"experienced" investors: is this time different?

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dbr
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Re: "experienced" investors: is this time different?

Post by dbr »

Options to manage a possible hazard in rebalancing into doom include starting with a not too large allocation to stocks or setting a rebalancing rule to balance out of stocks but never in. In past discussions of this the argument seems to be convincing that the more effective strategy in the real world is to reduce the allocation to stocks, but a person is welcome to devise whatever scheme they want. An irony is that rebalancing can be avoided altogether by holding 100% stocks and the loss is limited to no more than the amount the market crashes.

I think in historical practice this rebalance into doom scenario just doesn't really surface or at least is well managed by not having too much in stocks to start with. In practice a person that fears these things might choose a 30/70 allocation rather than 70/30 and not much affect the safe withdrawal rate they can assume. What the fearful person gives up is the chance to increase wealth.

It is also possible to avoid rebalance into doom by diverting wealth into annuities, including the obvious annuity purchase of delaying start of Social Security.
secondopinion
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Re: "experienced" investors: is this time different?

Post by secondopinion »

Da5id wrote: Mon May 23, 2022 10:35 am
secondopinion wrote: Mon May 23, 2022 10:29 am
Leesbro63 wrote: Mon May 23, 2022 10:17 am
secondopinion wrote: Mon May 23, 2022 10:11 am
Leesbro63 wrote: Mon May 23, 2022 9:46 am

You are correct that owning equities is a gamble. Unfortunately not owning equities might be an even bigger gamble in the long run. But since 2008, I’ve struggled with the problem of “Pascal’s Wager”. Selling safe bonds to rebalance into risky stocks could lead an otherwise prudent saver/investor to spend eternity in <a bad place>. If we have a long, deep bear market requiring multiple rebalances, much of your safe money gets flushed along with your risk money. The prudent investor inadvertently becomes a gambler.
As I have said before, taking risks is not gambling. Taking too much risk is just foolish. Gambling requires taking risk with an intention of making money off of the other party without giving meaningful compensation to the other party.

Could you please stop associating investing with gambling (and even speculation with gambling)? If you insist it is gambling, then so is insurance, lending to others, annuities, saving money, and many other unintended consequences.
I get your point. But I’m gonna stand my ground that the willingness to “rebalance into possible poverty” at least approaches the limit of prudence and strattles the line into “gambling”.
A gamble does not even rely on luck per se; consider a wager between two players in a game of chess. I stand a firm stance that gambling requires more than just risk, but I think we are at an impasse. I do not think this will go anywhere.
I'm also baffled by his definition of gambling. I guess everything to do with investing is gambling if one chooses to define it as such. I think balanced funds and target date funds are an excellent default choice for investing. And they both rebalance continuously. Any definition that hits those with the pejorative "gambling" is odd to me.
It is not about it being pejorative; it is the ethics of the contract that I consider solely in the assessment, not the risks present. Hence, I oppose even the assessment of individual stocks being lottery tickets. To those who insist their equivalence, holding a portfolio of gambles is still gambling, even if you hedged out all risk and make guaranteed money in the process.
Last edited by secondopinion on Mon May 23, 2022 11:06 am, edited 2 times in total.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
dbr
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Re: "experienced" investors: is this time different?

Post by dbr »

Note: There is a math mistake in this table. At some point I may redo it. the general idea is still ok.

Here is a calculation of what happens when a 5% rebalance band is applied 40 times to a declining stock market. The numbers are the asset allocation and the final value starting at a portfolio of $100. The second number is how far down you are after rebalancing 10 times.

0/100 $100 $100
10/90 $81 $95
30/70 $55 $86
50/50 $36 $77
70/30 $24 $70
90/10 $16 $63
100/0 $13 $60

Note the $13 is the same as applying successive stock market losses of 5% 40 times compounded and $60 10 times compounded.
Last edited by dbr on Mon May 23, 2022 2:37 pm, edited 1 time in total.
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elpollo
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Re: "experienced" investors: is this time different?

Post by elpollo »

ask again in 6 -12 months if some actually Q.E. unwinding, & rates increase -disinflation effort is done ; seems something has to give ; and japanesque lost decades are not impossible.

that said besides maybe trying to buy and live in something, or "buy gold" (10%) ; one can't just sit in cash , so: its more "when do you need the money" and "what can you afford to lose" :moneybag , if equities are the great inflation hedge
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Jaylat
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Re: "experienced" investors: is this time different?

Post by Jaylat »

Regarding the original topic:

I might be too sanguine, but I’m less concerned about the international scene (Russia / Ukraine) which seems to me less risky than, for example, Saddam Hussein’s invasion of Kuwait, which affected a much higher portion of the world’s oil supply. Market-wise, the big US stocks are actually profitable, unlike the 2000 tech bubble. China has lots of problems, but it’s seen a great increase in wealth in the last 30 years, which is overall a good thing.

The difference I see is twofold: (1) the huge increase in money supply through QE now has to be reeled back, which could negatively impact all investable assets for years; and (2) the potential “doomsday scenario” where the US Government runs into a liquidity event, where the Federal budget is not sufficient to service our debt at sharply higher interest rates.

If anything approaching the second scenario occurs, we could be in real trouble. We were saved from a banking sector meltdown in 2008 by a massive government intervention. I would hate to imagine a similar stock market crash without that safety net.
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HomerJ
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Re: "experienced" investors: is this time different?

Post by HomerJ »

CraigTester wrote: Mon May 23, 2022 6:27 am
latesaver wrote: Sun May 22, 2022 8:04 pm
CraigTester wrote: Sat May 21, 2022 9:53 pm I fear it's exactly the same.

Collective denial, that keeps working out fine, until finally it doesn't
Why do you fear it's exactly the same?
If you’ve ever been in a car crash, it doesn’t mean you don’t fear getting in another one. In fact, you probably fear it more….
Your analogy is horribly flawed. Because, so far, the stock market has always recovered.

A better analogy would be a roller-coaster ride.

We've all been on the roller-coaster and it was scary, but at the end, if you stayed on the coaster, no one was hurt.

Someone is asking, "Will the roller-coaster ride be different this time? Could we get hurt if we ride the roller-coaster this time?"

The correct answer is "Maybe... It is indeed possible that maybe this time the roller-coaster will fall off the tracks or get stuck somewhere"

But your answer was "I fear the roller-coaster ride will be exactly the same as it was in the past..."

And all of us, who rode the roller-coaster ride in the past have no idea what you are thinking. Because, in the past, riding the roller-coaster worked out just fine.

You make no sense.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
patrick
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Re: "experienced" investors: is this time different?

Post by patrick »

Let's start by describing a few aspects of an economic scenario:


1) Stocks have fallen significantly from their all time high.

2) Commodity prices have recently spiked.

3) Interest rates are low by historical standards

4) Some say stocks are still overvalued.

5) Some say interest rates will inevitably rise.

6) Some say there will inevitably be high inflation in the near future.

7) Some say there will inevitably be cascading crises spreading through the economy.

8) Some say the government is powerless to fix it.

9) Some therefore say that the recent stock decline is only the begin and stock must fall much further.

10) Some day that most investors are in denial of these problems.

Which time so you think I am talking about?

A) Mid 2008, which would have been a great time to sell all your stocks and even short stocks if you were feeling bold?

B) March 2009, which would have been a great time to go 100% stocks and even buy them on margin if you were feeling bold?

C) The present.

The correct answer is all of the above.
CraigTester
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Re: "experienced" investors: is this time different?

Post by CraigTester »

HomerJ wrote: Mon May 23, 2022 11:49 am
CraigTester wrote: Mon May 23, 2022 6:27 am
latesaver wrote: Sun May 22, 2022 8:04 pm
CraigTester wrote: Sat May 21, 2022 9:53 pm I fear it's exactly the same.

Collective denial, that keeps working out fine, until finally it doesn't
Why do you fear it's exactly the same?
If you’ve ever been in a car crash, it doesn’t mean you don’t fear getting in another one. In fact, you probably fear it more….
Your analogy is horribly flawed. Because, so far, the stock market has always recovered.

A better analogy would be a roller-coaster ride.

We've all been on the roller-coaster and it was scary, but at the end, if you stayed on the coaster, no one was hurt.

Someone is asking, "Will the roller-coaster ride be different this time? Could we get hurt if we ride the roller-coaster this time?"

The correct answer is "Maybe... It is indeed possible that maybe this time the roller-coaster will fall off the tracks or get stuck somewhere"

But your answer was "I fear the roller-coaster ride will be exactly the same as it was in the past..."

And all of us, who rode the roller-coaster ride in the past have no idea what you are thinking. Because, in the past, riding the roller-coaster worked out just fine.

You make no sense.

Homer - you are so entertaining... :sharebeer

But no, my analogy is actually pretty good.

After getting in a crash while driving during icy conditions, someone paying attention might learn to wait for safer weather the next time...

You get to the same place, perhaps even sooner, and with far fewer cuts and bruises.....

But inevitably, many won't learn....

P.S. Go red team!
Leesbro63
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Re: "experienced" investors: is this time different?

Post by Leesbro63 »

patrick wrote: Mon May 23, 2022 12:38 pm Let's start by describing a few aspects of an economic scenario:


1) Stocks have fallen significantly from their all time high.

2) Commodity prices have recently spiked.

3) Interest rates are low by historical standards

4) Some say stocks are still overvalued.

5) Some say interest rates will inevitably rise.

6) Some say there will inevitably be high inflation in the near future.

7) Some say there will inevitably be cascading crises spreading through the economy.

8) Some say the government is powerless to fix it.

9) Some therefore say that the recent stock decline is only the begin and stock must fall much further.

10) Some day that most investors are in denial of these problems.

Which time so you think I am talking about?

A) Mid 2008, which would have been a great time to sell all your stocks and even short stocks if you were feeling bold?

B) March 2009, which would have been a great time to go 100% stocks and even buy them on margin if you were feeling bold?

C) The present.

The correct answer is all of the above.
The elephant in the room is debt to GDP. It’s gotten bigger through every crisis for almost 2 generations. Borrowing has been the fix every time. At some point…
ClassII
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Re: "experienced" investors: is this time different?

Post by ClassII »

Leesbro63 wrote: Mon May 23, 2022 1:51 pmThe elephant in the room is debt to GDP. It’s gotten bigger through every crisis for almost 2 generations. Borrowing has been the fix every time. At some point…
That elephant in the room has been around since before any of us have been born. And yet everyone always thinks time will be the breaking point.
Leesbro63
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Re: "experienced" investors: is this time different?

Post by Leesbro63 »

ClassII wrote: Mon May 23, 2022 1:57 pm
Leesbro63 wrote: Mon May 23, 2022 1:51 pmThe elephant in the room is debt to GDP. It’s gotten bigger through every crisis for almost 2 generations. Borrowing has been the fix every time. At some point…
That elephant in the room has been around since before any of us have been born. And yet everyone always thinks time will be the breaking point.
That’s not really true. Yes, debt to GDP was about where we are now just after WW2. But that quickly reduced as world politics and demographics provided a huge tailwind. Now we face the opposite and debt to GDP has been really rip-roaring upwards since about 2001, with no dry powder available for the next crisis.
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HomerJ
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Re: "experienced" investors: is this time different?

Post by HomerJ »

CraigTester wrote: Mon May 23, 2022 1:42 pm After getting in a crash while driving during icy conditions, someone paying attention might learn to wait for safer weather the next time...

You get to the same place, perhaps even sooner, and with far fewer cuts and bruises.....
The long-term 9%-10% nominal return of the U.S. stock market includes all the crashes.

The word "crash" is in that sentence, but that's just semantics. A car crash is when the car STOPS, is damaged, and has to be towed away and repaired. But the stock market crashes of the past were definitely more like a roller-coaster, or even an icy road, where the car slipped, it looked dangerous for a second, but the tires grabbed the road, and you made it to the destination safely.

The important take-away that even riding the market all the way down and all the way back up has not hurt the people who stayed the course and made those people very rich in the long-run.

Sure, if you could avoid the crash, and only own stocks when they were going up, you'd be even richer.

But, in real life, there are no clear signals. And, in real life, most people who try to time the market fail, and end up less rich. Or, the real danger, not rich at all. Not saying it's impossible to time the market, but it's certainly not easy.

Doing nothing, so far, you got rich.

Doing something, so far, did not get you to the same place. A few people got there sooner, but most got there later, or some people never got there at all.

Knowing the stock market history, why do you fear the crash so much? What is in your mind that makes you so scared of a temporary drop?

I'm guessing your thought is that maybe the next drop won't be temporary. And that's fair.

We can definitely discuss the future. That's still to be written. The future might be different. You can state that maybe next time the tires won't grip the pavement, so it's dangerous to drive that icy road. That's fair. But you can't state, that in the past, the tires slipped and the car slipped off the road. Because it didn't.

You, for some reason, think the temporary drops in the past were some horrible events that hurt buy and hold investors.

But that isn't true. I think you are thinking of people who move in and out of the market, like yourself. Those who timed it right did well, and those that timed it wrong did poorly. The ones who timed poorly are the ones who got hurt. For some reason, you are thinking of those people when you talk to us here. It's like you think we're all timers, but we need to be better at timing like you.

You continually state that we are in denial, that Bogleheads think the market only goes up and never crashes. But that's not what we think at all.

You seem to have no actual concept of the Boglehead philosophy or what "buy and hold" actually means.

Again, maybe "buy and hold" won't work going forward, but you are completely diminishing your case and credibility by continuing to state that "buy and hold" didn't work in the past. That, somehow we got hurt badly in the crashes while we all made 10% a year over the long-run.

If "this time is the same", we'll make 10% a year over the long run again. Ain't no one crying about that.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
CraigTester
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Re: "experienced" investors: is this time different?

Post by CraigTester »

HomerJ wrote: Mon May 23, 2022 2:13 pm
CraigTester wrote: Mon May 23, 2022 1:42 pm After getting in a crash while driving during icy conditions, someone paying attention might learn to wait for safer weather the next time...

You get to the same place, perhaps even sooner, and with far fewer cuts and bruises.....
The long-term 9%-10% nominal return of the U.S. stock market includes all the crashes.

The word "crash" is in that sentence, but that's just semantics. A car crash is when the car STOPS, is damaged, and has to be towed away and repaired. But the stock market crashes of the past were definitely more like a roller-coaster, or even an icy road, where the car slipped, it looked dangerous for a second, but the tires grabbed the road, and you made it to the destination safely.

The important take-away that even riding the market all the way down and all the way back up has not hurt the people who stayed the course and made those people very rich in the long-run.

Sure, if you could avoid the crash, and only own stocks when they were going up, you'd be even richer.

But, in real life, there are no clear signals. And, in real life, most people who try to time the market fail, and end up less rich. Or, the real danger, not rich at all. Not saying it's impossible to time the market, but it's certainly not easy.

Doing nothing, so far, you got rich.

Doing something, so far, did not get you to the same place. A few people got there sooner, but most got there later, or some people never got there at all.

Knowing the stock market history, why do you fear the crash so much? What is in your mind that makes you so scared of a temporary drop?

I'm guessing your thought is that maybe the next drop won't be temporary. And that's fair.

We can definitely discuss the future. That's still to be written. The future might be different. You can state that maybe next time the tires won't grip the pavement, so it's dangerous to drive that icy road. That's fair. But you can't state, that in the past, the tires slipped and the car slipped off the road. Because it didn't.

You, for some reason, think the temporary drops in the past were some horrible events that hurt buy and hold investors.

But that isn't true. I think you are thinking of people who move in and out of the market, like yourself. Those who timed it right did well, and those that timed it wrong did poorly. The ones who timed poorly are the ones who got hurt. For some reason, you are thinking of those people when you talk to us here. It's like you think we're all timers, but we need to be better at timing like you.

You continually state that we are in denial, that Bogleheads think the market only goes up and never crashes. But that's not what we think at all.

You seem to have no actual concept of the Boglehead philosophy or what "buy and hold" actually means.

Again, maybe "buy and hold" won't work going forward, but you are completely diminishing your case and credibility by continuing to state that "buy and hold" didn't work in the past. That, somehow we got hurt badly in the crashes while we all made 10% a year over the long-run.

If "this time is the same", we'll make 10% a year over the long run again. Ain't no one crying about that.
I think you and I are having this same conversation on the Grantham thread....

But as far as the title of this thread goes, I believe what is different this time is that the buy-n-hold indexers are no longer the rebels, they are the new normal....

And this means that a LOT of otherwise smart people might just be checking their brains at the door.... Trusting that "someone else" out there is ensuring that valuations somehow make sense... Even when they absolutely cannot be justified based on any historical precedent...

And slowly but surely, all the "someone else's" are saying, if you can't beat em, join em..... This is both very dangerous and more true today, than at any other time in our history, IMHO.
Randolph Mortimer
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Re: "experienced" investors: is this time different?

Post by Randolph Mortimer »

CraigTester wrote: Mon May 23, 2022 2:52 pmBut as far as the title of this thread goes, I believe what is different this time is that the buy-n-hold indexers are no longer the rebels, they are the new normal....
I'm not buying what you're selling.
ncbill
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Re: "experienced" investors: is this time different?

Post by ncbill »

2008-9 is the first time I remember two-earner, "white-collar" professional couples both losing their jobs (not temporarily laid off)

IIRC, even public sector (city/state) employees here were furloughed at least one day/week.

Not counting the over 50% decline in some equity indices...or the (Fed's estimate) ~1/3 drop in housing values.
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Portfolio7
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Re: "experienced" investors: is this time different?

Post by Portfolio7 »

The dot.com crash was painful, even if your exposure to Tech was muted. Painfully long, and with a big drop near the end.

2008 was truly frightening. When the Sec'y of the US Treasury is calling his wife and telling her to pull out as much cash as she can (granted, none of us knew this at the time), major financial institutions are crashing, markets are shutting down, real estate is crashing, and nobody really knows the extent of the damage because it's distributed globally in opaque derivatives... I remember spending time thinking about if there was one final store of value left, what would it be? Is there any place of safety to put my money? I came out of it fine, but I was lucky to some degree as well. At the bottom, people were still talking about it dropping 50% further.

By these measures, 2020 was a walk in the park, and 2022? - well it has my attention, but It's nothing like the other two, at least not at this point. It could become so, but I think there need to be a lot of job losses first. I hope that doesn't happen, and I don't think it's necessary to move past this, but the slow down does appear to be happening both slower (total inflation) and faster (Real Estate, Used Cars) than predicted. Predictions are difficult, especially about the future, to put Yogi in my own words.
"An investment in knowledge pays the best interest" - Benjamin Franklin
Leesbro63
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Re: "experienced" investors: is this time different?

Post by Leesbro63 »

Portfolio7 wrote: Mon May 23, 2022 6:33 pm The dot.com crash was painful, even if your exposure to Tech was muted. Painfully long, and with a big drop near the end.

2008 was truly frightening. When the Sec'y of the US Treasury is calling his wife and telling her to pull out as much cash as she can (granted, none of us knew this at the time), major financial institutions are crashing, markets are shutting down, real estate is crashing, and nobody really knows the extent of the damage because it's distributed globally in opaque derivatives... I remember spending time thinking about if there was one final store of value left, what would it be? Is there any place of safety to put my money? I came out of it fine, but I was lucky to some degree as well. At the bottom, people were still talking about it dropping 50% further.

By these measures, 2020 was a walk in the park, and 2022? - well it has my attention, but It's nothing like the other two, at least not at this point. It could become so, but I think there need to be a lot of job losses first. I hope that doesn't happen, and I don't think it's necessary to move past this, but the slow down does appear to be happening both slower (total inflation) and faster (Real Estate, Used Cars) than predicted. Predictions are difficult, especially about the future, to put Yogi in my own words.
Yes and no. 2008 scared the heck out of me. But eventually they fixed it by printing and borrowing. 2020/Covid did not scare me, as I knew that even in the face of a bad disease, Americans' attention span is limited and economic activity would come back regardless of the health consequences once we knew how to better manage it. This was even before a quick vaccine was on the horizon.

I'm not 2008-paniced now, but for my lifetime, every financial crisis was fixed by increasing the debt-to-GDP ratio. It seems that we might be reaching the limit to this (although Japan's is 2x ours and has been for a generation). So I remain concerned that "this time is different" because we're increasing debt just to tread water, let alone to bail out yet another crisis. Boomer retirements are dependent on the stock and bond markets...so I can't see the Fed letting markets crash too badly. The result might be higher than predicted inflation for a long time. Put more succinctly, my thinking, at age 62, is that I might be looking at a "retire in 1966" scenario.
CraigTester
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Re: "experienced" investors: is this time different?

Post by CraigTester »

Randolph Mortimer wrote: Mon May 23, 2022 2:57 pm
CraigTester wrote: Mon May 23, 2022 2:52 pmBut as far as the title of this thread goes, I believe what is different this time is that the buy-n-hold indexers are no longer the rebels, they are the new normal....
I'm not buying what you're selling.
Thank you for that insightful analysis.
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latesaver
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Re: "experienced" investors: is this time different?

Post by latesaver »

CraigTester wrote: Mon May 23, 2022 6:27 am
latesaver wrote: Sun May 22, 2022 8:04 pm
CraigTester wrote: Sat May 21, 2022 9:53 pm I fear it's exactly the same.

Collective denial, that keeps working out fine, until finally it doesn't
Why do you fear it's exactly the same?
If you’ve ever been in a car crash, it doesn’t mean you don’t fear getting in another one. In fact, you probably fear it more….
maybe you can elaborate?
S4C5
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Re: "experienced" investors: is this time different?

Post by S4C5 »

Normchad wrote: Sat May 21, 2022 8:41 pm It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. debt
Fixed that for you.
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Re: "experienced" investors: is this time different?

Post by Normchad »

S4C5 wrote: Mon May 23, 2022 8:37 pm
Normchad wrote: Sat May 21, 2022 8:41 pm It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. debt
Fixed that for you.
I will believe that when people stop paying over MSRP for cars, and the bidding wars on homes disappear.
Whakamole
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Re: "experienced" investors: is this time different?

Post by Whakamole »

Normchad wrote: Mon May 23, 2022 8:53 pm
S4C5 wrote: Mon May 23, 2022 8:37 pm
Normchad wrote: Sat May 21, 2022 8:41 pm It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. debt
Fixed that for you.
I will believe that when people stop paying over MSRP for cars, and the bidding wars on homes disappear.
Most people are not going into bidding wars for homes and cars.
marcopolo
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Re: "experienced" investors: is this time different?

Post by marcopolo »

Whakamole wrote: Mon May 23, 2022 9:01 pm
Normchad wrote: Mon May 23, 2022 8:53 pm
S4C5 wrote: Mon May 23, 2022 8:37 pm
Normchad wrote: Sat May 21, 2022 8:41 pm It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. debt
Fixed that for you.
I will believe that when people stop paying over MSRP for cars, and the bidding wars on homes disappear.
Most people are not going into bidding wars for homes and cars.
Have you tried to buy a car, or a home, lately?
Maybe not "most", but plenty of people still doing that.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Whakamole
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Re: "experienced" investors: is this time different?

Post by Whakamole »

marcopolo wrote: Mon May 23, 2022 9:34 pm
Whakamole wrote: Mon May 23, 2022 9:01 pm
Normchad wrote: Mon May 23, 2022 8:53 pm
S4C5 wrote: Mon May 23, 2022 8:37 pm
Normchad wrote: Sat May 21, 2022 8:41 pm It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. debt
Fixed that for you.
I will believe that when people stop paying over MSRP for cars, and the bidding wars on homes disappear.
Most people are not going into bidding wars for homes and cars.
Have you tried to buy a car, or a home, lately?
Maybe not "most", but plenty of people still doing that.
Inflation expectations are driving some sales. Don't confuse people spending gobs of cash with people having gobs of cash.
goldendad
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Re: "experienced" investors: is this time different?

Post by goldendad »

Been investing since 1981. The most jarring was 1987, but it was over fast. 2008 concerned me the most due to the worldwide financial implications. I have pretty much stayed the course through them all. Doing so now. I’m not a market timer, but have taken advantage of some opportunities. Bought the drug stocks when the Clintons made a play for national healthcare. Still holding JNJ and PFE. Bought FB after the IPO when it fell to 26. Still holding. I am not concerned about this downturn yet. Holding some cash. Will probably buy either SPY or VTI at some point. If QQQ gets down 40% to 50% will probably make a buy. We’ll see. All buys are for the long term. My vote is stay the course.
boglesmind
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Re: "experienced" investors: is this time different?

Post by boglesmind »

latesaver wrote: Sat May 21, 2022 8:39 pm Myself included (I am 42 years old), many forum members didn't live through the emotional investing "tolls" brought on by the 2000 dot com bust or the great recession of 2008/2009.

Some older BH's even saw the challenges presented by earlier time periods in the 60s and 70s.

For what it is worth, I don't consider those that survived the "crash" of March 2020 as battle tested.

For those that have actually lived and invested during these time periods (70s, 2000s, 2008/2009), i am curious to hear how you see the current investing landscape. There is no shortage of "wisdom" from younger (hindsight) professionals throwing out CAPE figures, soft new-economy stats, etc., but in this case I am more interested in hearing from experienced investors why they are staying the course.
We've been investing since mid 1990s, worked and lived through all of the prolonged, pain-inducing down turns and now retired. I expect more negative returns this year - this isn't the bottom, because supply chains are still strained, inflation is much higher worldwide compared to the last 2 or 3 decades, consumers and the economy are stressed a lot first by the pandemic and now by inflation, war & supply chain constraints. Asset values appear inflated (as always, so this may just be a perception).

Previous downturns didn't bother us because we were working (at least one spouse) and with a regular income, it was easy enough to stay the course and let 401K contributions continue bi-weekly. We joked about 401k becoming 201k during dot-com crash and 2008-2012 bear market. Was 100% stocks till 2 years before retirement and gradually moved to 70/30 allocation which became 81/19 due to tremendous growth in the last two years. So when we see the 20% decline in stocks and 10%+ in bonds year to date, it is easy enough to say the portfolio is still up compared to two years ago even after 2 years of retirement spending. This is a real test (saying we'll stay the course is one thing when one is working but actually doing so in retirement is some else altogether) and am happy to report there is no temptation to change our AA or bail out or go into cash or try to time the market etc.

We do TLH and will probably do larger Roth conversion to take advantage of the fire sale prices.

Boglesmind
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Re: "experienced" investors: is this time different?

Post by Valuethinker »

marcopolo wrote: Mon May 23, 2022 9:34 pm
Whakamole wrote: Mon May 23, 2022 9:01 pm
Normchad wrote: Mon May 23, 2022 8:53 pm
S4C5 wrote: Mon May 23, 2022 8:37 pm
Normchad wrote: Sat May 21, 2022 8:41 pm It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. debt
Fixed that for you.
I will believe that when people stop paying over MSRP for cars, and the bidding wars on homes disappear.
Most people are not going into bidding wars for homes and cars.
Have you tried to buy a car, or a home, lately?
Maybe not "most", but plenty of people still doing that.
I don't think this is about inflationary expectations.

I think this is that people need homes, and they need cars.

Due to supply chain issues, which are pervasive and global, there are shortages of new homes in many American metropolitan areas-- both materials and labor are in short supply. There are global shortages of cars - virtually every manufacturer is suffering from chip shortages. VW lost its wiring harness supplier when Ukraine was invaded, etc. Ships are stacked up outside major ports, waiting to be unloaded. Chinese production is interrupted by Covid restrictions. etc etc.

Oil prices have gone up because of rising demand, underinvestment when oil prices were low, and now sanctions on Russia (the oil still gets sold, but world markets are disrupted). Natural gas prices have soared in Europe, again due to the war. That has raised US prices to a degree (the US is an increasing LNG exporter, but it's still not an overwhelming part of US production-consumption) but has caused global LNG prices to soar (there are also things going on in Asian markets).

The next big shock wave is food, and it's already painful, and it's going to get a lot more painful. A combination of drought/ heat wave in many of the world's most productive agricultural areas (it has been over 110 F in parts of India and Pakistan; California of course we all know) PLUS an invasion of the world's 4th largest grain and sunflower seed exporter by the 5th (?) largest, leading to closure of Black Sea ports, has led to soaring wheat prices, export restrictions in many countries, etc.

Whilst there could well be drops in some US city markets that look very "bubbly" (Austin TX?) the US consumer is not generally overgeared, so I don't see this as a repeat of 2008.
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Re: "experienced" investors: is this time different?

Post by latesaver »

boglesmind wrote: Mon May 23, 2022 11:08 pm
latesaver wrote: Sat May 21, 2022 8:39 pm Myself included (I am 42 years old), many forum members didn't live through the emotional investing "tolls" brought on by the 2000 dot com bust or the great recession of 2008/2009.

Some older BH's even saw the challenges presented by earlier time periods in the 60s and 70s.

For what it is worth, I don't consider those that survived the "crash" of March 2020 as battle tested.

For those that have actually lived and invested during these time periods (70s, 2000s, 2008/2009), i am curious to hear how you see the current investing landscape. There is no shortage of "wisdom" from younger (hindsight) professionals throwing out CAPE figures, soft new-economy stats, etc., but in this case I am more interested in hearing from experienced investors why they are staying the course.
We've been investing since mid 1990s, worked and lived through all of the prolonged, pain-inducing down turns and now retired. I expect more negative returns this year - this isn't the bottom, because supply chains are still strained, inflation is much higher worldwide compared to the last 2 or 3 decades, consumers and the economy are stressed a lot first by the pandemic and now by inflation, war & supply chain constraints. Asset values appear inflated (as always, so this may just be a perception).

Previous downturns didn't bother us because we were working (at least one spouse) and with a regular income, it was easy enough to stay the course and let 401K contributions continue bi-weekly. We joked about 401k becoming 201k during dot-com crash and 2008-2012 bear market. Was 100% stocks till 2 years before retirement and gradually moved to 70/30 allocation which became 81/19 due to tremendous growth in the last two years. So when we see the 20% decline in stocks and 10%+ in bonds year to date, it is easy enough to say the portfolio is still up compared to two years ago even after 2 years of retirement spending. This is a real test (saying we'll stay the course is one thing when one is working but actually doing so in retirement is some else altogether) and am happy to report there is no temptation to change our AA or bail out or go into cash or try to time the market etc.

We do TLH and will probably do larger Roth conversion to take advantage of the fire sale prices.

Boglesmind
Thanks to you, Goldendad, and the other thoughtful responders. This where my head is and hopefully will be when I am older.

One other comment, some workers can take solace in the fact that inflation is hitting human capital as well, at least from what I can see. The numbers that companies are paying new employees is getting insane, for better or worse.
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Re: "experienced" investors: is this time different?

Post by 220volt »

There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again
- Jesse Livermore
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart
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Re: "experienced" investors: is this time different?

Post by trirunner »

latesaver wrote: Sat May 21, 2022 8:39 pm Myself included (I am 42 years old), many forum members didn't live through the emotional investing "tolls" brought on by the 2000 dot com bust or the great recession of 2008/2009.

Some older BH's even saw the challenges presented by earlier time periods in the 60s and 70s.

For what it is worth, I don't consider those that survived the "crash" of March 2020 as battle tested.

For those that have actually lived and invested during these time periods (70s, 2000s, 2008/2009), i am curious to hear how you see the current investing landscape. There is no shortage of "wisdom" from younger (hindsight) professionals throwing out CAPE figures, soft new-economy stats, etc., but in this case I am more interested in hearing from experienced investors why they are staying the course.
I live through 2000 and 2008. Not really, this time isn't different. Granted, being like all the other times probably mean 35%-45% drop for a bear market.
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Re: "experienced" investors: is this time different?

Post by max12377 »

I think they all feel like the end of the world when they are happening. They all feel “different this time”. But in my years investing, the ones that keep investing through thick and thin are usually rewarded. It doesn’t feel that way when you’re in it though!
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Re: "experienced" investors: is this time different?

Post by Ed 2 »

latesaver wrote: Sat May 21, 2022 8:39 pm Myself included (I am 42 years old), many forum members didn't live through the emotional investing "tolls" brought on by the 2000 dot com bust or the great recession of 2008/2009.

Some older BH's even saw the challenges presented by earlier time periods in the 60s and 70s.

For what it is worth, I don't consider those that survived the "crash" of March 2020 as battle tested.

For those that have actually lived and invested during these time periods (70s, 2000s, 2008/2009), i am curious to hear how you see the current investing landscape. There is no shortage of "wisdom" from younger (hindsight) professionals throwing out CAPE figures, soft new-economy stats, etc., but in this case I am more interested in hearing from experienced investors why they are staying the course.
Every bear market is different but eventually with same ending. Most who was leveraging and buying overhyped stocks without earning will go to drain first, then money managers will be forced start selling any stock in order to send money to panicked investors who just opened their 401 statements and decided to go to cash ...so on .... it takes time until most who want to sell sold and more . Market tends always overreact on upside or downside. It take time for this bear market flattening , I guess it will take time probably until those who was crying wolf for Fed to hike rates will start crying that federal reserve is overdone !!! Today I’ve see one of this folks like Jeremy Seagal who started talking that he is worrying now that fed may overreact now by throwing economy to the recession. So, my point is : just stay the course , tune off noise and keep investing..
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
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Re: "experienced" investors: is this time different?

Post by squirrel1963 »

"This time is different" is the most expensive sentence in investing.

A lot of people thought in 2000 that "this is the new economy. old rules no longer apply". And on the opposite side people in 2008 did panic sell and ended up in losing a lot of money.

I lost quite a bit in 2000, learned my lesson and became a Boglehead in 2003 or so. We slept thru 2008. We made no changes to our investments, and kept maxing out 401K, IRA, 529 Plan for the kids and Vanguard Variable Annuity. We stayed the course.

I am staying the course because staying the course has always proven to be the best approach. Investors who went astray lost of money.
No one knows the future, all we know is what worked in the past, so it makes perfect sense to keep following it.

Whatever happens Mrs. Squirrel and I will stay the course (I hope :-)).
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
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Re: "experienced" investors: is this time different?

Post by Artsdoctor »

latesaver wrote: Sat May 21, 2022 8:39 pm Myself included (I am 42 years old), many forum members didn't live through the emotional investing "tolls" brought on by the 2000 dot com bust or the great recession of 2008/2009.

Some older BH's even saw the challenges presented by earlier time periods in the 60s and 70s.

For what it is worth, I don't consider those that survived the "crash" of March 2020 as battle tested.

For those that have actually lived and invested during these time periods (70s, 2000s, 2008/2009), i am curious to hear how you see the current investing landscape. There is no shortage of "wisdom" from younger (hindsight) professionals throwing out CAPE figures, soft new-economy stats, etc., but in this case I am more interested in hearing from experienced investors why they are staying the course.
"Some older BH's even saw the challenges . . . "

I really don't feel THAT old but yes:

I lived through the inflationary period from late 1960's to early 1980's. Not as an investor but my dad built houses and I remember ultimately planning on withdrawing from college because mortgage rates of 14-15% almost put him out of business. Things worked out but I remember it pretty vividly.

The 1987 crash was my first introduction to losing over 20% in a day or two but I think I had something like $5,000 in "the market." Badly invested, pharmaceutical stocks I think. Learned about diversification.

The 2000 dot com mess was another wake up call but mostly because everyone was screaming about "this time's different" before the bottom fell out. I learned that saying "this time is different" is perilous and when everyone starts talking about stock tips over dinner it's time to be really cautious.

The 2008 meltdown was one of the scariest financial things I've ever experienced. The stakes were much higher because I was mid-career and managing my parents' finances as well. A lot of money was lost but I learned that the Bogleheads can really save your butt by collectively teaching you to stay the course and continue buying no matter what. If I didn't capitulate then, I don't anticipate capitulating in the future.

2020 barely registered with me and I agree that if you consider that a bear market, you should consider that an introductory course only.

This time is different but all of the other things were different as well. There's a lot of volatility in the market and I don't expect that to end in the near future, but on the pain-meter, this is still registering a zero for me.

During difficult times, the one thing that never changes is stepping back and taking stock of your investment goals. Always be open-minded and continue to reassess the implementation of your plan.
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Re: "experienced" investors: is this time different?

Post by bmelikia »

I don't feel like anything has happened
"I would rather die with money, than live without it...." - Bogleheads member Ron | | A time to EVALUATE your jitters https://www.bogleheads.org/forum/viewtopic.php?p=1139732#p1139732
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Re: "experienced" investors: is this time different?

Post by princetontiger »

1929 and 2008 were credit crises. Credit literally freezes. They are very rare. Of the four types of bear markets, you never want to experience that.

Markets are open for credit today. So, naturally, markets will recover in due time. This isn't anywhere close. we're in a classic correction. 1974, 1987, 2001... credit markets remained opened. No freezing. Today is similar.
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Re: "experienced" investors: is this time different?

Post by anoop »

Do not fight the fed. Nothing else matters.
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Re: "experienced" investors: is this time different?

Post by gmc4h232 »

Americans' attention span is limited and economic activity would come back regardless
This
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Re: "experienced" investors: is this time different?

Post by tiresias »

I wish I could have bought 30 year bonds with rates in the high teens when Volcker yanked interest rates in the early 80s. But I was too young and had no money.

If stagflation becomes a reality, perhaps I'll get another chance...
~~~ when dumb money acknowledges its limitations, it ceases to be dumb ~~~
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Re: "experienced" investors: is this time different?

Post by Leesbro63 »

tiresias wrote: Wed May 25, 2022 6:22 am I wish I could have bought 30 year bonds with rates in the high teens when Volcker yanked interest rates in the early 80s. But I was too young and had no money.

If stagflation becomes a reality, perhaps I'll get another chance...
Many were too afraid to buy bonds when inflation was 14%(ish) because we had 15 years of cycles of inflation ebbing, then roaring back even higher than before. The fear was that you’d lock into 12% bonds and inflation would go to 20%. Those golden days of bond investing are only recognizable in hindsight.
Last edited by Leesbro63 on Wed May 25, 2022 7:03 am, edited 1 time in total.
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Re: "experienced" investors: is this time different?

Post by Leesbro63 »

gmc4h232 wrote: Wed May 25, 2022 6:08 am
Americans' attention span is limited and economic activity would come back regardless
This
This is why the Feb-Mar-Apr 2020 “Covid Crash” didn’t scare me too much. It seemed obvious to me that no matter what happened (thankfully we got a fast vax), people would only lock down for a short time period. Truthfully I’m more worried now that wealth will evaporate because the ability to inflate and/or borrow seems to be reaching the limit.
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Re: "experienced" investors: is this time different?

Post by Booglie »

princetontiger wrote: Tue May 24, 2022 6:43 pm 1929 and 2008 were credit crises. Credit literally freezes. They are very rare. Of the four types of bear markets, you never want to experience that.

Markets are open for credit today. So, naturally, markets will recover in due time. This isn't anywhere close. we're in a classic correction. 1974, 1987, 2001... credit markets remained opened. No freezing. Today is similar.
Liquidity is decreasing due to Quantitative Tightening though. This means that speculative money will eventually be drained from the market, which also impacts credit. It simply won't be as cheap as before.

Of course, since we had a liquidity overflow, and lots of that cheap credit was used to feed speculative plays (e.g, non-profitable startups), ultimately removing some of that liquidity is a good thing. But this has to be carefully monitored because it can spiral out of control, as the market became overleveraged during the cheap credit stage.
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Re: "experienced" investors: is this time different?

Post by princetontiger »

Capital will be repriced, but it will remain available.
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Re: "experienced" investors: is this time different?

Post by White Coat Investor »

latesaver wrote: Sat May 21, 2022 8:39 pm Myself included (I am 42 years old), many forum members didn't live through the emotional investing "tolls" brought on by the 2000 dot com bust or the great recession of 2008/2009.

Some older BH's even saw the challenges presented by earlier time periods in the 60s and 70s.

For what it is worth, I don't consider those that survived the "crash" of March 2020 as battle tested.

For those that have actually lived and invested during these time periods (70s, 2000s, 2008/2009), i am curious to hear how you see the current investing landscape. There is no shortage of "wisdom" from younger (hindsight) professionals throwing out CAPE figures, soft new-economy stats, etc., but in this case I am more interested in hearing from experienced investors why they are staying the course.
I've been investing since 2004. This is my fifth bear market (assuming it gets there, not sure it's there yet, really haven't looked to be honest).

2008-2009
2011
2018 (December)
2020 (March)
2022

I expect about 15 more during my investing career. Why wouldn't I stay the course? This is expected behavior from the stock market. You will average a bear market about every 3 years and here I am, 18 years in, on my fifth. Just about right on target.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: "experienced" investors: is this time different?

Post by tiresias »

Leesbro63 wrote: Wed May 25, 2022 6:58 am
tiresias wrote: Wed May 25, 2022 6:22 am I wish I could have bought 30 year bonds with rates in the high teens when Volcker yanked interest rates in the early 80s. But I was too young and had no money.

If stagflation becomes a reality, perhaps I'll get another chance...
Many were too afraid to buy bonds when inflation was 14%(ish) because we had 15 years of cycles of inflation ebbing, then roaring back even higher than before. The fear was that you’d lock into 12% bonds and inflation would go to 20%. Those golden days of bond investing are only recognizable in hindsight.
I would buy a 30 year bond at 8 percent if given the chance. How often does anyone get a guaranteed 8 percent return?
~~~ when dumb money acknowledges its limitations, it ceases to be dumb ~~~
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Re: "experienced" investors: is this time different?

Post by Valuethinker »

tiresias wrote: Wed May 25, 2022 11:43 pm
Leesbro63 wrote: Wed May 25, 2022 6:58 am
tiresias wrote: Wed May 25, 2022 6:22 am I wish I could have bought 30 year bonds with rates in the high teens when Volcker yanked interest rates in the early 80s. But I was too young and had no money.

If stagflation becomes a reality, perhaps I'll get another chance...
Many were too afraid to buy bonds when inflation was 14%(ish) because we had 15 years of cycles of inflation ebbing, then roaring back even higher than before. The fear was that you’d lock into 12% bonds and inflation would go to 20%. Those golden days of bond investing are only recognizable in hindsight.
I would buy a 30 year bond at 8 percent if given the chance. How often does anyone get a guaranteed 8 percent return?
Treasury bonds you mean? i.e. no default risk.

8% bond when inflation is expected to drop back is just not likely.

8% bond when inflation is 12% say and we are stuck in a wage-price spiral? That's what the 1970s was like.

You had to believe that, in contrast to the previous 20 years up to 1981:

- the Fed was going to get control of inflation
- there would be no political interference in that process
- inflation would then stay low, no more oil crises, no wage-price spiral
- inflationary expectations would fall

That's why bonds yielded "too much" from 1981 to basically 2008. Then the impact of the 2008 Crash was for much longer & much more disinflationary than we imagined, so bonds eventually fell to negative nominal yields in some cases (eg German bunds).
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Re: "experienced" investors: is this time different?

Post by Leesbro63 »

tiresias wrote: Wed May 25, 2022 11:43 pm
Leesbro63 wrote: Wed May 25, 2022 6:58 am
tiresias wrote: Wed May 25, 2022 6:22 am I wish I could have bought 30 year bonds with rates in the high teens when Volcker yanked interest rates in the early 80s. But I was too young and had no money.

If stagflation becomes a reality, perhaps I'll get another chance...
Many were too afraid to buy bonds when inflation was 14%(ish) because we had 15 years of cycles of inflation ebbing, then roaring back even higher than before. The fear was that you’d lock into 12% bonds and inflation would go to 20%. Those golden days of bond investing are only recognizable in hindsight.
I would buy a 30 year bond at 8 percent if given the chance. How often does anyone get a guaranteed 8 percent return?
You must be fairly young. You might think differently if you lived through 15 years of big inflation, with some years double digit.
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Re: "experienced" investors: is this time different?

Post by harvestbook »

I've noticed that "normal people" around here don't even talk about or feel whatever this horrific disaster is supposed to be. There is a little grumbling and blaming about gas prices, but I haven't seen or heard of any behavioral changes. That could very well be because of the company I keep, though--no super high earners around here. The worry mostly seems limited to people with extra money who watch markets every day. I confess I came back here to see what was going on and see if "anybody knew anything," but even here not much as changed besides more chatter (guilty myself).

To me, it's not "different this time"...yet. Although I did learn about iBonds by sticking my head back into the bee's nest. And I planted a bigger garden this year. I guess it's like the old saying "If my neighbor loses her job, it's a recession. if I lose my job, it's a depression." All relative.
I'm not smart enough to know, and I can't afford to guess.
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Re: "experienced" investors: is this time different?

Post by Whakamole »

harvestbook wrote: Thu May 26, 2022 7:22 am I've noticed that "normal people" around here don't even talk about or feel whatever this horrific disaster is supposed to be. There is a little grumbling and blaming about gas prices, but I haven't seen or heard of any behavioral changes. That could very well be because of the company I keep, though--no super high earners around here. The worry mostly seems limited to people with extra money who watch markets every day. I confess I came back here to see what was going on and see if "anybody knew anything," but even here not much as changed besides more chatter (guilty myself).

To me, it's not "different this time"...yet. Although I did learn about iBonds by sticking my head back into the bee's nest. And I planted a bigger garden this year. I guess it's like the old saying "If my neighbor loses her job, it's a recession. if I lose my job, it's a depression." All relative.
A recent poll of families with kids asked what the impact of inflation was:
- 51% changed/cancelled trips this summer
- 41% changed/cancelled camps or other activities this summer
- 20% say their kids will need to get a job, when they normally would not

I'm not sure if that counts as "disaster" but things are certainly changing.
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Re: "experienced" investors: is this time different?

Post by Theoretical »

ClassII wrote: Sun May 22, 2022 12:28 am
HomerJ wrote: Sun May 22, 2022 12:19 amThis time may be different, but I don't know why CraigTester "fears it's exactly the same". The "same" was very good to long-term investors.
I remember being in Miami in 2009 and a brand new high-rise right on the water was selling condos for $80k. Man I wish I had bought back then but I was dead broke and living paycheck to paycheck simply happy to have a job. I had friends moving back with their parents, leaving the career they worked hard for in college for good, even had one die in an accident working construction to keep food on the table. The deals were there, I saw them right before my eyes but I was in no position to reach out and grab them.

Its a great thing that so many here are ready to scoop up some amazing deals. Truly you could end up like my boss' grandfather BUT don't think that recessions are for other people. There's a reason everything goes on fire sale.
I think this can't be underestimated. Those who have lots of liquidity in the crisis can make out like bandits, but few have the cash or the nerve, if they have the cash, to buy into the abyss because it can always get worse. 1937 was a heck of a double dip crash that took out a lot who'd done ok or even gained during the 1929-32 stretch. Or things can go full Weimar and even a ton of cash isn't worth much. Volker's historically unprecedented interest rate hikes to starve the cancer of inflation could have easily not worked or he could have backpedaled (he apparently got lots of death threats). Say he'd been killed by one of those and his replacement was more timid about interest rate hikes. Then you could well have gotten unstable 7-8% inflation, with higher spikes, baked into the economy.

Or you could have other Deep Risk things happen, including personal ones like business or personal lawsuits, divorce, a sick child, or a cancer/chronic illness diagnosis or the like that eats up your liquidity.

Behaviorally, a cheap asset looks like a terrible deal and you have to accept it might go even lower for a good while before it comes back.
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