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What We've Learned from 150 Years of Stock Market Crashes

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Re: What We've Learned from 150 Years of Stock Market Crashes

#51

Post by actionfromafar »

wiredfool wrote: post #25
ebiester wrote: post #19

Earlier quoted context omitted.

There are a fair number of us not worried about the drop in our portfolio as much as we are worried that the current decisions will decrease the world's willingness to invest in American companies and markets permanently. What if your hypothesis is that the fundamentals have changed?

So far, this is a minor stock correction coupled with unprecedented political uncertainty. In my lifetime, there have been multiple -10+% single day drops, one -22%, and a bunch of -10% months. In that time though, no one has questioned the full faith and credit of the US government. However now -- The Supreme Court had to take a case to rule that the government had to pay contracts that had already been delivered on…

Now, if that is a good thing or a bad thing, depends on your perspective. If you want a Russia style system, it's a great thing.

Re: What We've Learned from 150 Years of Stock Market Crashes

#52

Post by actionfromafar »

nosianu wrote: post #44
wiredfool wrote: post #25

Earlier quoted context omitted.

So far, this is a minor stock correction coupled with unprecedented political uncertainty. In my lifetime, there have been multiple -10+% single day drops, one -22%, and a bunch of -10% months. In that time though, no one has questioned the full faith and credit of the US government. However now -- The Supreme Court had to take a case to rule that the government had to pay contracts that had already been delivered on…

Not yet mentioned is that this is the first time the US is actively working against their allies, and it's not just the Europeans. If - or when? - the US leaves NATO, the EU will finally have a big incentive to buy local. Right now the EU buys most of their arms from the US. Germany's 100 billion Euro special fund created at the beginning of the war in Ukraine mostly went to US purchases. It's a Chinese article but I…

The US functionally left NATO already.

Re: What We've Learned from 150 Years of Stock Market Crashes

#53

Post by darth_avocado »

throw0101c wrote: post #5

A popular post that is often given to folks who are freaking out about drops in their portfolio: * https://awealthofcommonsense.com/2014/02/worlds-worst-market... And for those who want to sit on the sidelines, that's usually not a good idea: * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co... The main folks that do have to worry about their portfolio are those who are about to retire, and those that ha…

Anecdotally, DCA is a worse strategy when you’re doing it on the way down. Market sentiment is important. Buying on the way up is more important, and so is selling on the way down. Take profits when you can, and buy back in when the sentiment improves. It’s a better strategy than investing while the market continues to drop.

Re: What We've Learned from 150 Years of Stock Market Crashes

#54

Post by skippyboxedhero »

wintermutestwin wrote: post #21
uptownfunk wrote: post #7

People say not to time it but if you took your profits December ish you’re probably much happier than if you had lost everything since then and reset to 6-12m ago unless you’re playing the short. There is a premium on mental health and market volatility.

>There is a premium on mental health and market volatility. I find that, as soon as I pick up the crystal ball and try to play the prediction game, my mental health suffers greatly. What helps my stress levels the most is to have a portfolio that is well diversified (e.g. a risk parity style portfolio) and stay the course because the portfolio has elements that go up when equities go down. At the end of the day, the…

Risk parity got obliterated a few years ago. Risk limits were breached multiple times over on these strategies.

Thinking that you are taking a safe option is a lie you tell yourself when you want to take the lazy option: just copying what you read in some book. It isn't safe, risk-party isn't diversification, you are still gambling.

Btw, this was predictable too...the idea that bonds/equities wouldn't be correlated was clearly historically contingent based on the very recent past. It was very clear that massive financial stimulus significantly increased the risk of equities/bonds correlation going to one, it was a topic considered throughout the 2010s when people were trying to sell these funds and trying to devise ways to generate negative correlation. The problem was that lots of people were moving a lot of product based on this correlation continuing.

Re: What We've Learned from 150 Years of Stock Market Crashes

#55

Post by timtom123 »

velcrovan wrote: post #46
nine_zeros wrote: post #38

Earlier quoted context omitted.

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens. As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

What did you have nothing but TBills, TIPS? Not quite sure what you have where you could just sell them. But, ya, bit silly as your money is still in USD. Nothing is happening to US bonds or there are bigger problems and all your investments are at risk.

Re: What We've Learned from 150 Years of Stock Market Crashes

#56

Post by [deleted] »

darth_avocado wrote: post #47
ram_rar wrote: post #24

While dollar cost averaging and index investing are solid strategies, this article overlooks an important consideration: the Realistic Rate of Return (RoR) needed for retirement planning. Yes, US markets historically recover (lately that notion seems to be challenged more often than not), but timing matters significantly. What happens if someone's retirement coincides with a market crash? Younger investors have time…

You should always have 2-3 years of runway in cash or other safe liquid savings (CDs, Bonds) as you get older (6 months minimum when you’re in 20s and 30s). You shouldn’t be really relying on selling assets to pay your monthly bills.

[deleted]

Re: What We've Learned from 150 Years of Stock Market Crashes

#57

Post by Bluecobra »

velcrovan wrote: post #46
nine_zeros wrote: post #38

Earlier quoted context omitted.

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens. As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

Good point, the website looks like it's 25+ years old so who knows what is running under the hood to keep it going.

Re: What We've Learned from 150 Years of Stock Market Crashes

#58

Post by throw0101c »

Analemma_ wrote: post #11
throw0101c wrote: post #8

Earlier quoted context omitted.

> Not in Japan it didn't. Only if you were 100% JP equities without any diversification: if you had some (20%?) bonds (and rebalanced), or had an international equities (and rebalanced), you were probably fine. * https://www.bogleheads.org/blog/2017/02/06/a-short-study-of-... * https://www.gocurrycracker.com/lessons-from-japans-lost-deca... > Using Portfolio Charts withdrawal rates calculator, which uses data going b…

Real interest rates in Japan were zero or negative for pretty much all of that same 35-year period, so bonds wouldn't have helped you either. And "you were up if you bought international equities" kind of proves my point: if Japan is the harbinger for the rest of the world, there will be no more "always up" markets to flee to.

> Real interest rates in Japan were zero or negative for pretty much all of that same 35-year period, so bonds wouldn't have helped you either.

The main thing that bonds would have helped with was in the 1980s: by regularly rebalancing to (say) 80/20 you would have taken profits off the table regularly. Further taking that (e.g.) 80% equities and putting and putting some in ex-JP/in-US would have further helped.

Even for US investors the data/research suggests some international exposure leads to better results:

* https://www.youtube.com/watch?v=1FXuMs6YRCY

Further, it looks like even in the US it hasn't been "the US market" that has done well, but rather tech specifically:

> Looking at this data, there are two distinct periods of extended U.S. outperformance—the late 1990s and today. And what do these two periods have in common? The rise of U.S. technology stocks. Bespoke Investment Group recently created this chart illustrating this phenomenon:

> Now that the U.S. technology sector makes up over 30% of the S&P 500 (as it did back in 2000), this begs the question: Is U.S. outperformance just a technological fad?

* https://ofdollarsanddata.com/do-you-need-to-own-internationa...

So, slightly contra Buffett, you're not entirely "betting on the US" but rather "betting on US tech".

Re: What We've Learned from 150 Years of Stock Market Crashes

#59

Post by sieabahlpark »

velcrovan wrote: post #46
nine_zeros wrote: post #38

Earlier quoted context omitted.

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens. As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

[flagged]

Re: What We've Learned from 150 Years of Stock Market Crashes

#60

Post by rawgabbit »

If we look at the article's worst five crashes:

      1. 1929 Crash & Great Depression
      2. Lost Decade (Dot-Com Bust & Global Financial Crisis)
      3. Inflation, Vietnam, & Watergate
      4. WWI & Influenza
      5. Great Depression & WWII
Regarding the Great Depression (#1,4,5). The story that is often overlook according to the historians I have read is how the lack of a Federal Reserve and FDIC contributed to the Great Depression. As there was no Federal Reserve, little regulation, and no FDIC deposit insurance... when banks failed all of their customers became financially penniless. The reason why many of those banks failed was that they were at the "edge" already due to farmers taking out massive loans during WWI as American grain was in demand and when the war ended, many of those loans went bad. When the stock market crashed, that was the straw that broke the camel's back. If we had a Federal Reserve and FDIC back then, many of those issues could have been prevented.

#3 was a combination of the Arab Oil shocks and the Vietnam War dragging down the economy.

#2 is still a mystery to me. I don't understand how a speculative bubble was allowed to develop including the mortgage backed securities nonsense could trigger a decade long recession. I assume it was due to the repeal of https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_legisla...?

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