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Dow plunges 1000 points

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Re: Dow plunges 1000 points

#211

Post by smallgovt »

hsitz wrote: post #33
valuearb wrote: post #25

Earlier quoted context omitted.

Buffett had a good quote about it once that I can't find now, but essentially during most of your life you will be a net buyer of stocks. Only at the end, during your retirement, will you be a net seller and only then will you want high prices. Until then, the less you pay for your stock purchases, the better your long term gains will be.

Another way of thinking about it is: on average, stock value over the long term (20+ years) is very likely to be in range of, say, 5%/year, plus or minus (actual number is not that important for our purpose here), after adjusting for inflation. If stocks have been on a recent runup, gaining, say, 50% or 100% over a period of a few years, then they are very likely to grow more slowly than average (i.e., revert to the…

>> If stocks have been on a recent runup, gaining, say, 50% or 100% over a period of a few years, then they are very likely to grow more slowly than average (i.e., revert to the mean) over the coming years

This is incorrect. Prior performance of the market over the span of years has little to no predictive power on future performance of the market.

Your statement is like saying: Because I flipped a coin and got heads 10 times in a row, I'm more likely to get tails in the future.

While it's true you should expect the market to revert to the mean over the coming years, there's no evidence that it will grow 'more slowly than average' in the coming years to 'make up' for the hyper growth in past years. If you were a betting man (and a non-sophisticated investor), you should bet that the future years will grow at exactly the historical mean.

Edit: I did some analysis on historical S&P 500 pricing to validate my intuition.

On average, the monthly growth rate of the S&P in a month following a bear month is -0.39%

On average, the monthly growth rate of the S&P in a month following a bull month is 1.08%

You might argue that it takes longer than 1 month for the market correction to occur, so I've included the script and data set I used here for you to play around with: https://pastebin.com/F78pLUka. You can use any cadence, and will find the same relationship.

Empirically, you cannot time the market, which implies future growth rate is not affected by past growth rate.

Re: Dow plunges 1000 points

#212

Post by roenxi »

totalZero wrote: post #205
craftyguy wrote: post #196

Earlier quoted context omitted.

You're silly if you just look at one day point/percentage drops. I'm not saying we're in for another recession, but many of the other events in the table you linked are actually part of a cluster of big drops, spread over several days. There was a ~600pt drop last Friday. It'll be fun to see what the rest of the week is like!

Do you not agree that relative moves (%) are more useful in characterizing the significance of a selloff?

Percentages are important, but one day movements are not. I think GPs point went to this logic: comparing one-day moves is irrelevant once we have, say, weekly or annual data.

I think this movement is very interesting, but only because I expect more of the same and/or a distinct lack of recovery. If a 5% one-day move is really it then I don't care. I've never paid any special interest when the market rises by 5%. Markets go up and down.

Re: Dow plunges 1000 points

#213

Post by propman »

dcosson wrote: post #158
propman wrote: post #102

Inflation finally is going up after years and we can get out of this stagnating economy. Wage growth up 3% in new January report and so we can finally expect interest rates to rise faster like they did in the past. Many investors, especially institutional ones have for years thought the stock market has been over priced but where else to park money because interest rates are too low? Overall the 3% wage growth is hug…

Didn't the top income tax rate decrease by something like 2.5%? Doesn't seem like a lot of room for it to have decreased but still be "significantly higher" than it ended up at.

The top rate before was 39.6% for over 480k, over 480k now hits the 35% and 37% mark and that is a HUGE difference.

Let's only consider how that effects the top 1% and a rough estimate. Currently that's around 1.73M filers with an average income of 1.4M a year. Under the new tax rules the average 1% will save $40,000 over 480k (will obviously save more under 480k but not counting that). That totals out to be $692B in tax cuts over 10 years or in other words basically 70% of the tax cut deficit based on standard scoring and 138% based on dynamic scoring (obv not exact). So this could have been a revenue neutral tax cut even after a massive tax cut to everyone, just a slightly less of a tax cut to the top 1%.

In other words 70% of the tax plan deficit over the decade is coming from cuts from the top 1%. I would have preferred a different allocation that would have decreased their tax burdens but not by that much. Obviously this doesn't consider many smaller factors but it's a fairly accurate estimate.

Re: Dow plunges 1000 points

#214

Post by adrr »

jedberg wrote: post #127

Let's say you're a smart investor, and you think a big crash is coming. Right now everything you have is in stocks. What do you move it to to hedge your risk?\\ Edit: To clarify, I don't have everything in stocks. I'm just looking for good advice on how to further diversify. I'm aware that timing the market is a fool's errand. :)

You can always buy puts against your holdings.

Re: Dow plunges 1000 points

#215

Post by nopriorarrests »

MediumD wrote: post #178
propman wrote: post #102

Inflation finally is going up after years and we can get out of this stagnating economy. Wage growth up 3% in new January report and so we can finally expect interest rates to rise faster like they did in the past. Many investors, especially institutional ones have for years thought the stock market has been over priced but where else to park money because interest rates are too low? Overall the 3% wage growth is hug…

"Many investors, especially institutional ones have for years thought the stock market has been over priced but where else to park money because interest rates are too low?" What information are you basing this off of? I'm not doubting you, just curious as to where one could find that sort of sentiment of institutional investors?

Well, if your average pension fund planned 7% yearly returns back in 2005, then boom, zero rate interest policy arrived, with 2.5% coupon on 10 year treasury bill, they had to dig into more risky assets. corporate debt, more exposure to stocks.

Re: Dow plunges 1000 points

#216

Post by starpilot »

longerthoughts wrote: post #186

To put things in perspective: https://en.wikipedia.org/wiki/List_of_largest_daily_changes_... Saying "Biggest Point Drop in History" is a deliberate attention-grabber and incites more fear than it probably should. We should be more concerned with percentage changes and at -4.6% this doesn't even make the top 20 daily percentage drops, which cuts off at -6.98% for number 20 (see above link).

It looks like it might be in the top 100 though. Considering these are changes per day, and the chart covers around 100 years or 25,000 trading days, this puts it in the top 0.4% of largest percentage daily losses. So, it does appear to be a significant losing day if 99.6% of such days are smaller in magnitude.

Re: Dow plunges 1000 points

#217

Post by sokoloff »

xienze wrote: post #198
state_less wrote: post #193

Earlier quoted context omitted.

I wasn't a big fan of the tax cuts, even though I'll see the proceeds from them. Some think that the less you pay, the better, all the way to zero. In my view, taxes are like porridge, you don't want it too hot or too cold. The best amount is not too little or too much. I too worry about the deficit and think we need to tax the biggest gainers a bit more and provide safety nets for the economic losers so they can bre…

> I wasn't a big fan of the tax cuts, even though I'll see the proceeds from them. Some think that the less you pay, the better, all the way to zero. So I take it you’ll be paying extra on your federal taxes next year and earmarking the difference for the federal debt or other things you find worthwhile?

That line of questioning frequently appears in these arguments. I find it disingenuous because if I did pay extra towards my federal taxes, I still (after rounding) have inherited the same amount of future obligation and I should expect, as taxes are invariably raised in the future, that I would be expected to pay towards that future obligation as well.

Arguing that we should all collectively pay more does not require one to individually contribute at that higher rate, nor does arguing that we (including the proponent) should collectively pay more ring near as hollow as arguing that those other people should pay more.

Re: Dow plunges 1000 points

#218

Post by mtanski »

leggomylibro wrote: post #197
dkhenry wrote: post #195

Earlier quoted context omitted.

But I think it clearly shows the standard of journalism we live with. This is a headline about numbers so we can easily debunk it by looking at the numbers, but almost every headline you read has been sensationalized in a similar fashion. This is the kind of reporting you expect from tabloids.

I dunno, I thought the BBC's coverage laid out some possible rationales without being too over-the-top. And while it isn't a tabloid, they aren't exactly a finance-focused paper: http://www.bbc.com/news/business-42942921 >...It is the largest fall in percentage terms since August 2011, when markets dropped in the aftermath of "Black Monday" when Standard & Poor's downgraded its credit rating of the US. >US investors…

>If salaries rise, the expectation is that people will spend more and push inflation higher.

Sure sucks to be a worker. When your salary rises your real gains will be inflated away.

Re: Dow plunges 1000 points

#219

Post by sokoloff »

propman wrote: post #213
dcosson wrote: post #158

Earlier quoted context omitted.

Didn't the top income tax rate decrease by something like 2.5%? Doesn't seem like a lot of room for it to have decreased but still be "significantly higher" than it ended up at.

The top rate before was 39.6% for over 480k, over 480k now hits the 35% and 37% mark and that is a HUGE difference. Let's only consider how that effects the top 1% and a rough estimate. Currently that's around 1.73M filers with an average income of 1.4M a year. Under the new tax rules the average 1% will save $40,000 over 480k (will obviously save more under 480k but not counting that). That totals out to be $692B in…

> In other words 70% of the deficit over the decade is coming from cuts from the top 1%.

I believe it's far more accurate to say that 70% of the tax cut-related deficit is coming from tax cuts to the 1%. The impact on the overall deficit is far less than 70% from those cuts.

Re: Dow plunges 1000 points

#220

Post by jacobolus »

xienze wrote: post #198
state_less wrote: post #193

Earlier quoted context omitted.

I wasn't a big fan of the tax cuts, even though I'll see the proceeds from them. Some think that the less you pay, the better, all the way to zero. In my view, taxes are like porridge, you don't want it too hot or too cold. The best amount is not too little or too much. I too worry about the deficit and think we need to tax the biggest gainers a bit more and provide safety nets for the economic losers so they can bre…

> I wasn't a big fan of the tax cuts, even though I'll see the proceeds from them. Some think that the less you pay, the better, all the way to zero. So I take it you’ll be paying extra on your federal taxes next year and earmarking the difference for the federal debt or other things you find worthwhile?

It does not at all follow that because someone thinks that top marginal tax rates should be raised (amounting to hundreds of billions or trillions of dollars), they will unilaterally send a few thousand extra dollars beyond their statutory bill to the IRS with the expectation that that would accomplish anything.
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