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  •  Dr.V. Investor 
    Participant
    Status: Physician
    Posts: 127
    Joined: 03/12/2017

    I understand that this group is mostly indexers who embrace buy and hold strategy.  However, knowing stock market history, it is best to look  at this proactively rather than retrospectively.  what precautions have you taken to protect yourself?

    I also believe that if one’s net worth is slashed to 50%, it can cause stomach turning and it may lead to wrong decision making.

    for those more experienced,  from the past bear markets, what % have you lost and how long did it take you to recover it?

    I only have very little back in 2008, by end of 2009, I was already positive.

    I am attaching an article that I assume financial professionals look at- inversion of the yield curve.

    An inverted yield curve means that short-term interest rates are higher than longer-term ones. The inverted yield curve is what happens when investors are bidding for longer-term bonds — thus driving down their yields — because they are pessimistic about the short-term prospects for the economy.

    On December 3, the yield curve inverted a little bit — the first time since the 2008 recession. The yield on the five-year note of 2.83 was 1 basis point (100 basis points = 1%) lower than the yield of 2.84 on the three-year note.

    This is investors’ way of saying that the economy will be a little better in 2023 than it will be in 2021.

    The Treasury yield curve has been a good predictor of recessions in the past — offering warnings of the recessions of 2000, 1991, and 1981.

     

    https://www.forbes.com/sites/jimcollins/2018/12/04/the-yield-curve-just-inverted-sort-of-and-that-is-a-sell-signal-for-stocks/#30259d6f3eaa

    #171835 Reply
     LIFO 
    Participant
    Status: Physician
    Posts: 94
    Joined: 01/27/2018

    The short version is that for any non professional finance type, buy and hold indexes or no load mutual fund is the only sure fire way to not get fleeced.  Once you step away from that you are stepping into a snake pit of thieves and pick pockets.  Additionally, every time you introduce your judgement or decision making into the process it creates potential for poor decision making on your own behalf or manipulation by others or the media. You may be able to navigate that with a disciplined investment strategy.  Unfortunately, with all that added together, statistics is not on your side.  Flipping a coin right once, twice, or 3 times is possible.  Being able to do it consistently over the long run is a tall order.  As boggle says, mean performance year after year will put you into the top quintile of total performance after only a few years.

    BUT, if you are still inclined there are clear advantages to the individual investor and investment opportunities for those who are willing to do the work, throw out conventional mantras, and define risk as something other than being wrong when everyone else is right.  For example, with the proliferation of algorithmic trading, indexing, and zero interest rate policy the market pricing mechanism in the equities market is clearly distorted.  Will that ship right itself?  When?  if you have a good idea about any of that and you should be able to find a way to beat the market… this time.

     Peds 
    Participant
    Status: Physician
    Posts: 2110
    Joined: 01/08/2016

    I’m not 💯% stocks.

    I buy/TLH monthly.

    The yield curve has predicted recessions….but not when/how.

    Forbes has no bearing on my decisions.

    #171841 Reply
    CM CM 
    Participant
    Status: Physician
    Posts: 889
    Joined: 01/14/2017

    If the market drops by 50% tomorrow, it’s valuation will be around the long-term average but still far above past secular bear market bottoms.

    Perhaps the valuation will never fall substantially again, but if you can’t tolerate even a 50% drop with equanimity then you should reduce your equity allocation now (and never raise it so high again). Much worse outcomes are possible.

    (Note this applies to broad market indexers, but not necessarily to active investors with small portfolios.)

    Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried bags for Cyd Charisse (gracious). Hosted epic company parties after Friday night rehearsals.

    #171843 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 4782
    Joined: 01/12/2016

    I dont know, predictions are so tough, but current climate is of course concerning. Whole world going through at least a soft patch if not outright slow down, effects of tax cuts rolling off comps making next years numbers tough, continued rate hikes, and most concerning the likelihood of policy error by both the fed and the admin on trade seems to be a given now.

    Im not sure that this months yield changes are anything much, these have inverted but the big ones havent yet and sometimes they dont stay but bounce back. Usually by the time its been inverted enough to signal trouble the market damage is done and the recession ending.

    There is certainly no reason why we should enjoy the historical leads in the past or accuracy of this market either, so much has changed we cant expect it to really be so similar. It also seems everyone and their bank is trying to front run and get out ahead of things, maybe even causing more issues than are actually present. Its a totally different world out there and I wont assume it will be like the past with any precision.

    It is however obvious that we are later cycle than before and liquidity is being taken from the market. I for one am much more of someone that views the market from a liquidity standpoint and its impacts so I do find that to be important. Especially as to its ability to absorb shocks.

    I think getting long duration soon will be a decent move, however the last weeks big moves are probably over done, but do bother me like I’ve missed the big chance. I’ll probably forgo some upside for negative correlation soon, for now cash is doing quite well. If things dont look to dramatically change on the trade and sentiment front and the fed hikes in december I’ll probably even get some downside exposure via inverse funds or index LEAPS.

    And of course I’ll temper everything with new data coming in, but data has trended poorly all year, albeit just at the margins but its there.

    #171844 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 242
    Joined: 10/29/2017

    Please also note, that the yeild curve that is referenced is the 2yr / 10yr bond.  2/5 may or may not have meaning.

    #171858 Reply
    Liked by Zaphod
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 4782
    Joined: 01/12/2016

    Please also note, that the yeild curve that is referenced is the 2yr / 10yr bond.  2/5 may or may not have meaning.

    Click to expand…

    I think the very first reference was actually the 3m/10y, now the 2y/10y is taken as the proxy that everyone watches. So again, everyone is so hyper vigilant about seeing the next one coming that they are freaking out about tenors no one has looked at before.

    The lag time can be pretty wide.

    However, no reason not to assess your tolerances and maybe change your allocations accordingly, realizing 100% you may be missing out on some further upside, etc…this is a form of insurance. Also, you should have a rock solid plan on how to change that allocation back once the event is realized and odds shift in the other direction.

    I dont really think theres anything wrong with that, it just turns out to be really hard to do. Now may not be a bad time to look at a tactical/momentum type strategy and see how it goes, they “supposedly” do better in this kind of environment. Though I’ve never seen a beautiful back test that actually performed in live trading.

    The idea that buy and hold always works and is of course the best way to go is a very very suspect idea. Something that has only worked in the US really, we are the outlier, so I’d take that with a grain of salt and realize it for what it is, a single data point contradicting every other one. This likely reflects our broader market whereby we are much more diversified overall than most other countries.

    Also not sold on CAPE or other mean reversion theories. The CAPE ‘average’ is not static, and theres again no reason to believe there is a fundamental drive that demands we get back to some historical value level. Just zero reason for that to actually occur. Will we fluctuate and level off at different values? Of course, but we dont have to be at some historical value (just cause) any more than we have to stay at todays values. Things change.

    #171863 Reply
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1664
    Joined: 09/16/2016

    No stat can predict a recession, but it sure feels that way.

    LEVEL 1 WCI FORUM MEMBER.

    #171868 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 3717
    Joined: 05/13/2011

    I understand that this group is mostly indexers who embrace buy and hold strategy.  However, knowing stock market history, it is best to look  at this proactively rather than retrospectively.  what precautions have you taken to protect yourself?

    I also believe that if one’s net worth is slashed to 50%, it can cause stomach turning and it may lead to wrong decision making.

    for those more experienced,  from the past bear markets, what % have you lost and how long did it take you to recover it?

    I only have very little back in 2008, by end of 2009, I was already positive.

    I am attaching an article that I assume financial professionals look at- inversion of the yield curve.

    An inverted yield curve means that short-term interest rates are higher than longer-term ones. The inverted yield curve is what happens when investors are bidding for longer-term bonds — thus driving down their yields — because they are pessimistic about the short-term prospects for the economy.

    On December 3, the yield curve inverted a little bit — the first time since the 2008 recession. The yield on the five-year note of 2.83 was 1 basis point (100 basis points = 1%) lower than the yield of 2.84 on the three-year note.

    This is investors’ way of saying that the economy will be a little better in 2023 than it will be in 2021.

    The Treasury yield curve has been a good predictor of recessions in the past — offering warnings of the recessions of 2000, 1991, and 1981.

     

    https://www.forbes.com/sites/jimcollins/2018/12/04/the-yield-curve-just-inverted-sort-of-and-that-is-a-sell-signal-for-stocks/#30259d6f3eaa

    Click to expand…

    I protect myself from stock market drops/recessions/bear markets by

    # 1 Not investing money in stocks that I need any time soon. Even if the expected return were negative in the next year, my expected return over my holding period is still positive.

    # 2 Not investing all of my money in stocks. Some is in bonds, some in real estate, some in small businesses etc.

    # 3 Knowing market history and what to expect if the next bear market resembles any of the others in the last couple of centuries.

    # 4 Remembering that a great deal of the money I will invest in my lifetime I haven’t even earned yet. If markets drop, I’ll get a better price on investments with that money.

    But no, I don’t try to time the market, buy options etc. In my experience and for most investors, those tactics lead to lower long term returns and are more likely to hurt than help. No working crystal balls.

    You sound to me like you have too much money in stocks. I would suggest a less aggressive asset allocation and of course, a higher savings rate/longer career/lower nest egg goal. If a 10% drop has you worrying and reading things about yield curves, what are you going to do with a 30% drop? Probably sell. Might as well do it now, at least down to the sleeping point.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #171869 Reply
     ajm184 
    Participant
    Status: Other Professional
    Posts: 473
    Joined: 07/14/2017

    A couple of blogs from Ben Carson on the subject of yield curve inversion and economic recessions:
    https://awealthofcommonsense.com/2018/07/arguing-with-the-yield-curve/
    https://awealthofcommonsense.com/2018/02/yield-curve-inversions-arent-great-for-stocks/

    Making the assumption that an inverted yield curve is predictive of an economic recession presents several additional challenges in prediction prior to taking action: a. the timing; how long between the yield curve inverting and a recession, b. the length of said recession, and c. the depth of said recession/depression.

    Timing/length/depth of a recession are not predictable with meaningful certainty/probability, so the approach most take is to; a. understand and adhere to your risk tolerance and b. have an asset allocation that adapts to a wide variety of economic outcomes within your risk tolerance.

    #171880 Reply
    Liked by hatton1, Tim, jz
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 2748
    Joined: 01/21/2016

    These are the steps I take:

    I have a relatively conservative 60:40 portfolio for my age.

    About 10% of NW is in cash in a taxable account.

    I continue to pile onto the nest egg through thick and thin and do not change the rules (much 😉 ) for the market conditions.

    When the market is volatile, especially downward trending, I tend to look at my statements and accounts with less frequency.

     

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #171882 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2038
    Joined: 01/14/2017

    Not looking at my accounts ever during the dot com bust and Great Recession allowed me to ride things out while still 100% stocks.

    #171883 Reply
     hightower 
    Participant
    Status: Physician
    Posts: 1211
    Joined: 12/07/2016
    WCICon18

    I understand that this group is mostly indexers who embrace buy and hold strategy.  However, knowing stock market history, it is best to look  at this proactively rather than retrospectively.  what precautions have you taken to protect yourself?

    I also believe that if one’s net worth is slashed to 50%, it can cause stomach turning and it may lead to wrong decision making.

    for those more experienced,  from the past bear markets, what % have you lost and how long did it take you to recover it?

    I only have very little back in 2008, by end of 2009, I was already positive.

    I am attaching an article that I assume financial professionals look at- inversion of the yield curve.

    An inverted yield curve means that short-term interest rates are higher than longer-term ones. The inverted yield curve is what happens when investors are bidding for longer-term bonds — thus driving down their yields — because they are pessimistic about the short-term prospects for the economy.

    On December 3, the yield curve inverted a little bit — the first time since the 2008 recession. The yield on the five-year note of 2.83 was 1 basis point (100 basis points = 1%) lower than the yield of 2.84 on the three-year note.

    This is investors’ way of saying that the economy will be a little better in 2023 than it will be in 2021.

    The Treasury yield curve has been a good predictor of recessions in the past — offering warnings of the recessions of 2000, 1991, and 1981.

     

    https://www.forbes.com/sites/jimcollins/2018/12/04/the-yield-curve-just-inverted-sort-of-and-that-is-a-sell-signal-for-stocks/#30259d6f3eaa

    Click to expand…

    I believe in the buy and hold strategy as you described.  But, I also believe it’s necessary for people to adjust their asset allocations to a risk level that they are comfortable with that will prevent them from making bad decisions during a market down turn.  For me, earlier this year I realized that the standard 80/20 stocks/bonds was a bit too aggressive for my tastes, especially given a looming recession.  So, I adjusted mine back to 60/30/10 stocks/bonds/cash.  I feel pretty good about it now.  I don’t care if I lose 50% of the value of my stock portion because I know I will have some cash sitting on the sidelines ready to buy when I feel comfortable doing so again.  Choosing when to do that will be tough, but at least I know I won’t be tempted to sell anything when we’re in a bad recession.  These recent weekly drops we’ve been seeing in the markets don’t even register on my radar.  In fact, I kind of welcome them because I know I’ll be getting a better price when I buy.

    In the meantime, I’ve been continuing to buy every 2 weeks that I get paid and I don’t even think about it.  I’m 36 so I’m nowhere near retirement age and I can afford to sit back and watch the stocks go up and down and buy all along the way.  If I were 56 and wanting to retire soon, I’d be a lot more conservative with my AA.

    #171884 Reply
    Liked by Firefly
     JWeb 
    Participant
    Status: Physician
    Posts: 78
    Joined: 02/21/2017
    cash sitting on the sidelines ready to buy when I feel comfortable doing so again.  Choosing when to do that will be tough

    Click to expand…

    This is timing the market.

    You might get lucky and have it work out, but if a hundred people did this, 90 (maybe more) of them would not have as good of a return as if they just stayed 80/20 throughout the time period.

    Now, if you just went to 60/30/10 for the long term then that’s an asset allocation change and you’re good.

    #171889 Reply
     hightower 
    Participant
    Status: Physician
    Posts: 1211
    Joined: 12/07/2016
    cash sitting on the sidelines ready to buy when I feel comfortable doing so again.  Choosing when to do that will be tough 

    Click to expand…

    Now, if you just went to 60/30/10 for the long term then that’s an asset allocation change and you’re good.

    Click to expand…

    I see your point.  But, I guess I see it as re-balancing.  In a major recession, my stocks would have dropped by 30-50%, so my cash would then make up a larger portion of my portfolio and I’d need to re-balance to keep the same mix.  I don’t plan on getting any more aggressive with my AA, despite the lower expected returns.  I like the idea of not being tempted to sell every time the market drops and I fear I would be tempted to do so if I were more aggressively invested or didn’t have a cash reserve.

    #171891 Reply
    Liked by hatton1

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