Wisdom and Perspective from Jonathan Clements

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Wisdom and Perspective from Jonathan Clements

Post by cinghiale » Sat Mar 21, 2020 6:02 am

Long-time readers of this forum will be acquainted with Jonathan Clements, former WSJ finance columnist and now writer of the excellent Humble Dollar weekly letter. This weeks letter, “27 Things to Do Now,” is full of balanced and smart thinking about the current crisis and how to react/respond/act as an investor.

See at: https://humbledollar.com/2020/03/27-th ... ses-test_7

Lots of good reminders for all. Essential reading for those who are recent arrivals to the forum. Note the subscription box at the top of the page. The price is “Boglehead Right” (free!) and no shenanigans happen with your contact information.
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell

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Jonathan Clements: 27 Things to Do Now

Post by Rowan Oak » Sat Mar 21, 2020 7:36 am

[merged into existing thread - moderator prudent]

27 Things to Do Now
Jonathan Clements | March 21, 2020
TIMES LIKE THESE test the mettle of investors. Want to pass the test? Here are 27 things to do now:

1. Keep buying stocks. Remember your regret at failing to load up on bargain-priced shares in early 2009? Don’t make that mistake again.

2. If you’re panicked and tempted to dump stocks, talk to a friend or, alternatively, hire a financial advisor—one required to act as a fiduciary—to coach you through this decline.

2. Ponder what makes you happy. There are all kinds of things we suddenly can’t do—travel, eat out, go to concerts, attend sporting events. Which ones do you miss the most? Once life returns to normal, use those insights to guide your future spending.

...
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: Wisdom and Perspective from Jonathan Clements

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

Just got the newsletter e-mail. Clements usually has a few good ideas in each addition. And, he delivers them in an easily readable style. Best of all, the e-mail is free.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: Wisdom and Perspective from Jonathan Clements

Post by Eagle33 » Sat Mar 21, 2020 4:13 pm

Number 2 should be modified to "If you’re panicked and tempted to dump stocks, ask the Bogleheads forum talk to a friend or, alternatively, hire a financial advisor—one required to act as a fiduciary—to coach you through this decline.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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Re: Wisdom and Perspective from Jonathan Clements

Post by cinghiale » Mon Mar 23, 2020 3:21 am

I’m bumping this thread (at the risk of falling into a Seinfeld character category... self-bumper, like a low talker or a re-gifter). The motivation comes from the increasing number of threads with titles such as:

—Should I have seen this coming?
—Is it really that bad?
—Unprepared for Potential Great Depression, Part 2.
—Buying silver for apocalypse.
—Get out now or ride it out?
—Selling 100% stocks on bounce.

The forum has grown in popularity and numbers of late, and we are certainly living in extraordinary times. That said, there are a surprising number of threads looking for validation/support/permission to break the most basic rules of sound, time-tested investing. Short-term relief, perhaps, but with long-term repercussions.

Also recommended is the Ben Felix video (thread started by poster Liveware Problem), and the George Sisti “Here We Go Again!” essay posted by Taylor Larimore. Extraordinary times can lead to extraordinary mistakes. These selections can help us not to jump the rails.
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell

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Re: Wisdom and Perspective from Jonathan Clements

Post by JustinR » Mon Mar 23, 2020 5:04 am

I don't get these:
15. Take tax losses. If you have underwater investments in your taxable account, sell them, realize the loss for tax purposes and then reinvest the money in other investments, so you maintain your stock exposure.

21. Clean up your portfolio. Do you have individual stocks and funds that you regret buying, but you’ve been reluctant to sell because of the tax consequences? You might find that the market plunge has turned your gains to losses, giving you the chance to rid yourself of unwanted investments.
This seems to be about TLH but instead of investing it in a similar fund, he's suggesting investing it in something else?

Isn't that locking in a loss?
Last edited by JustinR on Mon Mar 23, 2020 5:58 am, edited 1 time in total.

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Re: Wisdom and Perspective from Jonathan Clements

Post by nps » Mon Mar 23, 2020 5:47 am

JustinR wrote:
Mon Mar 23, 2020 5:04 am
I don't get these:
15. Take tax losses. If you have underwater investments in your taxable account, sell them, realize the loss for tax purposes and then reinvest the money in other investments, so you maintain your stock exposure.

21. Clean up your portfolio. Do you have individual stocks and funds that you regret buying, but you’ve been reluctant to sell because of the tax consequences? You might find that the market plunge has turned your gains to losses, giving you the chance to rid yourself of unwanted investments.
This seems to be about TLH but instead of investing it in a identical fund, he's suggesting investing it in something else?

Isn't that locking in a loss?
Investing in an identical fund would result in a wash sale.

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Re: Wisdom and Perspective from Jonathan Clements

Post by cinghiale » Mon Mar 23, 2020 6:06 am

JustinR asked,
Isn’t that locking in a loss?
Clements is not as clear as he should have been on that point. As poster nps mentioned, buying an identical fund would run afoul of the IRS regulation on wash sales.

There is great benefit to tax loss harvesting, though, as many current threads discuss. The trick is to find an investment similar enough though not identical. A recent thread on this discussed the difference between Vanguard’s FTSE ex-US stock index and Vanguard’s Total International stock index. The holdings are largely the same and the performance nearly identical, but they are based on different indexes. You can switch from one to another and avoid the wash sale.

Yes, you “lock in” a very useful loss, though you maintain your asset allocation percentages. The key to selling unwanted individual stocks or stock funds showing a sizable loss is to exchange those holdings at the same time into another option in the same asset class, in this case stocks.
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell

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Re: Wisdom and Perspective from Jonathan Clements

Post by JustinR » Mon Mar 23, 2020 2:39 pm

nps wrote:
Mon Mar 23, 2020 5:47 am
JustinR wrote:
Mon Mar 23, 2020 5:04 am
I don't get these:
15. Take tax losses. If you have underwater investments in your taxable account, sell them, realize the loss for tax purposes and then reinvest the money in other investments, so you maintain your stock exposure.

21. Clean up your portfolio. Do you have individual stocks and funds that you regret buying, but you’ve been reluctant to sell because of the tax consequences? You might find that the market plunge has turned your gains to losses, giving you the chance to rid yourself of unwanted investments.
This seems to be about TLH but instead of investing it in a identical fund, he's suggesting investing it in something else?

Isn't that locking in a loss?
Investing in an identical fund would result in a wash sale.
cinghiale wrote:
Mon Mar 23, 2020 6:06 am
JustinR asked,
Isn’t that locking in a loss?
Clements is not as clear as he should have been on that point. As poster nps mentioned, buying an identical fund would run afoul of the IRS regulation on wash sales.

There is great benefit to tax loss harvesting, though, as many current threads discuss. The trick is to find an investment similar enough though not identical. A recent thread on this discussed the difference between Vanguard’s FTSE ex-US stock index and Vanguard’s Total International stock index. The holdings are largely the same and the performance nearly identical, but they are based on different indexes. You can switch from one to another and avoid the wash sale.

Yes, you “lock in” a very useful loss, though you maintain your asset allocation percentages. The key to selling unwanted individual stocks or stock funds showing a sizable loss is to exchange those holdings at the same time into another option in the same asset class, in this case stocks.
So...maybe I didn't get my point across right.

I know what TLH is.

I'm saying that when you TLH, you buy a similar fund so that the loss is only paper. But he seems to be suggesting that you should take a real loss and then buy completely non-related funds.

Which seems wrong to me.

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Re: Wisdom and Perspective from Jonathan Clements

Post by bikechuck » Mon Mar 23, 2020 4:14 pm

Eagle33 wrote:
Sat Mar 21, 2020 4:13 pm
Number 2 should be modified to "If you’re panicked and tempted to dump stocks, ask the Bogleheads forum talk to a friend or, alternatively, hire a financial advisor—one required to act as a fiduciary—to coach you through this decline.
Lots of conflicting advice on the Boglehead's forum these days. Many have lost the faith and while I have not yet sold anything I can understand and feel their fear. I would be far more comfortable if I was still in the accumulation phase.

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Re: Wisdom and Perspective from Jonathan Clements

Post by DartThrower » Wed Mar 25, 2020 3:26 pm

cinghiale wrote:
Sat Mar 21, 2020 6:02 am
Long-time readers of this forum will be acquainted with Jonathan Clements, former WSJ finance columnist and now writer of the excellent Humble Dollar weekly letter. This weeks letter, “27 Things to Do Now,” is full of balanced and smart thinking about the current crisis and how to react/respond/act as an investor.

See at: https://humbledollar.com/2020/03/27-th ... ses-test_7

Lots of good reminders for all. Essential reading for those who are recent arrivals to the forum. Note the subscription box at the top of the page. The price is “Boglehead Right” (free!) and no shenanigans happen with your contact information.
cinghiale,
I want to personally thank you for making this post. Until I read Jonathan Clements' words I was really sitting on the fence about rebalancing back to my IPS-mandated age in bonds portfolio.

Market conditions had caused my stock allocation to drop 15 percentage points below what it should have been. I was considering making half-hearted moves and putting in a thousand here and a few thousand there over several months. But reading the Clements article and remembering Bogle say that "nobody rings a bell" telling us it is time to buy again, I agressively bought US and International stock up to the point where I am almost back at my IPS specified level. I guess it's better to be lucky than smart because had I been slow to get back to my proper allocation I would have missed much of the recent gains.

This is just an anecdote from my own experience this week. The money I invested in stock is intended for the long term, >10 years out so I can't put much weight on short term fluctuations. The market could have easily gone against me (and it still might!). But the fact remains that nobody rings a bell telling you when to rebalance so you might as well just do the right thing and rebalance according to your plan. Don't let fear make you think you can market time. Don't let fear cause you to steer off course and seek the illusory safety of bonds or cash. Inflation can rear its ugly head at any time and cause you to regret your excessively bond heavy/cash heavy allocation.

Do what you know you need to do. Stay the course!
A Boglehead can stay the course longer than the market can stay irrational.

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Re: Wisdom and Perspective from Jonathan Clements

Post by Thesaints » Wed Mar 25, 2020 3:46 pm

Let's also put Clements' advice in perspective:
1 million Californians have filed for unemployment since Mar. 13

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Re: Wisdom and Perspective from Jonathan Clements

Post by DartThrower » Wed Mar 25, 2020 3:54 pm

Thesaints wrote:
Wed Mar 25, 2020 3:46 pm
Let's also put Clements' advice in perspective:
1 million Californians have filed for unemployment since Mar. 13
Does this mean we should wait 2 months? 8 months? 12 months? before it's safe to start to rebalance. Does the market not know there will be massive unemployment in the near term?
A Boglehead can stay the course longer than the market can stay irrational.

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Re: Wisdom and Perspective from Jonathan Clements

Post by Thesaints » Wed Mar 25, 2020 3:57 pm

DartThrower wrote:
Wed Mar 25, 2020 3:54 pm
Does the market not know there will be massive unemployment in the near term?
The market, nor anybody else, does not know where we are going to be next March. That's why one day goes down 6% and the next it goes up 5%.

It is not a matter of waiting a set time, but of understanding that the same 60/40 portfolio that had a certain risk in January today is much more risky.

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Re: Wisdom and Perspective from Jonathan Clements

Post by DartThrower » Thu Mar 26, 2020 9:08 am

CNBC Headline 3/26/20: Jobless claims soar past 3 million to record high

Result as of 10:00am 3/26/20: S&P 500 up >3%.

Conclusion: Nobody knows nothin'
A Boglehead can stay the course longer than the market can stay irrational.

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Re: Wisdom and Perspective from Jonathan Clements

Post by WoodSpinner » Thu Mar 26, 2020 9:12 am

DartThrower wrote:
Thu Mar 26, 2020 9:08 am
CNBC Headline 3/26/20: Jobless claims soar past 3 million to record high

Result as of 10:00am 3/26/20: S&P 500 up >3%.

Conclusion: Nobody knows nothin'
This is why I don’t depend on my gut!

WoodSpinner

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Re: Wisdom and Perspective from Jonathan Clements

Post by DartThrower » Thu Mar 26, 2020 9:18 am

Thesaints wrote:
Wed Mar 25, 2020 3:57 pm
It is not a matter of waiting a set time, but of understanding that the same 60/40 portfolio that had a certain risk in January today is much more risky.
I can't say I agree. The same risk existed in January but we just didn't understand it. Nobody did.
A Boglehead can stay the course longer than the market can stay irrational.

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Re: Wisdom and Perspective from Jonathan Clements

Post by Thesaints » Thu Mar 26, 2020 6:44 pm

DartThrower wrote:
Thu Mar 26, 2020 9:18 am
Thesaints wrote:
Wed Mar 25, 2020 3:57 pm
It is not a matter of waiting a set time, but of understanding that the same 60/40 portfolio that had a certain risk in January today is much more risky.
I can't say I agree. The same risk existed in January but we just didn't understand it. Nobody did.
There was no virus in January. And even if there already were a few cases, let's say December, or November. What does that change ?

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Re: Wisdom and Perspective from Jonathan Clements

Post by SteadyOne » Thu Mar 26, 2020 7:43 pm

JustinR wrote:
Mon Mar 23, 2020 2:39 pm
nps wrote:
Mon Mar 23, 2020 5:47 am
JustinR wrote:
Mon Mar 23, 2020 5:04 am
I don't get these:
15. Take tax losses. If you have underwater investments in your taxable account, sell them, realize the loss for tax purposes and then reinvest the money in other investments, so you maintain your stock exposure.

21. Clean up your portfolio. Do you have individual stocks and funds that you regret buying, but you’ve been reluctant to sell because of the tax consequences? You might find that the market plunge has turned your gains to losses, giving you the chance to rid yourself of unwanted investments.
This seems to be about TLH but instead of investing it in a identical fund, he's suggesting investing it in something else?

Isn't that locking in a loss?
Investing in an identical fund would result in a wash sale.
cinghiale wrote:
Mon Mar 23, 2020 6:06 am
JustinR asked,
Isn’t that locking in a loss?
Clements is not as clear as he should have been on that point. As poster nps mentioned, buying an identical fund would run afoul of the IRS regulation on wash sales.

There is great benefit to tax loss harvesting, though, as many current threads discuss. The trick is to find an investment similar enough though not identical. A recent thread on this discussed the difference between Vanguard’s FTSE ex-US stock index and Vanguard’s Total International stock index. The holdings are largely the same and the performance nearly identical, but they are based on different indexes. You can switch from one to another and avoid the wash sale.

Yes, you “lock in” a very useful loss, though you maintain your asset allocation percentages. The key to selling unwanted individual stocks or stock funds showing a sizable loss is to exchange those holdings at the same time into another option in the same asset class, in this case stocks.
So...maybe I didn't get my point across right.

I know what TLH is.

I'm saying that when you TLH, you buy a similar fund so that the loss is only paper. But he seems to be suggesting that you should take a real loss and then buy completely non-related funds.

Which seems wrong to me.
What he means in my opinion is that if you have all bunch of individual stocks and you want to switch to Bogleheads Investing ways then you have a chance to sell those stocks and immediately buy stock index fund, so you don’t leave stock market and you don’t lock in losses. And it’s not a wash sale for taxes.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court

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Re: Wisdom and Perspective from Jonathan Clements

Post by DartThrower » Thu Mar 26, 2020 9:41 pm

Thesaints wrote:
Thu Mar 26, 2020 6:44 pm
DartThrower wrote:
Thu Mar 26, 2020 9:18 am
Thesaints wrote:
Wed Mar 25, 2020 3:57 pm
It is not a matter of waiting a set time, but of understanding that the same 60/40 portfolio that had a certain risk in January today is much more risky.
I can't say I agree. The same risk existed in January but we just didn't understand it. Nobody did.
There was no virus in January. And even if there already were a few cases, let's say December, or November. What does that change ?
My take is that the stock market is usually extremely, although not perfectly, efficient at reflecting economic prospects in the prices of stocks. The prospects for the economy are reflected in stock prices so quickly that even professionals rarely beat the market on any kind of consistent basis. This fact means that it was just as risky to have money in the market at January's prices as it is to have it in today at March's prices. That's why I recently rebalanced back to the same percentage level I had in January.

I don't define volatility as risk because today's volatility will mean nothing to me in 10+ years, which is my horizon for my stock investments. So if stocks want to drop 10% tomorrow and 10% more on Monday, let them. I'll just buy more.

My favorite definition of risk is the one I've seen Warren Buffett use:
The riskiness of an investment is the reasoned probability of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period.
I admit that there are times of irrationality such as the Japan stock bubble of the late 1980s. But I do not believe this is one of those times. If anything there could be a bubble in "safe" assets like bonds. But to assert this as a fact is way beyond my pay grade. :D
A Boglehead can stay the course longer than the market can stay irrational.

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