Lessons from 2007 -2009

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
placeholder
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Re: Lessons from 2007 -2009

Post by placeholder »

Valuethinker wrote: Thu May 26, 2022 7:56 am Is $3000 the limit in carryforward losses for US taxpayers?

Are they offset against income, not capital gains?

Is this is new(ish) tax rule?
You can have any amount of losses stockpiled of which $3000 per year can be used against ordinary income after capital gains have first be reconciled then whatever is left is carried forward.
averagedude
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Re: Lessons from 2007 -2009

Post by averagedude »

I was young and I kept dollar cost averaging into the market, buying more shares at cheaper prices. This is the best advice for most people.
privateer79
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Re: Lessons from 2007 -2009

Post by privateer79 »

I coined a perhaps unbogleheadish mantra for myself in that timeframe to resist the urge to by my first house....

"a bad investment is never safe."

(and it worked.. we bought a house ~30% off in late 2009... missed the exact bottom, but saved a bunch, and even got 8k$ in tax credit from Uncle Sam :beer )

whether its housing in 2006 or perhaps 2% 30 year Treasuries in 2021... a bad investment is never safe. I think a perception of safety (whether in the general public, or in financial institutions) lulls people into laxity on evaluating risk, and encourages "levering up" such that when risk is realized things are worse than anyone expected.
Valuethinker
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Re: Lessons from 2007 -2009

Post by Valuethinker »

Fallible wrote: Thu May 26, 2022 7:06 pm
meowcat wrote: Wed May 25, 2022 10:03 am Things gone wrong: Lost 48% of my portfolio (100/0)
Things gone right: Didn't panic, didn't sell a thing, kept buying all the way down and have reaped the rewards of being a Boglehead.
This reminds me of two things about the '08-'09 crash that allowed many of us to hold course:

_The market began to recover relatively quickly (and went on to become a historic bull market). Had the crash continued for months or years, would we have had the tolerance and discipline to hold course? How would our crash lessons have differed?

_A financial meltdown loomed, but how would we have reacted if it had happened? What even would a financial collapse have meant?
On the latter we know. Our grandparents/ great grandparents lived it. Investment in shares/stocks/ equities by individuals dried up. There was just no interest in the broader society. I imagine something similar has happened in Japan.

We would have had much more immediate problems like keeping our jobs and paying our mortgages. A lot of lives were ruined in the early 1930s.
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Re: Lessons from 2007 -2009

Post by hudson »

NabSh wrote: Tue May 24, 2022 9:37 pm What lessons from past market crashes would you like to share with the group? Please include both "things gone right" and "things gone wrong"

My biggest lesson was I sold mutual funds and converted to cash. I was a bit late to do that after market was already down 15%. However I did not get back in time for the upward swing.
In 2008...
Things gone right? My job in info tech was secure. My employer's business was booming right through 2008 unlike after 9-11 when we were eating ice cubes and mustard.

Things gone wrong: I thought that I was a brave soldier and could own stocks. I was looking at retirement in maybe 5 years. Stocks dropped like a rock; things looked like they were going from bad to worse. I bailed out of stocks and into high quality fixed income. I never went back.

Lesson learned: Stocks give me heartburn. I am not a brave soldier!

Update Aug 2023: I remember that my TIPS fund dropped sharply. I said to myself; it'll come back because it's good as gold. I wondered what had happened. Later I read that a failing company or two was dumping TIPS in a panic move. As you know TIPS came back.
Last edited by hudson on Sun Aug 13, 2023 6:40 am, edited 1 time in total.
MnD
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Re: Lessons from 2007 -2009

Post by MnD »

I learned that a lot of my neighbors that seemed to be able to live a much more lavish lifestyle than we did were doing it with borrowed money and/or a lack f any savings. About 1/2 of our nearby neighbors were either foreclosed on or sold their homes to drastically downsize at very unfavorable prices.
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Re: Lessons from 2007 -2009

Post by technovelist »

Things gone right: I kept my (extremely non-Boglehead) AA, which didn't suffer extreme losses, and kept investing accordingly from income. I changed jobs in 2008 but was not unemployed at any time in that period.
Things gone wrong: Nothing significant.

However, even though my portfolio wasn't down a lot during 2007-2009, I'd already been through a lengthy 50% decline in my portfolio in the past (since more than recovered) and never felt the need to panic. So I was pretty sure I wouldn't panic if that happened again.
In theory, theory and practice are identical. In practice, they often differ.
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Re: Lessons from 2007 -2009

Post by ekid »

MnD wrote: Fri May 27, 2022 9:40 am I learned that a lot of my neighbors that seemed to be able to live a much more lavish lifestyle than we did were doing it with borrowed money and/or a lack f any savings. About 1/2 of our nearby neighbors were either foreclosed on or sold their homes to drastically downsize at very unfavorable prices.
Hmm, did you feel a need to do "alms" for them? (I didn't!)
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AnnetteLouisan
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Re: Lessons from 2007 -2009

Post by AnnetteLouisan »

ekid wrote: Fri May 27, 2022 11:41 am
MnD wrote: Fri May 27, 2022 9:40 am I learned that a lot of my neighbors that seemed to be able to live a much more lavish lifestyle than we did were doing it with borrowed money and/or a lack f any savings. About 1/2 of our nearby neighbors were either foreclosed on or sold their homes to drastically downsize at very unfavorable prices.
Hmm, did you feel a need to do "alms" for them? (I didn't!)
I did. I leant a struggling neighbor money. No good deed goes unpunished. But I learned a lot from the experience.
Last edited by AnnetteLouisan on Fri May 27, 2022 2:02 pm, edited 1 time in total.
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Re: Lessons from 2007 -2009

Post by LMK5 »

I learned a few things, or should I say that some things were reinforced that I had learned from previous crashes:
1) If you can't stomach a 50% loss in your stock portfolio, you are holding too much stock.
2) Always construct your portfolio so that a crash will not materially affect your everyday lifestyle.
3) Don't talk to neighbors or listen to the financial news as the crash unfolds. They will both add to your fear.
4) It was driven home that high volatility is the price we pay for long term returns in equities.

Things that went right:
1) I was able to do some tax loss harvesting, selling equities in non-retirement accounts and buying similar funds in my retirement accounts to hold my AA.
2) I kept up my 401k contributions.
3) I bought QQQ at $21.

Things that went wrong:
1) I found out that I shouldn't have as high a percentage in equities that I did. I took to heart the adage that one should only take the amount of risk that is needed and that can be tolerated (measured in hours of lost sleep).
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Re: Lessons from 2007 -2009

Post by cbs2002 »

100% equities and had just bought a condo in late 2007.

Right:

1) Was reading the Economist weekly in detail (pre-kids). It was pretty clear for a year or more what was going to happen. I wasn't driven or savvy enough at the time to do anything with this information other than get used to the idea, but the alarms were screaming before Fall 2008. I was educated enough than when AIG and Lehman happened I understood why and I think that probably helped a lot with my psychology and avoiding fear-induced decisions.
2) Sold nothing
3) bought twice a month, every month, via 401K
4) both of us had jobs through the trough
5) had enough in cash to pay expenses for quite a while should both of us have lost our jobs
6) the actual bottom was March 2009, so by the end of the year when I looked at my number it wasn't so bad

Wrong:
1) A different residence would have rebounded faster and higher than our condo, but that's pure speculation and hindsight, so I don't think much about this.

Honestly I think that's about it.
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Re: Lessons from 2007 -2009

Post by LMK5 »

cbs2002 wrote: Fri May 27, 2022 1:59 pm 100% equities and had just bought a condo in late 2007.

Right:

1) Was reading the Economist weekly in detail (pre-kids). It was pretty clear for a year or more what was going to happen. I wasn't driven or savvy enough at the time to do anything with this information other than get used to the idea, but the alarms were screaming before Fall 2008. I was educated enough than when AIG and Lehman happened I understood why and I think that probably helped a lot with my psychology and avoiding fear-induced decisions.
2) Sold nothing
3) bought twice a month, every month, via 401K
4) both of us had jobs through the trough
5) had enough in cash to pay expenses for quite a while should both of us have lost our jobs
6) the actual bottom was March 2009, so by the end of the year when I looked at my number it wasn't so bad

Wrong:
1) A different residence would have rebounded faster and higher than our condo, but that's pure speculation and hindsight, so I don't think much about this.

Honestly I think that's about it.
I bought an expensive watch in October of 2007. That should have been an indicator of a market top but I didn't recognize that until much later.

This time around, production workers at my company are looking at stock charts and my wife's friend thinks she's a market guru. Frothy times for sure.
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Re: Lessons from 2007 -2009

Post by jebmke »

LMK5 wrote: Fri May 27, 2022 2:17 pm I bought an expensive watch in October of 2007. That should have been an indicator of a market top but I didn't recognize that until much later.
Piker; I bought a house in July, 2007, a car in December, 2007 and retired on December 31, 2007. :P
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Lessons from 2007 -2009

Post by cbs2002 »

LMK5 wrote: Fri May 27, 2022 2:17 pm
I bought an expensive watch in October of 2007. That should have been an indicator of a market top but I didn't recognize that until much later.
Love this. When you start thinking about buying stuff you never would have bought otherwise, by "taking a little off the top", you know a downturn is on the way!
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tuningfork
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Re: Lessons from 2007 -2009

Post by tuningfork »

I mostly stayed the course despite my investment balances plunging almost 50%.

Prior to 2008 I considered my job secure and relied on credit cards for emergencies, but this time I saw the possibility of my company not surviving as demand for our products plummeted, coworkers were being laid off, 401k match was suspended, multiple unpaid furloughs that amounted to a salary cut, etc. I sold a small amount of equities on the way down to beef up my emergency fund in case my job vanished. Fortunately the company and my job survived, and my investment balances recovered more quickly than I expected.

After the recovery started I realized my 90/10 AA was too risky for someone hoping to retire in a few years.
Good: In 2010 I rebalanced to 70/30.
Bad: I naively rebalanced in taxable (bad for me, good for the tax man). I think it was the first time I had actively rebalanced vs. redirecting new income to the appropriate asset class for a slow glide. I just wish it hadn't been such a large amount.
Good: the recovery was strong enough I was able to retire in a few years on my original schedule
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Re: Lessons from 2007 -2009

Post by LMK5 »

cbs2002 wrote: Fri May 27, 2022 2:27 pm
LMK5 wrote: Fri May 27, 2022 2:17 pm
I bought an expensive watch in October of 2007. That should have been an indicator of a market top but I didn't recognize that until much later.
Love this. When you start thinking about buying stuff you never would have bought otherwise, by "taking a little off the top", you know a downturn is on the way!
Absolutely. You just have to recognize what it is while you're in the center of it. That's the tough part.
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Re: Lessons from 2007 -2009

Post by Tamalak »

cbs2002 wrote: Fri May 27, 2022 2:27 pm
LMK5 wrote: Fri May 27, 2022 2:17 pm
I bought an expensive watch in October of 2007. That should have been an indicator of a market top but I didn't recognize that until much later.
Love this. When you start thinking about buying stuff you never would have bought otherwise, by "taking a little off the top", you know a downturn is on the way!
Near the end of 2021 I was actively searching for ways to spend money to improve my life (got a new treadmill etc) because I could tell that future investment returns did not look good (not necessarily a crash, just not a lot of gains).
protagonist
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Re: Lessons from 2007 -2009

Post by protagonist »

cbs2002 wrote: Fri May 27, 2022 1:59 pm 100% equities and had just bought a condo in late 2007.

Right:

1)It was pretty clear for a year or more what was going to happen.
It' always seems like it was crystal clear why something was going to happen .....after it happened.

A lot of folks were nervous about what could possibly happen but few translated that into real knowledge and pulled the switch. Anybody who truly felt it was crystal clear probably made a fortune in the crash. Don't feel bad though...very few people anticipated what happened, including the major players, and many of the ones who did were probably just lucky.

I just read Michael Lewis' book, "The Big Short" (or, to be honest, listened to it on Audible driving from FL to MA) . It profiled a few who did. I don't read a lot of finance stuff, but it's a very good read.
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Re: Lessons from 2007 -2009

Post by LFS1234 »

Valuethinker wrote: Fri May 27, 2022 4:36 am
Fallible wrote: Thu May 26, 2022 7:06 pm This reminds me of two things about the '08-'09 crash that allowed many of us to hold course:

_The market began to recover relatively quickly (and went on to become a historic bull market). Had the crash continued for months or years, would we have had the tolerance and discipline to hold course? How would our crash lessons have differed?

_A financial meltdown loomed, but how would we have reacted if it had happened? What even would a financial collapse have meant?
On the latter we know. Our grandparents/ great grandparents lived it. Investment in shares/stocks/ equities by individuals dried up. There was just no interest in the broader society. I imagine something similar has happened in Japan.
...
Something similar did happen in Japan. I worked there for a while in the 1990s and remember reading about the aftermath; the general public had been drawn into the stock market by its spectacular rise, only to sell out during or after the crash and deposit what they could salvage into their postal savings accounts.

It would be interesting to see a study of investors' reactions to severe market events based on their years of experience in the market.

I would expect that in severe downturns, new investors are much more likely to disavow stocks for life, than are experienced investors.

Long-time investors have experienced a lot and heard or read about even more. They have already made their beginners' mistakes, and they have experienced many downturns. They have often developed a sense of when certain asset classes have become overhyped and likely overvalued. By avoiding leverage and maintaining reasonable diversification, they can ride through it all, and avoid being scared away from the tremendous opportunities that the stock market affords long-term investors.
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Re: Lessons from 2007 -2009

Post by manatee2005 »

Valuethinker wrote: Thu May 26, 2022 4:25 pm
grainne wrote: Thu May 26, 2022 10:37 am
Valuethinker wrote: Wed May 25, 2022 10:23 am "What is solid, turns into air"
Thank you to Valuethinker, Nisiprius and everyone else who has shared their experiences. These stories convey the visceral punch of risk, which inevitably affects life in far more ways than market numbers on a screen. These posts reflect humility about what is knowable beforehand and an ability to learn, aspects of Boglehead discussions that I really appreciate.

Gráinne
My tolerance for risk also does not grow as I get older.

I have less time to make back the losses from a bear market.

So how I reacted to 2000-03 (which financially hit me much harder than 2008-09) vs 08/09 v 2020 was different each time. I no longer have long years of contributing ahead of me. In fact right now, I am in effect building up a TIPS portfolio (inflation indexed career average salary pension) -- so right down on the risk scale.

I usually just do a rabbit in the headlights and stop looking at my portfolios. But that means I miss the chance to rebalance. But it's one way to get through, without panicking out.
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AnnetteLouisan
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Re: Lessons from 2007 -2009

Post by AnnetteLouisan »

Tamalak wrote: Fri May 27, 2022 3:52 pm
cbs2002 wrote: Fri May 27, 2022 2:27 pm
LMK5 wrote: Fri May 27, 2022 2:17 pm
I bought an expensive watch in October of 2007. That should have been an indicator of a market top but I didn't recognize that until much later.
Love this. When you start thinking about buying stuff you never would have bought otherwise, by "taking a little off the top", you know a downturn is on the way!
Near the end of 2021 I was actively searching for ways to spend money to improve my life (got a new treadmill etc) because I could tell that future investment returns did not look good (not necessarily a crash, just not a lot of gains).
That’s a good lesson from ‘07-‘09. Get some hobbies to feel great, maintain your health and keep your mind off the bad news. During that period I had a lot of different athletic hobbies like ballet-Pilates fusion, running and yoga (but I also wasn’t in the market then, and was living far below my means, so of course that helped a lot too). Nice to have other topics to turn to rather than focusing on the negative. Now it’s yoga, tai chi and Wordle. :)
MnD
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Re: Lessons from 2007 -2009

Post by MnD »

We got so many great deals on things. The costs of what we purchased then would be so much more now.
If you could even find people to do the work or any new cars actually for sale.

38 awful metal frame windows replaced down to the studs with fiberglass.
High end wood-burning insert that now costs almost triple what we paid.
All carpet ripped up and hardwood underneath beautifully refinished.
A new car under invoice, plus $5000 rebate, plus federal and state hybrid tax credits, plus the new car federal sales tax credit.
Added lots of additional attic insulation
Crawl space walls and sills insulated and an engineered vapor barrier installed.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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seugene
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Re: Lessons from 2007 -2009

Post by seugene »

NabSh wrote: Tue May 24, 2022 9:37 pm What lessons from past market crashes would you like to share with the group?
A couple of years ago, I marked the 20th anniversary of my individual investing. Over all these years, like a true personal finance geek that I am, I tracked my individual investment performance carefully in Excel. After a bunch of years, I started noticing that my data provided interesting observations and lessons, many of them quite surprising to me. The market was delivering many interesting lessons, and I was eager to learn as much as I could.

Then a few years ago I started teaching at a local Community College, and I made a talk out of my investment lessons, with slides and all, that I now make a part of my teaching every semester. Check it out. If you want an executive summary, then here are the slides.

And of course, this being such an informed crowd, I welcome suggestions for what else to include into (and possibly what to exclude from) future versions of this talk. I will probably update the slides and re-record after 2022 is over, what with the amazing way this year is shaping up to be. :D :?
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tennisplyr
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Re: Lessons from 2007 -2009

Post by tennisplyr »

Don’t recall anything about ‘07-‘09, guess it didn’t make much of an impact on me :wink:
“Those who move forward with a happy spirit will find that things always work out.” -Retired 13 years 😀
Fallible
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Re: Lessons from 2007 -2009

Post by Fallible »

LMK5 wrote: Fri May 27, 2022 3:47 pm
cbs2002 wrote: Fri May 27, 2022 2:27 pm
LMK5 wrote: Fri May 27, 2022 2:17 pm
I bought an expensive watch in October of 2007. That should have been an indicator of a market top but I didn't recognize that until much later.
Love this. When you start thinking about buying stuff you never would have bought otherwise, by "taking a little off the top", you know a downturn is on the way!
Absolutely. You just have to recognize what it is while you're in the center of it. That's the tough part..
Right. And what we have to recognize is that it's "too good to be true." :(
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Gracie77
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Re: Lessons from 2007 -2009

Post by Gracie77 »

Valuethinker wrote: Wed May 25, 2022 10:23 am
NabSh wrote: Tue May 24, 2022 9:37 pm What lessons from past market crashes would you like to share with the group? Please include both "things gone right" and "things gone wrong"

My biggest lesson was I sold mutual funds and converted to cash. I was a bit late to do that after market was already down 15%. However I did not get back in time for the upward swing.
1. existential crises happen. I can't remember a time like that unless it was 1973-74. The political or geopolitical causative factors can occupy your mind a lot more than the financial ones (they certainly did for me).

Sept 13 2008 was a weird feeling, because it was epochal. And it was financial in nature. "What is solid, turns into air" - institutions like Royal Bank of Scotland, over 100 years old, solid as any bank can be, can just... disappear.

9-11 shattered a certain sense of solidity about the world. One could go to work in one of the big towers and just not come back... (London reprised this on a much smaller scale on 7/7/05 with the destruction of a Tube train I used to take in the mornings, and a bus I had also frequently used; I used to walk by the plaque to the dead from the bus bombing, every day on the way to work).

I remember the tv pictures of the citizens of Manhattan, lined up outside St Vincents Hospital, to give blood, while inside they waited for the ambulances full of casualties - that never came. You were dead, or you lived - there weren't many in the half way state (to this day I wonder about the woman who woke up after 6? months in a coma, and how it was explained to her).

In March 2020 I was in Asia, on holiday. We were tracking cities and countries as they shut down. Armed soldiers at the roadblock to the airport, trying to send us back to our jungle lodge (which had closed)-- young men carrying M16s older than they were. We did get on the plane, to fly to another airport, to get another plane. To get to Kuala Lumpur and one of the last 3 flights out - destinations Addis Abbaba, Tokyo-Narita, London-Heathrow. Packed flight. Arrived to a London in lockdown, the roads empty, stern warnings in the Tube not to travel unless you were an employee in essential services such as National Health Service, everything closed except food stores and pharmacies.

The eerie stillness on the Tube, like all of London had somehow died or been turned into night zombies.

I remember the hospitals, beds cleared, waiting for the influx of patients with this strange new virus. An influx that broadly never came - but would come a year later when 100 dead a day became over 1000 dead a day.

Things you don't think can happen, do happen. And suddenly you are watching cities full of people who walk and talk and live like you being blown to bits by artillery fire. People just like you don ill-fitting uniforms and troop out to fight, and die-- or crawl into bunkers to shelter from the storm. And you are not sure where it's going to end.

Outside the hospitals there are no doubt people queued up, waiting patiently to give blood. A nation holds its spare blood supply in the veins of its citizens...

2. Everything in finance & financial markets is linked. There really is no safe place, when it goes.

3. Just breath. Remember to breath. And the best way to do that is to have enough safe & boring assets that you know you will be able to live on, even if the stock market implodes & stays down for years.

4. There's a bottom, but unless you have very good mechanical-automatic rules about investing (see 3, to give you the confidence for same) you may well not be investing because you fear you are in 1.
Jeez, that brought tears to my eyes.
Valuethinker
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Re: Lessons from 2007 -2009

Post by Valuethinker »

Gracie77 wrote: Mon May 30, 2022 2:44 am
Valuethinker wrote: Wed May 25, 2022 10:23 am
NabSh wrote: Tue May 24, 2022 9:37 pm What lessons from past market crashes would you like to share with the group? Please include both "things gone right" and "things gone wrong"

My biggest lesson was I sold mutual funds and converted to cash. I was a bit late to do that after market was already down 15%. However I did not get back in time for the upward swing.
1. existential crises happen. I can't remember a time like that unless it was 1973-74. The political or geopolitical causative factors can occupy your mind a lot more than the financial ones (they certainly did for me).

Sept 13 2008 was a weird feeling, because it was epochal. And it was financial in nature. "What is solid, turns into air" - institutions like Royal Bank of Scotland, over 100 years old, solid as any bank can be, can just... disappear.

9-11 shattered a certain sense of solidity about the world. One could go to work in one of the big towers and just not come back... (London reprised this on a much smaller scale on 7/7/05 with the destruction of a Tube train I used to take in the mornings, and a bus I had also frequently used; I used to walk by the plaque to the dead from the bus bombing, every day on the way to work).

I remember the tv pictures of the citizens of Manhattan, lined up outside St Vincents Hospital, to give blood, while inside they waited for the ambulances full of casualties - that never came. You were dead, or you lived - there weren't many in the half way state (to this day I wonder about the woman who woke up after 6? months in a coma, and how it was explained to her).

In March 2020 I was in Asia, on holiday. We were tracking cities and countries as they shut down. Armed soldiers at the roadblock to the airport, trying to send us back to our jungle lodge (which had closed)-- young men carrying M16s older than they were. We did get on the plane, to fly to another airport, to get another plane. To get to Kuala Lumpur and one of the last 3 flights out - destinations Addis Abbaba, Tokyo-Narita, London-Heathrow. Packed flight. Arrived to a London in lockdown, the roads empty, stern warnings in the Tube not to travel unless you were an employee in essential services such as National Health Service, everything closed except food stores and pharmacies.

The eerie stillness on the Tube, like all of London had somehow died or been turned into night zombies.

I remember the hospitals, beds cleared, waiting for the influx of patients with this strange new virus. An influx that broadly never came - but would come a year later when 100 dead a day became over 1000 dead a day.

Things you don't think can happen, do happen. And suddenly you are watching cities full of people who walk and talk and live like you being blown to bits by artillery fire. People just like you don ill-fitting uniforms and troop out to fight, and die-- or crawl into bunkers to shelter from the storm. And you are not sure where it's going to end.

Outside the hospitals there are no doubt people queued up, waiting patiently to give blood. A nation holds its spare blood supply in the veins of its citizens...

2. Everything in finance & financial markets is linked. There really is no safe place, when it goes.

3. Just breath. Remember to breath. And the best way to do that is to have enough safe & boring assets that you know you will be able to live on, even if the stock market implodes & stays down for years.

4. There's a bottom, but unless you have very good mechanical-automatic rules about investing (see 3, to give you the confidence for same) you may well not be investing because you fear you are in 1.
Jeez, that brought tears to my eyes.
Probably not well expressed.

But I was trying to connect the emotional shock of existential-seeming events: 9-11, 7/7/05 (London suicide bombings) with the existential shock of financial oblivion that confronted us in the last quarter of 2008.

That sense that the tacit assumptions about order, safety and progress that one had could be ripped apart in an instant.

March 2020 was just such a kicker to that -- and we were talking about being out of it in 6 weeks. If only.

Which must be how it has felt in Kyiv since 23/Feb/2022. No one who is alive in that country now will forget the last 3 months - ever.

From an investment point of view the main things are:

1. to have a plan
2. to include enough safe assets that one does not just panic when stock (& bond) markets start to go south
3. to stick to that plan
4. to not, beforehand (ex ante) overestimate your tolerance for (downward) volatility. I read all the "100% equity" threads and just shudder - and I note how they have dropped away, at precisely the time when the strategy makes more sense than it has at any other time in the last 12 months.
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Gracie77
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Re: Lessons from 2007 -2009

Post by Gracie77 »

Valuethinker wrote: Mon May 30, 2022 7:23 am

Probably not well expressed.
Perfectly expressed! It reminded me of my current good fortune and the human capacity to endeavor through all hardships. Somebody once said on this forum something like: If your health or the health of a loved one is not compromised, then whatever it is, it's not an emergency.
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nedsaid
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Re: Lessons from 2007 -2009

Post by nedsaid »

seugene wrote: Sat May 28, 2022 10:11 am
NabSh wrote: Tue May 24, 2022 9:37 pm What lessons from past market crashes would you like to share with the group?
A couple of years ago, I marked the 20th anniversary of my individual investing. Over all these years, like a true personal finance geek that I am, I tracked my individual investment performance carefully in Excel. After a bunch of years, I started noticing that my data provided interesting observations and lessons, many of them quite surprising to me. The market was delivering many interesting lessons, and I was eager to learn as much as I could.

Then a few years ago I started teaching at a local Community College, and I made a talk out of my investment lessons, with slides and all, that I now make a part of my teaching every semester. Check it out. If you want an executive summary, then here are the slides.

And of course, this being such an informed crowd, I welcome suggestions for what else to include into (and possibly what to exclude from) future versions of this talk. I will probably update the slides and re-record after 2022 is over, what with the amazing way this year is shaping up to be. :D :?
Hi Eugene:

I watched your Zoom presentation and enjoyed it very much. Not anything new for me but always good to get old lessons reinforced. I started my investment journey in 1984, almost at the precise time when one of the greatest bull markets of all time got started. So I had a head start but your presentation brought back a lot of memories.

I still remember when I experienced Black Monday on October 19, 1987, I lost hundreds of dollars in the stock market and I felt like my financial future had been shattered. I was ruined!! Utterly ruined, I tell you!! It was a traumatic experience as I had never experienced these emotions before. The Dow Jones Industrial Average was down 22% in just one day. The weird thing was that 1987 was actually an up year for the US stock market, up about 2%.

The 2000-2002 and the 2008-2009 bear markets did hurt emotionally but the pain was no where near as intense. I was devastated over losses of hundreds of dollars in October 1987 but the emotional pain was much less in fall of 2008. My losses in the 2008-2009 bear market were equivalent to two years of take home pay! I joked to my boss that I was
working for free!

Your presentation was very good for college students. Better to learn from other people's experience other than your own.

Many best wishes,

Ned
A fool and his money are good for business.
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seugene
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Re: Lessons from 2007 -2009

Post by seugene »

Thank you, Ned, for your kind words. I do get good feedback on that talk from my students - it's definitely far better than average drivel I mumble in their general direction. :D
nedsaid wrote: Sat Aug 12, 2023 12:27 pm I still remember when I experienced Black Monday on October 19, 1987, I lost hundreds of dollars in the stock market and I felt like my financial future had been shattered. I was ruined!! Utterly ruined, I tell you!! It was a traumatic experience as I had never experienced these emotions before. [...]

The 2000-2002 and the 2008-2009 bear markets did hurt emotionally but the pain was no where near as intense. [...]
So, I have a hypothesis about this, which I think I expressed in the talk. My first bear market also felt far more extreme than any of the subsequent ones. I give an objective reason or two in my recording for why that might be, but a big behavioral / subjective reason might be that it was simply my first. We tend to remember the FIRST time much more than any other times - the first love, the first time being dumped, and yes, perhaps our first bear market, too.
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nedsaid
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Re: Lessons from 2007 -2009

Post by nedsaid »

seugene wrote: Sat Aug 12, 2023 12:46 pm Thank you, Ned, for your kind words. I do get good feedback on that talk from my students - it's definitely far better than average drivel I mumble in their general direction. :D
nedsaid wrote: Sat Aug 12, 2023 12:27 pm I still remember when I experienced Black Monday on October 19, 1987, I lost hundreds of dollars in the stock market and I felt like my financial future had been shattered. I was ruined!! Utterly ruined, I tell you!! It was a traumatic experience as I had never experienced these emotions before. [...]

The 2000-2002 and the 2008-2009 bear markets did hurt emotionally but the pain was no where near as intense. [...]
So, I have a hypothesis about this, which I think I expressed in the talk. My first bear market also felt far more extreme than any of the subsequent ones. I give an objective reason or two in my recording for why that might be, but a big behavioral / subjective reason might be that it was simply my first. We tend to remember the FIRST time much more than any other times - the first love, the first time being dumped, and yes, perhaps our first bear market, too.
I think you exactly described it. Thanks for your comments.
A fool and his money are good for business.
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Fat-Tailed Contagion
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Re: Lessons from 2007 -2009

Post by Fat-Tailed Contagion »

1. Tax Loss Harvesting - understand fund/ETF pairs that are not identical to exchange on way down

2. Maintain a minimum of 25% cash/bonds to be able to buy equity on way down (Ben Graham lesson)

3. Buying when others are fearful works
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor (75/25 - 50/50 - 25/75)
doobiedoo
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Re: Lessons from 2007 -2009

Post by doobiedoo »

protagonist wrote: Fri May 27, 2022 8:08 am Like Warren Buffett said (is he or Jimmy the one who spells his last name with an "e" or "i"? I keep forgetting....), our bunch won the ovarian lottery. Don't forget that.
Both Warren and Jimmy spell their last name the same: Buffett. They are actually distant cousins.

When I went to a Berkshire Hathaway [BRK] annual meeting circa 2007, Jimmy Buffett actually went on stage [before the Q&A] barefoot in a Hawaiian shirt, played ukulele, and sang "Margaritaville" with revised lyrics about Warren, Charlie, and BRK.

Jimmy said that he was one of many family members who invested in Warren's Buffett Partnership [pre-BRK].
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Re: Lessons from 2007 -2009

Post by doobiedoo »

nisiprius wrote: Wed May 25, 2022 7:35 am .. I expect to be taken by surprise. That's what risk tolerance means. If you think you can anticipate bear markets, that means you don't truly believe the stock market is risky--not for you. That's not risk tolerance, that's risk denial. ..
+1. Well-said.
bendix
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Re: Lessons from 2007 -2009

Post by bendix »

I agree with this presentation. Wholeheartedly. I almost feel it´s pointless to invest money in stocks in bull years. Bear years are where saving money and investing feels good to me.
Wwwdotcom
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Re: Lessons from 2007 -2009

Post by Wwwdotcom »

1. "Ballast" and "hedge funds" were red flags for more risk and higher expenses before 2007, more so now.
2. Municipal bonds aren't substitutes for treasuries.
3. The government will simultaneously offer bailouts/forgiveness to key/unexpected groups and implement austerity measures on services that people may take for granted.
carminered2019
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Re: Lessons from 2007 -2009

Post by carminered2019 »

Beside regular contributions, stay the course and buy when there's blood in the streets from stocks to real estate. Most of my money were made in The Great Recession and the fastest money were made during the Covid year.
TiredLawyer
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Re: Lessons from 2007 -2009

Post by TiredLawyer »

In retrospect, I was one of the few around me that was *sure* the GFC was coming and actually took action. But I still got a lot wrong along the way and made way less money than I should have.

Things I got right:
* Sold my house for $50k more just months before the big crash. Ended up buying 3 houses in cash between 2010-2012 which ultimately ended up netting me ~$1M.
* 401K was mostly in cash before GFC which resulted in about $100k of contributions becoming $400-$500k today

Things I got wrong:
* Taxes and realtor fees took most of the profit from
the well-timed sale of house. 10 years later the house would sell for $300k more. The sale ended up being disruptive because I had to move multiple times due to my move/renovate/rent strategy with the subsequent houses.
* I did not get my 401k fully invested until probably 2010. I was dollar cost averaging back in and I did it too slowly.
* My early success cost me dearly later. I was *sure* that the stock market would crash again in 2017 and so I cashed out approximately $200k in stocks.

What I learned:
* In my area, the houses in the good areas only dropped about 10% but would later recover and double in value (so $400k house becomes $700-$800k). I ended up buying the 3 houses in cheaper neighborhoods that were $50k-$100k each. I would have done about the same keeping my first house and then just buying another $400k house in a good neigborhood that would later double in value.
* Very few people around you will join you in your efforts. I told so many people about the real estate opportunity and very few people acted on it.
* My market timing in my 401k doesn’t seem to have returned that much more than if I had been invested the whole time. I was early in my career so it probably would have been almost the same if I had just automatically invested it.
* You still need to have cash available to take advantage of market opportunities and to prevent panic.
* You can see it coming and yet still kind of get it wrong sometimes. My regrets are mainly around how much time I spent on real estate for the amount of return.
dcabler
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Re: Lessons from 2007 -2009

Post by dcabler »

Was a manager who was working too hard during 2008 to pay much attention - including telling people they no longer had a job. Was nearly 100% stock and as I got to the end of the year, things calmed down at work and I did something stupid and pushed the eject button and even stopped contributing to my 401K. Meanwhile starting learning more about asset allocation and got back in about a month later. Turns out I got lucky and things didn't move around that one month. I was also fortunate that I didn't lose my own job.

I learned:
I discovered capital loss carryover which went on literally for years
I learned that if you sell a mutual fund at Fido then purchase it again within 30 days there you get lots of phonecalls and letters about their frequent trading policy. I learned that if you don't respond, they do eventually stop.
I learned to front-end load my 401K since my industry tends to have its layoffs in the second half of any given year. Later on when I was at an employer with an HDHP health plan, I applied the same principal for my HSA.

Longer term lessons
I've matured and something like 2008 really wouldn't affect me today. 2022 definitely did not affect me.
Continued learning and ultimately landed on the portfolio I have today and, as a recent retiree, will continue with.
Volatility is not the same as risk
There aren't a lot of risks that are worse than those that are behaviorally related.

Cheers.
Mr. Rumples
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Re: Lessons from 2007 -2009

Post by Mr. Rumples »

Ignore the talking heads on TV; backtest portfolio suggested changes. 2007/2009 and again recently, soured me on bonds.
"History is the memory of time, the life of the dead and the happiness of the living." Captain John Smith 1580-1631
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beyou
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Re: Lessons from 2007 -2009

Post by beyou »

Metsfan91 wrote: Tue May 24, 2022 11:01 pm 1. Have a plan!

2. Stay the course!
Agree except the Mets part.
Have a plan, follow it, and cheer for the Yankees who won in 2009 ! Things went better for Yankees fans in this time period.

Of course today it’s bad to be a fan of either team.
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beyou
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Re: Lessons from 2007 -2009

Post by beyou »

TiredLawyer wrote: Sun Aug 13, 2023 1:06 am In retrospect, I was one of the few around me that was *sure* the GFC was coming and actually took action. But I still got a lot wrong along the way and made way less money than I should have.

Things I got right:
* Sold my house for $50k more just months before the big crash. Ended up buying 3 houses in cash between 2010-2012 which ultimately ended up netting me ~$1M.
* 401K was mostly in cash before GFC which resulted in about $100k of contributions becoming $400-$500k today

Things I got wrong:
* Taxes and realtor fees took most of the profit from
the well-timed sale of house. 10 years later the house would sell for $300k more. The sale ended up being disruptive because I had to move multiple times due to my move/renovate/rent strategy with the subsequent houses.
* I did not get my 401k fully invested until probably 2010. I was dollar cost averaging back in and I did it too slowly.
* My early success cost me dearly later. I was *sure* that the stock market would crash again in 2017 and so I cashed out approximately $200k in stocks.

What I learned:
* In my area, the houses in the good areas only dropped about 10% but would later recover and double in value (so $400k house becomes $700-$800k). I ended up buying the 3 houses in cheaper neighborhoods that were $50k-$100k each. I would have done about the same keeping my first house and then just buying another $400k house in a good neigborhood that would later double in value.
* Very few people around you will join you in your efforts. I told so many people about the real estate opportunity and very few people acted on it.
* My market timing in my 401k doesn’t seem to have returned that much more than if I had been invested the whole time. I was early in my career so it probably would have been almost the same if I had just automatically invested it.
* You still need to have cash available to take advantage of market opportunities and to prevent panic.
* You can see it coming and yet still kind of get it wrong sometimes. My regrets are mainly around how much time I spent on real estate for the amount of return.
Put more simply, your home is a roof over your head, NOT one of your investments. I do not include 2nd, 3rd homes which are or can be viewed as investments, where divesting in an overheated market MAY make sense, if it is your long term plan to divest, sometimes one should accelerate the plan to see during a hot market. If you live in a house, that is a totally different thing.
ROIGuy
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Re: Lessons from 2007 -2009

Post by ROIGuy »

When things get bad in the markets I always think back and refer to other people about this time. I remember vividly store fronts closing up, a Hummer dealership had this big banner that said $8,000 off a new Hummer. I was working with a client before the crash, he was a high end executive in finance. We were talking about the general state of the U.S. economy (summer of 2007) and he looked at me and said "Do you remember the recession in the early 90's? I said yes (having a memory of that time of looking around one day and not even seeing a help wanted sign on any business and feeling grateful that I had a job) he said "You ain't see nothing yet!"
Whenever we have bad market times, I use that crash as a reminder to stay the course.

Things that went right:
I ended up having one of my best years in business in 2008.
Tons of layoffs at my DW work, but she kept her job, though she had to take a pay cut.
I did a little bit of market timing with her 401k, putting a lot of it into more bond funds around November of 2007.
Had bought a house that we could afford back in 2000 so we were never house poor and never felt that we couldn't make a payment.
Pretty much "stayed the course" with savings
Remolded our bathrooms and our kitchen. Got incredible savings on all of them.

Things that went wrong:
I actually started exchanging or 401k funds back into more equity funds in the spring of 2009. I was about to start doing this in March, right about the second week, it would of been pretty good timing, but I got convinced to wait after listening to some "expert" on the news. Ended up waiting about another 6 weeks, I think the market had jumped back up 10% in those few weeks. However it was a good reminder to just listen to my own instincts not some expert on television.
Too much money invested (before the crash) in individual stocks. Took a bath on a couple of them.
invest2bfree
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Re: Lessons from 2007 -2009

Post by invest2bfree »

NabSh wrote: Tue May 24, 2022 9:37 pm What lessons from past market crashes would you like to share with the group? Please include both "things gone right" and "things gone wrong"

My biggest lesson was I sold mutual funds and converted to cash. I was a bit late to do that after market was already down 15%. However I did not get back in time for the upward swing.
I was not a boglehead investor. More like a market timer, So I did get lucky in 2007-2009 where I went into cash after 20% down and went all in nasdaq stocks in nov 2008.

I was very lucky to got out live because I did not know financials so I totally side stepped them.

If I have to do this again, I would hold a portfolio like I do now like a good chunk of fixed income (corporate bonds and preferred stock)
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
jebmke
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Re: Lessons from 2007 -2009

Post by jebmke »

beyou wrote: Sun Aug 13, 2023 6:25 am
Metsfan91 wrote: Tue May 24, 2022 11:01 pm 1. Have a plan!

2. Stay the course!
Agree except the Mets part.
Have a plan, follow it, and cheer for the Yankees who won in 2009 ! Things went better for Yankees fans in this time period.

Of course today it’s bad to be a fan of either team.
Money sure doesn't buy happiness in this case. I think the total salary budgets for these two are in the neighborhood of $600 million.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
protagonist
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Re: Lessons from 2007 -2009

Post by protagonist »

doobiedoo wrote: Sat Aug 12, 2023 3:15 pm
protagonist wrote: Fri May 27, 2022 8:08 am Like Warren Buffett said (is he or Jimmy the one who spells his last name with an "e" or "i"? I keep forgetting....), our bunch won the ovarian lottery. Don't forget that.
Both Warren and Jimmy spell their last name the same: Buffett. They are actually distant cousins.

When I went to a Berkshire Hathaway [BRK] annual meeting circa 2007, Jimmy Buffett actually went on stage [before the Q&A] barefoot in a Hawaiian shirt, played ukulele, and sang "Margaritaville" with revised lyrics about Warren, Charlie, and BRK.

Jimmy said that he was one of many family members who invested in Warren's Buffett Partnership [pre-BRK].
*laughing* Thanks for the clarification.
protagonist
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Re: Lessons from 2007 -2009

Post by protagonist »

Mr.BB wrote: Sun Aug 13, 2023 7:19 am
Whenever we have bad market times, I use that crash as a reminder to stay the course.

I "stayed the course" as well, but for different reasons than you. It was not out of faith that the market would eventually rebound like it did.

I had no idea what would happen. When the DOW declined from 11K into the 6Ks, it could have just as easily have kept spiraling downwards to 3K and below and stayed there for a long time ...you may remember, nobody knew if we were headed for another Great Depression , or stagflation, or what the next bank would be that would fail or country that would default. I don't recall many predicting the market would quadruple in value in the next decade.

So it was not confidence that the market would rebound that kept me "staying the course". Rather, it was because I was clueless what would happen. It was inertia, which is, I think, often the best approach in times of extreme uncertainty. It beats panic (but not always).

That said, we were not wise to do what we did, nor were we unwise.

We made our decision, and we were lucky.

If the market crashes again I will do the same thing, because I have subsequently protected myself against anything short of the worst possible scenarios, so I no longer worry about financial collapse.

There are many examples in history in which an opposite approach to an uncertain, scary future would have turned out better (the first that comes to mind involves some of my family members in Germany/Austria in the 1930s, when the prevailing thought was "things are so bad, they can't get much worse").
WestCoastPhan
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Re: Lessons from 2007 -2009

Post by WestCoastPhan »

protagonist wrote: Sun Aug 13, 2023 10:33 am
Mr.BB wrote: Sun Aug 13, 2023 7:19 am
Whenever we have bad market times, I use that crash as a reminder to stay the course.

I "stayed the course" as well, but for different reasons than you. It was not out of faith that the market would eventually rebound like it did.

I had no idea what would happen. When the DOW declined from 11K into the 6Ks, it could have just as easily have kept spiraling downwards to 3K and below and stayed there for a long time ...you may remember, nobody knew if we were headed for another Great Depression , or stagflation, or what the next bank would be that would fail or country that would default. I don't recall many predicting the market would quadruple in value in the next decade.

So it was not confidence that the market would rebound that kept me "staying the course". Rather, it was because I was clueless what would happen. It was inertia, which is, I think, often the best approach in times of extreme uncertainty. It beats panic (but not always).
Similar approach for me in 2007-09. "Don't just do something, stand there!"
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Richard1580
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Re: Lessons from 2007 -2009

Post by Richard1580 »

It was during that period (and a little before) that I abandoned stock picking in favor of broad index funds. The downturn was so depressing that I never even opened the statements - just tossed the envelopes into a box. However I never stopped contributing to my 401K, or putting money into broad market index funds in taxable.

A few years ago, while cleaning out junk, I came across a large box of those statements. I just ran them through the shredder (I already had PDF copies). I also went back and started looking at Bogleheads forum posts from 2008. It was interesting.

Since then the various market corrections have left me unfazed. I just do tax loss harvesting when I can and don't worry about it.

The only disconcerting time was when bonds cratered (right after I had moved funds from equities to bonds in late 2021). I had been looking forward to rebalancing, but with everything going down in parallel, all I could do is sit and watch.

I still do some minor tinkering with my investments, but for the most part everything is on auto-pilot.
"The quest is the quest."
Cannoli
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Re: Lessons from 2007 -2009

Post by Cannoli »

Bear Stearns isn't fine
Point being don't listen to the talking heads. Set your risk tolerance to what you need next year. In five years and then beyond.
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