Planning for a crash like 1929?
Re: Planning for a crash like 1929?
I think there's a higher probability that market goes up but it's not enough to keep up with inflation.
Re: Planning for a crash like 1929?
Except that they did hold up the last time it happened.fortunefavored wrote: ↑Mon Oct 18, 2021 5:59 pm The idea that bonds would "hold up" in an 89% market drop seems quite dubious to me. The whole world-wide finance system would lock up and need a reset.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
Same with stocks/bonds I guess. Say I bought $10000 bonds but it dropped in value to $9000 so $1000 loss against cost basis. If I get interest $1000 reinvested then even though I am no longer at loss, my cost basis will be $11000 and value of bonds $10000 so still $1000 loss against cost basis.HomerJ wrote: ↑Mon Oct 18, 2021 5:54 pm
If you own $10,000 in a stock, and the price drops to $9,000, but over 3 years, they pay you $1,500 in dividends, you are UP $500.
Don't let someone tell you that you are down 10% on that stock. You have to ALWAYS include dividends when doing financial calculations.
Last edited by ebeb on Mon Oct 18, 2021 6:53 pm, edited 1 time in total.
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Re: Planning for a crash like 1929?
If we knew the answer to this question, we would be advising world leaders, not posting on Bogleheads. But, due to the possibility, one can and perhaps should invest in other asset types, rather than be 100% stocks.
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Re: Planning for a crash like 1929?
Above my pay grade, so I'll bow out. But so many things are now dependent on the stock market, I am dubious the bond market could handle the cascade of failures (or in the case of government bonds, wild deflation/inflation, depending on how they played their cards.)HomerJ wrote: ↑Mon Oct 18, 2021 6:03 pmExcept that they did hold up the last time it happened.fortunefavored wrote: ↑Mon Oct 18, 2021 5:59 pm The idea that bonds would "hold up" in an 89% market drop seems quite dubious to me. The whole world-wide finance system would lock up and need a reset.
Re: Planning for a crash like 1929?
I use Vanguards asset allocation tables to position at my risk tolerance. 60/40 stocks bonds willing to take a roughly 25-30% hit to portfolio. I also understand it could be worse or better than the historical figures.
Re: Planning for a crash like 1929?
Would you really sit on the sidelines and watch that much of your money go up in smoke?
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Re: Planning for a crash like 1929?
He does have a point, even if he doesn't understand probability.Turbo29 wrote: ↑Mon Oct 18, 2021 5:27 pmThis put it into perspective for me;brian91480 wrote: ↑Mon Oct 18, 2021 3:39 pm If I can't retire until I'm prepared to withstand an 89% drop in asset prices, then I'll never retire. Nor will anyone else on this forum.
At some point, you need to take a leap of faith. You can only plan for so much.
"... Consider the implications of the above 97% success rate at a withdrawal of $2,500 per month ($30,000 per year). For this to be a useful estimate of your true chance of not running out of money, the "success rate" of your ambient political, economic, and military environment must be at least 97% over this 40-year period. Do you think that this is likely? Only if you are an historical illiterate ... "
The Retirement Calculator from Hell, Part III: Eat, Drink, and Be Merry
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Re: Planning for a crash like 1929?
Have no debt, own your own home.
Preferably have land that you can grow food and get water on,but if not,have rain barrels to water your garden (assuming you are not in Colorado).
The big thing about 1929 was to live through it.
You could buy the farms from those going bankrupt if you had spare cash. Though I would prefer just buying goods directly from farmers,or local butcher, to keep them going, and for me to cut out the middle man.
Preferably have land that you can grow food and get water on,but if not,have rain barrels to water your garden (assuming you are not in Colorado).
The big thing about 1929 was to live through it.
You could buy the farms from those going bankrupt if you had spare cash. Though I would prefer just buying goods directly from farmers,or local butcher, to keep them going, and for me to cut out the middle man.
Re: Planning for a crash like 1929?
More words, please!desconhecido wrote: ↑Mon Oct 18, 2021 6:47 pmHe does have a point, even if he doesn't understand probability.Turbo29 wrote: ↑Mon Oct 18, 2021 5:27 pmThis put it into perspective for me;brian91480 wrote: ↑Mon Oct 18, 2021 3:39 pm If I can't retire until I'm prepared to withstand an 89% drop in asset prices, then I'll never retire. Nor will anyone else on this forum.
At some point, you need to take a leap of faith. You can only plan for so much.
"... Consider the implications of the above 97% success rate at a withdrawal of $2,500 per month ($30,000 per year). For this to be a useful estimate of your true chance of not running out of money, the "success rate" of your ambient political, economic, and military environment must be at least 97% over this 40-year period. Do you think that this is likely? Only if you are an historical illiterate ... "
The Retirement Calculator from Hell, Part III: Eat, Drink, and Be Merry
Re: Planning for a crash like 1929?
The problem is that while you are experiencing this you don't know when it will end.
I did set through the dot-com implosion and the 2008 stock market (and the 2020 drop) without selling any stock.
Each of these was around a 50% drop. By the time things get to, say, 75% it is easy to imagine saying, "Why sell now?"
But if you expect to bail at a 50% drop then maybe your asset allocation is too high to begin with?
There is a "classic" Boglehead thread from 2008 kicked off by Sheepdog that captures this: viewtopic.php?t=25126
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Re: Planning for a crash like 1929?
Including dividends, the nominal value of one share of VOO on December 24, 2018 was about 50% of the nominal value at the recent high. I doubt that anybody would be happy about it (except the short sellers, about whom Randy Newman had a lot to say) but many would be able to survive. A 60% loss today would be like going back to late 2018 and suffering a 20% loss. No fun, but many would survive.whodidntante wrote: ↑Mon Oct 18, 2021 6:01 pm My planning assumption is that one day the US stock market will go to zero and that it'll happen after I'm dead. I'm not sure about the second part. But it would certainly not require the level of disaster that some seem to think for that to happen. In fact, most people would likely survive it, as they survived the collapse of other equity markets.
But if you are severely injured by a 30% drawdown, that's just poor planning. You should certainly expect that to happen, pretty often.
A 60% drawdown is quite a bit more unlikely, but not an unreasonable assumption, especially in real terms. I'll just have to learn to like Alpo in that scenario because I'm unwilling to generate a portfolio that can endure that. It would mean many more years of hard work.
Re: Planning for a crash like 1929?
I bailed at the 300 day moving average back in March 2020, and I bought back in the last two days of March 2020. Basically, I buy at valuation and sell at moving average. Both are quantitative, not gut feel. No way am I going to sit back and watch my money evaporate into thin air.MarkRoulo wrote: ↑Mon Oct 18, 2021 6:55 pmThe problem is that while you are experiencing this you don't know when it will end.
I did set through the dot-com implosion and the 2008 stock market (and the 2020 drop) without selling any stock.
Each of these was around a 50% drop. By the time things get to, say, 75% it is easy to imagine saying, "Why sell now?"
But if you expect to bail at a 50% drop then maybe your asset allocation is too high to begin with?
There is a "classic" Boglehead thread from 2008 kicked off by Sheepdog that captures this: viewtopic.php?t=25126
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Re: Planning for a crash like 1929?
have an adequate cash position. each person has to decide how much is 'enough'. i have about 3 years worth. could stretch it to 5 if i had to really tighten the belt.Shallowpockets wrote: ↑Mon Oct 18, 2021 5:23 pm
Those who see themselves as having positioned for such a drop, what are your investments? Because over the last 5 years the S and P has risen 108%. Were you positioned in such a far out way that you missed that on most of your money? Is that a smart way to go?
if we had a 1929-level crash -- a solid cash position would certainly help. is it a drag on portfolio performance? of course it is when the market is Bull. but when the bottom falls out -- cash creates opportunity. and my family would not be eating saw dust.
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Re: Planning for a crash like 1929?
Are you referring to margin regulations and central bank machinations?willthrill81 wrote: ↑Mon Oct 18, 2021 5:17 pmBecause there are so many things in place now to hopefully help prevent such a crash in the first place that weren't in place back in 1929.
I'm not saying that's a valid viewpoint, only a potential explanation for the belief.
As for margin / leverage I don't think we really know how much effective leverage there is in the stock market. I came across this article which covers some things but I'm of a mixed mind regarding the margin debt chart (should we be looking at it in nominal terms? CPI? stock growth?). Many investment organizations (for lack of a better term) have custom and non-reported or opaque leverage instruments with banks, e.g. Archegos.
As for CBs, I think investors are going to have decide how dependent they wish to be on CB benevolence and competency.
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Re: Planning for a crash like 1929?
Never say never. With the advent of cryto and Bitcoin, regulators allowing an ETF with underlying investment in “ether”, the makings of the next “run” and lack of trust in the markets is in the making. You know all those loans on securities balances? That is going to set off a cascade of margin calls when/if the next consistent sell off occurs.mr_brightside wrote: ↑Mon Oct 18, 2021 2:34 pm almost zero. the financial 'universe' in 2021 is almost nothing like it was in 1929.
i do sometimes worry about a 'black swan' type event like Nation A invades Nation B or something like that setting off a large-scale conflict.
Alien space ship arrives over top of Washington DC or something similar.
but none of that keeps me awake at night. assets are diversified / allocated in a thoughtful manner.
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Re: Planning for a crash like 1929?
Ok. From the linked article:MarkRoulo wrote: ↑Mon Oct 18, 2021 6:51 pmMore words, please!desconhecido wrote: ↑Mon Oct 18, 2021 6:47 pmHe does have a point, even if he doesn't understand probability.Turbo29 wrote: ↑Mon Oct 18, 2021 5:27 pmThis put it into perspective for me;brian91480 wrote: ↑Mon Oct 18, 2021 3:39 pm If I can't retire until I'm prepared to withstand an 89% drop in asset prices, then I'll never retire. Nor will anyone else on this forum.
At some point, you need to take a leap of faith. You can only plan for so much.
"... Consider the implications of the above 97% success rate at a withdrawal of $2,500 per month ($30,000 per year). For this to be a useful estimate of your true chance of not running out of money, the "success rate" of your ambient political, economic, and military environment must be at least 97% over this 40-year period. Do you think that this is likely? Only if you are an historical illiterate ... "
The Retirement Calculator from Hell, Part III: Eat, Drink, and Be Merry
"So, think about what a 97% 40-year success rate means: the absence of all of the above for approximately the next 1,200 years. (A 97% success rate means a 3% failure rate; those 40 years divided by 0.03 is 1,200 years.) "
That implies to me that the author doesn't understand probability.
But, the point he's making, that there are a lot of possible failure modes that imperil the financial system that we are assuming will prevail, is valid.
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Re: Planning for a crash like 1929?
If we have a 1929 level crash, we will have significant deflation, not inflation and cash will be king. US Treasuries with near term maturities will also reign supreme. The banks will be in poor shape if over exposed to commercial real estate and unsecured loan facilities. Those banks who rode earnings last week on the backs of their cookie jar accounting technique of releasing allowance for bad credit reserves would be forced to build up more capital and that would result in a spigot shut off of the credit tap - those home equity lines cut, loans curtailed,lending on margin only for the biggest of investors. Yes, the average person will be affected and this forum will see more post about capitulation but Livesoft will announce he took advantage of the RBD with all the bonds he’s bought over the last 18 months.mr_brightside wrote: ↑Mon Oct 18, 2021 7:08 pmhave an adequate cash position. each person has to decide how much is 'enough'. i have about 3 years worth. could stretch it to 5 if i had to really tighten the belt.Shallowpockets wrote: ↑Mon Oct 18, 2021 5:23 pm
Those who see themselves as having positioned for such a drop, what are your investments? Because over the last 5 years the S and P has risen 108%. Were you positioned in such a far out way that you missed that on most of your money? Is that a smart way to go?
if we had a 1929-level crash -- a solid cash position would certainly help. is it a drag on portfolio performance? of course it is when the market is Bull. but when the bottom falls out -- cash creates opportunity. and my family would not be eating saw dust.
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Re: Planning for a crash like 1929?
I'm going to keep planning for 50% as worst case. If we have a crash that's much worse than that, there will be societal chaos and no amount of planning will help me.
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Re: Planning for a crash like 1929?
Read the book, The Great Depression. A Diary by Benjamin Roth. You’ll want to sell everything you got, put it in a lockbox that no one knows about and hold on for dear life. It’s really a depressing book but the biggest lesson out of that book to keep lots of liquidity available in the form of cash. Back then, banks were failing left and right, up and down. The author lamented not having enough cash or rather any cash to take advantage of the bargains to be had, selling for 90 percent off. And you think a 20 percent selloff is bad?? But if you have cash, those service workers you couldn’t find to repair your home will be very easy to find and the cost will be cheap, cheap, cheap. Deflation will set in and if you want to eat, bargains will be made.MathWizard wrote: ↑Mon Oct 18, 2021 6:51 pm Have no debt, own your own home.
Preferably have land that you can grow food and get water on,but if not,have rain barrels to water your garden (assuming you are not in Colorado).
The big thing about 1929 was to live through it.
You could buy the farms from those going bankrupt if you had spare cash. Though I would prefer just buying goods directly from farmers,or local butcher, to keep them going, and for me to cut out the middle man.
Last edited by Grt2bOutdoors on Mon Oct 18, 2021 8:15 pm, edited 1 time in total.
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Re: Planning for a crash like 1929?
In the great depression, lots of portfolios went to zero because of leverage.
Re: Planning for a crash like 1929?
So just like today, plenty of leveraged portfolios around tooNorthern Flicker wrote: ↑Mon Oct 18, 2021 7:34 pm In the great depression, lots of portfolios went to zero because of leverage.
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Re: Planning for a crash like 1929?
Not at Vanguard. They don't allow it.jarjarM wrote: ↑Mon Oct 18, 2021 7:36 pmSo just like today, plenty of leveraged portfolios around tooNorthern Flicker wrote: ↑Mon Oct 18, 2021 7:34 pm In the great depression, lots of portfolios went to zero because of leverage.
Re: Planning for a crash like 1929?
They're the strict parents. Although I think they do allow PSLDX/NTSX type funds, which are still leveraged internally.UpperNwGuy wrote: ↑Mon Oct 18, 2021 7:39 pmNot at Vanguard. They don't allow it.jarjarM wrote: ↑Mon Oct 18, 2021 7:36 pmSo just like today, plenty of leveraged portfolios around tooNorthern Flicker wrote: ↑Mon Oct 18, 2021 7:34 pm In the great depression, lots of portfolios went to zero because of leverage.
Re: Planning for a crash like 1929?
Name checks out.mr_brightside wrote: ↑Mon Oct 18, 2021 2:34 pm almost zero. the financial 'universe' in 2021 is almost nothing like it was in 1929.
i do sometimes worry about a 'black swan' type event like Nation A invades Nation B or something like that setting off a large-scale conflict.
Alien space ship arrives over top of Washington DC or something similar.
but none of that keeps me awake at night. assets are diversified / allocated in a thoughtful manner.
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Re: Planning for a crash like 1929?
In 1929 we were on a gold standard. You could have deflationary periods like the 1930s and 89% market crashes.$questions wrote: ↑Mon Oct 18, 2021 1:27 pm When planning for my financial future, should I be prepared to take a loss as high as 89% in my stock portfolio like the crash which occurred in 1929? I've lived through the dot-com bubble, and the crashes in 2008, 2020, and 1987 but I've never experienced a stock market crash as big as 1929.
What's the likelihood of something like this occurring again?
In my admittedly very humble and uninformed opinion, in todays world these are both far less likely. If anything like that were to occur now, you would see the government step in (as it did last year) and make sure that your portfolio would recover most if not all of the drop (at least in nominal terms) . The consequences of an 89% drop in market value today, without any kind of government intervention, would likely have the kind of societal repercussions where your portfolio would be the least of your concerns.
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Re: Planning for a crash like 1929?
Yes. However, we cannot comment on the effectiveness of such things without running afoul of forum rules (e.g., no discussion of 'economic theories').000 wrote: ↑Mon Oct 18, 2021 7:13 pmAre you referring to margin regulations and central bank machinations?willthrill81 wrote: ↑Mon Oct 18, 2021 5:17 pmBecause there are so many things in place now to hopefully help prevent such a crash in the first place that weren't in place back in 1929.
I'm not saying that's a valid viewpoint, only a potential explanation for the belief.
As for margin / leverage I don't think we really know how much effective leverage there is in the stock market. I came across this article which covers some things but I'm of a mixed mind regarding the margin debt chart (should we be looking at it in nominal terms? CPI? stock growth?). Many investment organizations (for lack of a better term) have custom and non-reported or opaque leverage instruments with banks, e.g. Archegos.
As for CBs, I think investors are going to have decide how dependent they wish to be on CB benevolence and competency.
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Re: Planning for a crash like 1929?
The Diary is indeed a great book. I also love Hard Times by Studs Terkel - interviews with real people from all walks of life telling how they experienced the depression. Also emphasized the role of debt and forced selling of farms, homes, etc.Grt2bOutdoors wrote: ↑Mon Oct 18, 2021 7:30 pmRead the book, The Great Depression. A Diary by Benjamin Roth. You’ll want to sell everything you got, put it in a lockbox that no one knows about and hold on for dear life. It’s really a depressing book but the biggest lesson out of that book to keep lots of liquidity available in the form of cash. Back then, banks were failing left and right, up and down. The author lamented not having enough cash or rather any cash to take advantage of the bargains to be had, selling for 90 percent off. And you think a 20 per selloff is bad?? But if you have cash, those service workers you couldn’t find to repair your home will be very easy to find and the cost will be cheap, cheap, cheap. Deflation will set in and if you want to eat, bargains will be made.MathWizard wrote: ↑Mon Oct 18, 2021 6:51 pm Have no debt, own your own home.
Preferably have land that you can grow food and get water on,but if not,have rain barrels to water your garden (assuming you are not in Colorado).
The big thing about 1929 was to live through it.
You could buy the farms from those going bankrupt if you had spare cash. Though I would prefer just buying goods directly from farmers,or local butcher, to keep them going, and for me to cut out the middle man.
But I’m just recommending a book: I do not foresee a drop of that magnitude. Today and back then are such different circumstances. Today feels more like 1977, but even that is a stretch since the capital markets were nowhere near as democratized as they are today, a trend that shows little sign of abating. Maybe 1998 is a better analogy, when markets were at all time highs but still had a few years to run.
I think the lessons of those books include: don’t overleverage, don’t live beyond your means, check your assumptions, and check prices. I do feel like some people invest today without much analysis of the stock or fund share price. Another interesting section of hard times involves people who made fortunes in the depression.
Last edited by AnnetteLouisan on Mon Oct 18, 2021 8:32 pm, edited 4 times in total.
Re: Planning for a crash like 1929?
That's what they thought in 1928.JoeRetire wrote: ↑Mon Oct 18, 2021 3:29 pmExceedingly slim.$questions wrote: ↑Mon Oct 18, 2021 1:27 pm What's the likelihood of something like this occurring again?
Maybe they were right and got unlucky. Lost a 1-in-100 game of Russian roulette. :/
May all your index funds gain +0.5% today.
Re: Planning for a crash like 1929?
1929 cannot happen even if there is a crash and unemployment reaches 25% as the Feds will use all tools in their QE toolbox to flood the system with liquidity. Even if the US debt reaches $30T and goes higher nobody can force Uncle Sam to pay up not even the Chinese. So the 25% will continue getting unemployment, housing and basic needs for as long it takes to bring back the economy and so consumption rate will be maintained even if lower than prior. Thus industries will continue running and larger bank will not be allowed to fail. Good earth will continue producing food, oil/fracking continue pumping, import/export continue. Hopefully the deflationary effects of the crash will be counteracted by inflation caused by the excessive liquidity. The excess liquidity will flow into the market bringing it up quickly. as happening at present
Last edited by ebeb on Mon Oct 18, 2021 8:48 pm, edited 2 times in total.
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Re: Planning for a crash like 1929?
You must have missed the news, the Fed is using all of those tools on another project right now. Can’t be in two places at once with the same fire hose, can you?ebeb wrote: ↑Mon Oct 18, 2021 8:19 pm 1929 cannot happen even if there is a crash and unemployment reaches 25% as the Feds will use all tools in their QE toolbox to flood the system with liquidity. So the 25% will continue getting unemployment, housing and basic needs for as long it takes to bring back the economy and so consumption rate will be maintained even if lower than prior. Thus industries will continue running and larger bank will not be allowed to fail. Hopefully the deflationary effects of the crash will be counteracted by inflation caused by the excessive liquidity. The excess liquidity will flow into the market bringing it up quickly.
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Re: Planning for a crash like 1929?
Why can't you?Grt2bOutdoors wrote: ↑Mon Oct 18, 2021 8:22 pmYou must have missed the news, the Fed is using all of those tools on another project right now. Can’t be in two places at once with the same fire hose, can you?ebeb wrote: ↑Mon Oct 18, 2021 8:19 pm 1929 cannot happen even if there is a crash and unemployment reaches 25% as the Feds will use all tools in their QE toolbox to flood the system with liquidity. So the 25% will continue getting unemployment, housing and basic needs for as long it takes to bring back the economy and so consumption rate will be maintained even if lower than prior. Thus industries will continue running and larger bank will not be allowed to fail. Hopefully the deflationary effects of the crash will be counteracted by inflation caused by the excessive liquidity. The excess liquidity will flow into the market bringing it up quickly.
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Re: Planning for a crash like 1929?
but but but… efficient frontier (or something).jarjarM wrote: ↑Mon Oct 18, 2021 7:36 pmSo just like today, plenty of leveraged portfolios around tooNorthern Flicker wrote: ↑Mon Oct 18, 2021 7:34 pm In the great depression, lots of portfolios went to zero because of leverage.
Re: Planning for a crash like 1929?
Why not, if they are doing 10x liquidity they can make it 100x in no time just need few more massive printers at the Bureau of Engraving and Printing which they probably already purchased and ready to go instantlyGrt2bOutdoors wrote: ↑Mon Oct 18, 2021 8:22 pm You must have missed the news, the Fed is using all of those tools on another project right now. Can’t be in two places at once with the same fire hose, can you?
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
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Re: Planning for a crash like 1929?
I'm going to agree with JoeRetire and disagree with ApeAttack on this issue.ApeAttack wrote: ↑Mon Oct 18, 2021 8:06 pmThat's what they thought in 1928.JoeRetire wrote: ↑Mon Oct 18, 2021 3:29 pmExceedingly slim.$questions wrote: ↑Mon Oct 18, 2021 1:27 pm What's the likelihood of something like this occurring again?
Maybe they were right and got unlucky. Lost a 1-in-100 game of Russian roulette. :/
Re: Planning for a crash like 1929?
Today I learned exceedingly slim is less than 1-in-100.UpperNwGuy wrote: ↑Mon Oct 18, 2021 8:27 pmI'm going to agree with JoeRetire and disagree with ApeAttack on this issue.ApeAttack wrote: ↑Mon Oct 18, 2021 8:06 pmThat's what they thought in 1928.JoeRetire wrote: ↑Mon Oct 18, 2021 3:29 pmExceedingly slim.$questions wrote: ↑Mon Oct 18, 2021 1:27 pm What's the likelihood of something like this occurring again?
Maybe they were right and got unlucky. Lost a 1-in-100 game of Russian roulette. :/
May all your index funds gain +0.5% today.
Re: Planning for a crash like 1929?
So you sold in March and bought in March. Nice plan.rockstar wrote: ↑Mon Oct 18, 2021 7:07 pmI bailed at the 300 day moving average back in March 2020, and I bought back in the last two days of March 2020. Basically, I buy at valuation and sell at moving average. Both are quantitative, not gut feel. No way am I going to sit back and watch my money evaporate into thin air.MarkRoulo wrote: ↑Mon Oct 18, 2021 6:55 pmThe problem is that while you are experiencing this you don't know when it will end.
I did set through the dot-com implosion and the 2008 stock market (and the 2020 drop) without selling any stock.
Each of these was around a 50% drop. By the time things get to, say, 75% it is easy to imagine saying, "Why sell now?"
But if you expect to bail at a 50% drop then maybe your asset allocation is too high to begin with?
There is a "classic" Boglehead thread from 2008 kicked off by Sheepdog that captures this: viewtopic.php?t=25126
Look, the money, so far, doesn't evaporate into thin air. So far, just buying and holding all the way down (and then back up) still makes you wealthy.
The long-term average of the stock market INCLUDES the crashes.
If your timing signals work, you can make more than the average. If your timing signals don't work, you'll make less.
So far, no one has come up with timing signals that work every time. So you are taking a chance of making less, hoping to make more.
Or you can just buy and hold and get the long-term market average without any work at all.
But you think you have a good timing method.. That's fine. I hope it works for you.
Me, I'll just stick with 50/50 stocks/bonds, so I can ride out any crash, and wait for it to recover. If we get a stock market crash that never recovers, I guess I'll just have to live on the 50% in bonds and Social Security (maybe I'll still have 10% left in stocks for some play money).
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Planning for a crash like 1929?
I've seen you post this statement many times in the past and it is an incredibly important concept. Many years the market does much better than 10%. You just have to hang in there the years that it's not doing well.
Since 1926, the S&P index (90 until 1957, 500 afterwards) has only been negative...
- exactly four consecutive years once
- exactly three consecutive years twice
- exactly two consecutive years once
- exactly one year 13 times.
All the other years were positive and often way higher than 10%.
https://www.slickcharts.com/sp500/returns
May all your index funds gain +0.5% today.
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Re: Planning for a crash like 1929?
Again, there was not an 89% nominal or real drawdown of the broad market from 1929 to the market bottom in 1932, but yes, treasuries have so far always appreciated during disinflationary or deflationary recessions/depressions.HomerJ wrote: ↑Mon Oct 18, 2021 6:03 pmExcept that they did hold up the last time it happened.fortunefavored wrote: ↑Mon Oct 18, 2021 5:59 pm The idea that bonds would "hold up" in an 89% market drop seems quite dubious to me. The whole world-wide finance system would lock up and need a reset.
Last edited by Northern Flicker on Tue Oct 19, 2021 2:00 am, edited 1 time in total.
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Re: Planning for a crash like 1929?
Let's not forget the number and type of stock holders in 1929 versus post-2021 world.
Today's stock owners include influential CEOs, foreign governments, members of congress. They won't be able to prevent a 50% drop but they will certainly prevent a 90% drop.
Today's stock owners include influential CEOs, foreign governments, members of congress. They won't be able to prevent a 50% drop but they will certainly prevent a 90% drop.
Re: Planning for a crash like 1929?
I heard somewhere that historically average dividends in real terms have never dropped more than 50 percent. That would be for the companies that survived the crash. So it you are in a situation where your cash flow is dividends then they will still roll in, but somewhat diminished.Northern Flicker wrote: ↑Mon Oct 18, 2021 5:47 pmThe Dow excludes dividends, so the loss on a portfolio of stocks corresponding to the Dow is overstated by using the 89% drawdown of the Dow as a price index.MarkRoulo wrote: ↑Mon Oct 18, 2021 3:12 pm89% was the peak-to-trough loss of the Dow Jones: 381.17 to 41.22. And that is usually/always where the 89% comes from.Northern Flicker wrote: ↑Mon Oct 18, 2021 2:22 pm 89% was the drawdown of value stocks in the great depression. The broad market was down about 79%.
I'm now using a 60% drawdown in equities as the worst-case for planning purposes instead of the normally suggested 50%.
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Re: Planning for a crash like 1929?
There are scenarios beyond the ability of the powers that be to prevent. Robust stagflation can create the choice between a punishing inflation or punishing recession.
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Re: Planning for a crash like 1929?
Dividends were much higher in 1928 than today.Jaymover wrote: ↑Tue Oct 19, 2021 2:03 amI heard somewhere that historically average dividends in real terms have never dropped more than 50 percent. That would be for the companies that survived the crash. So it you are in a situation where your cash flow is dividends then they will still roll in, but somewhat diminished.Northern Flicker wrote: ↑Mon Oct 18, 2021 5:47 pmThe Dow excludes dividends, so the loss on a portfolio of stocks corresponding to the Dow is overstated by using the 89% drawdown of the Dow as a price index.MarkRoulo wrote: ↑Mon Oct 18, 2021 3:12 pm89% was the peak-to-trough loss of the Dow Jones: 381.17 to 41.22. And that is usually/always where the 89% comes from.Northern Flicker wrote: ↑Mon Oct 18, 2021 2:22 pm 89% was the drawdown of value stocks in the great depression. The broad market was down about 79%.
I'm now using a 60% drawdown in equities as the worst-case for planning purposes instead of the normally suggested 50%.
Re: Planning for a crash like 1929?
Whatever they thought in 1928 has no bearing on the likelihood of something happening now.ApeAttack wrote: ↑Mon Oct 18, 2021 8:06 pmThat's what they thought in 1928.JoeRetire wrote: ↑Mon Oct 18, 2021 3:29 pmExceedingly slim.$questions wrote: ↑Mon Oct 18, 2021 1:27 pm What's the likelihood of something like this occurring again?
Maybe they were right and got unlucky. Lost a 1-in-100 game of Russian roulette. :/
I think my chances of rolling snake eyes with dice are 1/36. If I now roll snake eyes does it make any sense to say that the likelihood has changed?
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Re: Planning for a crash like 1929?
Of course they can. Why would you assume otherwise?Grt2bOutdoors wrote: ↑Mon Oct 18, 2021 8:22 pmYou must have missed the news, the Fed is using all of those tools on another project right now. Can’t be in two places at once with the same fire hose, can you?ebeb wrote: ↑Mon Oct 18, 2021 8:19 pm 1929 cannot happen even if there is a crash and unemployment reaches 25% as the Feds will use all tools in their QE toolbox to flood the system with liquidity. So the 25% will continue getting unemployment, housing and basic needs for as long it takes to bring back the economy and so consumption rate will be maintained even if lower than prior. Thus industries will continue running and larger bank will not be allowed to fail. Hopefully the deflationary effects of the crash will be counteracted by inflation caused by the excessive liquidity. The excess liquidity will flow into the market bringing it up quickly.
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Re: Planning for a crash like 1929?
Unfortunately you will most likely end up worse off, like the vast majority of market timers. If you have a genuine edge on the market then you might end up very rich.rockstar wrote: ↑Mon Oct 18, 2021 7:07 pmI bailed at the 300 day moving average back in March 2020, and I bought back in the last two days of March 2020. Basically, I buy at valuation and sell at moving average. Both are quantitative, not gut feel. No way am I going to sit back and watch my money evaporate into thin air.MarkRoulo wrote: ↑Mon Oct 18, 2021 6:55 pmThe problem is that while you are experiencing this you don't know when it will end.
I did set through the dot-com implosion and the 2008 stock market (and the 2020 drop) without selling any stock.
Each of these was around a 50% drop. By the time things get to, say, 75% it is easy to imagine saying, "Why sell now?"
But if you expect to bail at a 50% drop then maybe your asset allocation is too high to begin with?
There is a "classic" Boglehead thread from 2008 kicked off by Sheepdog that captures this: viewtopic.php?t=25126
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Re: Planning for a crash like 1929?
Classic bear psychology.JoeRetire wrote: ↑Tue Oct 19, 2021 6:04 amOf course they can. Why would you assume otherwise?Grt2bOutdoors wrote: ↑Mon Oct 18, 2021 8:22 pmYou must have missed the news, the Fed is using all of those tools on another project right now. Can’t be in two places at once with the same fire hose, can you?ebeb wrote: ↑Mon Oct 18, 2021 8:19 pm 1929 cannot happen even if there is a crash and unemployment reaches 25% as the Feds will use all tools in their QE toolbox to flood the system with liquidity. So the 25% will continue getting unemployment, housing and basic needs for as long it takes to bring back the economy and so consumption rate will be maintained even if lower than prior. Thus industries will continue running and larger bank will not be allowed to fail. Hopefully the deflationary effects of the crash will be counteracted by inflation caused by the excessive liquidity. The excess liquidity will flow into the market bringing it up quickly.
They don’t buy into market crashes, they miss the entire run up, then complain that they would have been right if the FED hadn’t taken whatever action they take. It’s as if they expect the FED to sit there and do nothing.
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Re: Planning for a crash like 1929?
[OT comments removed by admin LadyGeek]
The problem with your economics is that it assumes supply creates demand. But that's not actually what happens.
What actually happens during sharp downturns is that everyone cuts back their spending (businesses and consumers) and hoards cash. Low interest rates don't matter if your alternative is to lend your money to someone and risk losing it.
Keynes describes this memorably, and his analysis of 1929 is as cogent now as it was then.
Imports and exports could shut down. If foreign banks don't have USD then suppliers of businesses cannot be paid (in international trade) and the whole thing shuts down.Even if the US debt reaches $30T and goes higher nobody can force Uncle Sam to pay up not even the Chinese. So the 25% will continue getting unemployment, housing and basic needs for as long it takes to bring back the economy and so consumption rate will be maintained even if lower than prior. Thus industries will continue running and larger bank will not be allowed to fail. Good earth will continue producing food, oil/fracking continue pumping, import/export continue. Hopefully the deflationary effects of the crash will be counteracted by inflation caused by the excessive liquidity. The excess liquidity will flow into the market bringing it up quickly. as happening at present
The problem with your economics is that it assumes supply creates demand. But that's not actually what happens.
What actually happens during sharp downturns is that everyone cuts back their spending (businesses and consumers) and hoards cash. Low interest rates don't matter if your alternative is to lend your money to someone and risk losing it.
Keynes describes this memorably, and his analysis of 1929 is as cogent now as it was then.