Well, then why aren’t they out snapping up cheap funds?
Jeez, it’s so obvious when you look at it right.
Well, Jon, they ARE morons.
I bow before your superior wisdom, drop. I hadn’t concluded that a moron with money remains a moron. Like I was thinking that having money makes you a reasoning being.
Where was my head?
Me? I’m fixin’ to buy pretty soon. Not that I have a LOT of money, but I do want throw 2k into an IRA soon.
A word of warning to those of you who’ve already maxed out your IRAs–
There’ve been a lot of mutual fund redemptions this week–like 9 billion dollars worth of stock fund redemptions. What does that mean?
In order to meet redemptions, mutual fund managers have to sell stock. And when they do that, chances are really good that they’ll be realizing a lot of capital gains on long-term holdings.
Well, in a non-taxable account, it’s CURRENT shareholders that get zapped with taxable distributions, and who have to pay the tax bill come December, when the declared annual distribution date rolls around.
Which means that if you bought in on monday, but managers had to keep selling to meet redemptions, you will have to pay taxes on gains that you didn’t benefit from. Indeed, you may have to pay taxes on a fund which lost half your money.
Don’t believe me? Just ask shareholders of Warburg Pincus Japan Small Company last year. They attracted a lot of new money at the end of 1999 when the market was at its peak. But when the Japanese Smallcap market began to decline, all the longtime shareholders headed for the exits. The manager had to sell tons of winners to meet redemptions, and ended up socking the suckers who stayed in with redemptions totalling 56% of the net asset value of the fund. To add insult to injury, the fund lost 49% in the first half of the year leading up to the distribution (in August, I think it was.)
So if you bought in at the peak, you lost half your money, and then you had to pay regular income taxes on over half of what was left as they handed your own money back to you, and you didn’t get any choice in the matter.
Absurd? Yes. But that’s the tax law as it stands now.
So what can you do?
If you can, try to do your buying this year in a taxsheltered account: an IRA, a roth IRA, a 401k, 403b, etc.
Once those options are maxed out, I’d look for funds with a low potential capital gains exposure. Not neccessarily high tax efficiency, historically, because that doesn’t help you when a buy 'n hold fund has to sell its winners.
I’d also look for funds that charge a hefty redemption fee to discourage market timers who bail and leave longtime shareholders holding the bag.
Also, find out when the distribution date is for any fund you’re considering buying into in a taxable account. Funds have to identify this date by Oct. 1. Consider hanging onto your money until after the distribution date (usually in December).
My own personal feeling? Yields are down, so it doesn’t pay as much to hang onto bonds. If you own a bunch of them, I’d sell some of them to panicked stock investors and buy stocks/stock funds just now. Call me contrarian. I do.
Don’t fuck up your long term asset allocation plan to do it, but take advantage of the panic.
Also, remember: if you are steady and consistent and dollar cost average, volatility works FOR you, in the long run 
Actually folks, when it comes to the air and insurance markets, companies genuinely are worth a lot less than they were a few weeks back. Insurance companies have ENORMOUS liabilities to pay. And they are having to increase their air premiums by at least fivefold, meaning that air overheads have increased, so the fundamental value of the airline shares have dropped.
I’m not sure these equities have been oversold yet.
The above should not be taken as advice! No liability is admitted! The value of your investments can go down as well as up!
pan
Kabbes:
Are you suggesting that past performance is no guarrantee of future returns?
Yeah, airline and property insurers probably ain’t oversold.
Although, Boeing is starting to look pretty sexy down around here.
Don’t be so sure, Scylla. I’m a tiny engineering cog in the aforementioned aerospace giant, but from where I sit, it looks like the Board couldn’t find their asses with both hands and a party of spelunkers. We may not have seen Boeing’s bottom yet.
Good line. But, me, personally, I try to avoid selling low and buying back high. I am mostly holding and taking a hopefuly temporary, stress inducing, but unrealized loss. I am buying though, not airlines or travel companies, but buying. In a month or less the contrarian in me will be looking at airlines. Looking
I think the activity has borne out my point. Panic selling, selective buying. Sounds like a potential bottom until the next transformative unprecedented humanitarian / economic disaster. No prediction mind you, just aware of all possibilities.
I am very glad a lot of my purchases over a year or so have been Lockheed Martin. A beaten dog for a while, my loyal best friend today. Not a greyhound or anything, I never seem to pick those, damn.
This is just a good old fashioned bear market. A little historical perspective is in order:
Great Depression: DJIA down at least 75% (I don’t have the exact figures)
Bear market of 1973-4: down about 45%
Bear market of 1987: down about 36%
this bear market (so far): down about 28%
I have a crapload of money in the stock market. I’m neither buying nor selling anything. I may be buying in the next month or two, but it depends on what I see between now and then.
I manage a buttload of money. Most of what I’ve been doing is asset allocation.
In 1999 this had me taking profits and stocks and buying bonds to maintain good allocations.
So far this year I’ve readjusted towards stocks to maintain allocations. I’ve been continuously readjusting industry allocations.
While this surely seems like the classic blow-off at the end of a bear market it almost makes me want to throw up my hands.
While you know good allocation is the best strategy, you can’t help but feel that you’re sending good money after bad.
I’ve been a net buyer this week.
I was going to sound a hopeful note by saying that, as soon as a check comes in next week (they SAY it’s in the mail) that I’m jumping into the market again.
Then I thought about the last time I did, and turned $7,000 into $1,700 in eight months (I got in just as the tech bubble crested).
So I don’t know what to tell you guys. After I’m through, you may be seeing a 3,000 Dow.
Peschel
Just hope the average shlub doesn’t panic and start a bank run or you’ll all be fucked.
I’m broke anyway, so it wouldn’t hurt me too much.
Scylla, take heart in the fact that turnover volume has been enormous. This hasn’t been a 15% gap down, like say what happened in Hong Kong.
I don’t have access to good data, but by most standard fundamental indications of value such as PER (with realistic earnings forecasts), price to book, cash flow, etc. is the Dow and S&P trading at fundamental lows? Seriously, I don’t buy the arguement because the market is down xx% from the peak, but can you show fundamental indicators?
I remember back in Hong Kong Jan 1995, after popping the '94 bubble, after the Tequila crisis, and just after the Kobe earthquake. Thin volume, markets falling, institutional clients would not step up to the plate. Daniel Poon, greatest salesman I’ve ever seen, stood up on the trading floor one afternoon and in a two minute back of the envelope calculation showed why the Hang Seng was cheap by any fundamental standard of measure. It was also the bottom of the market. Can you do that now with the Dow?
And I so want it to be true. My Chinese telecom stocks, 100% dependant on the domestic Chinese economy, which will clock at least 6-7% growth this year, are getting completely hammered. Argh. Woosies in the market.
Presumably, we’re waiting to hear from the spelunkers first. 
Yes, indeed. Poverty is a GREAT insulator from market fluctuations.
Then again, you’re about to participate in a boom industry. I just wish it was about production and not consumption.
It is about production, indirectly. I mean, talk about God’s Own Consumers, you sell those guys stuff and they take it and THEY BLOW IT UP AND COME BACK TO BUY MORE! If they weren’t such quality nuts they’d be the perfect customers.
Warren Buffett and I see eye to eye. Now if he’d only acknowledge me as a long-lost little sister…
I’ve been cheering myself thinking about how many shares I’ll acquire next month when my retirement contributions go in. Of course, I have to not look to closely at the way my value of my current holdings have dropped…but I believe that those suckers will recover, plus I’ll have a fucking boatload of new shares to rise up with it, thanks to depressed prices.
Dollar cost averaging at work, folks. When you’re still 30 years from retirement like moi, you can give stock drops like this the finger.
No no no…
You miss my point O-blood brother in Capitalism Drop. They DO consume, it’s true. But they don’t produce. And that’s bad.
My theory here:
In our work-lives, those of us in commerce both produce and consume. I cost my firm $X to hire, bennies, that sort of thing. It’s my job to make sure that I generate $X+Y for my firm. In a perfect world EVERYone (who isn’t classified as overhead) should be working under this formula. I know that when I hire people the all-important question that I ask myself is, “Will this person, through their work, generate more money for me than they cost on budget?”
It’s as simple as that.
Now government is, for the country, overhead. They consume resources but don’t generate any multiplier from those that they consume. Kinda like HR or Accounting. Necessary, vitally so (don’t get me wrong), but they’re only contributing on ONE half of the equation, the consumption side. They actually produce NOTHING on their own.
Get what I’m saying?
There you go, getting Big Picture on me, Jon. Except they do produce a major intangible: The government and military produce a stable operating environment for business. Without that stability the money generated has no backing and is worthless.
Hey, big picture is important. Don’t you go getting all micro-econ on me, big boy!
They DO provide a stable environment, it’s true. But there’s still no production coming from them. HR makes it easy for me to hire, they plan the company picnic (at which my shoes got swallowed by the earth this year…no foolin’) and generally make it easier for me to go about my business (making money for my firm). But they’re still overhead. I have to increase my efforts to cover the expenses the incur to cover them.
So, as I said, yes they have a purpose, but they’re overall contribution to the economy is questionable.
And let’s not forget that the resources used in war aren’t being used (and never will be) productively. Every bit of steel in a tank or bomb will NOT be used in a factory or automobile of videogame.
And…
**WOOO{/b]
did I time this right or what? As of noon I’m showing the Dow up about 4%. Gotta love that!