Yes, that is the risk inherent in purchasing corporate bonds. The average default rate for investment-grade corporate bonds is .10% each year, and there have been no defaults in 14 of the past 22 years.
There’s also a risk in that the issuing company can call the bond, and the investor won’t get the interest he was counting on through the life of the bond. That’s a factor I look for when purchasing a bond: when is the next call date?
One thing I was told to look out for are rolling losses for ETFs. Most corporate bond ETFs have a clear strategy, which sounds good if you want to adjust your risk level. Say they invest, and declare so in the sales prospect, in corporate bonds emited by AAA+ to AA- rated corporations with a remaining term of two to three years until maturity (any number will do, those are just examples). So this ETF will buy bonds emited by a corporation that fulfills the rating criteria and which will mature in three years. After a year, the term will only be two years, so they will have to sell it and buy another one with a longer maturity to respect the three year rule that their risk profile imposes on them: there rolling losses loom. Corporate bond ETFs as per their own rules may not hold bonds until maturity, so if the bond is traded at contango, which is more common and frequent than backwardation, the losses are unavoidable.
By which I am trying to say that ETFs seem more suited for shares than for bonds, because shares have no maturity date and can be held forever without rolling losses.
I am pleasantly surprised, under the circumstances, that my first quarter net was -1.6% including distributions; if I hadn’t taken any distributions, I’d actually be up 0.1%. I think the S&P 500 was down roughly -4.2% in the quarter. Since I have a dividend-focused portfolio and I’m taking distributions, I don’t expect to keep pace with the S&P 500…in a bull market, but will happily outperform it in a bear one, usually.
You know, for all my gnashing of teeth and wringing of hands, you’re right. I just went to Fidelity and looked at the YTD Performance across all accounts (YTD being effectively the first Q at this point).
I’m down 1.86%, which is not as bad as it felt. Probably because we had a runup in Jan and part of Feb, so I’m down more than that from the peak.
Well, today is “Liberation Day,” which I assume means my money will be liberated and free to go to someone else.
The actual implementation of liberation day doesn’t happen for a few hours yet, but the US announcing it’s going to end the traditional order of world trade from which it benefits massively probably won’t cause much of a reaction in the market. The reaction may even be positive. The market soaring from bad news has been a weird theme this last month.
Whatever happens, on market forums they say “that was already priced in”, but how do you price in a regime that changes its decisions frequently and arbitrarily? If liberation day goes ahead as planned and the market rallies, well, that bad news was priced in. And if Trump changes his mind and decides not to enact massive tarriffs and the market soars, well, Trump does that a lot, so that good news was already priced in. I’m starting to think “priced in” is just a justification for the market not making any sense.
I’m also starting to doubt that Tesla stock will ever crash no matter what news comes out. There was a report that sales are down 12% in the US year over year for Q1 even though all other cars were up significantly because people were trying to buy a car before the tariffs came in and EV adoption as a whole is way up. It’s down 50%+ in various countries in Europe. Down slightly in China even though EV adoption is way up there. And the massive Tesla hate only started in the middle of this quarter, next quarter should be even worse.
It’s clearly not a growth company anymore and yet the P/E is like a small tech startup that has massive promise ahead of it, not a car company whose tech promises haven’t come after over a decade. Even real tech companies like google who run the world have a P/E of like 20, while Tesla still sits well above 100.
It is completely unjustifiable and yet there it is. I’m thinking maybe the reckoning never comes. In 5 or 10 years, when Tesla is still making big promises coming out “later this year”, when sales have fallen 70%, when everyone has sworn off ever buying one, somehow its still going to be a top 10 company by market cap because apparently it’s the biggest stock scam in history.
My very humble opinion - what is priced in (inadequately) is complete uncertainty. News of the day or week is akin to rumors before.
Both those scenarios, and all the others people think might happen, are priced in re: Liberation Day. It’s people’s perception of what could or might happen that’s the key, not just what does and does not actually happen.
The market just reflects people’s perceptions or expectations of the future at any given moment. This Liberation Day event was very well known ahead of time and people can adjust their expectations to that future event. I’d say most is priced in, some are calling a bluff and buying, others think it’s extremely bad and selling. Might not all be priced in due to uncertainty you mention, but I’d guess a lot.
Most things are like that (earnings report, jobs data, etc) - you know about them generally and react to them (or chose not to react) ahead of time. But say, 9/11, that would not be priced in. Nobody expected that. In a 9/11 event, it happens, and then the market reacts to it because it was not already priced in because nobody expected it as a possible future event prior to when it happened. It’s hard to catch the market off guard but it does happen.
This is how I have it in my head. I think it’s right enough.
Tesla is over 5% up today, some, very smart people, many people say because Trusk is getting a friendly divorce from each other and himself, so that Leon Skum can dedicate his energy and acumen to being an engineering genius (ingeniuseering? - no idea. Very few people know that) again. Tesla will soon fullfill all promises ever made and even some promises not yet made so far. It will be amazing. It will grow like you have never seen before. [insert some trumpian superlatives here – vomit – repeat]
I guess my thought on the uncertainty thing is: let’s say two things may happen, either something that’s bad for the economy happens or it doesn’t. Like liberation day. Or GDP growth or consumer confidence. Because there’s uncertainty which will happen, prices are lowered because they’re pricing in the possibility that the bad thing may happen.
But the price shouldn’t go lower than if the bad thing were guaranteed to happen. Which is what seems to be happening sometimes. Like, let’s say that if people think the bad thing will happen the price should fall by 10%, and if it won’t, it will fall by 0%. So the price, overall, should decline somewhere by 0-10% depending on how likely you think the bad thing is. It shouldn’t fall 15%, and then bounce back up when the bad thing actually does happen. The uncertainty of a bad thing happening shouldn’t be worse than the actual bad thing happening, since uncertainty gives you the possibility of the bad thing not happening.
But with the marking going up even on bad news, that seems to be what’s happening. So it’s perverse every time some really bad news drops (like that consume confidence is at the lowest point in 20 years, or that the GDP is fucking 5% lower than it should be) the market suddenly takes a big jump upward.
27 minutes until liberation day, the day that the US is liberated from being the center of the world economy. If the full tariffs hit, I expect the markets to surge.
The usual advice is to put money into bonds, money markets, etc. when there’s market craziness and you’re expecting the stock market to crash.
Personally, I think there’s a real risk that Trump will try to inflate or devalue the currency. If it would take you $5 to buy a cart of eggs, it might instead cost you $20.
Usually, inflation goes up by about 2% a year and investments go up like 7-8%. Your savings grow faster than inflation and so money that you set aside 50 years ago, when you were making $2 an hour, is still providing meaningful value 50 years later.
If inflation goes up by double-digits, your money also needs to go up by double-digits. Otherwise, it’s like you’re making 1950s money in 2025 and having to buy $20 eggs on $2 an hour.
The only way ensure that you’re not losing value is by ensuring that your money isn’t tied to the dollar bill. When you buy a bond, you’re guaranteed to make a percentage of the original value of the bond. You paid $10,000 and you’re going to make $400 a year off it. That’s $400, regardless of whether eggs cost $5 or $20.
In a sense, under inflation, bonds are the worst possible choice.
If you own 1% of a business that sells eggs, their profit is just a percentage on top of the price of eggs. As the price of eggs changes, under inflation, their profit changes equivalently. If someone wants to buy that business, they need to pay enough that it’s profitable for the owners to accept working for someone else, over what they’d expect to make by taking the percentage on the eggs. The stock price - in a purely rational world, where everything is sanely priced - should grow with inflation, regardless of what inflation does.
The reality is, of course, that the stock market is probably overpriced by about 2x, can easily drop to being just as much undervalued, and who knows when it will ever get back to proper valuation.
Buying some asset that’s currently properly valued and will probably stay properly valued (e.g. land or some commodity like timber) might be one option, without having to go abroad. Buying foreign bonds that are available here, in the US, would be another option. The value of these bonds should track with their local currency rather than USD. Technically, it’s dealing with international things, but you don’t really need to do anything on your side to deal with that.
IAGG, for example, is an international bond fund that’s stayed pretty solid through the last decade.
The market is made up of people making imperfect decisions based on limited data. I don’t think anything short-term is knowable at all.
So I don’t think you can ever say this certain bad thing will or should cause a 10% decline. I understand it’s just an example and you’re just picking a number to illustrate a point, but I think it would be more accurate to pick a probability distribution. If this bad things is guaranteed to happen, then the probability distribution of a future price would a 10% chance the price will go as low as 250, a 20% chance it will go to 255, an 10% chance the price will rise, etc. etc. It would just fall into some sort of bell curve distribution. I don’t even know if this is actually true, just saying it’s how I would think about it.
I would add to that, you can’t know the bottom, 10% in your case, or top of anything related to the market until you go past it. If we all knew the bottom, we’d all buy when it dropped 10%; or all sell at the top. The bottom is only revealed after people sell when they should not (because it’s perceived as undervalued and more people think it’s worth buying). That’s only revealed with hindsight. Why? The market is made up of people making imperfect decisions based on limited data - they don’t think it’s the bottom or top.
Anyways, just kind of exploring here. The whole thing, outside 10+ year timeframes, is uncertain. Certainly day to day. That’s a feature. That’s a healthy free market working. Or simply, I don’t even need to know the why, it just is. I think it’s 50-50 whether the market will be up or down on any random day. When looking back at 10-year timeframes it becomes more certain (88% chance it’s up) and 20-year timeframes it’s 100% guaranteed to have gone up (0% chance the market will have gone down).
Well, no last minute balk. The US is being liberated from being the richest country in the history of the world.
That used to be the case in the USA, but other markets have gone down, even to zero, and stayed there. The Moscow and St. Petersburg stock exchanges after the October Revolution, for instance. The chance of that happening in an identical fashion in the USA is very low, IMO, but I would not put it at 0% right now.
Got it. To be clear, I definitely intended to mean the US market. I don’t know much about other markets.
And it is the case for the US, at least from any 20-year period from 1871 - Present. So, if you pick any date in the past, and then add 20 years (or more), the US market has 100% of the time generated a positive return. Might be a small return if you pick 1929, or a bust to bust timeframe, but a positive return nonetheless.
**I think you need to factor in reinvesting dividends to make it 100% guaranteed positive return. Even if you did not, it would be extremely rare to ever have a negative return over 20 years and would probably be close to 100%.
It is the converse of buy on the rumor sell on the news.
But the news isn’t the thing actually happening anymore. That is the point. Ask a dozen experts what will be the state of tariffs two months from now and the least likely answer I suspect will a confident what was announced today.
Likewise btw. Rate of return YTD is +0.6. (About 8 to 9% of my portfolio is in a gold etf which has offset some losses.)
I took a snapshot of my holdings the day before the senile Fascist took over.
I was up about 1% in those first 20 days of the year. Which extrapolated over another year (or 4) of a steady-as-she-goes Harris administration would have been a very decent return.
From trump’s Day 1 I’m down over 10%. That’s in just 73 days. Extrapolate that to just this year end, I’ll be down 50%. And that’s despite redeploying a hefty chunk of assets away from growth and towards FI & defense.
Obviously straight line projections are not what’ll really happen. But it puts into perspective that our economic era changed abruptly on 1/20/25. And we all should do our portfolio analysis on that basis. There is before trump, and there is during trump. Two separate worlds to analyse. Here’s hoping there is an after trump.
I should’ve done more shorts/puts on the market. But my tesla experience, where it seemed like every rational reason said Tesla would crash, made me unconfident that the obvious thing would happen and I decided to mostly stay out of any new short positions. So I sort of got double screwed with the Tesla thing (so far) since it kept me from making other profitable moves too.
Tesla is down today but it’s going to be one of those days where it starts down $18 and then ends the day up 6 bucks even though the rest of the market is crashing because nothing makes sense.
What’s even dumber is that when the retaliatory tariffs hit, Tesla is going to be a prime target for political and economic reasons.
I’m still hopeful that Tesla can still crash in the next month. Earnings report in 3 weeks, retaliatory tariffs… if it still ends up crashing, I have enough long term puts (and still have my short position) such that I can still profit quite a lot. But I’m concerned it will stay irrational for longer than that.
As of 10am EDT my equity portfolio is down 2.4%, while SP 500 down 3.4%; cold comfort.
By far my biggest drag is one particular ETF that basically tracks the Nasdaq 100, but I note that many individual stocks (which I don’t own directly) that are well outside of the tech space, like Recreation Hardware down 35% and Nike -11%.
I did put a few puts on some heavily tariff affected companies like nike and adidas a couple of weeks ago which are doing rather nicely. Unfortunately I spent less on them than my TSLA puts.