There are many in the IMHO Dow thread who predict it won’t bottom out until between 2000-3000.
If you believe them, it’s definitely time to sell.
I bought in a bit too early and my portfolio is down about 20%. I’m tempted to sell but I don’t need the money right now and basically I was already kicked in the nuts. And it’s mostly solid companies like P&G and McDonalds. Ok, I did throw a bit into Ford and Citibank just to see what happened. So I think I’ll just sit and wait.
The valuation of a stock based upon the last executed trade doesn’t say anything about volume. There may be plenty of “smart money,” that isn’t selling stocks right now but that doesn’t necessarily mean that they have the liquidity to purchase more stocks, even if they did feel the stocks were currently undervalued.
A lot of institutional investors are still trying desperately to preserve liquidity right now, and that cost may include passing on what you might otherwise have chosen to buy.
I’m not arguing that this has been the dominant or even a principally important factor in the losses of the past few days, I don’t have the data or analytical skills to demonstrate that it is, but it’s possible.
Well, most recently one of them was playing senior economic adviser to McCain, while the other just finished serving up his stint in the Bush administration.
You’re right. Including dividends the return from Jan 1, 2008 to the close yesterday was 4.39% (cumulative, not annual). So the mattress would lose.
If fact, I just calculated the return over the last 25 years, you don’t come up with an 8% return on the S&P. Only if you start at 1982’s lows can you get anywhere near a 10% return for the last 28 years. But if you go all the way back to 1974, your annual return drops dramtically again.
People just don’t realize that you will be okay in the long run means that your grandchildren, rather than your children, might go to college.
Just because the market is down 50% or whatever from it’s high, has zero relevance on whether or not it is cheap. There are a lot of indicators on “cheapness” of stocks like price to book, price to cash flow, dividend yield, etc. One simple but pretty good indicator is the PE ratio. However, for the PE ratio to be worth anything you have to look at the forward or forecast PE. Historic PE means jack squat and is misleading as all hell. Forecast PE is pretty bad if as most automated calculators do is use last years earnings and the current share price to calculate the current PE. One needs to take a very conservative and realistic view on what earnings will be in 2009 and 2010, and calculate the PE based on that. And you know what, if you do this exercise based on realistic earnings, the market does not look particularly cheap.
If you take any of these fundamental valuation methods with a realistic look at 2009 and 2010 prospects, the market still is not “historically” cheap.
Like the Oracle of Omaha, I can’t tell you when the market is going to bottom. However, I would bet you dollars to donuts that you can probably buy high quality stocks 2 years from now at around the same price as you can buy them now. The risk of stocks going down from here is significantly higher than the risk of the global stock markets going up 50%.
If you have already taken a loss, what should you do? Do you sell in case it goes down more, or do you ride it out?
Here’s the problem. As you said, no one knows when the market will bottom out. So you could very easily get in and out at the wrong time.
Evaluate what you hold without even thinking about what you paid for it. Is it right now a good thing to hold in this economy? Do you have a comfort level that 5 years from now it will be a thriving company? Does the stock today have good valuations (the real PE, price to book, price to cash flow, cash reserves, etc)?
Second, ask yourself what the stock market is likely to do for the next 6, 12. 24 months. Very few stocks will go up if the market drops 50% from here. Great stocks may not fall as much but again few will go up.
Once you answer the above two questions, then you should have a much better idea if you want to buy more of your stock now? Just because it’s a good stock doesn’t mean you need to buy it TODAY. IMHO, a much better alternative to stock averaging (where you buy $xx every month) is to save $xx every month and then make some judicious calls as to when to buy.
Most of the experts like Buffet seem to think the standard valuation tools aren’t working these days. My general sense though is that with all the doom and gloom, the market will continue to slide for awhile. Unless I sell all my positions. In which case it will shoot up %50.
Ah, so you’re the one screwing all our 401(K)'s by selfishly refusing to sell! 
It needs to go up 100%. I checked my 401ks last week. One is down 50% from where it was last year. At least with the other one I’m buying shares at bargain prices.
Actually, for most its best not to pay attention.
By the time you are convinced the economy is recovering, it will have already recovered.
I feel this is true. Except that I would add only put short term money into CD’s, and let what you can afford to lose into stocks/bonds and roll the dice. That is your best chance of beating inflation and crappy worthless treasuries (treasuries are in a bubble now, little interest for near worthless holdings). If a treasury holder holds their so called “safe haven” investment through a bull market, they will lose a ton of purchasing power via lost opportunity. Even if the dollar value stayed close, or near the same for a treasury investment (which include E/I Bonds, CD’s, savings accounts, money markets, or any FDIC holding account).
Of course, age matters here. If you’re in your twenties, scared, and switched to treasures, that’s a bad move IMO. If you’re over 50, treasury type investments must dominate your portfolio, you cannot afford to lose money in stocks. Younger people can afford to lose in stocks, but have the advantage of time.
Nope. You cannot know when the time is right. It is not possible.
You and your friends are half right. If your friends bought a lot of stock at the highs, and * have stopped buying, but still holding*, they might as well be holding a bag for awhile. Even if they haven’t sold, it will take an even more miracle to get it to go back to its original value. You have a better chance and getting back your original value, or higher, if you continue to buy the entire time to gain more shares at a cheaper price. I’m sure you’ve heard the 'ole “if you lost 50%, you need it to go up 100% to break even”. That’s true here, but if you buy the whole time, you don’t require a 100% uptick to break even. Depending on the additional amounts bought, you may need just a 20%, 30%, or 40%-99% uptick to break even or go above the original amount. A lot easier to accomplish than not DCA’ing at all.
I managed to discard my retard leech of a financial adviser earlier this year. I was always paying him 1% regardless of performance. At he end of 2007, I told him that the the economy was in a shambles, and his business model was stupid. He somehow claimed that a long term investment would always pay off despite the fact that price earnings ratios were unsustainable. Hell, I lost 50 grand over a 10 year investment and this asshole actually made me sign a statement as to why the hell I was getting out of the market. I should have just declared the truth, that he was a stupid fuck who was stealing my money, but my nicer side said just fabricate a statement and I’ll sign it. With a little bit of luck, I will see that stupid cunt wandering around Haley street asking for spare change.
I managed to get out when the DOW as around 12,500, but I also inherited a bunch of stock that went to hell. I was just worried about supporting my Dad in his old age, so I can deal with the losses from WallMart, which I figure will recover in the long run.
I am never taking advice from any financial adviser again. They have less of an idea about the reality of the stock market than I do, and they can go fuck themselves. In a fit of crazy optimism I bought a bunch of stock right when Obama got elected. The market tanked but it’s only been down about 15% I’m about ready to jump back into the stock market, but it is for real companies with with real long term potential. Hi Honda, Toyota, and Exxon!
This is my basic strategy. I put in an amount every two weeks and I don’t check the finance pages. I have the money I can’t afford to lose in a savings account (about a year’s worth of living expenses, probably two years if I’m being very frugal), and the money I won’t need for 30 years in the investments (split in market tracking ETFs and bonds in an 80%:20% ratio). The one managed fund I have is doing worse than my non-managed ETFs. It was outperforming the ETFs for three years, and now, over the course of the investment, it’s actually underperformed, not even taking into account the management expenses. Screw that. I figure if the market continues to tank to zero, I have a lot more to worry about than my investments.
I’m not convinced you can time the market and, if you can, it requires a lot more of a time investment than I have (and even if people who are being paid millions of dollars to do it in managed funds can’t do it, how could a lay person like me expect to do so?) I’m also very much influenced by the economic theories set forth in Burton Malkiel’s A Random Walk Down Wall Street, so that may explain many of my attitudes towards the market.
IMHO average dollar investing is for the lazy or those that can’t be bother to understand the market basics. Don’t misconstrue me, i think you should absolutely be socking away money from every paycheck. Even if you didn’t see the big economic sucker punch coming, good lord i think it should have been painfully obvios in sep that you oughta hold off throwing more money into the stock market for at least 6 months. looking at any past recession cycle/market crash from a bubble, you’d know that it’s a least two years for the broad market to bottom/stabilize before any kind of broad market recovery. So save thoe paychecks, be a little patient, and then buy your funds and you’ll do much better.
I know what you’re saying, but, even when the market basics are understood, you cannot predict, even in the face of past data. I like to think of stock prices as a roulette history board like they have at casinos. Plenty of history on it, but they really don’t matter to an investor in for the long haul. The “supposed” very best cannot predict what will happen. Plenty proof of this, I trust I don’t need to provide cites or evidence of this.
Even if you personally saw something in September that told you to hold off, it could have gone the opposite to DOW 15,500. Just because you had a hunch, and that hunch actually came true, does not mean in the slightest that you were correct in your assumption. I think this is called Confirmation bias.
So with that, 99% of investors just need to DCA passively into boring ass index funds/target retirement funds and rebalance once a year to their target AA. You said it was lazy to do this. Americans are great at lazy, and that’s just what they need to do with their retirement investments. I would only recommend timing the market with money you really really really can stand to laugh off if it goes to zero, unlike most people who will need money in retirement and shouldn’t really be watching the day to day ticks and noise of the markets and day trading their 401ks away to 104ks
PA - Diehard/Boglehead
I think we are near the bottom-reason is, the “pessimism Index” is at an all-time high. Personally, I am buying oil stocks. I also think the Chinese will start to use their $3 trillion cash hoard to buy US stocks on the cheap. Of course, the turnaround will leadthe unemployment markets bt 12-18 months, so you have plenty of time.