stocks. Makes no logical sense to me!
I think the feeling of agony makes perfect sense if you believe the "bonds are for safety" mantra (as so many do). Far more unnerving to experience declines in magnitude that you never expected for your "safe money". But if you hold on it's also logical to anticipate a rebound within a tolerable time period.

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Re: 2020 COVID Crash Lessons

Post by mrspock » Sat Mar 21, 2020 11:23 am

tealeaves wrote:
Sat Mar 21, 2020 11:14 am
ImmigrantSaver wrote:
Sat Mar 21, 2020 7:38 am
louiethelilac wrote:
Sat Mar 21, 2020 4:45 am
I have learned that my tolerance for stock fund declines is much higher than for bond fund declines.
Same for me. I agonized about losing a couple thousand in Muni holdings way more than losing over 100k in stocks. Makes no logical sense to me!
I think the feeling of agony makes perfect sense if you believe the "bonds are for safety" mantra (as so many do). Far more unnerving to experience declines in magnitude that you never expected for your "safe money". But if you hold on it's also logical to anticipate a rebound within a tolerable time period.
What bothers me is that as rebalancing bands his, my IPS says to rebalance. I have no choice but to sell these bonds at a loss to do so. This was not part of the scenario I had imagined in my head. I'll have to run the math still, but I really wonder if holding a rebalancing band worth of intermediate treasuries would have been the better move in hindsight. I suspect the tax drag might be greater than my bond losses right now, which would make me feel better (as I did the right thing to begin with), but I sure am curious.

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Re: 2020 COVID Crash Lessons

Post by rbaldini » Sat Mar 21, 2020 11:24 am

Not much, I'd say. For folks who suddenly realized they probably had too much stock, try your best not to get overconfident in a long bull run. But that's hard to do.

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Re: 2020 COVID Crash Lessons

Post by ImmigrantSaver » Sat Mar 21, 2020 11:40 am

tealeaves wrote:
Sat Mar 21, 2020 11:14 am
ImmigrantSaver wrote:
Sat Mar 21, 2020 7:38 am
louiethelilac wrote:
Sat Mar 21, 2020 4:45 am
I have learned that my tolerance for stock fund declines is much higher than for bond fund declines.
Same for me. I agonized about losing a couple thousand in Muni holdings way more than losing over 100k in stocks. Makes no logical sense to me!
I think the feeling of agony makes perfect sense if you believe the "bonds are for safety" mantra (as so many do). Far more unnerving to experience declines in magnitude that you never expected for your "safe money". But if you hold on it's also logical to anticipate a rebound within a tolerable time period.
It's definitely what it is! Also, the muni fund is actually not part of my retirement portfolio. It's the downpayment money - so that makes it even harder, even though I don't have any definite timeline to buy a house and it's a Limited Term munis, so it din't fall as much as other longer funds. But still! :oops:

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Re: 2020 COVID Crash Lessons

Post by EFF_fan81 » Sat Mar 21, 2020 11:43 am

Call_Me_Op wrote:
Sat Mar 21, 2020 7:26 am
EFF_fan81 wrote:
Fri Mar 20, 2020 9:06 pm
I have to say, I had the same reaction of another poster above that before now I was convinced that buy and hold was always the answer and that belief caused me to remain passive with respect to my investments in February when major alarm bells were ringing and in my personal life
The problem is there are always major alarm bells ringing about something. You are being too hard on yourself. After all, you had a plan and were following your plan. I have been doing the same. My plan does not say "sell all equities when you feel there are major alarm bells ringing." If it did, I would be constantly selling and trying to get back in. Do you really think that is the road to wealth?
Thanks. I've been reflecting on this today.

In 2011, alarm bells were ringing about a double-dip recession. I stayed fully invested.
Alarm bells about how too much QE was going to cause rampant inflation and crash the economy. I stayed fully invested.
When the debt limit showdowns were looming, alarm bells were ringing about debt defaults. I stayed fully invested.
Alarm bells over 2016 presidential election. Stayed invested.
Alarm bells over Brexit. Stayed invested.
Alarm bells over China trade war. Stayed invested.
Alarm bells over yield curve inversion in 2019. Stayed invested.

My mental training may have cost me this time, but you are right that over the long haul the strategy has worked and will continue to work. If I was the type to pull in and out of the market based on news, I might have acted on my instincts in February, but I might have also had a lot less to lose now due to previous mistakes. Basically, if you turn the ship back to port every time there are storm clouds on the horizon, will you ever reach your destination? Also, now that the news is widely available, whose to say whether we get a 15% drop next week or a 15% rise based on the stimulus package. If I pulled out before and then stayed out, I could very well time my entry back in wrong and limit the positive impact of the initial decision. So I've learned a lesson about rebalancing, and about the wisdom of shifting to a more conservative portfolio later in life, but I'm going to take a deep breath and let this go.

Also, about two years ago when my wife got an inheritance, we put most in the market but took $100k and put it against the mortgage. That was supposedly an irrational move, but we've got all of that $100k now plus the interest saved. I did it for diversification reasons, I wanted to make sure that we invested most of the money but that we kept some of it secure. I'm definitely seeing the value of diversification now.

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