market crash Feb 2018

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BRIAN5000
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Re: market crash Feb 2018

Post by BRIAN5000 »

This should maybe go in the Financial Porn thread but on Jan 24 2018 I had 8 buys and 60 sells out of 113 stocks on my handy dandy dart board. Now Feb 8 I have 41 buys and 8 sells out of 113, two weeks sure took some fluff out of the market.
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Re: market crash Feb 2018

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Presuming the FWR member is on vacation and that's the neibourhood helper dude moving da lawn eh :thumbsup:
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Feb 2018 is now a correction

Post by Peculiar_Investor »

ig17 wrote: 08 Feb 2018 17:33
Peculiar_Investor wrote: 06 Feb 2018 07:01 We haven't yet hit Correction territory
We got there today. S&P 500 is 10.16% off its January high.
Yes it appears we did.

What I find somewhat intriguing about this topic (and others like it) is what is so special about a pullback, correction or even bear market? They can be expected to happen and are part of the normal market lifecycle. We've seen them before, we will see them again. Yes they give us something to talk about and they give the media talking heads lots to talk about. But so what?

Does anyone have any language in their investment policy statement that says they are supposed to take any action when there is a pullback or a correction? Not me. I have a diversified portfolio with target ranges for various asset classes and recommended actions to be taken if/when an asset class or individual security breaches a target range. I guess a pullback or correction might technically be the cause for an asset class to get out of range.

If you are concerned with this recent pullback and think it feels like a market crash, then perhaps that indicates that your asset allocation is tilted too far towards equities. Maybe you should consider your risk appetite and tolerance and adjust accordingly. Otherwise just remember pullbacks, corrections and bear markets are normal, so ignore the noise and stick to your plan.
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Re: market crash Feb 2018

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Think you have nailed it. Gives us something to talk about that we haven't been able to do so for quite a long time.
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Re: Feb 2018 is now a correction

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Peculiar_Investor wrote: 08 Feb 2018 19:15
Does anyone have any language in their investment policy statement that says they are supposed to take any action when there is a pullback or a correction?
It just so happens that I do. My investment policy is to be out of the market when a correction or crash takes place. Better to be sitting on the sidelines in cash when the market goes up than to be fully invested when the market goes down.

That being said I have not seen a reason to get out yet. I have sold some stocks that showed weakness but have not sold my strong performers yet.

If you are concerned with this recent pullback and think it feels like a market crash, then perhaps that indicates that your asset allocation is tilted too far towards equities. Maybe you should consider your risk appetite and tolerance and adjust accordingly. Otherwise just remember pullbacks, corrections and bear markets are normal, so ignore the noise and stick to your plan.
My asset allocation will adjust depending on what the market does. Maybe next week I'll panic. :wink:
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Re: market crash Feb 2018

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ghariton wrote: 07 Feb 2018 22:46 Down 66 % I do feel worried. Last time it happened I went back to work.
LMAO
My experience has shown that a well-diversified portfolio recovers within a year or two of the worst crashes.
Perhaps not the best place to ask this questions, but what shall we consider as 'well-diversified portfolio'?

I mean bonds suppose to move in the opposite directions to stocks, right?

But in recent years, more and more people own FI which is not bonds, e.g. GIC ladders, which do not provide the same effect on portfolio.

I have been quietly struggling with this for years....
What bonds - gov, corp, junk, duration, RRB?
What instruments - individuals, strips, mutual funds, ETFs, something else?
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Re: market crash Feb 2018

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hamor wrote: 08 Feb 2018 21:03 I mean bonds suppose to move in the opposite directions to stocks, right?
No! They're not. A high-quality bond portfolio of intermediate duration will be significantly less volatile than stocks, though. This is simply due to mathematics.
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Re: market crash Feb 2018

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longinvest wrote: 08 Feb 2018 22:36
hamor wrote: 08 Feb 2018 21:03 I mean bonds suppose to move in the opposite directions to stocks, right?
No! They're not. A high-quality bond portfolio of intermediate duration will be significantly less volatile than stocks, though. This is simply due to mathematics.
Here's a snapshot of Canadian Stocks (XIC, blue) and Canadian Bonds (XBB, red) in the 2008-2009 period:
xic-xbb-2008-2009.png
(Source: Portfolio Visualizer)

Stocks and bond both went down in September and October 2008. Yes, they were moving in the same direction, but not at the same speed!

It's my opinion that high-quality bonds are a very good portfolio diversifier, useful to dampen the volatility of stocks.
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Re: market crash Feb 2018

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hamor wrote: 08 Feb 2018 21:03
Perhaps not the best place to ask this questions, but what shall we consider as 'well-diversified portfolio'?

I mean bonds suppose to move in the opposite directions to stocks, right?

But in recent years, more and more people own FI which is not bonds, e.g. GIC ladders, which do not provide the same effect on portfolio.

I have been quietly struggling with this for years....
What bonds - gov, corp, junk, duration, RRB?
What instruments - individuals, strips, mutual funds, ETFs, something else?
A well diversified portfolio is simply a collection of assets that don't respond to various economic factors in the same way. IOW they don't all go in the same direction to the same degree at the same time.

In theory bonds are supposed to move in opposite direction to stocks, but that really hasn't been the case since the 1980's when they have been gaining in value in tandem as interest rates have been in secular decline. Lately, bonds have acted more as portfolio ballast preserving capital value during times of stock market declines. But with the advances in accessibility to bonds for the average investor and the liquidity provided by mutual funds and ETFs we now see bonds decline in periods that they should respond positively to due to the skittish nature of retail investors. They don't go down like stocks, but they can still exhibit weakness.

In my mind the most important thing for stability with bonds is to look for investment grade bonds and not go reaching for yield. It's return of capital that's important rather than return on capital. Personally I use a combination of securities: broad market ETF's for both nominal and real return bonds as well as an investment grade ladder of stripped bonds.
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Re: Feb 2018 is now a correction

Post by Peculiar_Investor »

A helpful posting from Vanguard on How to navigate market corrections
Vanguard wrote:Large market pullbacks aren’t rare. Research from Vanguard Investment Strategy Group shows that since 1980, a significant market event—a correction or bear market, for example—has happened about every 2 years. So you’ll likely endure many of these events over your lifetime. In the current environment, a market correction—defined as a 10% drop from a peak—would mean, for example, the S&P 500 would sink to around 2,585.

It’s important to put these losses into context. Making investment decisions to try to insulate yourself from turmoil can lead to costly mistakes
A critical part of their presentation,
Vanguard wrote:Downturns aren’t rare events. You’ll likely endure many of them, in all markets, during your lifetime.
Image

<snip>

Timing the market is futile. The best and worst trading days happen close together.
Image
hamor wrote: 08 Feb 2018 21:03 Perhaps not the best place to ask this questions, but what shall we consider as 'well-diversified portfolio'?

I mean bonds suppose to move in the opposite directions to stocks, right?
Not necessarily.
Vanguard wrote:Stay diversified: A great way to insulate your portfolio is to have exposure to stocks, bonds, and international markets in an asset allocation plan that makes sense for your risk tolerance and goals. Bonds can provide stability during downturns. International exposure can give you access to markets that may be generating positive performance when others are falling.
Adding to this, if you are selecting your own stocks rather than using an ETF based on a broad-based index, then make sure your mixture of stocks is diversified, i.e. selected across all sectors.
hamor wrote: 08 Feb 2018 21:03 But in recent years, more and more people own FI which is not bonds, e.g. GIC ladders, which do not provide the same effect on portfolio.
Bond ladders and GIC ladders should provide the same effective on a portfolio as both are part of the fixed income asset class. Where the confusion sometimes arises is the fact that bonds are marked to market so on monthly statements you may see their market values changing, whereas GICs are not marked to market, giving the illusion that their par value is stable. Unless the GIC is cashable or redeemable, if you should need to redeem the GIC early you might have to pay a penalty, i.e. a "hidden" reduction in the par value that is akin to the mark to market pricing shown for bonds.
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Re: market crash Feb 2018

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I hold bonds in my portfolio for two reasons.

First, in the short run, they provide ballast, in scomac's excellent choice of words. They dampen volatility and so have an important psychological effect.

Second, in the medium to longer term, they ensure that certain sums of money will be there when I will need them. This "reach for security" means that I limit myself to individual government bonds, with maturities that match expected outlays or redeployments of funds (e.g. purchase of an annuity).

In both cases, I am giving up some expected return, over the long term, for increased peace of mind now. How much depends on the individual, obviously. That's why I find rules of thumb for percentage allocation to fixed income to be of little use. I'd rather play through scenarios, trying to really "feel" what would happen at various levels of fixed income.

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Re: Feb 2018 is now a correction

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There are many more like this, What Just Happened? Six Views on How the Correction Finally Came - Bloomberg that just make me laugh. Why do the talking heads and online journalists always insist on instantly finding the answer or explanation? If the answer was that obvious, wouldn't the efficient market hypothesis suggest that a correction isn't even possible.

My viewpoint is the market is an incredibly complex beast, involving a huge number of participants and not one knows what will happen next. Myself included.

So what to do then? I would suggest reading this post about a gem of a post on the Bogleheads forum.

Finally, make sure you have a plan that suits your risk tolerance, then ignore the noise and stay on your course is the best advice I can give.
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Re: Feb 2018 is now a correction

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Peculiar_Investor wrote: 09 Feb 2018 06:52 There are many more like this, What Just Happened? Six Views on How the Correction Finally Came - Bloomberg that just make me laugh. Why do the talking heads and online journalists always insist on instantly finding the answer or explanation? If the answer was that obvious, wouldn't the efficient market hypothesis suggest that a correction isn't even possible.
The talking heads insist on coming up with an explanation because they are being paid to do that. It doesn't matter what field of endeavour you want to look at in this day and age of real time information and instant gratification we have to know the why, whether it is knowable or not, the moment it has happened!

AS far as the market being efficient enough to have factored in the various obvious reasons cited, I guess that's a matter of belief opinion. Even back in Graham's day he noted that over time the market was a weighting mechanism while in the short term it was simply a voting mechanism. A savvy description of an efficient market that incorporates the effects of behavioral finance. :wink:
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Re: market crash Feb 2018

Post by Taggart »

I just do the same as what I've always done since the crash of 1987. Just hang in there. No interest in doing it any other way.

I always figure if I'm not doing too well with my investments, then somebody out there is probably doing worse. Sometimes a lot worse. I saw some chatter this morning about XIV. What the heck's that? Looked it up. Wow. I guess I'm doing pretty good after all, considering. I'm glad I don't have the smarts to get into what I consider exotic investments or methods. I always want to live to fight another day with the portfolio. One of my favourite investment books of all time was the 1966 thriller by an anonymous author "Wiped Out. How I Lost A Fortune In The Stock Market While The Averages Were Making New Highs" One important thing I learned from that book is that I never wanted to end up the same as that investor. So far, so good.
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Re: Feb 2018 is now a correction

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scomac wrote: 09 Feb 2018 09:00 Even back in Graham's day he noted that over time the market was a weighting mechanism while in the short term it was simply a voting mechanism. A savvy description of an efficient market that incorporates the effects of behavioral finance. :wink:
I've used that quote a number of times. To this day there is lots we can learn from the writings of Ben Graham and others from his era. The Intelligent Investor by Ben Graham is always worth a read, or re-read.
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Re: Feb 2018 is now a correction

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Peculiar_Investor wrote: 08 Feb 2018 23:29
Vanguard wrote:Downturns aren’t rare events. You’ll likely endure many of them, in all markets, during your lifetime.
Image
<snip>
Timing the market is futile. The best and worst trading days happen close together.
Image
Great charts. It would probably be helpful to newbies and the timorous if they were put somewhere as a sticky ?
Maybe also with your other reminders of what percentages constitute a correction, bear market and crash ?

A few simple, helpful black and white reminders of common sense like that can make the difference between someone panicking and staying the course.
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Re: market crash Feb 2018

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ghariton wrote: 09 Feb 2018 00:24 That's why I find rules of thumb for percentage allocation to fixed income to be of little use. I'd rather play through scenarios, trying to really "feel" what would happen at various levels of fixed income.
George
I do similar. In our portfolio, I am more interested in a set $$ amount of fixed income. We are still in accumulation mode (barely) so our EQ portion will continue to grow and it will change the percentage allocations of our plan over time. However, I won't let our FI allocation drop below a pre-set amount (agreed to long ago with DW) because this allows her to sleep well at night and if she is asleep, I get to be as well... :P
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Re: market crash Feb 2018

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What I like about my 50/50 portfolio is that it transforms a correction (-10%) into a non-event (-5%), a bear market (-20%) into a correction (-10%), and a market crash into a simple bear market. :)
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Re: market crash Feb 2018

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longinvest wrote: 09 Feb 2018 10:08 What I like about my 50/50 portfolio is that it transforms a correction (-10%) into a non-event (-5%), a bear market (-20%) into a correction (-10%), and a market crash into a simple bear market. :)
:thumbsup: :thumbsup:
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Re: market crash Feb 2018

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hamor wrote: 08 Feb 2018 21:03
I have been quietly struggling with this for years....
What bonds - gov, corp, junk, duration, RRB?
What instruments - individuals, strips, mutual funds, ETFs, something else?
I had the same struggle, buying bond funds here there and everywhere, I ended up with a doggie bag of bonds. Today decided to take a look-see, check how they're doing.

Average of the 12-month total returns is +1%.

Good enough.
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Re: market crash Feb 2018

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Koogie wrote: 09 Feb 2018 10:03
ghariton wrote: 09 Feb 2018 00:24 That's why I find rules of thumb for percentage allocation to fixed income to be of little use. I'd rather play through scenarios, trying to really "feel" what would happen at various levels of fixed income.
George
I do similar. In our portfolio, I am more interested in a set $$ amount of fixed income. We are still in accumulation mode (barely) so our EQ portion will continue to grow and it will change the percentage allocations of our plan over time. However, I won't let our FI allocation drop below a pre-set amount (agreed to long ago with DW) because this allows her to sleep well at night and if she is asleep, I get to be as well... :P
That's our approach too. Right now fixed income makes up around 16% of stocks + FI. The share holdings are well diversified internationally and fell 6.2% so far in February (as of 2pm today).

This correction is interesting; no obvious reason for such a strong reaction to improving (!) economy. Guess we were due a correction. Let's see if it turns into bear market...
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Re: market crash Feb 2018

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TSX is falling more than the other exchanges. A little bit more and there will be good tax loss harvesting opportunities.
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Re: market crash Feb 2018

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I also, more or less, work with a fixed value of FI rather than a percentage of portfolio value. This strategy probably works best in withdrawal stage as one develops a comfort zone around spending habits, sources of recurring income, and thus how much reserve one wishes to carry and still have a good sleep-at-might factor. I tap into equities only as needed to maintain this level of FI. At times like right now in an equity market correction, I hold off on replenishment. I have the flexibility to wait a year or two to replenish if we end up in a bear. Bears typically do not last more than 18-24 months.
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Re: market crash Feb 2018

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hamor wrote: 07 Feb 2018 22:28
You didn't see or read Start your engines !!!?
No, I didn't. You see, I have aversion to topics named like news headlines, did I mention I don't watch news..?
Agreed. I was looking for comments about this correction. “Start your engines” is meaningless. “Market crash” is an exaggeration but at least it is on topic.
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Re: market crash Feb 2018

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BRIAN5000 wrote: 09 Feb 2018 13:40
longinvest wrote: 09 Feb 2018 10:08 What I like about my 50/50 portfolio is that it transforms a correction (-10%) into a non-event (-5%), a bear market (-20%) into a correction (-10%), and a market crash into a simple bear market. :)
:thumbsup: :thumbsup:
Never thought of it in those terms...food for thought. I've always thought if equities pull back x%, I would lose x$. What is maximum tolerable x? I then determine my AA based on that. I actually went from about 35% FI to 30% FI as my early retirement kick was pushed back about 5 years from my original thinking (let's just say 4% SWR is lol) so determined I could take on more risk. Not very good timing! I suspect in 20 years when I'm around 60, I'll be at 55% equities.
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