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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

#81

Post by velcrovan »

nine_zeros wrote: post #77
velcrovan wrote: post #46

Earlier quoted context omitted.

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.

> Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. Not crazy given the incompetence in American political leadership. BUT, if US treasuries default, your savings accounts, agency, municipal, state, international bonds, stocks - all will fail immediately. Your literal checking account is backed by treasuries under the hood by the bank. Widespread bank runs will be likely. And…

What I'm hedging against is the possibility that technical issues at TreasuryDirect, and ensuing uproar, will temporarily prevent me from redeeming bonds at a time when I cannot afford to wait for a resolution.

maybe I am wrong but I view this as a very separate scenario from the US formally stating that it will default, which I agree would cause problems I'm in no way prepared for.

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

#82

Post by ManuelKiessling »

UncleMeat wrote: post #74
317070 wrote: post #28

Earlier quoted context omitted.

Meet Bob. Bob is the world’s worst market timer. https://awealthofcommonsense.com/2014/02/worlds-worst-market...

The bob scenario is educational, but isn't relevant here. The reason why bob is still fine is that the crashes all happen during the accumulation phase. What you don't want is a crash right as you retire, causing you to rapidly liquidate a much larger portion of your savings than expected.

But do you really liquidate „rapidly“ once you retire? You basically dollar-cost-average out of your portfolio when retirement begins.

That’s not to say that timing isn’t an issue — it absolutely is. It’s just not a make-or-brake issue imho.

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

#83

Post by stvltvs »

xnx wrote: post #78
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…

> While dollar cost averaging and index investing are solid strategies Dollar cost averaging is a psychological strategy, not a financial one. "The costly myth of dollar-cost averaging": https://web.archive.org/web/20050910142530/http://moneycentr... "Debunking the Myth of Dollar Cost Averaging": https://news.ycombinator.com/item?id=36271061

Doesn't that assume that you're sitting on a pile of cash already and deciding how to invest it? That's not the situation for working class investors who didn't inherit a lump sum or win the lottery.

The optimal strategy for most retirement savers is "invest it as you get it" which is basically dollar cost averaging except in the rare cases when a pile of cash falls in your lap.

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

#84

Post by Yeul »

horsawlarway wrote: post #66
velcrovan wrote: post #46

Earlier quoted context omitted.

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.

I think this is an under appreciated comment. Almost all of our market data is predicated on a US government that places a huge emphasis on repaying its debts. The current government is full of people who think it's clever, rather than short-sighted, to fuck people over. It's not a joke that our credit ratings as a nation are slipping. It's real risk that those federal bonds may stop paying out.

Many Americans aren't saving for retirement. If Repubs cut SS the riots will start.

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

#85

Post by skippyboxedhero »

wintermutestwin wrote: post #70
skippyboxedhero wrote: post #54

Earlier quoted context omitted.

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 w…

It sounds to me like you are specifically calling out the one crash where equities and bonds both went down at the same time? And that you are saying because this happened, we are now in totally uncharted territory where nothing from the past can be assumed to happen in the future? >risk-party isn't diversification ??? Diversification is the underlying principle behind a risk parity portfolio. https://www.portfoliovi…

No, I am saying that the correlation between equities and bonds is not constant. You need a correlation forecast to weight the portfolio correctly. The problem was the herding behaviour that happened before.

I worked in the industry at the time, we dealt with one of the biggest RP providers in my country that eventually blew up because their vol/corr forecasting was bunk and they made huge hiring mistakes because, like you, the execs thought it wasn't a directional strategy...they lost 95% of their AUM and everyone got fired, 100% of the team, gone. The timeline was very clear: rates fall, people ask how does this work with zero rates, providers say corr is holding up, it starts going wrong but then EU brings in negative rates...big bail out for the boys..., people then ask how it works with -2% rates, providers say corr is holding up, no bail out, they begin loading up on duration, numbers stack up on paper, equities skyrocketing, more duration, if rates go up then big trouble...but the Fed is in control...then rates go up, and it is over. Risk limits breached 3-4x over. I remember seeing funds that had 5-7% annual vol targets dropping 25-30% in six months.

No, it isn't. The principle is that you lever up to create components that are equal in vol...that is the "parity" in risk parity, you lever/delever to create equal-risk assets (it is actually more simple than this: because equities have poor risk-adjusted returns due to leverage limits then risk-parity was effectively increasing bond allocations and reducing equity allocation, that was it). Diversification is an outcome if you have forecast vol and correlation correctly, if you have not then it is not some magic way to increase your returns.

Yes, but that is totally irrelevant to this discussion. It is just some guff that they use to sell funds to idiots.

Again, this is a directional strategy. The firms that make money have both vol and correlation forecasting models that work. It is not magic, it is just a way to portfolio weight...which requires good inputs.

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

#86

Post by Arete314159 »

torlok wrote: post #31
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?

Buy a world index that's not over-weighted on the US or spread your money around region indices. Keep dollar-cost averaging. Stop believing you'll get more than 3-4% yearly returns above inflation. My only real strategy change as a European was to move my money to European ETF providers away from Vanguard and BlackRock because at this point you never know what the US government is going to cook up next, and to weigh…

What are some good European ETF providers? Do you have to be physically within Europe to use them, or can you use them as long as you have an EU passport?

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

#87

Post by nine_zeros »

velcrovan wrote: post #81
nine_zeros wrote: post #77

Earlier quoted context omitted.

> Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. Not crazy given the incompetence in American political leadership. BUT, if US treasuries default, your savings accounts, agency, municipal, state, international bonds, stocks - all will fail immediately. Your literal checking account is backed by treasuries under the hood by the bank. Widespread bank runs will be likely. And…

What I'm hedging against is the possibility that technical issues at TreasuryDirect, and ensuing uproar, will temporarily prevent me from redeeming bonds at a time when I cannot afford to wait for a resolution. maybe I am wrong but I view this as a very separate scenario from the US formally stating that it will default, which I agree would cause problems I'm in no way prepared for.

Yes, you are right. A savings account will be a hedge against technical/short term UST bond redemption issues.

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

#88

Post by tim333 »

mholt wrote: post #63

Tangential question, as I am not an economist and don't pretend to understand any of this: what would happen if the stock market didn't recover? (Surely, it could happen? Past performance is no guarantee of future results.) The economy would effectively collapse, and I imagine our currency would be mostly worthless. People would withdraw what they could from bank accounts, which wouldn't be able to produce all the fu…

Stocks represent ownership of companies and assets so at some point they become a bargain as you are buying assets and profit income cheap. For dividend investors permanently low prices would be good. They are quite expensive at the moment though.

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

#89

Post by torlok »

Arete314159 wrote: post #86
torlok wrote: post #31

Earlier quoted context omitted.

Buy a world index that's not over-weighted on the US or spread your money around region indices. Keep dollar-cost averaging. Stop believing you'll get more than 3-4% yearly returns above inflation. My only real strategy change as a European was to move my money to European ETF providers away from Vanguard and BlackRock because at this point you never know what the US government is going to cook up next, and to weigh…

What are some good European ETF providers? Do you have to be physically within Europe to use them, or can you use them as long as you have an EU passport?

It's an ETF, so it boils down to whether you have access to a particular stock exchange. European brokers support trading on US stock exchanges, so I'm sure it works the other way around too. I use Amundi and Xtrackers because they have large fund sizes, low TER, and that's what's available at the brokers I use, though not all of my brokers have Amundi, for example. The availability outside the EU shouldn't be a problem, since most funds are also at the London Stock Exchange in either USD or GBP.

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

#90

Post by Arete314159 »

MilnerRoute wrote: post #20
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.

Since December the S&P 500 is down... 4.10%. It's a small loss, but I don't know if people who cashed out in December are really that much happier. Especially since for the last 12 months the S&P 500 is still up nearly 10%.

I don't think the problem is the paper losses so far. The problem is the entire social contract...or I don't know what to call it -- governmental contract? Financial world contract? Is on fire.
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