Value Investing

[Dont_know_mind]

Hatton1, very insightful. Compacted junk does indeed bounce amazingly well at the end of a bear market. The problem for value investors is avoiding averaging down into oblivion as it can all go much lower than anyone expected and also BK.

Do you intend on buying any compacted junk in the next downturn and what allocation would that be ? I am not sure if I can even hold risk assets let alone buy anything at the bottom. The asymmetric risk opportunity (100% potential loss, 1000% potential profit) is very attractive though, particularly if the situation is anything more than 20% probability.

[Hatton]

Dont_know_mind wrote:

Hatton1, very insightful. Compacted junk does indeed bounce amazingly well at the end of a bear market. The problem for value investors is avoiding averaging down into oblivion as it can all go much lower than anyone expected and also BK.

Do you intend on buying any compacted junk in the next downturn and what allocation would that be ? I am not sure if I can even hold risk assets let alone buy anything at the bottom. The asymmetric risk opportunity (100% potential loss, 1000% potential profit) is very attractive though, particularly if the situation is anything more than 20% probability.

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Don't know don't mind You really want to avoid catching a falling knife.  2008 was a scary time when very large corporations were bankrupting. There was questions about Citigroup failing at the time.  I read enough statements at the time to guess that would not be allowed to happen by our government.  The crisis caused by the failure of Lehman Brothers and the AIG situation was fresh at the time. Buying Citigroup when it was essentially a penny stock was very risky at the time so I did not bet the farm so to speak.  I will probably not do this with another downturn.  With a big downturn I would probably do another Roth Conversion.  I am trying to just maintain rather than buy individual stocks. Who knows though.

[q-school]

hatton1 wrote:

Dont_know_mind wrote:

Hatton1, very insightful. Compacted junk does indeed bounce amazingly well at the end of a bear market. The problem for value investors is avoiding averaging down into oblivion as it can all go much lower than anyone expected and also BK.

Do you intend on buying any compacted junk in the next downturn and what allocation would that be ? I am not sure if I can even hold risk assets let alone buy anything at the bottom. The asymmetric risk opportunity (100% potential loss, 1000% potential profit) is very attractive though, particularly if the situation is anything more than 20% probability.

Click to expand…

Don’t know don’t mind You really want to avoid catching a falling knife.  2008 was a scary time when very large corporations were bankrupting. There was questions about Citigroup failing at the time.  I read enough statements at the time to guess that would not be allowed to happen by our government.  The crisis caused by the failure of Lehman Brothers and the AIG situation was fresh at the time. Buying Citigroup when it was essentially a penny stock was very risky at the time so I did not bet the farm so to speak.  I will probably not do this with another downturn.  With a big downturn I would probably do another Roth Conversion.  I am trying to just maintain rather than buy individual stocks. Who knows though.

Click to expand...

hatton1, could you comment more on the roth conversion strategy during this season of life?  pardon my extreme ignorance.

i take this to mean you have enough income that you are trying to minimize eventual RMD's from 401/403 accounts.  So you are taking a tax hit during downturn ( from previous posts, you are currently voluntarily working part time), i assume you are no longer in the highest tax brackets?   is this for optimizing your own net worth?  is it because you want to leave a bigger bequest?   more expected value to those who inherit?  are there other reasons to convert the 401s during downturns otherwise?  you would have a smaller tax hit now since the 401s are down in value during a correction, i guess, but that assumes they will climb back up significantly in the future.

i am now dealing with my parents finances, and i suddenly discovered that there are tax considerations when someone goes from filing married to filing single, which in my naivete i really hadn't considered previously.   i am trying to contemplate for myself and my wife what this means when deciding how much 401 to convert to roth?  and yes it is possible to overthink things.  feel free to call me an idiot.

i get the value of roth to younger people.  sorry if stupid question.  still early in the morning. 

 

[Hatton]

Not a stupid question at all.  The math on this will drive you crazy.  I am trying to lower future RMDs.  I think the concept of tax diversification makes sense.  I have done 2 conversions.  The first one about 30k in the 600 point Brexit drop. That pushed me from the 25% bracket to 28% if memory serves.  This year I opened a DAF thru Vanguard with 25k and converted 25k.  My days of being a top bracket person stopped with part-time work.  At 70 I will have RMDs, SS, Dividends, and Muni bond interest.  My income will be higher than it is now.  The only way to tweak this that I am aware of this is roth conversions.  I am going to build up the DAF and have retirement project with one of my nieces.  If your income is too high above 63 then medicare premiums go up.  Whether this is right or wrong only time will tell.  Impossible to plan aggressively since tax laws are in flux.  Roth accounts were never available to me because my retirement accounts are in a SEP-IRA and traditional IRA.  I therefore cannot do any backdoor deposits.

q-school wrote:

hatton1 wrote:

Dont_know_mind wrote:

Hatton1, very insightful. Compacted junk does indeed bounce amazingly well at the end of a bear market. The problem for value investors is avoiding averaging down into oblivion as it can all go much lower than anyone expected and also BK.

Do you intend on buying any compacted junk in the next downturn and what allocation would that be ? I am not sure if I can even hold risk assets let alone buy anything at the bottom. The asymmetric risk opportunity (100% potential loss, 1000% potential profit) is very attractive though, particularly if the situation is anything more than 20% probability.

Click to expand…

Don’t know don’t mind You really want to avoid catching a falling knife.  2008 was a scary time when very large corporations were bankrupting. There was questions about Citigroup failing at the time.  I read enough statements at the time to guess that would not be allowed to happen by our government.  The crisis caused by the failure of Lehman Brothers and the AIG situation was fresh at the time. Buying Citigroup when it was essentially a penny stock was very risky at the time so I did not bet the farm so to speak.  I will probably not do this with another downturn.  With a big downturn I would probably do another Roth Conversion.  I am trying to just maintain rather than buy individual stocks. Who knows though.

Click to expand…

hatton1, could you comment more on the roth conversion strategy during this season of life?  pardon my extreme ignorance.

i take this to mean you have enough income that you are trying to minimize eventual RMD’s from 401/403 accounts.  So you are taking a tax hit during downturn ( from previous posts, you are currently voluntarily working part time), i assume you are no longer in the highest tax brackets?   is this for optimizing your own net worth?  is it because you want to leave a bigger bequest?   more expected value to those who inherit?  are there other reasons to convert the 401s during downturns otherwise?  you would have a smaller tax hit now since the 401s are down in value during a correction, i guess, but that assumes they will climb back up significantly in the future.

i am now dealing with my parents finances, and i suddenly discovered that there are tax considerations when someone goes from filing married to filing single, which in my naivete i really hadn’t considered previously.   i am trying to contemplate for myself and my wife what this means when deciding how much 401 to convert to roth?  and yes it is possible to overthink things.  feel free to call me an idiot.

i get the value of roth to younger people.  sorry if stupid question.  still early in the morning.  ????

 

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