Pulling out of the stock market short term
 

So I have not liked what I have heard on the economic news front over the last few weeks. In particular the slowing recovery and the debt ceiling crisis are disconcerting. I am not overly concerned about the former. We will recover eventually.

But the high-stakes political brinksmanship and demagoguery that is going on right now over the debt crisis has me thinking that we are at least at risk for the market seriously suffering within the next two to three months. I do not have a lot of faith in Congress and the Executive branch getting it together and working this out soon enough. Or, put another, way, I think they may be too busy posting pictures of their penises and are at risk of not coming to a viable agreement.

So I pulled most of my investments out of equities and parked them temporarily in a money market. Fortunately I did this before today's market plunge (the Dow is back below 12,000). I am going to sit out for the next two to three months and see what happens. Since I own a Miata that naturally makes me an investment expert.

Thoughts? Anyone considering the same? Doubling down? Short selling? Buying more turbo stuff? Moving to Germany? Buying gold? Buying corn futures? Blowing it on blow and hookers since the world is ending soon anyway?

Discuss...

Good for you.

I think the safest thing to do is to diversify into:
- income producing real estate
- Yen and Swiss Franc
dollar cost average getting into these:
- silver
- gold
- commodities

hookers and blow for me

I personally have been into gold, silver, guns this year.

And im too young to understand any of it hahaha
Website tips for where to learn?

Dann

Don't be out for too long.
The upheaval of the Arab world and the tsunami in Japan both will both drive worldwide demand up in 2012.

Uh, now is the time to be getting IN. Buy low, sell high. When it's down, you buy and sit on it. Sure, things may go further south for a while, but you gotta think long term. It won't stay down forever, and then you'll be making some serious gains.

Google US debt ceiling crisis and you will find all you need to know. wsj.com would work too.

I think what you mean is keep buying on a regular basis? Leverage DCA?

my only comment to ZX is this: isn't the 10th of June a little on the late side to be thinking about debt limit related market decisions?

The bears have been making money since late april.

the justification if you want out of the market is that you might only miss two months of growth but the caveat there is that you don't know what that growth will be. I suspect one of three (or a combination) outcomes:

people worry and pull out and the market slowly fizzles downward for a while until the debt limit vote at which point:

A) the limit is raised and the market rallies (justification to stay in)

B) the limit is not raised and the market tanks (justification to get out)

C) big swings of uncertainty with half the market buying on the dips to try to time the market and a small rally or tank at the time of the vote (ie no big change in the big scheme of things and you dont win or lose either way)

I think the trick, like Jason mentioned is to find those investments that aren't going to be (as) subject to the risks. Insulate yourself from the uncertainty and hedge the potential dropout.

I'm planning for C with a little B personally. But I fully expect a small-scale A based on the practicality of avoiding the consequences of not raising the limit.

In other words, hopefully 1/3 of my holdings will do well enough to offset hits in another 1/3.

Not really. Because of the way we are set up at work I am buying and selling shares in CREF equity funds. They are set up to prevent frequent buying and selling of shares and therefore one cannot get in and out several times a month for example. Also, a sell order is not executed until the end of the next business day. Because of this, until now, I have been watching but not yet reacting. The market has been declining steadily for about a month now so in hindsight it would have been a good idea to get out sooner.

But hindsight investing is easy of course. So what I am gong for is this. It is clear that over the course of several days that the market almost always drops faster than it gains, especially when reacting to good or bad news. Therefore it is a little easier to time the recoveries than it is to to time the declines. So IMO the downside risk is more substantial than the upside risk (missing out on a rally). If Congress gets its act together the market will react positively, and though I may miss out on some of the rally, I will still have time to get in, especially looking at the long-term, which I normally am. If Congress does not get its act together, the market will react suddenly and drastically, and there will be less time to react.

Time cost averaging is a mostly a myth by the way. Studies have shown that random buys into the market do no better or worse than steady periodic investment. The reason that regular purchases work is due to discipline. That is, people tend to invest more when they buy regularly, via payroll deduction for example, than if they try to save up money and buy a lump purchase.

There is also the benefit with 401k and 403b setups of buying funds with pre-tax money. But, and this is a big BUT, this only works if taxes do not increase later on. If they do increase later on, and this is clearly a reasonable risk, then lump after-tax purchases into a Roth make more sense. I am splitting between both myself. The company contribution to my retirement fund is pre-tax. My contribution is post-tax (Roth).

so it sounds like you have a good handle on what you want to do.

and an interesting thought... if your statement about the market dropping faster than it gains is true, it would make sense to invest in bear funds which would show a reverse pattern of steady, slow decreases and abrupt increases. buy whenever and wait for the spike corresponding to the market drop to sell and then wait a while until it comes back down to your buy-in price.

There's millions of ways to look at this and millions of assholes (with a media outlet) to listen to. If anyone knew what the deal was they'd be charging an arm and a leg and everyone would do that. With that in mind and from my seemingly useless education, Here's what i'm doing: There's one of two simple things to do. I'm going to either cash out and take a penalty and risk it vegas style on silver (Which i wouldn't suggest if you have a family or only one source of income) OR play it safe and transfer all of it to an extremely low growth mutual fund and buy back in when I think it has leveled out. What you should do is buy an intro to econometrics book, and a intro to economic forecasting book and build your own model using eviews, R, or SAS. Believe it or not my brother uses his own models and has done extremely well for a guy that can't take off a door panel without breaking everything.

I'm all in, fully leveraged. Send me $100 in a self addressed stamped envelope and I will share my secrets of financial success in this turbulent market!

the only guaranteed way to make money off the market regardless of outcome is to charge a brokerage fee.

I yanked all of my shit out fourth quarter 2007 and I'm glad I did. I've made more playing scratch off tickets than I ever did in the market. My old man hates me for it.

On a day where I'm looking to pack-up and move to Houston, this scares me a bit.

I haven't changed a thing. Everything that was set with IRA's and general mutual fund buys a couple of years ago are still going. My only pending change is to decide where the next $1,500 a month is going in two months when the house is paid off. My wife and I are capped on 401k and can't contribute to a Roth most years. I suppose that I can just increase contributions to the mutual fund. As it sits now, almost all of my wife's salary is directed into investments. That $1,500 change would put her entire salary into investments and we live off of mine. Other than that, I'm thinking about piling up some extra money and buying some real estate with cash. No rentals - been there and done that. It's too hard when I travel. Maybe a house to fix up and flip or some farm ground.

Do you have a plan for when the USD erodes another 30% or so?

My GF now owns two condos in Houston, more to come...

I have no plan other than amassing as much of the worthless fiat paper as I can. Pretty confident with my approach.

amass Fiat 500s. when gas prices go nuts, you can sell for profit.

Here. The key word to remember is... UNSUSTAINABLE.

http://www.sovereignman.com/expat/is-it-fixable
http://www.sovereignman.com/expat/wh...nomic-collapse

So three weeks after I bailed, the US market indices dropped below where it was when I got out. The drop was very steep today, 2.2% on the Dow and 2.7% on the NASDAQ.

It looks like the Asian market indices are dropping as well.

Good thing Congress passed the debt bill. It looks like the markets are responding favorably. Not.

Feel free to site my Facebook status as anytime, you unoriginal bastard. And yes, I'm still waiting on the stock-market boom from Hussein saving us from Pelosi's vision of "the world ceasing to exist as we knew it".

Thanks to the pages...oh look, Gabby Gifford is here!!!!

oh herro double bear play time investments! nice of you to make 5% today!

I was happy to make my comission back.

Holy shit, as of 12 pm eastern the Dow is down 2.8% just from this morning's opening. NASDAQ is down 3.39%.

The S&P 500 is down almost 10% from its April peak.

Hang on to your hats ladies.

What is your process for moving back in to equities?

Do you know what the average intra-year drop is over the past 30 years?

I am going to wait for the recovery to take hold, or at least when there are better economic outcome predictions, and for the market to bottom out. Both are hard to know for certain of course. Then I'll get back in, hopefully not missing the rally, and go into a broad spread of foreign and domestic equity funds, same as before. I am in this for the long haul so fortunately my timing does not need day-trader precision.

I'm not an investment expert, but I play one on the internet.

In the mean time, I am no-cost refinancing the house with my current lender at a stupid-low 15-year fixed rate. Mortgage rates are really, really low right now.

A) Do you know what the total dollar amount of output lost in the official recession was? And how much of it has been recovered since?

B) If you are going to try and time the market (i.e. large tactical moves such as selling out of all or most of your equities to sit in cash temporarily), I would think you need a better defined process than the above.

C) "What economic outcome predictions?" As in predictions from economists? If you are using statistical economic indicators, which ones? Hopefully not things like unemployment and GDP.

D) How will you know the market has "bottomed out?" Bottomed out over what time period? For the calendar year?

This seems counter to the whole point of your OP and the ones referencing daily market moves. If you are in this for the "long haul," and do not need short-term precision, why are you attempting to time short-term (i.e. a few months worth of) market moves?

Going back to 1980, the average intra-year drop is 14.3%. More recently, in 2009 when the S&P finished +23% (price only), there was a short-term drawdown of -28%. In 2010, when the S&P finished up +13%, there was a short-term drawdown of -16%.

Dow closed down 4.3% for the day. NASDAQ is down 5.3%

Yep, exactly.

Glory hallelujiah

what a day

back in black here i come

i pulled what i had out a while ago. you know, gold is supposed to hit 2k/ounce by the end of the year!

ultrashort ultrashort ultrashort ultrashort ultrashort ultrashort ultrashort !!!! !

!

Again, for a guy with a long-term outlook, you are focusing on the day-to-day an awful lot.

I am not saying that tactical moves cannot add risk-adjusted return (I would argue just the opposite). I would argue that making major tactical moves based on "feelings," economist predictions and backward-looking or lagging economic indicators is the way to achieve "average individual investor" returns. You know, the kind that lag basic indices over normal investment time horizons?

If you were using a specific forward-looking data set or a defined process, it would make more sense to me. You seem like too smart a guy to be making huge moves based on emotion. :makeout:

There was $554 billion of output lost and $634 billion of output recovered.

Not sure if serious. Do you know what gold is trading at on an inflation adjusted basis? What the inflation-adjusted peak was and when it was? What happened to it in the years following?

Or, more simply, what typically happens to something with a nominal price chart that looks like the left side of the Eiffel Tower? ;)

Again, not sure is serious. "The market can stay irrational longer than you can stay solvent." Also remember that the leveraged ETFs have tracking errors over longer holding periods. They are really better used for very short term hedging.

Yeah I agree. Do not read too much into me following the market day-to-day. It is just interesting. I am not sitting here watching a real-time DJIA plot with my pointer on the 'execute trade' button.

You seem to know investing. What is your background? We need to get JasonC back in here. This could be epic.

Scrappy Jack. An intelligent Floridian?

I behold a pale horse...

If only Capitol Hill would provide an unchecked debt ceiling increase, this never would happen.

I played around with a little bit of bear and double bear funds over the last couple months just to see how it worked out. Since late April they're up 8 and 16% respectively. Of course the Dow is down about 8% over the same period but what I own in major index tracking ETFs sits where it sits and the DOG and DXD get sold off sometime in the next few days.

It wasn't enough cash to offset the short term losses from the last week but it was fun to watch.

I am going to break this in to a couple of posts because it got longer than anticipated.

I am "in the business." I have two major advantages over the average amateur (and most "professionals"): time and resources. I spend 50+ hours/week involved in finance, economics and investments.

I do not watch CNBC at all. Instead, I have access to institutional research and a lot of very smart people. None of those people are TV/radio hosts or newspaper columnists. I work hard to synthesize all of that data and those subjective interpretations to come up with an understanding of where we've been and the probabilities of where we are going.

That said, none of what we are discussing should be taken as me giving individual investment advice. We are just talking about general principles.

Understanding that all metaphors are flawed, you could think of your current investment "strategy" like this. Imagine you have an upcoming track day with an LS1 Miata. You look backward at the past couple of weeks of weather reports and see that it has been hot and getting hotter. You do not use any predictive weather reports. You do not compare the recent weather to any sort of historical averages. You just know that, in nominal terms, it's been damn hot and you feel like it will be damn hot for your track day.

So, you dump a bunch of fuel and pull a bunch of timing. It turns out, the track day is really hot and voila! Your car does not blow up because you are running a 10:1 AFR, practically no WOT timing advance and no detonation.

You are also making about 150 WHP in an LS1. You won't blow up, but you won't really set any respectable lap times, either.

When asked to describe your process for how and when you will dial things back up, your answer is "when things feel better, I will add more fuel and timing."

That would seem like a terrible tuning method, right? I believe the same thing goes for investing. It should be done using data and a specifically defined process (preferably a forward-looking one).

Going back to the car metaphor, a better strategy might be to say you will use certain DAQ measurements in defined increments, noting the car's performance as you progress, to get back to a specific target WHP range (e.g. 320 WHP +/- 15 WHP).

Again, I am not offering individual investment advice or soliciting business of any kind.

There were almost 9 million jobs lost and only a bit over 2 million gained since. This could be a structural issue for the short and intermediate term because of the type of jobs lost.

Using June 2011 numbers, gold spot price was around $1500 nominal and ~$270 inflation-adjusted. At the beginning of 1980, it was about $850 and $325, respectively. By 1983, it was trading under $400 nominal. In adjusted-inflation terms, it continued to fall for about the next 20 years.

In 1980, there was no GLD or other gold-oriented ETFs and the average investor did not have 24-hour online access to trading accounts. Gold was an illiquid asset that often required physical receipt (and redemption).

If you believe in reversion to the mean, it's important to remember that things that are extended to the upside rarely fall back and stop at the mean.

:2cents:

Extending the racing metaphor... Let's say I see that there is a lot of turmoil at the front of the pack, and that most all of the mid-pack racers are pushing very hard and racing in an overly aggressive manner. I know I do not have the car to fight through to the front of the pack, and even if I did, some mid-pack yahoo might take me out through no fault of my own. So I decide to hang back a bit in the back third of the field and wait for the big crash. It happens, takes out the mid third of the field, then I step up my pace on my plentiful fuel load and relatively fresher tires and catch the front third of the field where I can battle for position again.

So I am not on the podium, but I have finished ahead of most of the field, and still get some season points. So I am not Casey Stoner, but at least I am not Randy de Puniet.

I would argue this is where the metaphor breaks down, unless you have a specific process for returning to the market.

For example, if you monitor two LEIs and a couple of lagging indicators and decide 3 of the 4 must confirm your directional change. Or you are a chartist and use some specific technical indicators to guide your decision making process. Or some combination.

The average retail investor has seen 2.6% annualized returns for the past 20 years. The only major asset class I can think of that did worse than that was inflation at 2.4%. The S&P 500 TR was almost 8% and the BarCap Agg was about 6%.


Ultimately, it's your money and I don't know you so I am not invested in your success or failure. Likewise, you don't know me and I may be a complete idiot. I am practically a Florida native, after all. ;) I have not bothered to cite all of the sources for my data and you have not reviewed any sort of audited track record for my investing performance. Etcetera.

I just hate to see people making investment decisions based largely on emotion without any kind of defined strategy.

More historical, less emotional. So if the market drops say another 10-20% over the next year I think you should check back in and let us know when your indicators say we are near or at the bottom. Or, tell us what they say now about the probability that there will be a drop of this magnitude over this timeline.

What were the indicators you like saying before the 2007 drop, and the late-year 2008 drop, and what are they saying now? I have been making comparisons myself looking for something that looks reasonable.

Dude I make all my important decisions in life on pure emotion.

Buy a house? Because I like it.

Marry a woman? Because I like her.

Buy a car? Because I like it.



Not anymore.

The last time I "pulled out of the market for a little while" it was right before things hit rock-bottom in 2007. Lost about $100k on that little panic move relative to if I'd just stayed put and rode through the dip.

Emotion and "following the crowd" will get you killed sometimes. This is a buying opportunity.

The S&P 500 is currently off about 12% from its intra-day peak 1370.58 on 2011/05/02. The mean intra-year drawdown as discussed is a bit more than 14%. Averages, as I am sure you know, are derived from opposite ends. Unfortunately, I don't have the standard deviation data for that stat, but if you just use the average, it would be completely normal for us to drop several more percentage points from that peak.

Here are some data points:

• The Fed is running very accomodative and is likely to continue to do so for longer than most retail investors expect.
• The Money Supply is growing, even if velocity is low.
• CPI is constrained and there is plenty of slack and likely will continue to be. The most recent numbers are also backward-looking year-over-year delta numbers.
• The S&P 500 fwd pe is below its historical average.
• The ISM index reading was weak but still a 24th consecutive month of expansion
• The ADP number had a gain for the 18th month and payroll numbers were above concensus
• Corporate profits have recently hit an all-time high
• Some drags on growth continue to diminish, including one-time events like Japan
• Oil prices have fallen since the last backward-looking GDP numbers
• There is a chance the recent downward GDP revision gets changed on the next revision
• When consumer sentiment hits a trough, you often see strong 12-month equity returns
• Corporate and municipal defaults and delinquincies are low
• YoY improvements in productivity are below historical averages
• If it took 3 more years to get back to the 2007 peak, the S&P 500 would need to average almost 8% per year.

And that's just oriented toward US large-cap equities, with the caveat that the stock market and the US economy do not necessarily have a 1.00 correlation.

I am not saying you are right or wrong for moving to cash. I am not making a value judgment one way or the other. Nor am I making any kind of recommendations or predictions for anyone on this board.

I am just suggesting you have a more definitive approach to your large tactical moves than "a feeling." For instance, have a nominal or relative target for the S&P, a discounted forward PE, Dow Theory, relative strength, etc.

The last time I pulled out of the market, it was a few weeks after the DJIA had hit 14000 and there had just been a big correction. The talk of CDS, the housing bubble, and over-leveraging had picked up and I was listening. It was becoming clear there was real risk of a housing bubble burst, or at least at its current growth rate it was unsustainable. Since a large part of the economy depended on housing, there was a clear risk of a big correction coming.

So I got out of all my funds when the DJIA was around 13,000 and planned to stay out for at least 6 months to watch what happened. The mistake I made was getting back in within just a month or two when it looked like there was going to be a rally and I feared I would miss out. Then of course came the big plunge and within a year I (and most everyone else) had lost 50%.

Of course almost all of that lost money has come back. But If I had stayed out I could have made a bundle getting back in when it was at 8000 or so, which is about where I probably would have got back in since the DJIA had been slowly climbing. So it works both ways.

S&P just downgraded our rating to AA+, stating that the US has not solved its credit problem and that more needs to be done. So I submit that my original premise still holds. DC has not solved our debt ceiling crisis, but just applied the usually ineffective BS of kicking the decision to a committee whose recommendations, as good as they may be, may or may not be followed. The underlying problem still remains, and the debate will rage again before we know it.

The nation has polarized itself well beyond the point where public debate can be effective and result in beneficial compromises. If the radicalized populist pundits on BOTH sides of the aisle don't STFU, and stop the brinkmanship, things will only keep getting worse. And, the economy and the markets will suffer as a result.

So, in other words, without a defined and disciplined strategy for re-entry, your fear-based investing did what for you?

Read again

Help me understand. If I am reading correctly, you moved from equities to cash after the DJIA had fallen from about 14,100 to around 13,000 but then got back in shortly afterward based on fear - rather than using any sort of defined process - and still lost about half your value like "most everyone else."

Now, though, most of the value has recovered.


In what way did your emotionally driven moves do better than even a "buy, hold and forget" strategy (of which I am not a proponent)?

That was my point. Getting back in too soon was a 'fear' move or put another way a greed move (fear of missing the rally) and it was the wrong move.

If I had stuck with my 'analysis', as amateurish as it was, that the housing market growth rate was unsustainable, and that a lot of the economic boom at the time was dependent on it, then I would have done much better.

BTW there was also the ridiculousness of people obtaining huge loans on houses with no proof of income, just so they could flip houses. And of course the flipping boom could not go on forever. This was all possible since those writing the loans did not carry the downside risk. It was clearly a bad idea, yet it was rampant during the feeding frenzy. I never understood that one, and it seemed to me it would end badly, which of course it did. No emotion there, just basic economics. I like most did not really understand how bad things were behind the scenes with this whole house of cards (no pun intended) being rolled into untraceable MBS (mortgage backed securities, or massive bull shit LOL) and leveraged so heavily by the investment banks.

So, with hindsight, you have identified that your emotion-based re-entry to equities was poorly timed. In what way will your current plan allow you a better probability for making the same mistake?

You said before that 8,000 on the DJIA would have been your likely target for re-entry if you had not allowed fear to force your hand early. What is/are your target(s) this time?


PS - Feel free to tell me, "fuck off; it's mah monies and I do what I want!" at any time you get bored of my persistent and novice Socratic method exercises. :D

Good questions. How about less 'what are you going to do this time' and more 'here were the indicators last time (2007-2008) and here is what I think I would look at now'.

For me the target was not so much re-entering at exactly 8000. It was more that the recovery had begun to take hold and the market had been steadier than it had been for awhile. That and listening to day-to-day analyses and bigger picture analyses.

Scrappy, what's your take on support/resistance levels as short term aids for when to buy in or sell off?

I'm thinking specifically of sites like stockta.com

I pulled out of the market last year after a few stupid moves (like missing dates on options expirations due to ignorance and lack of time to invest).

My pull out began when I stopped trading equities and focused just on options. I kept a few equities at first and sold some covered calls...but then found it was much more worthwhile selling puts or shorting calls. If you have a fair amount of time to research into the overall outlook of the markets, pick a few big names and trade options on them.

I haven't traded for a year or so now. I've decided the stock market (other than passive retirement contributions) is too stressful and time consuming if you want to do well. I'm on the 'save and buy a rental' plan now.

[This is going to come across dick-ish in text, but that's not my intent.]
I have already listed over a dozen different indicators you can look at for guidance. We use a number of different indicators (of which I have listed several) and the models are generally client-dependent. I'm not going to list specific models because (A) some are proprietary and (B) I don't want it to appear that I am giving specific investment guidance.

That sounds like a cop-out but just ask yourself if the questions I am posing make sense and, if so, whether you want to answer them differently than you have in the past.

How are you defining "the recovery had begun?" GDP growth? Fed Beige Book data? Manufacturing indices? That's an example of what I am talking about.

Again, I hate using metaphors but I would compare that to doing a tune and saying, "I'll pull timing until it feels better" but not actually monitoring knock (via sensor or even det-cans) or using anything to measure power output delta (a dyno or even a "road dyno" program).

I'm not familiar with that website. My personal take on technical analysis is that it doesn't matter in many ways whether I believe it is valid. I believe that enough other people do that it can affect market movements.

I personally do not believe in using only one type of analysis (fundamental vs technical, macro vs micro, top-down vs bottom-up, etc).

I will say one thing.

I've been sitting on the sidelines all throughout this "recovery", waffling back and forth between "This appears to be stable, and I'm missing out on the action" vs. "no, the fundamentals are still broken and this can't be sustainable."

Attachment 240728

Feeling pretty good about my decision right now. It's like Oct 2007, except I'm not losing the equivalent of a used Porsche Boxster every single day.

Just take a short position every time Obama has another speech scheduled.

At this particular instant, I don't even have any money in a brokerage account, as I'm halfway in the middle of closing one account and funding a different one (which I'm feeling pretty stupid about right now- today would have been a great SPXU day...)

On the other hand, I was going to gobble up a bunch of AGNC, in which case I'd have taken yet another ass-fucking over the past few days, so I'm glad I hadn't had a chance to do that yet.

Gotta get those funds moved. There's a buying opportunity coming.

:facepalm: guess I just lost 10K today in my roth - to bad I didnt have another 10 on standby, I'd be blowing it tomorrow.