Moving Forward ...How to invest in 2023 and beyond

Investment Analysis Clubs Macro Economic Trends and Risks
#10

Not a single one offers a money back guarantee to make you whole should they lose your money in the market. During bull markets they are mostly good, not so in bear markets. They all include the warning, “Past performance is no guarantee of future results.” Despite this warning lots of people sign on with the latest and greatest just because they had a recent good streak. Another difficulty is that portfolio services tend to be for the average investor yet we all have specific and different circumstances. The young want to make money, the rich want to preserve money. “One fits all” doesn’t work too well.

Read books by and about great investors. My favorites include Peter Lynch, Warren Buffett, Philip Fisher, and Jesse Livermore who was not an investor but a “market operator” who will teach you a lot about markets. A great book about markets is Reinventing The Bazaar by John McMillan. Another great read is Complexity: The Emerging Science at the Edge of Order and Chaos by M. Mitchell Waldrop. Other authors worth reading, Stuart Kauffman, my favorite Complexity scientist, and Colonel John Boyd, the father of the F-15.

Get to know yourself, how risk tolerant or risk averse you are. Our fight or flight instincts learned on the African Savannah are counterproductive in the market and very difficult to keep under control.

One great piece of advice is not to buy stocks on tips, the tipster won’t be there to tell you when he changed his mind.

Maybe the best advice I ever got was to differentiate sturdy portfolios vs. efficient portfolios. The latter use leverage to boost yield while the former have enough cash reserves to weather bear markets such as this one. Buy great companies that bounce back. Much harder done than said.

Having been in the market for almost 50 years, the last 30 seriously, it has been the most difficult job I have ever attempted. I met a lot of interesting people at TMF.

The Captain

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#11

If we bottom for much of 2023, you’d be into the end of 1Q2024 POSSIBLY.

JMO…but I like it. :grin: :grin: :grin:

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#12

Hi 38Packard,

Thanks for taking the time to share your experience. It gives me some confidence that this too shall pass.

I am writing down all my errors in this horrendous journey, and one of the worst mistake I did was not selling when I realized things are looking bad…And that would have come if I had a clear game plan, meaning why I want to buy something, at what price, and when to exit…I had literally nothing…

Your advice is excellent, and hopefully I will be able to emulate your success.

Thanks a lot,
Charlie

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#13

Thank you…that is most likely what I will be doing…I was stupid for not doing it in the first place!

Sometimes, the most obvious and least expensive stuff is the most appropriate choice…learnt my lesson, for sure

#14

Thanks a lot Captain…I have made a note of all the books you mentioned and will make sure I read them…

I only wish I had done all this before I started “investing”…But hopefully, it is not too late.

I don’t want to sulk away from investing and say that this grape is sour…I think god has probably given me a very important lesson to learn…HUMILITY…At this stage, I really know nothing…So, I think the least I should be doing is to learn and course correct…My emotions, fear of accepting loss, and some irrational hope that within a few months, or a year, this whole thing will pass away and I will come out without much loss had pinned me down. No longer will I do that.

In fact, I already moved in that direction today, by selling some of the useless stuff…It was VERY VERY PAINFUL TO SEE THE LOSS, but strangely I feel okay now and I guess I will forget it in a few months…I still have much to sell, but it is tough to make wholesale changes…but for sure, I have taken the steps to correct myself.

I am hoping I soon develop the ability to accept that cutting out from stocks at the first sign of trouble is critical in investing…

However, the real skill is knowing when a good company stock is irrationally down versus a Zombie company being down…And that is what I am trying learn…that was the reason why I wanted to see if there are any good stock picking resources or wealth management companies which not manages the money in your portfolio by telling you what and when to buy, but also the rationale for that, so we can learn…

Thanks again for taking the time to share your very helpful advice.

Charlie

#15

Charlie,

Quality is always in style. Stocks go up and down in tandem, but “value” stocks tend to overshoot in both directions. For the long-term investor, the easiest route is to buy a slug of an S&P tracking EFT supplemented by an emerging market fund and a general foreign value fund in proportions you are comfortable with. They should be structured with a minimum of management costs (Vanguard is good for this). If you prefer individual company shares (as I do), then considering the various macroeconomic features of both domestic and foreign stacks should be considered. If you are looking for a chuckle, a few weeks ago I posted what is rattling around in my portfolio (and suspect there is nearly no overlap with those of TMF).

Jeff

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#16

This is how people wind up poor. Successful stock investors don’t do this. You are quadrupling down on failed strategies.

Try this: Use successful strategies instead. Boring, I know. Not interesting at cocktail parities. But boring makes you really wealthy.

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#17

Don’t buy stocks, invest in good companies with great products and services.

Peter Lynch on when to sell:

The key to knowing when to sell, he says, is knowing “why you bought it in the first place.” Lynch says investors should sell if:

  • The story has played out as expected and this is reflected in the price; for instance, the price of a stalwart has gone up as much as could be expected.
  • Something in the story fails to unfold as expected or the story changes, or fundamentals deteriorate; for instance, a cyclical’s inventories start to build, or a smaller firm enters a new growth stage.

https://home.csulb.edu/~pammerma/fin382/screener/lynch.htm

The Captain

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#18

You should not invest in stocks.

Ever.

You should not use Macro Economics to buy or sell stocks.

Ever.

While I do not recommend you buy Saul stocks, or make Saul your guru. I do recommend you read his end of month write ups every month.

You will notice a few things.

One. He listens to every quarterly conference call and knows the leadership and the company.

Two. He talks about companies, not stocks.

Three. He talks about that company, not stocks, not “the market” not “the economy”

If you will take the time, even one time and review the companies you are holding stock shared in, compared to the metrics that Saul uses to evaluate the companies that he is invested in, your eyes will be wide open.

I invested by platitude for years, this is why I am still working. When I compared my holdings, mostly AT&T to the metrics that Saul thought were important, I sold every share I could. Moreover, every time I invested by platitude, I have lost money since.

When Upstart was taking over the world, I was up, a lot. When I heard then change their business model, that was a red flag and I sold. I was slow so gave back a lot of profit. On the other hand, Upstart is down almost 95 percent from its high and has no viable way to grow at all. (At least not in this environment) I really believed, and still believe that the model that Upstart is using will change the world. But that belief does not make me money.

The same goes for a whole
list of companies.

Nvidia
Cisco
Worldcom
Enron
Village Farms
and so on

What makes money is investing money in companies led by people who can grow a company profitably preferably in a growing environment.

If one of your classmates came and asked you to invest in his start up, how much work would you do before you handed over your cash? This is the bar for investing in a public company via stocks. Anything less, you might as well spend the money booze and women because you are wasting the rest.

Cheers
Qazulight

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#19

FWIW. In the 2000 meltdown I was 34, in high tech at Motorola, and a high performer. I rode it out. (I was also entirely in funds with Morgan Stanley at the time). At that time I had no fear of losing my job. As well that crash was not market-wide anyway. 2008 was a different story for me. Newly married. Economy not doing well. Legitimate concern over my employment at AMD. Survived numerous lay-off rounds plus a 10% salary reduction. Two panicky calls with Morgan Stanley in 2 weeks telling me to stay the course. I ended up yanking my money from them and putting it all in Vanguard and stayed mostly in cash. For too long. Lost roughly half my retirement account and my taxable investing as well.

As I said, I stayed in cash for too long. Leaving MS was a wise choice. Not re-investing was stupid. I figured this:

  • If Morgan Stanley was right, to stay the course, I can do that on my w/o their high commission

  • If Morgan Stanley was wrong to stay the course, I’m over-paying for bad advice.

But I hung out in cash for too long waiting for the next market drop. I missed out on a lot of gains. As a result at 48 or 49 I realized I was in trouble. I joined SA, at first investing conservatively. Found Saul around 5 years ago. Got out of his system about 18-20 months ago (yay me!). But I’ve still lost 33% of my money this year, on-par with the NASDAQ.

Which brings me to questions of my own. And at 56 I’m running out of time to learn lessons.

  • This is hard, this is imprecise, this is an impossible chore, but get a reasonable idea of your required retirement balance, and invest to that goal. And AS MUCH MONEY AS POSSIBLE is not a valid investment goal.
  • When you hit your goal move conservative. At least with a good chunk of it. Don’t get caught up in the gains that you might miss out on. If you have met your goal then preservation is a very valid investing strategy.
  • I had over-estimated how much I really needed, so when I was very close to that goal in January (10 years before retirement!) I did not know it, and did not make changes. Now I need +50% to get back to my goal (again, I have 10 years).
  • No matter what Saul thinks, valuation always matters. Eventually. He still has not learned this. But we need to.
  • In defense of Saul, my weekly tracking spreadsheet over the last 5 years has numerous entries where I said I was panicked, and I was always wrong. It’s the reason that, even seeing the signs all this year, I still didn’t make any large wholesale moves. It’s easy to panic. It’s hard to be right about when to panic. And that is what he means by “no one saw this coming”. More accurately “there is always a reason to panic, and no one knows when you really need to panic”. A lot of people here over the years have sounded alarms multiple times. They were only right 12 months ago.
  • At the same time, that spreadsheet tells me I did much better over the last 5 years than the S&P 500 did. And I have to keep reminding me of that.

No idea if this helps any.

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#20

Thanks so much bjurasz, Qazulight, Captain, Syke6 and Jeff. Really appreciate you taking the time to share your thoughts and experience.
This certainly helps a lot!
I don’t feel safe with many of my individual stocks, and even the ones I bought this year at reduced prices thinking those were blue chip, well, have been decimated (NVDA, TSLA, AMZN, GOOG etc.). However, before I go to those, I know I had to cut loose others which are not even profitable.

My brain says sell everything and hide till the markets recover…BUT this is extremely hard, unimaginably painful. Unfortunately, I had this exact thought last year as well, but said no to myself as I couldn’t get myself to turn the paper loss to real loss…and avoided taking that route…well, the portfolio got even more decimated…but in spite of knowing this and having personally experienced it, I still find it so hard to sell everything…and that itself tells me I have no business investing…

May be, sell a portion of everything…Very painful!

I can only admire others who are in this position and are able to take the decisions without any emotions.

I wonder if it would make the pain a bit lesser if I go through my portfolio to see which have lost by 30% or so, and sell those and immediately put in a S&P 500… (I doubt I have much in the 30% loss as most are vastly down, so I may have to sell those up to 50% loss)

  1. Strangely, I know I wouldn’t flinch much if the S&P 500 falls…in fact, I strongly think it is going to fall, reading everything that is out there…however, like Jeff and so many others have said, over the long period of time, I have greater confidence it will go up and to the right…The question then becomes, well, if I know the S&P 500 is gong to fall, should I not wait for that and then deploy…I guess that would be the right answer if I ask my brain…but I am not sure how my heart will cope in
    the period between me selling and sitting in cash…and waiting for everything to fall …and like we have seen several times, what if the market suddenly rips (bear market rally) immediately after I sell…I don’t know how to cope with that…would make me physically sick at my ineptitude and horrible luck.

I know nobody can give me an independent advice, and I respect that…but it is very helpful to know what you would do/ would have done if you were in a similar position.

  1. Another question…I also see there has been talks of recession at other periods when the interest rate hikes happened ( as recent as in late 2018, when S&P 500 turned sharply negative from Sept to Dec 2018 after being up in the year till then, correlating with Fed rate hikes…and I have no idea, but assuming similar occurrences may have happened every other time correlating with rate hikes)…Is the sentiment different this time because this also happens when the inflation is still high, and the QT is also happening all at the same time…and if that is indeed the case, I guess it is possible that market can tank dramatically, and the FED U-turns… or is the expectation such that it is more likely that there may not be a black swan event, but more a steady prolonged decline in the market…I almost want to say I prefer a quick death, and hopefully a sharp up turn and sow, but prolonged move upwards…

I hate this whole mess I have gotten myself into…Totally self induced!!

Thanks everyone,
Charlie

#21

Hi Bjurasz,

Just wanted to make sure I understood that correctly.
Did you mean to say you sold at 50% loss, and then waited out in cash…and then because you waited too long, missed the opportunity to make it up {meaning, in this scenario, it was a wrong decision to sell}

Or did you mean to say, you were late to sell…and the continued fall led your losses to increase to 50%, at which time you had to sell { meaning it was a wrong decision not to have sold it earlier}.

Thanks,
Charlie

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#22

The Fed did a U-turn in 2019 under intense political pressure. It was a mistake because the economy wasn’t slowing much and there was no market panic. The political pressure won’t happen again…I hope.

Fed Chair Jerome Powell is laser-focused on reducing inflation even if a recession results from raising the fed funds rate and holding it for a long time. He won’t back down unless there is a financial panic. Nobody expects that because Powell has been so transparent for years that the market won’t be blindsided.

Because of this, the likeliest scenario is a steady prolonged drop in the market. I don’t think it will be as extreme as 1968 to 1982 but it will probably take a year to reach bottom as it did in 2002 (after the 2001 dot-com crash and recession).

You may be too young to remember this.
Wendy

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#23

Hi Charlie. It’s definitely painful, to look at the port and see losses.

However, keep track of these “losses”, record the buy, sell, dates, cost basis, etc.
Use these in a “tax loss carry over or carry forward” for your taxes.
Each year, you will be able to count these losses against future or current year gains.

Ie, these losses TODAY can, in part, be recouped, in future years.

The losses aren’t 100% lost.

I hope this information is useful.

As always - consult a tax professional.
Cause my comments are not tax or investing advice.
:alien:
ralph

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#24

Right now I’d avoid any company that has tons of debt. Ordinarily you’d expect new or rapidly growing companies to have more debt than usual, and you can take that in stride–but with growing interest rates, the debt will sink some of them.

I tend to avoid high-priced stocks, but that’s just my style. I like the little plodders that pay dividends. Like I bought Microsoft back when everyone thought it was boring. You have to become an “expert” in something and go with that. Never, ever, follow fads. Remember you are buying a company, not a collectible. And if you can’t afford to lose something, put it somewhere safe, even if you have to give up a dream of quick riches to do that.

And don’t take advice from strangers or fast talkers.

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#25

That’s tough to read.
Any advice anyone could give you to hold or sell could be right one month from now, and totally wrong six months from now, or vice versa. That’s the nature of markets.

I think the first step is acceptance. You made mistakes, but it is what it is. The numbers of the past are just that, not your present situation. The odds that these SAAS stocks are going to quadruple within any short or medium term timeframe are exceedingly small.

All or nothing decisions are hard. I remember you posting on the Berkshire board about your situation half a year ago. Didn’t you make a partial adjustment then? If yes and it saved you from at least some losses, congratulations.

This is not optimal (it never is), but faced with the inability to make all or nothing adjustments, sometimes selling a portion and redeploying or holding some cash, can be a strategy to minimize regret.

You could sell half or 2/3, and deploy half of the raised funds into Berkshire and/or the S+P, and leave the rest of the funds in cash until the S&P goes over it’s 200 day average, makes new a 99 day high, or any other timing method.

Whether that will be better or worse than doing nothing, I don’t know, nothing is guaranteed . But it is a plan. What you need is a plan that you can follow and see the market as giving you opportunities, instead of having the market jerk you around like a sick person in a rollercoaster.

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#26

Thanks Wendy, Ralph, WilliB, and AguilaAzul. Again very helpful!
I certainly have decisions to do…may be panful, but certainly has to be done and I have to stick with it.

Thanks again for all the helpful suggestions.

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#27

Hi AguilaAzul,

Yes, you are absolutely right. And following that, I did sell some of my huge losers and bought some Berkshire ( and those are the only ones which are positive in my portfolio…and I am incredibly thankful to the Berkshire Board members, especially Jim Mungofitch for that…at last,I had a company that was relatively easy to value using the Price to book value even by a Moron like me).

My only regret is that I only sold a small portion and hence could buy only a small portion of Berkshire…

But yes, the Berkshire Board and this board are the only ones I follow…and if I had had the good fortune to know these 2 years back, my situation would have been SO different. But, better late, than never!

At least, my kids will know what NOT to do…and what is the right thing to do! And trust me, I would much rather this awful experience happen to me than anything even remotely like this to them.

Thanks again,
Charlie

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#28

Correct. I should have re-invested after moving the assets to Vanguard.

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#29

Woof. There is no one on planet Earth who knows the answers to all those questions and even if they did translating into actionable information is a major problem. There is a reason 95% of professional money managers cannot beat the market. And don’t forget Warren Buffett’s $1 million bet that a basket of hedge funds wouldn’t outperform the S&P 500 (he won). They have fancy degrees and all kinds of quant tools and all day to work on this stuff, and they still can’t do it.

One reason is that while it is temping to bail at the first sign of trouble, missing only a few of the best market days a year blows big holes in your returns:

In other words, getting out without getting back in on time is dangerous to your wealth.

On the other hand, if you had bought a nice S&P 500 index fund five years ago, you’d be up 40% today. If you had bought right before the COVID crash in February 2020 (bad time to buy, right?) you’d be up 15% today.

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