Dazed by the downturn

[KlangFool]

OP,

A) I only gamble on individual stock that may go up 20X to 40X.

B) For those stocks, I have a trading rule that when it triples, I would sell 50% of it.

C) I would locked in my gain and then, it won't matter if it goes down to zero. I still make 50%.

KlangFool

"A) I only gamble on individual stock that may go up 20X to 40X." - What's the secret for finding these gems?

There is no secret. I had tried and failed many times. Now, it is purely for entertainment purposes.

KlangFool

I should rephrase: What are the criteria that you review to decide that a stock has the potential to "go up 20X to 40X"? Can't any stock potentially go up or down?

It could go down. I know that it is a gamble. For those individual stock, I am prepared for it to go down to zero.

My basic criteria are

A) Capitalization less than 1 billion.

B) Interesting technology that could let it hit 1 billion if the technology is proven to be interesting.

C) Aka, it does not need revenue to reach 1 billion. Just any news/rumors.

KlangFool

[arcticpineapplecorp.]

sounds like you were counting on your fun money to allow you to hit your number.

the fun money is supposed to be that which can go to $0. Because it just might.

It's the 401k/IRA and diversified assets that help you reach your goal.

Never too late to learn though. Here's another article to help :

They are also the latest examples of my adage: If the left side of the chart looks like the left side of the Eiffel Tower, eventually the right side of the chart will look like the right side of the Eiffel Tower.

source:
https://oncoursefp.com//images/Vectors% ... 0final.pdf

Bogle said slow and steady wins the race.

[ccf]

sounds like you were counting on your fun money to allow you to hit your number.

yeah you are spot on.

thank you everyone, i'm really glad i posted.

[KlangFool]

sounds like you were counting on your fun money to allow you to hit your number.

yeah you are spot on.

thank you everyone, i'm really glad i posted.

Don't gamble unless you know when to sell/exit. Or else, the casino/market would take your money eventually.

And, if you cannot emotionally sell/exit, you should not buy/gamble at all.

KlangFool

[sureshoe]

For the last 12ish years, we have been in an incredible bull market. There has been maybe 1 slightly negative year and 2 years with 0-10%. 3 or 4 over 30%, 2-3 over 20%?

We saw very similar stuff in the .Net boom and subsequent recovery - all the speculators made lots of money and FOMO was running rampant. The reckoning is always tough and people learn the meaning of "risk adjusted returns".

I've tuned out most of the noise as a couple hundred thousand have evaporated, but it is what it is. I had to look, but it seems since August 2020, I'm only up about 10ish percent, which feels a tad depressing now, but not overly concerning. 5%ish returns is not totally unexpected, but not as awe-inspiring as the previous decade.

So meh, if you're flat since then, it's a bummer, but not like your world crashed. You rode high and fell low.

Edit: and going back to August 2017 for a 5 year sample, I'm up around 35ish percent... so around a 6-7% annualized return. Not fantastic, but about what I hoped for.

[dboeger1]

sounds like you were counting on your fun money to allow you to hit your number.

yeah you are spot on.

thank you everyone, i'm really glad i posted.

Don't gamble unless you know when to sell/exit. Or else, the casino/market would take your money eventually.

And, if you cannot emotionally sell/exit, you should not buy/gamble at all.

KlangFool

I know this is almost antithetical to Boglehead philosophy, but I enjoy going to casinos and gambling quite a bit. I don't do it as much as I used to after losing a bit more than I was comfortable with, but I still get a hankering every now and then. One of the things I like about it is that it makes it very explicit what I'm doing. I go into the casino knowing I'm likely to be blowing money on stupid entertainment. I can't help but think that's why I never have any urges to gamble with my portfolio. The portfolio is there to fund my retirement lifestyle. If I want to gamble, I count that as part of my expenses, budget for it, and plan to fund it from my portfolio, so I need the portfolio to be reliable.

[KlangFool]

sounds like you were counting on your fun money to allow you to hit your number.

yeah you are spot on.

thank you everyone, i'm really glad i posted.

Don't gamble unless you know when to sell/exit. Or else, the casino/market would take your money eventually.

And, if you cannot emotionally sell/exit, you should not buy/gamble at all.

KlangFool

I know this is almost antithetical to Boglehead philosophy, but I enjoy going to casinos and gambling quite a bit. I don't do it as much as I used to after losing a bit more than I was comfortable with, but I still get a hankering every now and then. One of the things I like about it is that it makes it very explicit what I'm doing. I go into the casino knowing I'm likely to be blowing money on stupid entertainment. I can't help but think that's why I never have any urges to gamble with my portfolio. The portfolio is there to fund my retirement lifestyle. If I want to gamble, I count that as part of my expenses, budget for it, and plan to fund it from my portfolio, so I need the portfolio to be reliable.

My uncle win money from casino consistently. But, he knows when to exit and cut his losses. And, you do not argue with someone that is lucky enough to strike lottery 3 times.

KlangFool

[jrbdmb]

I feel yah, I really thought my crypto was going to be my hail Mary retirement savior but it's looking more bleak by the day. Luckily my wife talked me out of doubling down on it during the ramp up.

All I know is that if my crypto hits my target number again, I'm selling instantly and getting out of there! Until then, I'm gonna hold onto it because you don't get hurt unless you jump off the roller coaster.

Previous owners of Enron stock would like to have a word with you. (Many other examples available on request.)

[arcticpineapplecorp.]

sounds like you were counting on your fun money to allow you to hit your number.

yeah you are spot on.

thank you everyone, i'm really glad i posted.

Don't gamble unless you know when to sell/exit. Or else, the casino/market would take your money eventually.

And, if you cannot emotionally sell/exit, you should not buy/gamble at all.

KlangFool

i can only justify the part in red above as: "Sell when you hit your number" or whatever you're hoping to do. I've heard some say they sold stock when they had enough to pay off their mortgage or pay for kids college, etc.

If you don't have a specific amount of money in mind when you should sell/exit, saying when "you know when to sell" is the hard part because if you look at that eiffel tower in the chart above you can see that it's only possible to know when the time to sell is in hindsight. Otherwise, you'd sell whent it went up 100% or 150% or 200% but then it can keep going up to 250% or 300% or 350% and while you'll be happy having beaten the market with that stock pick, you might also be beating yourself up for selling too early and leaving more money on the table.

This is why if you don't have an exit point (price per share or amount of money earned...after tax, etc) you'll be second guessing because the right time to sell can only be known in hindsight.

[KlangFool]

sounds like you were counting on your fun money to allow you to hit your number.

yeah you are spot on.

thank you everyone, i'm really glad i posted.

Don't gamble unless you know when to sell/exit. Or else, the casino/market would take your money eventually.

And, if you cannot emotionally sell/exit, you should not buy/gamble at all.

KlangFool

i can only justify the part in red above as: "Sell when you hit your number" or whatever you're hoping to do. I've heard some say they sold stock when they had enough to pay off their mortgage or pay for kids college, etc.

If you don't have a specific amount of money in mind when you should sell/exit, saying when "you know when to sell" is the hard part because if you look at that eiffel tower in the chart above you can see that it's only possible to know when the time to sell is in hindsight. Otherwise, you'd sell whent it went up 100% or 150% or 200% but then it can keep going up to 250% or 300% or 350% and while you'll be happy having beaten the market with that stock pick, you might also be beating yourself up for selling too early and leaving more money on the table.

This is why if you don't have an exit point (price per share or amount of money earned...after tax, etc) you'll be second guessing because the right time to sell can only be known in hindsight.

arcticpineapplecorp,

There are two parts of this:

A) When to sell when you you hit your number.

B) When to sell when you are wrong. Aka, set a time or price target to exit and admit you were wrong. For example, 3 years. You would wait 3 years and after 3 years you would sell if it does not hit your target.

KlangFool

[cbs2002]

Keep your sanity with Don't Quit Your Day Job. Along with many other useful calculators, I like the SP500 calculator that includes dividend reinvestment and CPI-adjusted real return. The last decade has show nearly a 12% annual real return. The last two decades are lower, but still more than 6.5% real. If you were consistently buying and holding diversified U.S. equities for the last two decades, you made a bunch of money. Holding tight during the dip is the price you pay for that kind of return.

[1moreyr]

Did you really think the market would keep going up in the fashion it did, without turbulence/corrections/crashes?

i was really fixated on waiting out a year for long term gains. i think i knew it was a bad idea on some level because I kept rationalizing it to myself but I did it anyway.

yes, i did this exact thing once. I was 40 (18 years ago) and watchedit hit $1MM (more than 1/2 in options and company stock.) and trying to hit 1.25 so i could pay off the house and have $1M..I was fixated on hitting the number in 2000 and the fed had drove the interest rates to 6%... someone told me it was a great time to pull all the money in the table and lock it up at 6%... I laughed hard,, said that's a real good idea.. but I didn't and next thing I know I had $40K

.. it kinda made me a BH after that.

i know what you are feeling, this too shall pass.

[arcticpineapplecorp.]

My uncle win money from casino consistently. But, he knows when to exit and cut his losses. And, you do not argue with someone that is lucky enough to strike lottery 3 times.

KlangFool

these two statements are inconsistent.

you can't both win money consistently and also have losses.

this is mental accounting. if he wins consistently he would have no losses.

casinos don't stay in business with consistent winners. they ban those people from their casino.

also regarding the lottery, one should never confuse outcome with strategy. this is not an argument it's a fact that he got lucky.

The probability of any given person tossing 8 heads or tails is 2*(1/2)8 = 1 in 128. If 50 people did this on average 0.39 of them will get all heads or tails. The probability of at least one person getting all heads or tails is 32.44%.

source: https://wizardofodds.com/ask-the-wizard ... ity/coins/

it's 32.44%, not zero.

just because we don't expect things to happen like your uncle winning a lottery 3 times doesn't mean it can't happen.

People have won the lottery 4 times:

Joan Ginther of Texas beat what experts said were odds of 1 in 18 septillion to win big lottery prizes four times!
https://www.lottery.net/articles/ultra- ... iple-times

one person won the lottery 7 times:

In fact, Richard Lustig is the only person in the world who won seven times in the lottery.
source: https://www.jpost.com/promocontent/fina ... ips-498640

he last won in 2010. but he's making his real money...

But he's hasn't retired just yet. In fact, he just wrote a book, sharing his strategy for winning. The only secret he'll reveal in person is that he plays the same numbers. He won't say how much he spends each week on lottery tickets.

"I'm going to keep winning. I believe in my method. And it works!"

i wonder why he won't say how much he spends each week on the lottery?

He has a "method", doesn't he? If it works, why doesn't he win every day? Confusing outcome with strategy, isn't he?

This woman won a lottery 2 days in a row. don't argue that lightning never strikes twice?

This is one lucky lady!

Orlene Peterson of Idaho won two six-figure lottery prizes two days in a row.

The chances of that happening is about 1 in 282.5 million, according to Idaho lottery officials.

One ticket was worth $200,000 and the other ticket purchased in a different store and a different town was worth $300,000.

Peterson says she is planning to use the money to pay bills and buy a new truck.

She might even use some of her winnings to try her luck in Las Vegas.
https://foxsanantonio.com/news/offbeat/ ... s-in-a-row

[smectym]

I think the expression is not "funny" but "fun" money, meaning that one risks a negligible investment for the entertainment value of watching it flail around.

Yes, I tried “fun money” for the first time last year and bought a few shares of Coinbase. You know, to get educated about crypto.

It’s been an education all right.

[randomguy]

You need a new perspective. You are probably within 5 years of retirement.

The average bear market lasts 2 years. You are going through it while you are: 1) still employed; and 2) (probably) near your peak career earnings. This is better than it occurring AFTER retirement, such as if you had hit your retirement number in November and retired.

This means that just before retirement, the stock market has gifted you an opportunity to systematically build up your nest egg at lower valuations while you're still working, and while you have the best ability to take advantage of the opportunity (highest income and highest savings rate of your career.)

If in November 2021, you were within 10% of your retirement number, then you were close to retirement. Systematically build up assets while they're on sale, and by the time the market recovers to its previous peak, you should have reached your number.

Where did I get the 5 year number? The worst US bear market historically was during the Great Depression. That took 5 years before the market recovered to the point it was before the crash. If it takes 5 years for the market to recover (and if you're dollar cost averaging during that whole time), then you shouldn't be 10% short at recovery. You should be finished.

And if the bear market is 1-2 months (like the COVID crash) or 2 years (like the average) then you're back to where you were before and will probably need a few more years.

Let's say the bear market recovers in 1-2 months. Our OP is still going to be off like 20% because they had their money in a fun investment and the odds of that particular stock/investment reinflating is low. Beanie Babies have never recovered their prior values. Your bored ape NFT might be in a similar boat.

And it is a bit of nitpicking but saying the worst bear market was 5 years is understating it. If you went from the peak towards the end of march 2000, it took something like 14 years to hit that peak again in real dollars. You almost recovered but didn't quite before the 2007-9 crash happened. If you use yearly values, you would have just hit that number before the crash.

[invest4]

Issue for me (probably most of us)…. If the market crashed 3 years ago, I had much less $ invested. So a 20% clip off a bigger # hurts more the. It use to, IMO.

During the Great Financial Crisis, I was down 50%. As you mentioned, it didn't bother me that much as I was still a relatively young accumulator (300K went down to 150K). Similarly, it sometimes feels worse as the portfolio has grown...amounts are bigger for a lower % (1.8M down to 1.65M as of today).

Most important during the GFC is I did not lose my job.

Most important during the current and any future down turns before I retire...keeping my job.

As long as that is intact, you can just keep on chugging without interruption.

[Houdini563]

Not to brag……but I reached a number several years ago where I felt it was enough for retirement so I pulled allot of it off the table. So pre the downturn I had $2,160,000 in retirement savings. I paid off my mortgage ($57,000) and bought a new “retirement” car cash ($36,000). All said and done I still have $1,985,000. If I factor out the mortgage pay off and car I’m down around 5%. I am sleeping soundly.

A big part of this sound sleeping is due to information I received on this board. I am taking Social Security at 70. So no matter what I spend from 63 to 70 I’ll be fine with my wife and I $80,000 in tax free income once I reach 70.

[EnjoyIt]

A recession is when you make the big money.
A few years of stocks being on sale, maybe add in some rebalancing into equities, and when we finally recover you will find yourself in a much much better place than where you started before the recession.

Sit tight. Keep plowing cash into investments and try not to do anything stupid (again.) All will be well.

Disclaimer: Keeping your income is key.

[livesoft]

If bond funds had been stable, what would the return of Total US Market Index fund have to be to reach a -15% total return for a 60/40 portfolio?

The ol' asset allocation "if stocks drop 50%" general guideline
viewtopic.php?t=360802
viewtopic.php?t=305631
viewtopic.php?p=2944644
viewtopic.php?t=27944
assumed bond fund prices would be stable.

But sometimes bond fund prices are not stable and drop when stocks drop. As of yesterday, Total US Stock Market Index is -18.7% and Total US Bond Market Index is -9.4%. The 60/40 Vanguard Balanced Index fund is -15%.

If bond funds had been stable, what would the return of Total US Market Stock Index fund have to be to reach a -15% total return for a 60/40 portfolio?
Answer: Total US Stock Market would have to lose 25% of its value.

[chris319]

The market had a tremendous run-up in 2020 and 2021. It had gotten ahead of itself, or as I say, it was full of "helium". A "correction" or "reversion to the mean" was predictable. I was 1.2x margined until November 2021, then I got off margin figuring a correction was coming.

It's time to reread this:

https://jlcollinsnh.com/2012/04/19/stoc ... s-goes-up/

Every investor should track their IRR since they started investing. If your IRR is up during this downturn, that's good. If you're ahead of the inflation rate, that's really good. I have a record of every deposit and every withdrawal I've ever made going back 42 years to May, 1980, so calculating IRR is easy. It's also easy to calculate the inflation rate:

https://www.bls.gov/data/inflation_calculator.htm

You need to look at more than just your short-term YTD returns. You sign up for downturns like this when you invest in anything other than an interest-bearing vehicle such as a bond or a CD.

Follow my #1 investing rule:

1. Keep your emotions out of it.

I'm not fazed by this downturn; in fact I was kind of expecting it. I'm certainly not going to sell in a panic.

That said, I do look at day after day losses and think "when will it hit bottom?" Eventually it will bottom out. In the meantime I continue to purchase shares at discount prices.

The market always goes up.

[Greentree]

On the bright side, there are many people who hit their number at the top of the market, retire and then have a sequence of return issue on their first year. If you had been at 100% instead of 90% and then retired, you might be pretty stressed right now. Take a deep breath and the market will come back eventually.

[ccf]

Now that I've cashed out as all of this stuff that I've been fussing over for a year I think I had developed a gambling problem. I'm (medically) at risk for this type of thing. I didn't see the red flags. My brain wasn't working right.

at least my remaining funds are on their way to Vanguard now where they will be safe from me.

[MN-Investor]

I feel yah, I really thought my crypto was going to be my hail Mary retirement savior but it's looking more bleak by the day. Luckily my wife talked me out of doubling down on it during the ramp up.

All I know is that if my crypto hits my target number again, I'm selling instantly and getting out of there! Until then, I'm gonna hold onto it because you don't get hurt unless you jump off the roller coaster.

Try thinking about this in another way.

Assume you currently have crypto which you paid $5,000 for and it's currently worth $1,000.

If you had $1,000 cash today, would you invest it in crypto now, or a low expense ratio broad based index fund?

You can have $1,000 if you sell your crypto. Besides putting the money into a better investment, you'll also get the tax benefit of the $4,000 loss which you can use to offset stock gains.

[sureshoe]

just because we don't expect things to happen like your uncle winning a lottery 3 times doesn't mean it can't happen.

The lottery talk always fascinates me. People, as a whole, simply don't understand how probability works despite it being so clean, and relatively straight forward.

There are more precise ways to do this (but the math gets dramatically uglier). Take this case:
Winning MegaMillions is a 1/300M chance if you play 1 ticket. Winning twice is a is 1 in (9,000,000,000,000).
Very unlikely, but not 0.

So over the next 10 years, an individuals who buys 1 ticket twice a week increases his odds to: 1040/9,000,000,000,000

But, let's say 10M people do this for 10 years. The odds become much less unfathomable:
10M*1040/9,000,000,000,000

Or, roughly a 0.11% chance. So 1 in 1100. Not super likely, but nowhere near impossible. I wouldn't bet my entire life savings AGAINST that.
Like I said, this isn't exact, the real calculation is much harder, and I'm too lazy - but it's ballpark.

For smaller jackpots than the "Megas", more in the $1-$3M range, the odds are much, much better.

[Tamalak]

Did you really think the market would keep going up in the fashion it did, without turbulence/corrections/crashes?

i was really fixated on waiting out a year for long term gains. i think i knew it was a bad idea on some level because I kept rationalizing it to myself but I did it anyway.

I would have done the same thing, and I don't think it's a bad idea even in retrospect.

The behavior of the market is unknown. The tax loss incurred by selling before a year is known.

[Sagefemme]

I think one of the most difficult parts of what the OP is experiencing is the shock of going from being pretty sure you're a genius (my net worth is skyrocketing!!) to being pretty sure you're a complete idiot (mama said there'd be times like this but I didn't listen!!) and knowing that you got carried away by that most basic of mortal sins, greed (avarice).

And if, as the OP said, you have some, possibly genetic, susceptibility to the thrill of gambling and winning, you might have to forego all fun money exploits forever. When times are good you are too likely to be blind to the risk you are taking and neglect to get out when the getting is good.

[exodusNH]

just because we don't expect things to happen like your uncle winning a lottery 3 times doesn't mean it can't happen.

The lottery talk always fascinates me. People, as a whole, simply don't understand how probability works despite it being so clean, and relatively straight forward.

There are more precise ways to do this (but the math gets dramatically uglier). Take this case:
Winning MegaMillions is a 1/300M chance if you play 1 ticket. Winning twice is a is 1 in (9,000,000,000,000).
Very unlikely, but not 0.

So over the next 10 years, an individuals who buys 1 ticket twice a week increases his odds to: 1040/9,000,000,000,000

But, let's say 10M people do this for 10 years. The odds become much less unfathomable:
10M*1040/9,000,000,000,000

Or, roughly a 0.11% chance. So 1 in 1100. Not super likely, but nowhere near impossible. I wouldn't bet my entire life savings AGAINST that.
Like I said, this isn't exact, the real calculation is much harder, and I'm too lazy - but it's ballpark.

For smaller jackpots than the "Megas", more in the $1-$3M range, the odds are much, much better.

Big numbers are hard for us to process.

If I tell you that you're "one in a million" that sounds pretty good until you realize that if it's true, there are 7,000 people just like you. One of 7,000 doesn't sound so special.

[chris319]

For me the cure for gamble-itis in the stock market is to take teensy, tiny positions in individual stocks, on the order of 0.3% of your portfolio.

Some of your positions will take off and some of them won't. If a position blows up it's no big deal because you lost such a small amount and you can TLH. If a position skyrockets then you have the satisfaction of thinking "move over, Peter Lynch and Warren Buffett, I'm a stock-picking genius".

Once in a rare while I might buy a $5 or $10 quick-pick lottery ticket. I KNOW I'm going to lose my $5 or $10 but that's chump change and I know I had some skin in the game. After a while you get tired of losing and you quit buying lottery tickets.

Some of my individual stocks have held up quite well during this downturn and are still profitable. I ascribe this more to dumb luck than anything else:

AMRK
AVGO
GOOGL
HSY
KMI
MRK
ORLY
PFE
REGN
UNP

Move over, Peter Lynch and Warren Buffett.

[barnaclebob]

Everyone is an idiot when it comes to stock picking. The smart idiots realize their own stupidity and go with index funds.

When you hear people confidently talk about stock picks, pretend they are telling you about their latest system to beat the roulette table.

[chris319]

When you hear people confidently talk about stock picks, pretend they are telling you about their latest system to beat the roulette table.

That's a bad metaphor. Casino games such as roulette are structured to favor the house. That's how they make their money as a business.