What to do during a 5 month train wreck

Investment Analysis Clubs Macro Economic Trends and Risks
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I’m venting. Not actually looking for input. But don’t let that stop anyone.

I have a spreadsheet that tracks my IRA over the last 6 years on a weekly basis. Some weeks have notes, like “panic sold”, which are shortly followed by a note “bought it back”. In other words, my past panics have never been correct. And I “learned” that lesson and have mostly been invested since November’s high. Not in the same stuff, I’ve rotated, being almost all index funds now, but infrequently have I had cash positions over 10%. Usually it is under 5%. (Today I am at 15% though). So I’ve told myself to ride this out.

But it’s painful to be this close to a $1M loss from your all-time-high not so long ago. I’m well past correction, well past bear territory.

What is keeping me going is remembering going past 50% cash in 2008 and not getting back in for too long, putting a real, honest, damaging hit to my IRA balance. It’s been aggressive investing for the past 5+ years that literally saved a retirement. And now seeing it get hit all over again.

My goal is a double over the next 8-10 years from today. I still think that is possible, even if mostly invested in ETF’s like VOO, QQQ, VTV. Fingers crossed. Nothing is guaranteed. At least I ditched the SaaS and high growth stuff early this year. Best decision I ever made was to abandon those stocks.

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As a risk-averse investor, I tend to sell risk assets faster than a turtle pulls into its shell. I tend to return to the stock market too late in the cycle.

Maybe we should refer to the excellent work of mungofitch, who quantified his 99-day rule several years ago. I wish I could find the link to his graph.

Mungofitch showed that selling the SPX if it didn’t make a new high in 99 trading days often avoided deeper bear market losses that take several months to develop. But then buying after it recovered and made new highs for 99 trading days brings the investor back into the market without losing too much of a new bull market. This rule held over several bull/bear/bull market cycles and prevented deep losses without sacrificing many gains.

Mungofitch is a very, very smart guy. When the SPX has fallen for a while I start counting trading days. It was 77 days without a new high last Sunday.

I also look at the Macro economic trends. When the Federal Reserve announces that they are starting a cycle of rising fed funds rate, I look at previous cycles of tightening.

The big question is whether the Fed is serious about reducing inflation, even if it means inducing a recession and/or asset market crashes. How high will the fed funds rate go before the Fed slashes it to a too-low level for too long, as they have done since 2000?

The last 3 cycles of raising and topping look like this. The table shows how quickly the SPX peaked before beginning to drop:

https://fred.stlouisfed.org/series/FEDFUNDS
https://www.google.com/search?client=firefox-b-1-d&q=spx…


Date begin rise      Date of top rate      Date of SPX peak
April 1999            July 2000              6/1/2000
June 2004             August 2006            8/3/2007
October 2015          January 2019           9/21/2018

This is where METAR and Mechanical Investing intersect.

Wendy

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What is keeping me going is remembering going past 50% cash in 2008 and not getting back in for too long, putting a real, honest, damaging hit to my IRA balance. It’s been aggressive investing for the past 5+ years that literally saved a retirement. And now seeing it get hit all over again.

If you like the positions you have and don’t need the money in the near term, just sit it out. However, that can be hard to do psychologically. I have found over the years that it helps to have a small ‘action’ segment to play with and tweak. Sometimes it is net-nets, sometimes options, inverse funds, whatever catches your fancy.

DB2

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Maybe we should refer to the excellent work of mungofitch, who quantified his 99-day rule several years ago. I wish I could find the link to his graph.

I think I saw that post years ago and saved a link to it cuz I thought I might need it someday.

https://discussion.fool.com/getting-away-from-the-bear-27035352…

WTH

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And as Wendy says, we’re not far from triggering the “sell to cash” signal. Within two weeks possibly?

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Steal the silver. Hey, it is a trainwreck, so…

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bjurasz
And as Wendy says, we’re not far from triggering the “sell to cash” signal. Within two weeks possibly?

Is it time to “harvest the losses”???

NONE of the metrics of the companies in the port have changed here (off ~~~15%), only the market’s attitude towards them. (That’s one of the tenets of the Peter Lynch philosophy.)

I’m holding. Makes us all pooch-faced when there is such a dramatic down turn, but if you have your money segregated, where the down turn doesn’t impact your day to day finances, it’s survivable.

Here, the ‘money pile’ is bifurcated into A, the untouchable pile, and B, the invested pile. In the (highly unlikely) event that ‘B’ goes to zero, it still has zero impact on A.

Granted, it does have a slight impact on if we’re going to take that trip, or make that property improvement, or spend on something foolish. But day to day? Nada. Just the pooch-faced impact.

That’s our story and we’re sticking to it.

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And as Wendy says, we’re not far from triggering the “sell to cash” signal. Within two weeks possibly?

Sold Whirlpool into today’s rally. Company guided down, but said it was looking at selling off it’s European operation. Other factors involved: in Feb, WTO ruled in favor of Korea wrt the protectionist tariff on Korean washers the US put in place in 18. The tariff expires in Feb of 23 anyway. Then there is the possibility that the “shortage” narrative will run out of gas and they can’t gouge customers anymore. I don’t see any reason to hold anymore. Not even the 4% divi is worth the downside from here.

Steve

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WTH, thanks for the links! Great to hear from you! It’s been a while.

Wendy

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WTH, good to hear from you. The good thing about the recent social board shutdowns is that some of my favorite posters have come back into the picture for me along with others who remain in my Peebox.

I added a miniscule amount of vug (Vanguard Growth etf) to my port today for $255/share because it is down 20% from its recent highs at the end of last year, and because growth stocks may still be ok for the long haul. If mungo’s 99 day rule kicks in I plan to add a little more.

I will continue to remain heavily overweight cash due to my age (66) and the fact that we have ‘enough’. Our goal is remain comfortably retired and enjoy life - not get rich. And I really cannot afford to squander my wife’s retirement.

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https://discussion.fool.com/mungofitch-a-history-of-calling-bott…

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What is keeping me going is remembering going past 50% cash in 2008 and not getting back in for too long, putting a real, honest, damaging hit to my IRA balance. It’s been aggressive investing for the past 5+ years that literally saved a retirement. And now seeing it get hit all over again.

I learned that lesson in the 1987 Black Monday stock crash (Dow had 22.6% 1-day decline). Stayed out of the market for 2 years. Didn’t get back in until it was 25% higher. No doubt that added at least 2 years to my working career.

Since then I’ve avoided “the call of the Hussman” and just stayed invested. Once I retired in 1994, I’ve kept 5 to 10 years of living expenses in something safe so I don’t need to sell any stock in a bear market.

Stocks go up and down, but the money you lose to taxes and trading costs by trying to time the market is gone forever.

intercst

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Thanks, WTH. I had read many times of MungoFitch’s 99 day rule, but had never seen the original post. I’m amazed that it only had 88 (now 89) recs. A classic for sure.

ThyPeace, whatever happened to MungoFitch? Is he still around?

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intercst

I learned that lesson in the 1987 Black Monday stock crash (Dow had 22.6% 1-day decline). Stayed out of the market for 2 years. Didn’t get back in until it was 25% higher. No doubt that added at least 2 years to my working career.

The 1987 debacle was a complete computer SNAFU. It was so ugly I remember where I was, where I was sitting, and who told me. Similar to my 1963 recall of when JFK was murdered.

1987, Dow went from 2200, to 1700. A whopping >20% crash. There was a lot of money to be made to charge into the breach.

(So, where are we now? +30,000???)

Every year, the lens of hind sight gets ever more clearer than 20/20. It’s gonna happen again. Somewhat different scenario, but similar results.

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ThyPeace, whatever happened to MungoFitch? Is he still around?

He still posts on the Berkshire and Mechanical Investing boards. Still hugely informative.

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BrerBear writes,

<<<I learned that lesson in the 1987 Black Monday stock crash (Dow had 22.6% 1-day decline). Stayed out of the market for 2 years. Didn’t get back in until it was 25% higher. No doubt that added at least 2 years to my working career.>>>

The 1987 debacle was a complete computer SNAFU. It was so ugly I remember where I was, where I was sitting, and who told me. Similar to my 1963 recall of when JFK was murdered.

1987, Dow went from 2200, to 1700. A whopping >20% crash. There was a lot of money to be made to charge into the breach.

(So, where are we now? +30,000???)

Every year, the lens of hind sight gets ever more clearer than 20/20. It’s gonna happen again. Somewhat different scenario, but similar results.

Many people don’t remember that the Dow was up for the year in 1987 (i.e., Jan 1, 1,927.31 – Dec 31, 1,938.83). The crash was just a blip on the tape for long-term buy & hold investors.

More money to be made by minimizing the skim of taxes and trading costs.

intercst

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I’m venting. Not actually looking for input. But don’t let that stop anyone.

I’m your huckleberry. If I may, I’ll provide a little unsolicited perspective, gleefully gathered from many sources including many here at TMF. Over the last 10 years the S&P500 has more then tripled. It has been a great run. Modest nest eggs turned into nice next eggs. Now the market has blown off to where it was a year ago, and is up only a mere 47% from where it was two years ago. It could go down a lot more and it would still would have been a great run.

Peter Lynch once said that stock prices are tied more closely American business profits than anything else. To quote Lt. Aldo Raine: “And cousin, business is a-boomin!” saunafool’s post and thread echoed everything I’m hearing. Nobody can sell stuff fast enough to keep up with demand. Nobody can hire workers fast enough. Wages are going up, which is good because that means people can afford to buy more stuff.

I was talking to an auto dealer the other day (about something else) and I asked him how business was doing. He almost got giddy. His deliveries sell out before they arrive. No need for inventory, the cars sell themselves.

“Ah, but what about inflation?” you ask. Inflation is not good, usually. But the FED has room to raise interest rates a lot before they get back to historical norms. Everything was fine back in the day when interest rates were much higher, I don’t see why that’s a particular problem long term.

And as the captain points out “The cure for high prices is high prices.” Today on the road I saw more trucks carrying dimensional lumber than I’ve ever seen. I live in the PNW so you normally see a lot, but there are really a lot. I think maybe historically high housing prices have something to do with that. High housing prices means a construction boom is coming.

The war in Ukraine is obviously causing problems with gas prices. But as we’ve learned hear on METAR oil companies are investing in longer term domestic plays. And by the way, in real terms gas prices are lower now than they were from 2006 to 2014. Not time to press the panic button yet on that one either.

https://fredblog.stlouisfed.org/2022/04/gaslighting-gas-pric…

How does that play into the stock market? No idea. But it brings up the next part of your post:

My goal is a double over the next 8-10 years from today.

You’ve got 8-10 years of investing left (before retirement, presumably)? Dude! You want the market to be low! As the great mungofitch points out, your rate of return is going to be set by the entry price. Buying stocks less expensively is a gift horse.

And just throwing some spaghetti…Let’s say you have 8-10 years before retirement at 65 (plug in your own numbers). So being wealthier and more educated than average you could easily live to 90, so your investing horizon is about 35 years. 35 years ago it was 1987. The market is now 16 times higher.

If we’ve learned anything over the last two market meltdowns it is that when people are panic selling it is time to do panic buying. The market is starting to feel panicky.

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For each of your holdings assess if you bought in very low. If yes then hold. If no get out.

This can be an eleven month train wreck. This is probably more to do with China’s financial problems than anything else.

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Peter Lynch once said that stock prices are tied more closely American business profits than anything else. To quote Lt. Aldo Raine: “And cousin, business is a-boomin!” saunafool’s post and thread echoed everything I’m hearing. Nobody can sell stuff fast enough to keep up with demand. Nobody can hire workers fast enough. Wages are going up, which is good because that means people can afford to buy more stuff.

The trump card is do not fight the FED.

If you have positions you bought low stick with them.

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I’ll suggest, while y’all are at it, to take a look at the “other two” Bear Catchers as well - information posted on the MI wiki, and the way they were intended to be used as defense, here:
http://mechinvesting.wikidot.com/timing-methods

The 99D rule is the last (and the slowest) to turn bearish, of the three.
Of not, the 99D rule has been bearish on every index EXCEPT the S&P since 3/30 (Russell2000) and 4/12 (Nasdaq). It will go bearish on the S&P on 5/20 unless the S&P recovers 8.5% to 4642 before then.

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