Totally, completely and absolutely WRONG!

Investment Analysis Clubs Saul’s Investing Discussions
1

Totally, completely and absolutely WRONG!

Looking back now at just 5 weeks ago, when we were all so scared that a Bear Market was here, do you remember what is was like? The news was full of falling stock market stories. And China was collapsing, Europe was collapsing, Russia was collapsing, Oil was collapsing. Worldwide debt was going to kill us. Deflation was going to kill us (Funny, if debt was supposed to kill us, it should be inflation we should worry about, but Oh, well!). A Zacks newsletter that I read sometimes which is supposed to be a “long-term” long newsletter, was breaking all its rules and buying ETF’s that were short the market to adapt to the “Bear Market”. Even the MF was running stories about how to survive the coming Bear Market. It was scary. I was scared too. I really was! It’s important to remember how scared you were this time, the next time the market is going down. It may save you from some irrational actions that you’ll regret afterwards.

And all these market timers we had never seen before turned up on our board saying that their Technical Analysis charts and metrics were telling them that the market was going to crash, it was going way down from there, there was no hope. And they chuckled among themselves about what poor naïve dopes we buy-and-hold people were. That was during the week before the market turned up. Not one TA guy said his metrics indicated that there was a possibility that the market was going to turn up. So much for TA guided market timing…

It turns out that all those people saying you should sell everything and get into cash, were wrong. But not just a little wrong. They were completely, totally and absolutely wrong. It’s important to remember that the next time the market is going down, everyone is saying to sell, and you get that panicky feeling. That doesn’t say a Bear Market will never happen. It will! But trying to time the market is a losing game.

My bottom was Thurs Feb 11.

My portfolio is up about 19% since then. That’s a bunch.

The S&P 500 is up 12% since Feb 11, way more than its average gain in a year. It’s even up 0.3% on the year, after that terrible January. Sound like a Bear market to you?

The Russell 2000 Small Cap index is up 15.5% since Feb 11, again way more than its average gain in a year.

Skyworks is up 38% since Feb 11. That’s 38%!
LGIH is up 23% since then.
Skechers is up 17% since then.
CBM is up 12% since then.
Amazon is up 10% since then in spite of being beaten down the past two days from $577 to $552 over some news from Apple.
Etc.

I hope that you stayed 100% invested through this, and didn’t get frightened into getting out at the very bottom.

Best,

Saul

For Knowledgebase for this board
please go to Post #15056.

A link to the Knowledgebase is also at the top of the Announcements column
on the right side of every page on this board

68 Likes
2

So are you taking 11th Feb as the bottom Saul or do you expect to retest that with some kind of double dip? I guess the answer is you don’t know and you don’t care because you stayed invested and didn’t rotate into cash.
Cheers
Ant

1 Like
3

Saul,

Wiser investment words have never been spoken.

History shows us that if we had simply placed all our investment capital in the boring S&P index way back in 1980, and then went into a deep 35 year slumber, we would wake up today with a tidy 1500% gain.

Maybe we should all invest in some sleeping pills to fatten our portfolios.

Jim

1 Like
4

Thanks Saul,

I added to my positions during that time.

I am glad I did.

Frank

5

Jim:

History shows us that if we had simply placed all our investment capital in the boring S&P index way back in 1980, and then went into a deep 35 year slumber, we would wake up today with a tidy 1500% gain.

wow, I didn’t realize this. of course, 1980 is an interesting starting point. If you play around with more recent timeframes, it does bring the return down a bit…but I get your point.

Your post gave me pause to go and look at this:

http://dqydj.net/sp-500-return-calculator/

and it was actually closer to 1700% return (8.7% annually)

with dividends reinvested, it is 4576% (11.6% annually)

NOTE, I am not sure how they calculated this.

But it is intriguing, that if you stashed away $10K today, in theory that would be worth 45x more or a cool $450,000 in 35 years.

Brian

4 Likes
6

Saul.

What a wonderful post. Thanks for this and for your perspective and for your detailed insightful posts. I always rec them, but wanted to let you know how much they are appreciated.

Brian

7

What a wonderful post. Thanks for this and for your perspective and for your detailed insightful posts.

Thanks Brian, and all the rest of you who recommended it and appreciated it.

Saul

1 Like
8

I was hoping the market would fall even further.

I was making buys every two weeks and I enjoyed getting companies at cheaper prices.

It was fun while it lasted.

Fool on,

mazske

1 Like
9

Good luck with that. I’ll be back in two weeks…

1 Like
10

History shows us that if we had simply placed all our investment capital in the boring S&P index way back in 1980, and then went into a deep 35 year slumber, we would wake up today with a tidy 1500% gain.

How much money did you have in 1980? I assume you have accumulated most of your wealth since then. $10,000 invested in 1980 would be $160,000 today at a 1500% return. If you were lucky enough to have $100,000 to invest in 1980 then you would have $1,600,000. Not bad but not a fortune.

11

History shows us that if we had simply placed all our investment capital in the boring S&P index way back in 1980, and then went into a deep 35 year slumber, we would wake up today with a tidy 1500% gain.

If you ever get a time machine and find yourself back in 1982, I suggest loading up on the 30 yr bond at around 13%.

2 Likes
12

I suggest loading up on the 30 yr bond at around 13%

Yes that was a once in a lifetime opportunity.

Which I missed because I didn’t know enough about how central governments can always bring inflation under control. If they have the will. Which politicians almost never have.

Volker had both the will and the means, something that may have cost Carter the next election. In many countries the pain Volker caused would have resulted in his speedy dismissal.

http://www.federalreservehistory.org/People/DetailView/82

Carter gets a lot of credit in my book for appointing Volker ,who he surely knew would be more independent than most, and that Volker actions would not help his chances for future election wins.

2 Likes
13

If you were lucky enough to have $100,000 to invest in 1980 then you would have $1,600,000. Not bad but not a fortune.

I’m not sure, but your last couple of posts seem to be against the “buy-and-hold” approach. That, of course, is completely fine. There’s no one way to correctly invest your money. But why on earth should we just ignore dividends? That $1.6 Mil triples if you factor in dividends.

2 Likes
14

I strongly disagree with you Saul. But on a point of clarification:

Should you buy the stock of certain companies when the overall market falls? Agreed: an emphatic yes. Obviously. Recently, I averaged down in small increments to the temporary bottom in ETFs related to oil, metals, agriculture and chemicals and will resume this process when possible. I also bought some companies which were waiting on the watchlist.

But should you consider global debt levels, GDP growth levels, the destruction by central bankers of market-led price-discovery, the astonishing expansion of valuation multiples, asset values and the market and the complete inability to counter the next recession (the current plan is to make it much worse) irrelevant to your investments? Emphatic no!

As the the secular bear market slowly proceeds and we wait for that inevitable event, I am happy to have about 25% currently in cash. It is just insurance. I consider the premium cheap.

We agree about bargains but not about risk. My maximum book cost in any investment is 2.5% and my biggest holding is 4.75%.

Others have talked about the S&P. The point here is that it matters when you buy in. So just for interest, as of Dec. 31 2015, SPY had a real return of 1.62% from the 3/24/2000 high. As that great salesman M. Housel would say, the market ‘bounced back’. It took 15 years. The S&P is now about as overvalued as an index can get so I am not sure about the next kind of bounce.

On the other hand, if you averaged down into SPY in the 2008/9 debacle, you did very nicely and are now sitting on an annualized return of about 24%.

8 Likes
15

Well, I’ll presume this post was aimed generically and not specifically at me, but since I participated and said the opposite, I suppose I should respond.

Yes, I exited the market, and for all the reasons you say - sentiment was markedly negative. People were worried about China revaluing and possibly collapsing their housing and manufacturing bubble, commodities were cratering, and the US economy had a couple of soft months in a row, leading to speculation of a slowdown later in 2016. Yes, sentiment was decidedly negative.

I exited, and the Dow (as proxy for me, a reasonable once since I am broadly invested in mostly dividend paying stalwarts) has jumped almost 1,700 points since then. I will also note that sentiment has changed dramatically since then; China seems to have faded as an issue (although I believe it still is), the US economy still stumbles forward, and some commodities are coming back.

I would be less than honest if I didn’t say that I fell behind on this particular episode. I have “market timed” a total of six or seven times now, I forget, starting back in 1999/2000. As I have posted before, three of those have been entirely neutral, as the market did not do what I thought it might (the episodes were mostly political, as I recall; I waited for one political party to “shut down government” which ended up not happening and the market shrugged.) That cost me around $400 in transaction fees, which I consider nothing.

Twice I got out of the way of a very large, very fast moving train: the tech crash of 1999/2000 (when I was heavily invested in tech stocks), and the housing crash of 2008 (when I was heavily invested in stalwarts.) Those were rousing, smashing, glorious victories, and I bought back in on the way up and made - to use your words - “a small fortune”

I did it again last fall, just before the most recent correction, and challenged by you noted that it profited me about $100,000 over a very short period. (Less than a month or two, as I recall without checking.) But since I crowed about that, let me admit that this time the market turned without me, and buying my way back in as the market has rebounded, I have given up almost all of those gains. I expected the market to continue its downward spiral and it did not, so I got caught. As usual I didn’t not sell at the perfect bottom, but I was within a few weeks of it. I also didn’t sell at the perfect top (and have never done so) but I do get out at a favorable place. Usually. Not this time.

To recap: two gigantic victories in the past 20 years.
Three episodes that were neither wins nor losses.
One action last year that netted about $100k.
One action this year that lost about the same.

Your counsel - and gloating - is “Don’t do anything! Don’t ever do anything! The market will always take care of you!” And this time it did.

Mine is different: “If you have a rule which you can never break, the market is going to screw you, eventually.”

The market is flexible. You should be too. I don’t expect to win every time, indeed I would think it odd (and perhaps dishonest) were someone to say they do. There are times when it is prudent to be cautious and not stand in the middle of a burning building saying “Well, it’s never fallen down before, so I’m staying put.”

My post of January 17:
http://boards.fool.com/on-staying-all-in-versus-trying-to-ti…

48 Likes
16

So just for interest, as of Dec. 31 2015, SPY had a real return of 1.62% from the 3/24/2000 high… the market ‘bounced back’. It took 15 years.

Hi Streina, I guess it depends on what you are talking about. As I wrote in the Knowledgebase:

I remember in 2010 there was a lot of talk in the media about the “Lost Decade” for the stock market, which apparently had finished roughly unchanged after 10 years. At this point I was up 570% in those same 10 years, in spite of 2008, so I was wondering what they were talking about.

Also I looked at a ten year graph of the S&P and it’s up 57% from 10 years ago (Mar 17 2006), and that’s not counting dividends. Probably up at close to 100% adding 10 years of dividends compounded. Maybe the problem is that you are cherrypicking your start date at the very top of the Internet Bubble… BUT your figures are wrong anyway. (I don’t know where you got them). On the date you give, Mar 24 2000, the price of the S&P was 1527. It’s now 2050. It didn’t take until the end of 2015 to bounce back. It bounced back years ago, and that’s not even counting dividends. Did you figure something wrong?

Saul

Here’s a link to the price on Mar 24, 2000: https://www.google.com/finance/historical?cid=626307&sta…

4 Likes
17

Hi Goofy, you make some good points and I appreciate your honesty. My problem is that I’m no good at all at market timing, so I tend to stay invested all the time. I also sold out of the Internet Bubble (selling in Jan or Feb of 2000), but even then I didn’t stay out of the market, just switched out of internet stocks and into other companies, and actually finished 2000 up 19% for the year. When analysts were saying “Sure this is at 200 times revenue, but comparables are 400 times revenues, so it’s cheap,” and Bezos was saying “Hey guys, we’re just a book store. I appreciate your faith in us but our stock is way overvalued”, I knew it was time to get out of internet stocks.

I wish I had known about 2008 in advance, but after all, that was the worst market meltdown in 80 years, since 1929, and I don’t feel it’s prudent to run my life or investments on events that occur once in a long lifetime.

As I said, I’m just no good on spotting these things in advance, so I’ll stay 100% invested almost all the time.

Thanks for your thoughtful post.

Saul

9 Likes
18

Hi again Goofy,
By the way, I am a big advocate of selling individual stocks when it seems appropriate, and strongly against holding them through long downturns and waiting for them to come back, as was the MF mantra for many years. But I get out of them when I can see that something is wrong with the individual stock. I can’t really do that with the entire economy. And over the years, lots of individual stocks have crashed and burned permanently. The economy has always come back, at least for the past four hundred years or so.
Best,
Saul

1 Like
19

Factor in annual inflation to get ‘real’ returns.

20

My problem is that I’m no good at all at market timing, so I tend to stay invested all the time. I also sold out of the Internet Bubble (selling in Jan or Feb of 2000), but even then I didn’t stay out of the market, just switched out of internet stocks and into other companies, and actually finished 2000 up 19% for the year.

I am a big advocate of selling individual stocks when it seems appropriate, and strongly against holding them through long downturns and waiting for them to come back, as was the MF mantra for many years. But I get out of them when I can see that something is wrong with the individual stock.

When I thought about what I had written in those two posts to Goofy, I realized for the first time that what I had done in 2000 wasn’t fortunate market timing at all. I stayed 100% invested! What it was was following my own advice about getting out of individual stocks (AOL, YHOO, AMZN, and some other overpriced internet stocks I don’t even remember) when something about them seemed very wrong.

Saul

2 Likes