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  • WSJ article on ease of buy and hold in current market

    Good article on how easy it is to buy and hold in bull market, and how difficult it is to stay that way in bear market. We are all smart and know what to do. During a bear market emotions and fear can overrule logic. We are emotional - as evidenced by how easily some of us take offense on this board when challenged. A bear market is a test of how we deal with our emotions, not how smart we are.

    I am concerned about a younger generation that has not been through a bear market. They are vocal on this forum and are sometimes at odds with some older FI docs. It is easy to post about financial smarts, aggressive allocations, leverage, and long-time horizon investing now. It is probably more important to save more, spend less, and avoid excess market risk.

    www.wsj.com/articles/everyones-a-buy-and-hold-investor-now-but-can-you-stay-that-way-1502071861

     

    excerpt--------------->

    The trap snares them in several ways. Some who now think of themselves as buy-and-hold investors will be quick to throw in the towel at the first sign the market might be entering a correction. These investors then tend to sit on the sidelines too long and don’t reinvest until prices are relatively high again.

    Others, perhaps most, wait until it’s clear that a bear market is well under way before giving up on buying and holding and becoming a market timer.

    Regardless, one consequence is that market timing becomes progressively more popular the further the market falls. That is because almost all attempts at market timing during bear markets will improve performance compared with buying and holding, since any retreat to cash—even if chosen randomly—will tend to do better than remaining fully invested. Thus, as the bear market leads to bigger and bigger losses, and a bottom nears, erstwhile believers in buying and holding start genuflecting at the altar of market timing.

    ....

    But investors are emotional beings rather than statistically motivated automatons. And the recent past plays a huge role in their attitudes. At the bottom of bear markets, when by definition doom and gloom is the most widespread, it takes rare courage and discipline to remain a believer in buying and holding for the long term.

    ----------------

  • #2
    What helped me in the Great Recession:

    1.  I understood the market was on sale.  I like a sale.  As physicians our jobs are recession proof.  I kept DCAing all the way through and doubling my monthly amount invested every time the market fell 10% more.

    2.  I stopped looking at my accounts.  Seriously!  I didn't look for over 18 months.  I skipped net worth accounting also.

    3.  I watched CNBC periodically as a market barometer.  I kept thinking about Buffett's quote to buy when others are fearful.  I watched enough to know others were very fearful, but not enough to get caught in fear myself.

    You will get a chance to see how you react in a bear market.  By planning for it, hopefully you can take advantage.  The key for us was enough liquidity outside of our retirement funds to leave them alone and keep adding to them.

    Comment


    • #3
      I just listened to a podcast that argued that bear markets are great scenarios for young investors who have never seen one(assuming they didn't abandon ship).  Everything goes on sale with plenty of time for gains and compound interest to do their thing.

      Comment


      • #4
        Keep this visual available for the next bear or even the next correction - nice to put it all in perspective. Signed, Perma-Bull
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

        Comment


        • #5
          Yes Johanna that is a good graphic.

          I want to reiterate Dr. Moms points.  If we are entering into a correction/bear market (way to early to tell this) a few things that I did in 2001 and 2008.

          1.  Quit checking your accounts and net worth are important.  This will help you not to panic!

          2.  The only thing to check for is TLH opportunities.

          3.  Deploy free cash.  If you are DCA be sure to continue this.

          4.  Decrease your financial media exposure.

          5.  I will keep reading the WSJ for general news but even it sometimes has hysterical articles and you need to recognize this.

          6.  It will be interesting to monitor this forum.

          Comment


          • #6
            I posit that one of the great advantages (in theory at least, emotion aside) high earners have during best markets is to have free cash flow to buy what's on sale (@Dr. Mom).

            One reason we are trying to eliminate debt, and refinanace to lower interest rates, and lower monthly payments is to free up cash flow for other "investments". Those may include student loan reduction, Roth conversions, taxable accounts, a home to buy and rent, etc. Being able to add equities is a great advantage.

            It is pretty easy now to forget the last dip... I finally sold my Microsoft shares yesterday - they've done very very well. They don't align with the data that shows it's better long term to be in low cost mutual funds, etc. we humans have a hard time admitting when we should do something else!

            Comment


            • #7
              I just wish a bear market would go ahead and hit.  I need some stocks on sale.  I agree with the plan to buy more aggressively during a bear market.  But, I do concede that I've never lived through one with money actually on the line.  So, I'm sure it won't be easy to do, but I plan on leaving my accounts alone and just buying as aggressively as possible.  Until then, I'm paying off all debt so when the next bear market hits I'll have lots of cash flow to buy every month.

              Comment


              • #8




                I just wish a bear market would go ahead and hit.  I need some stocks on sale.  I agree with the plan to buy more aggressively during a bear market.  But, I do concede that I’ve never lived through one with money actually on the line.  So, I’m sure it won’t be easy to do, but I plan on leaving my accounts alone and just buying as aggressively as possible.  Until then, I’m paying off all debt so when the next bear market hits I’ll have lots of cash flow to buy every month.
                Click to expand...


                I think that's the best strategy. Admit possible weakness, but plan ahead on dollar cost average buying through the next bear. Stay largely equity invested (or whatever long term allocation you're comfortable with). Pinkie swear not to try to time the market and move to "risk off" somewhere mid drop. Avoid excess debt. Avoid high fixed expenses. Maximize free cash flow.

                ...And hope we have a good 1-2 year bear market very soon so we can buy on sale.

                Comment


                • #9




                  Keep this visual available for the next bear or even the next correction – nice to put it all in perspective. Signed, Perma-Bull
                  Click to expand...


                  I'm with you on your main point and staying invested in a bear market, but that chart is a little misleading since the largest negative return you can have is -100%.  Since returns compound, showing logarithmic returns would make more sense in this chart.

                  Comment


                  • #10




                    Good article on how easy it is to buy and hold in bull market, and how difficult it is to stay that way in bear market. We are all smart and know what to do. During a bear market emotions and fear can overrule logic. We are emotional – as evidenced by how easily some of us take offense on this board when challenged. A bear market is a test of how we deal with our emotions, not how smart we are.

                    I am concerned about a younger generation that has not been through a bear market. They are vocal on this forum and are sometimes at odds with some older FI docs. It is easy to post about financial smarts, aggressive allocations, leverage, and long-time horizon investing now. It is probably more important to save more, spend less, and avoid excess market risk.

                    http://www.wsj.com/articles/everyones-a-buy-and-hold-investor-now-but-can-you-stay-that-way-1502071861

                     

                    excerpt—————>

                    The trap snares them in several ways. Some who now think of themselves as buy-and-hold investors will be quick to throw in the towel at the first sign the market might be entering a correction. These investors then tend to sit on the sidelines too long and don’t reinvest until prices are relatively high again.

                    Others, perhaps most, wait until it’s clear that a bear market is well under way before giving up on buying and holding and becoming a market timer.

                    Regardless, one consequence is that market timing becomes progressively more popular the further the market falls. That is because almost all attempts at market timing during bear markets will improve performance compared with buying and holding, since any retreat to cash—even if chosen randomly—will tend to do better than remaining fully invested. Thus, as the bear market leads to bigger and bigger losses, and a bottom nears, erstwhile believers in buying and holding start genuflecting at the altar of market timing.

                    ….

                    But investors are emotional beings rather than statistically motivated automatons. And the recent past plays a huge role in their attitudes. At the bottom of bear markets, when by definition doom and gloom is the most widespread, it takes rare courage and discipline to remain a believer in buying and holding for the long term.

                    —————-
                    Click to expand...


                    As pointed out in the article, knowing your risk tolerance is the key.  Last bear market, I was clueless and cringed when my roth was slashed to half.  It was not life changing since it was not even 10k.  From the forums that I participate in, I think many are confident that they can withstand a 50% drop and have a discipline to continue dollar cost averaging.  I applaud them.  I know I cannot withstand my nest egg get slashed to half. I still believe in "never lose money" is important.  However, I have been criticized to "failure to accumulate wealth" by being conservative.  I also agree with you in saving a lot and spending less so I still accumulate wealth that way.

                    Comment


                    • #11




                      What’s disturbing is this faith that if US equities do drop by 50% that a subsequent uptrend in real value is sure to ensue. That’s historically is not always the case and unfortunately we are mortal. The individual can’t afford the outlook of a multigenerational endowment. The worker in his prime asset accumulation phase of his life ( one to two decades) has really got to get the secular trend right and believe it or not, equities can putter around nominally for decades if not actually lose in real value. I remember what it was like when I was a kid. Stocks were a loser.

                      You know, the world is changing. The EuroDollar supernova explosion of the past few decades that largely inflated US markets is over. Carribean and European banks don’t want to create Eurodollars anymore. Only the Japanese banks want to play now but their biggest market besides themselves, the Chinese banks are dedollarizing.

                      When the system resets within the next few years capital flows are not going to be what they have been. The US capital markets will have stiff competition and the USD’s exchange value will be much lower than it is.
                      Click to expand...


                      I don't have the faith you describe which is why I diversify.  I do think/invest with a multigenerational horizon.

                      Comment


                      • #12




                        What helped me in the Great Recession:

                        1.  I understood the market was on sale.  I like a sale.  As physicians our jobs are recession proof.  I kept DCAing all the way through and doubling my monthly amount invested every time the market fell 10% more.

                        2.  I stopped looking at my accounts.  Seriously!  I didn’t look for over 18 months.  I skipped net worth accounting also.

                        3.  I watched CNBC periodically as a market barometer.  I kept thinking about Buffett’s quote to buy when others are fearful.  I watched enough to know others were very fearful, but not enough to get caught in fear myself.

                        You will get a chance to see how you react in a bear market.  By planning for it, hopefully you can take advantage.  The key for us was enough liquidity outside of our retirement funds to leave them alone and keep adding to them.
                        Click to expand...


                        Expect 5-6 chances during your 60 year investing career.
                        Helping those who wear the white coat get a fair shake on Wall Street since 2011

                        Comment


                        • #13




                          What’s disturbing is this faith that if US equities do drop by 50% that a subsequent uptrend in real value is sure to ensue.
                          Click to expand...


                          I agree with that first sentence. There is no guarantee and this is why stocks are risky and most of the time, carry risk premiums.
                          Helping those who wear the white coat get a fair shake on Wall Street since 2011

                          Comment


                          • #14
                            I am in my 30s and have not been through a bear market. When it happens, I will try to stick with the buy and hold strategy. Appreciate the advice given here, I do love a good sale!

                            Comment


                            • #15




                              I am in my 30s and have not been through a bear market. When it happens, I will try to stick with the buy and hold strategy. Appreciate the advice given here, I do love a good sale!
                              Click to expand...


                              Glad to hear! You are who I'm talking about. We can add value helping your generation and all of us plan for a bear.

                              There's a visceral emotional reaction when one's 401k is a 201k. Loss aversion instincts yell: sell, move to something safe (cash), stop the hemorrhage. If one is leveraged, the yell becomes a scream.

                              Statistically only a smallish minority can ignore the instinct to move to cash. An even smaller minority can actually plow more money into a dropping market (just imagine it: buy stock and watch the value drop 1 month later, repeat over 12-24 months or longer).

                              Last time I was successful with point 1 (not selling), but not point 2 (continue buying). I'm hoping for better behavior next go round.

                              Comment

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