Predicting the future

[Dicast]

Instead of market timing with my actual money I thought I'd start a thread on my predictions for the future so that I can reflect on them over time.  At the present time all of the media seems to be screaming we are heading for a bear market...

My prediction is that we will go into a bear market.  I'm looking at 25-50% drop for the overall market (I have no research or anything but fear mongering to base this on).  I however expect it won't last over a year because we live in the age of incredibly short memories and people will be jumping back in to the market faster than ever before...even if no fundamentals actually change.

 

Any other predictions?

[Zaphod]

The market on aggregate has been in a bear market but the weight of the FANGs have kept the index somewhat "artificially" high, now they are taking a beating and its falling accordingly.

I'd seriously doubt anything close to a 50% drop (and myself expecting anywhere from negative 5% to plus 10%), you have to consider that energy, materials, em, etc....have been thoroughly crushed already and dont have much farther to go, even biotech is in a bear since aug/sept. You can have a bear market without a recession but its uncommon to have a blowout without an underlying reason. 50% drops are exceedingly rare post WWII, just because we've recently had one doesnt mean another ones around the corner.

All the economic data makes it hard to believe the economy is imploding. Affected by the worlds woes, of course we're not insulated, but no bunker talk has a lot of backing. Unless the fed cranks out the hikes to crush the economy...which it really just seems that they are dead set against asset mispricing in wall street to avoid another bubble (remember who Janet Yellens husband is).

[Dicast]

I guess my real concern is that humans are irrational and may panic without cause.

[nyu04]

Zaphod,

Is there a point in the drop when you plan to buy in?  No sarcasm meant - just curious.

[Dicast]

nyu04 wrote:

Zaphod,

Is there a point in the drop when you plan to buy in?  No sarcasm meant – just curious.

Click to expand...

There isn't any specific moment that I would predict to be the bottom of the market.  The speculator side of me, the part I try to ignore, would tell me to wait until at least 25% of the market value had been lost to jump in.  The based in reality and educated side of me knows that trying to time the market is probably a bigger risk than riding out a recession/bear market by staying put in my investments.  Right now our net worth has just been positive for about 2-3 months and I'm 33 y/o.  We have about 180k in retirement accounts. I think it is more about putting as much money towards building wealth than it is where I put it.  In our case we will continue to max our retirement index funds, but if the market is sliding I may put any excess money towards loan repayment instead of taxable accounts.  If the market does take a large 25% drop I may be more aggressive at putting the money into taxable accounts.  At no point will I just sit around holding unnecessary amounts of cash in a poor interest bearing account waiting for the market to do something.  I prefer to maintain a baseline emergency fund and at the end of each month put any money above that amount to work.

[Zaphod]

Predicting bottoms isnt terribly worthwhile, and you're more likely to miss out by not being in the market than you could make by timing things. That said, I sold to a cash level of 85% during the last rally before the rate hike, and as of the last 30 minutes of trading today all of GTC orders have been hit. Im happy, it makes me nervous to be out. This degree of pullback is entirely normal and Im 100% comfortable being in this far off the highs and thinking I almost want to dump in my 2016 contribution. Im happy to not buy at relative highs and in the long run even this 10-20% shouldnt matter. Dont overthink it.

The point of my post/pic was that there is no underlying reason to fear a full blown recession and a correction in the market is healthy and normal. Heres a great link to correction frequency, severity, etc...on total return. Make sure to look at the post WWII numbers specifically. Take home is that large draw down corrections are rare and to be sidelined waiting for one is a recipe for strong under performance.

 

http://www.philosophicaleconomics.com/2014/10/how-often-does-the-stock-market-correct/