OT: how to be successful in a bull & bear market

Stocks A to Z
21

This is very helpful…as it tells me, that as along as one invests in reasonably good companies, and have a long time horizon, they can expect to do well.

There was a time, back when Dogs-of-the-Dow and Foolish Four were popular, that some at The Motley Fool were discussing Unemotional Value and Unemotional Growth portfolios. It was then that I realized I was an emotional investor. And this was around the time I had bought a (very) few shares of BRK.A. I could have bought one more had I the nerve to buy one more of those shares, but I did not have the nerve to put all my eggs in that basket. And that was a long time ago.

Now lately, I have become more emotional about inflation, and have put more and more of my capital into precious metals; though still less than 10% of my capital. I do not expect my purchasing power to go up with the precious metals, but it might remain the same even if the US dollar price of my other investments goes up and the purchasing power of the US dollar continues to fall.

On the other hand, every year my time horizon necessarily goes down by a year. It might not go down quite that much if I quit smoking or something like that, but that is not an option because I never smoked. But you get the idea.

So since my time horizon gets shorter and shorter, my inflation worries should go down. But they don’t. So that is the real emotional content of my investing. I do not have the nerve to go all precious metals, since in the short term, their dollar price is completely irrational. If I knew I was going to die this year, there would still be no problem, but I doubt this is going to happen.

I seems to me that it depends on what the money managers at the US treasury and the Federal Reserve do that matter most, and who knows what they are going to do. But I do not trust them at all.

7 Likes
22

This is very helpful…as it tells me, that as along as one invests in reasonably good companies, and have a long time horizon, they can expect to do well.

I would correct that. But predictable business at a reasonable price is the lesson learned.

tecmo
…

2 Likes
23

On the other hand, every year my time horizon necessarily goes down by a year.

Hey, cheer up. it’s better than that.

The life expectancy at age X+1 is not a year less than the life expectancy at age X.
That’s because you are known to have survived the entire first year, something not yet known when you were at age X.

Heck, at a certain ripe old age, your odds of dying in the subsequent year stop rising.
They are high, but they stop getting worse they have been through most of your life till then.

Speaking of inflation and portfolios of old people—
Something I mentioned in passing on another board:
My recommendation to my lovely spouse on my demise for a do-it-yourself income portfolio that’s inflation protected:
Put the entire portfolio into Berkshire, RSP, QQQE, in specific proportion. Maybe I’ll suggest a fourth or fifth position, maybe not.
Each quarter, spend all dividends received.
Each quarter, also sell 1% of the original share count of each position, and spend that too.
Income will vary, but should rise over time faster than inflation. There are brokers that will do this for you.
By definition it runs out of money after 25 years.
(A little money put into a 25-year-deferred annuity should take care of that issue;
for a 65 year old female, maybe $1.30 up front for each $1 in future annual nominal income.)
Random check–had one started this with all Berkshire in Q3 1999 when it was very pricey, the rolling year income would have risen so far by inflation + 7.4%/year.
Had you done it with SPY, real income would have risen inflation + 1.75%/year. Any positive number is good.
Note that the S&P didn’t rise in real terms for 1/6th of a century from its March 2000 high. Dividends were it.

Jim

19 Likes
24

The life expectancy at age X+1 is not a year less than the life expectancy at age X.
That’s because you are known to have survived the entire first year, something not yet known when you were at age X.

I do not dispute that.

Heck, at a certain ripe old age, your odds of dying in the subsequent year stop rising.
They are high, but they stop getting worse they have been through most of your life till then.

True enough, but that is only the odds. If I were God or omniscient I would know what day I am going to die. And that day does not change. So every day I get closer to it. And that is the day I need to know to decide on my investment strategy at this stage. And this is the day I will not know. So while my strategy must be based of the odds, nonetheless each day I live brings me one day closer to the day I die.

I currently spend more than my income from my defined benefit pension and my social security. Some of that comes from investment income but some also comes from burning up some of the principal. Ideally, I should reduce my expenses to avoid ever using up the principal, but I do not have that much. I could not skip my property tax, my medical insurance and medical bills, … Also, my pension is not indexed at all. And the social security does not go up anywhere near what my expenses do.

What if my pension is underfunded, even if, by law it is adequately funded? What if the Social Security is underfunded? What if the U.S. government defaults on its bonds? What if real inflation rate goes up to 10% for an extended time?

1 Like
25

If I were God or omniscient I would know what day I am going to die

If you are god, there is no death to you.

26

Dear Inspired,

I understand your pain. Sorry. I also understand you desire to get right. Take it easy. You are young and in the right place to learn. Even Charlie and Warren have made big mistakes.

Warren, himself, suggested that the best way for a novice to learn about investing is to read, The Intelligent Investor. I’m reading it now for the second time. He said it changed his life. He changed mine.

Jim’s advice to read all the annual letters is also a good way to add to your investing library.

I would also suggest you read, Damn Right, to get a good view of Charlie. Warren Buffett Speaks, is a simple and fun overview of Warren’s thoughts. There are many other books about Buffett and Charlie. Hagstrom’s book, which I haven’t read, and Alice Shroeder’s, Snowball, which I have. Many more.

You might also read, Extraordinary Popular Delusions and the Madness of Crowds, having had a little experience of that, lately, right? Also, read The Internet Bubble, Living Within Limits, and, Influence, to get ideas of books Charlie liked in the past.

Charlie likes to say, investing is a subset of worldly wisdom, so one should develop a latticework of mental models from the various disciplines. He especially likes physics. He says some accounting is useful. Of course, logic. And stoicism is very important to him.

Another technique Charlie uses is to invert. For instance, Charlie might say to you, instead of trying to get rich, think of all the ways to lose money and then don’t do them. Don’t try to be smart–just try not to be stupid. He said when he was a meteorologist in the service during WW2, his task was to keep the pilots alive on their sojourns. Instead, he thought of all the ways that he could kill them and then stayed the h377 away from those.

Learn the difference between investing and speculating. Do you trust the person in the mirror? Instead of getting your confidence back, attain a healthy humility.

Warren says, get rich slowly. He sites the first law of money as, don’t lose money, and the second law of money is don’t forget the first law.

It takes a lot of work to learn all the mental models required to become a good investor. It’s really hard to become a good investor. Really hard. Plus you need the right temperament. Can’t be a gambler because that is not investing. Someone compared trying to be an investor to getting a medal in the Olympics. More people try it and think they can do it.

Benjamin Graham said something like, it’s not so hard to do better than the indexes, but to do very much better is very hard.

So, relax. Stay safe. It takes time to get time. Takes experience to have experience. Be humble, be honest with yourself. Be patient. Whatever you learn here will help you on your journey. Good luck.

:slight_smile:
P.S. There are great people in the world. Warren and Charlie are two. And there are quite a few here, as well.

16 Likes
27

Thanks a lot for these kind words! Very wise words indeed, and you are no beginner, beginner 3388):

The truth is I have always had a lot of humility and have always been humble…And I was never a gambler, and had taken it to the extreme, and stoically stayed away for a very, very long time from stock investing. Yet, completely agree that this experience has been very humbling. My panicking, and putting money when some of those horrible stocks went down by just 5 to 10% can be construed as gambling, an action borne out of hope rather than any degree of conviction. Also, one thing that I am totally guilty of was a lack of awareness of what stock market is, and how people can become rich or poor based on one’s poor decisions. This lesson has been unbelievably expensive, hard and heartbreaking! However, I have much to live for and determined to right the wrong.

I have already started reading Mr. Buffet’s annual letters, and bought the “Intelligent Investor” - on page 7, annual letter 2011, he states “Picking up that book was one of the luckiest moments in my life.”
Hopefully, it becomes mine too!

Thanks so much,
Charlie

1 Like
28

Good start, Grasshopper.

I came for the money and stayed for the wisdom.

Sometimes I wince at the mistakes I made and still make. I should know better!

We are human.

Warren lost several times in airlines. Then he vowed never to buy another.
Until he did, big time. But Covid happened and he lost, again!

Doh!

He’s still doing pretty good, though.

Those things keep you humble and re-remembering Law #1. Like CS Lewis said, we are part spirit and part animal (intellect and reaction?) and we vacillate between the two. If you ever think you are all one or the other–beware.

3 Likes
29

I meant to say, we “oscillate” between the two.

30

I lost 75% only because of my folly. Like I said, I was Naive…I placed my full trust in Stock advisor and those were the only companies I bought. Companies like Zoom, Fiverr, Lemonade, novocure, Etsy, and so many others that were recommended by Motley fool were the ones that had contributed to my downfall. Upstart was indeed one of the biggest folly of all, but Tom Gardner absolutely was convinced when he pounded the table on it, and said 380 was just a beginning.

This statement kills me. I found the Fool in 1999, still in its infancy with a very humble goal: Financial advice for the non-finance professional. For ex, explaining interest rates, how to find a stock brokerage, pay off debt, use care with credit cards, etc.

Then in approximately 2000 or 2001, before the Gardners started their newsletters, the Fool had an in-depth write up of a gene-mapping company called Celera. The next day, the stock went through the roof. It was obvious the Fool had an audience, and that their narrative could move prices. Shortly thereafter came the Rule Breakers letter, with many more to follow. Unfortunately I think they began a shift in purpose away from teaching wisdom to hyping performance.

The OP - in my mind - was already quite the success: Saving $1.2MM without using the stock market is impressive. I only wish he’d stuck with what was already working rather than reaching for outsized gains.

1 Like
31

Obviously, I don’t want to do anything remotely rash. However, I am sincerely hoping to get some advise on a few things.

  1. I have already sold many stocks which I had no conviction, and have a 400k real loss. The ones I sold were real stinkers like Lemonade, Fiverr, SFIX and many more like that. I am assuming that I can only write off 3k per year as tax loss?

  2. More importantly, I still have many companies that I don’t have much conviction in. I didn’t sell them at the same time as others as I placed them at a slightly better category (good growth, horrible price valuation). And also did not want to do anything rashly and wanted to phase out my selling…however, now I am wondering, whether I should sell them or not…From a tax loss perspective, I am assuming I will be absolutely gaining nothing from selling these at such a low price. Having already a 400k loss means I will never ever be able to write off even 100K at a pace of 3k per year. So, is there any point in selling any more? Or am I clouding my judgement with tax issues instead of selling them?

  3. Perhaps most important of all, what to do moving forward in terms of regular investing. Is it best to just to save them as cash till the stock market starts showing signs of recovery? Or is it best to keep regularly investing in the good companies/index funds every month? This is money for my childrens’ future, and so I don’t need them anytime soon.

  4. Based on nothing but hope…this was my line of thinking…Don’t sell anymore, unless the loss is reasonable…and decide whether to invest regularly in good companies/ index funds versus saving the cash, and waiting for things to fall more and then buy…

Thanks a lot,
Charlie

1 Like
32

I have already started reading Mr. Buffet’s annual letters, and bought the “Intelligent Investor” - on page 7, annual letter 2011, he states “Picking up that book was one of the luckiest moments in my life.”
Hopefully, it becomes mine too!

Inspired2learn, just a word of caution: Some of what Benjamin Graham wrote in The Intelligent Investor is from a bygone era, so keep that in mind as you read the book–you may not be able to apply some of the lessons or formulas directly in today’s market. It is widely acknowledged that even Warren Buffett evolved beyond pure Graham-style investing (in the “cigar butt” sense) many decades ago. The two chapters of the book that are probably the most timeless–and that Warren Buffett has specifically called “the bedrock of [his] investing activities for more than 60 years”–are chapter 8 (The Investor and Market Fluctuations) and chapter 20 (“Margin of Safety” as the Central Concept of Investment). See https://www.forbes.com/sites/schifrin/2013/06/05/two-book-ch… https://seekingalpha.com/instablog/6645791-clearview60/53623…. (I believe chapter 8 is where Graham introduced the concept of “Mr. Market.”) So I recommend paying especially close attention when reading those two chapters.

I’m sorry to read about your losses and wish you all the best in your quest to learn more about investing.

Andy

2 Likes
33

Hi Charlie,

I’m not a CPA, but I DO have experience with tax write-offs from losses in the market. Mine originated from 2002 and I’m still taking $3,000/yr as a deduction from income.

I also believe though, if you invest in some winners, and you cash them out for some reason, you can use more than $3,000 in a year to offset those gains - so the gains are not taxable up to the $400,000 that you are currently showing in losses.

Folks - correct me if I’m wrong on the second point. If I’m wrong on the first point, I’ve got to start worrying about the IRS!!! :wink:

'38Packard

2 Likes
34

I still have many companies that I don’t have much conviction in. I didn’t sell them at the same time as others as I placed them at a slightly better category (good growth, horrible price valuation).

Not sure if there’s general advice on them that can be offered. How many are we talking about? Willing to offer some names?

I ask, because a number of the stocks of “hypergrowth” companies–e.g., CRWD, SNOW, DDOG, MDB–are (at last!) not absurdly priced (even Morningstar rates them as potentially good values), and so they may well be worth holding, so long as they don’t comprise the core of your investments.

1 Like
35

Hi Charlie.
I dropped the tax loss carryforward Question over on Tax Strategies.
There are high quality tax pros who answer questions there.

https://discussion.fool.com/tax-loss-carry-forward-questions-351…

We’ll see how they respond?
:vulcan_salute:
I wish you well in your journey.
From my own experience, your situation is NOT as dire as it seems right now, in the heat of the “market correction” moment.

:sun_with_face:
ralph

2 Likes
36

RAS337 is correct about The Intelligent Investor being somewhat dated. But, it is foundational and it is what Warren suggested I read. I asked what in particular and he said, Chapter 8.

Chapter 3 is interesting right now because that stock market was richly valued in '72 when Graham wrote this particular edition. He suggested to have no more than 50% equities. Pay the taxman with equanimity and put the proceeds into savings and bonds, which were paying 7.57% at the time.

I don’t know what other people would tell you about your remaining stocks. They could down or they could go up. You probably can’t value that.

A lesson here. Using logic, since you, yourself, don’t know how to value them, that makes them speculative. You might win or you might lose.

As Dirty Harry in the movie of the same name, Clint Eastwood is holding a gun on a criminal lying on his back on the ground and says this to him,

“Did he fire six shots or only five?” Well to tell you the truth in all this excitement I kinda lost track myself. But being this is a . 44 Magnum, the most powerful handgun in the world and would blow your head clean off, you’ve gotta ask yourself one question: “Do I feel lucky?” Well, do ya, punk?

Will you risk something you need for something you want? Sleeping well at night is worth a lot.

1 Like
37

One other thing I want to say, relating to there being good people out there.
I heard Warren say something when I first started looking into Berkshire Hathaway. This is my understanding of what he said, so take it with a grain of salt.

It’s kind of a logic.

There are people you short and people you go long on.
The people you go long on and continually justify that high opinion you can coattail.

Now, there are other variables to consider, which take time to put together to make up your latticework of concepts to live by. And your latticework will be unique to you as you are able to understand things. And one of them is time is variable. Price is a variable. Value is a variable. In other words, a business may be a great business, but at the time you want to buy it, it may be overly expensive. On the other hand, Charlie says a good business is worth paying up for. But how much?

So, as you see, it can take time to learn how these nuances can work in a way that brings you success–because there are many, many more. They are like a mobile, they affect each other in balance. Investing is an art, which is why I love Berkshire so much. He and Charlie are artists. Buffett says, this is my painting. He loves what he does. I think it is a spiritual thing. Reality is awesome. It takes time to gain mastery.

I am writing these things as much for me as for you. :slight_smile: Now, I must study since I want to do as I say. Happy Holiday.

2 Likes
38

2. More importantly, I still have many companies that I don’t have much conviction in. I didn’t sell them at the same time as others as I placed them at a slightly better category (good growth, horrible price valuation). And also did not want to do anything rashly and wanted to phase out my selling…however, now I am wondering, whether I should sell them or not…

Can you value the companies you still own? Would you buy them at these prices if you didn’t already own them? If the answer is no then I would sell them.
If you can’t value individual businesses I would recommend index funds. You may want to read Jim’s posts about equally weighted Index ETFs.

2 Likes
39

Thanks everyone for all the help. The magnitude of loss is overwhelming…and I feel compelled to do something…However, I don’t want to do the same mistake twice.

Risk management and understanding what one is getting into are 2 key things I need to learn.

I can clearly understand and accept that there is no crystal ball, and no one can accurately predict which ones will go up, and by how much…however, it is equally clear that with proper learning, one can predict reasonably well what can be the expected return based on some of the financial metrics, and the margin of safety may help decide the risk/rewards associated with such investments. I can see that is how many of you have been successful, and hopefully this is something I can learn and emulate soon.

I am very grateful to all of you for taking the time to share your thoughts.

Thanks a lot,
Charlie

1 Like
40

Risk management and understanding what one is getting into are 2 key things I need to learn.

I can clearly understand and accept that there is no crystal ball, and no one can accurately predict which ones will go up, and by how much…

Those of us who were the lucky ones lost big-time in their early years, when the number of dollars invested were small and so the large percentage loss was not that many dollars.

…however, it is equally clear that with proper learning, one can predict reasonably well what can be the expected return based on some of the financial metrics,

This is absolutely not true. Best you can do is identify which barrel seems to have the best/most fish to shoot at.

5 Likes