Crying Wolf

This is a wonderful compilation of all these guys who predict a stock market crash every year (often using the exact same words even). Just enlarge the graph and you can read it all.

https://twitter.com/StockTwits/status/605016365355937792?t=1…

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That is hilarious!

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That is hilarious!

Hi Tamhas, it really is, and rather reassuring too!
Saul

Super funny Saul. It gave me a good laugh.

Anirban

That said I remember clearly billionaire Mort Zuckerman on the McLaughlin group making the call prior to the 2008 crash. So if he ever sounds the alarm again I am going to listen, closely. At the time I liquidated some investments, but the bulk of the ones with our financial planner I left alone - at the time I wasn’t confident enough to override him. Oops.

“THE MCLAUGHLIN GROUP” HOST: JOHN MCLAUGHLIN PANEL: MORT ZUCKERMAN, U.S. NEWS & WORLD REPORT; ELEANOR CLIFT, NEWSWEEK; MONICA CROWLEY, SYNDICATED RADIO COMMENTATOR; MICHELLE BERNARD, INDEPENDENT WOMEN’S FORUM BROADCAST: WEEKEND OF JULY 5-6, 2008

MR. MCLAUGHLIN: Predictions. Mort.

MR. ZUCKERMAN: Well, one of the other legacies of the Bush administration is the worst economic downturn since the Great Depression. But this means that we are not going to have the Federal Reserve increasing the federal funds rate over the next – over the rest of this year.

MR. MCLAUGHLIN: What are you talking about, the greatest downturn?

MR. ZUCKERMAN: We are going to have the most serious recession since the Great Depression. I’ve said this before on this program. It’s going to be the – MR. MCLAUGHLIN: You haven’t gone that far, have you?

MR. ZUCKERMAN: Oh, yes, I have. And I believe it. And I’ve said it and I’ve written it. Absolutely.

On Jul 3 2008 the S&P 500 was at 1263. On Mar 6 2009 it stood at 683, a 46% reduction.

I have wished many times that I’d acted more on that. Needless to say I am my own financial planner now. :slight_smile:

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It is easy to laugh now, when “the market” hasn’t seen any extended significant downturn in several years. And there is certainly a powerful message in there that no matter how scholarly and brilliantly constructed someone’s forecast may sound (for better or worse), there’s a pretty good chance they will be wrong.

Nevertheless, market downturns do happen, and when they do, they can be painful and disconcerting and not funny at all, particularly if you are a retiree or soon-to-be retiree who is planning on living off your investments.

It’s good to have a plan in place for how you will handle a downturn, especially if you are holding some high-flying, fast-growing stocks that suddenly stop flying and growing and start getting hammered. How will you keep your wits about you when your meal ticket stock falls by 50% or more, and the media is full of gloom and doom, and we are made to feel like idiots for ever having purchased such a stock? Or just feel like idiots all on our own–we may not even need anyone to tell us that. :slight_smile: And what form will “keeping your wits about you” take? Selling? Not selling? What would trigger a sell?

In the 2008 crash, such stalwart, established (albeit high-valued) stocks as WFM fell by 90% and SBUX fell by 80%. My guess is that those stocks are viewed by many as being relatively conservative compared to many of the stocks that get discussed on this board, and by the TMF services that many here seem to subscribe to. So…s#$t happens.

I’m not posting this as any criticism of the investing done on this board–not at all. Obviously there are people here who have had tremendous success investing through periods that include some nasty bear markets. But it appears that there are also a fair number of novice investors here who may not have been through one. Like a good Boy Scout, it’s good to “Be Prepared”.

Carpian
(not claiming to have good answers–just questions. And being 3-5 years from retirement, I am probably more conservatively invested than most people here, and I believe appropriately so. But I certainly salute the success that many here have had.)

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However, one also has to have the perspective to recognize that 2008 was the third worst crash ever in terms of the S&P so even when we get another one, chances are it won’t be as dramatic.

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I have wished many times that I’d acted more on that. Needless to say I am my own financial planner now. :slight_smile:

How can you know it’s coming? You can’t really. Hindsight is 20/20. To follow someone else’s opinion without knowing why you are following seems absurd to me.

Chris

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And what form will “keeping your wits about you” take? Selling? Not selling? What would trigger a sell?

MDH is the classic investor who sells low when markets are crashing. We’ve evolved a plan to mitigate panic attacks.

If you are within a few years of retiring, make sure you have a bond ladder for at least three years, if not more, set to begin the year your are to retire. Also keep an emergency fund for at least 6 months expenses, or more if you worry a lot.

This will provide some peace of mind to, hopefully, prevent a panic reaction to “sell low” when bad things happen.

FWIW, I also keep a chart of what our portfolio did when “bad things” happened that shows the recoveries, as well.

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However, one also has to have the perspective to recognize that 2008 was the third worst crash ever in terms of the S&P so even when we get another one, chances are it won’t be as dramatic.

Maybe. Maybe not. This site has 2008 as the second worst % drop in the S&P, and 2000 as the third worst since the market peak in 1929.

http://www.businessinsider.com/historys-worst-bear-markets-2…

So two of the three worst periods for the S&P in the last 85 years have taken place in the last 15 years.

My guess (with no data to back it up, of course), is that the composition and style of “the market” has changed in recent years. Technology, low commissions, and increasing employee rather than employer control of retirement plan investing have brought more people into the market, with easy and cheap access to making trades. This has brought increased short-term thinking into the markets.

So the highs and lows we have been witnessing over the past 20 years are the “new normal”.

Disclosure: I’ve been wrong before. :slight_smile:

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Hi GC, I really enjoy your posts; they provide a lot of insight, thanks.

Not sure if your question was meant to be rhetorical or not, so I’ll err on the side of answering. Now my 2008 self is not the same as my 2015 self (particularly regarding investing), and it’s been awhile, but upon reflection I think I have a decent idea of where my head was at.

  1. I had been watching McLaughlin group for several years prior, and had formed the opinion that Mort is a really sharp guy who talks truth across many subjects. At least on the show.
  2. Mort is a self-made billionaire, not just a trader or columnist.
  3. Mort cut his teeth in real estate. Since the key issues at the time were real estate-related, that experience seemed relevant.
  4. I was perplexed in general about the apparent disconnect between the economy and the markets. The headlines were ultra-gloomy, and sure the S&P was off 15% or so, but that seemed insufficient.

In short when he spoke those words they just resonated - they made a lot of sense to me. Did I think he was 100% infallible? No. But I’d have guessed at the time he stood a 75% or greater chance of being correct. Unlike some of the folks in the chart that started this thread, Mort had never been a doom and gloom guy before. Did I perform any analysis of my own using hard data? No. So was taking action based on that absurd? Maybe.

Now my 2015 self… I think it will be extremely rare, likely less than once a decade, for me to believe that a major correction is imminent. Maybe limited to a sector, maybe not. In general I intend to ignore the noise, the next bird flu or Ebola or Greece and stay invested. The hedge funds will all discover and act on that stuff before I’ll have a chance to anyway. But I remain open to taking defensive action before a drop on very rare occasion. That action may be to move to less volatile securities, and/or increase my cash position from its typical 1-5% to something greater.

Though maybe my 2017 or 2020 self will choose to do something else. I’ve only been reading this board for a year and half and my investing knowledge has improved immensely over that time. Thanks to everyone for that!

Cheers, -UC

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I’m not sure what criteria that article is using to determine “worst bear”. My remarks are based on a spreadsheet of historical S&P 500 returns that I downloaded a while back. That has one instance of over 40% drop, in 1931 and two instance of over 30%, 1937 and 2008. There are three over 20% - 1930, 1974, and 2002. That together is 6 out of 87 years. There are then 5 more than 10% down and 13 between 0% and 10% down. That makes 27.6% where there is any loss, 14.9% of which is less than 10%.

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You do not have to guesstimate the exact end of a bull market to beat buy and hold. All you need are tools that recognizes that this time it really is a bear market before it gets too far along… Identifying is a lot more reliable than prediicting.
There are multiple back tested data based momentum/trend strategies that do this for broad indices. They don’t work well for individual stocks but general bear markets drag almost all stocks down with them.

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There are multiple back tested data based momentum/trend strategies that do this for broad indices.

I have looked at a couple of these in an interchange with a friend who was hurt by 2008 and I have to say that I am not impressed. If the baseline is long enough, it is easy for much of the damage to have been done already and then to lose a lot of the recovery. If it is too short, there is a risk of jumping out and then missing the bounce. In both cases it is all too possible to get out at a lower price than one gets back in. One might miss the lowest low, but actually end up in worse shape than just riding it out.

I would love to explore other ideas.

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