"Stay the course"? Bah humbug!

Gee - where have I heard that.

Seriously, the above is typical of a bear market. Also typical of a bear market is that they end, and they do so when the vast majority of investors feel it will last forever and America as we know it will never be the same again.

Before anyone asks, nobody knows when this will reach a crescendo. My guess - and I am a lousy guesser - is somewhere slightly between Dow

6500-7000 and SP500 600-700. Anybody else want to guess for fun?

-HW "Skip" Weldon Columbia, SC

Nobody knows what exactly will happen in the near future. And those who do think that they know, usually do not know. It is a lot easier to concentrate on the present and buy stocks when they are cheap and sell them when they are too expensive.

i

The human mind has a real talent for believing the current trend is going to last forever. It is one of the things that makes investment decision making so difficult. It also seems that about the time things turn around, we get a post here about disaster in the offing. We had a post suggesting $2.00 euros just before the recent dollar rally and a 15% inflation post just before the biggest CPI drop ever.

At this point, we are in the second worst bear market since 1929. It is incredibly difficult to watch your net worth decline with every market drop. So stop watching. I'm currently shredding my brokers' statements without opening them. Selling now is the absolute worst thing to do. There is far more upside than downside.

I think we are at or near the bottom. We have a lot more bad news ahead. GM is going to go Chapter 11, earnings are going to continue to decline, unemployment is going to continue to increase, GDP is going to continue to contract, at least for a couple more quarters.

But the market has most of that priced in. It also tends to look 6 months ahead. The current increase in volatility is another sign of an approaching bottom. But I've been wrong before and will be wrong again.

-- Doug

lt is interesting that, a year ago, almost everyone in this newsgroup would have recommended "staying the course" in spite of the inevitable bumps and blips in the market, because of the historical long-term performance of stocks. Now we are beginning to see more and more frequent questioning of that advice, even among experts and professionals.

There is a wide gap between sage financial advice and actual practice on the part of small investors. The plain fact is that it is extremely difficult to "stay the course," even by people who appreciate and understand the reasons behind the advice. People stay the course in good times and veer off course in bad times.

I wonder what the advocates of "dollar cost averaging" are recommending nowadays. If someone decided to put $200 into the market every month, year after year through thick and thin, should that plan be continued without flinching right now? If it ever was a good idea, I wonder how many investors, large and small, are actually following it at present.

snipped-for-privacy@hotmail.com wrote > The point is: when facing a small brown bear, "stand tall and stand

What you want to do is to recognize that this is not a Kodiak bear, and that the aforementioned "platitudes" are in fact wisdom.

This is a bad moment for those who buy stocks the same way gamblers lay chips on the table in Las Vegas, practicing numerology, so-called momentum (with no basis at all for further momentum) and so on. Of course you are panicking, just like a gambler losing would panic. But for those who buy stocks understanding they are buying ownership of a company, and for those who know something about these companies, this market dive is a part of economic cycles.

Stay the course. Remain diversified. Re-invest dividends. Live within your means. Note that you can take a road trip for about half of what it cost a few months ago. Go fishing. Don't read no stinkin' brokers' statements. Re-read Douglas Johnson's very good post in this thread.

Same here. I'm staying the course because I believe it's the right thing to do.

Elizabeth Richardson

You're right about that. The phenomenon is called the recency effect. I invite anyone not familiar with it to google.

The human mind has a real talent for believing the current trend is going to last forever. It is one of the things that makes investment decision making so difficult. It also seems that about the time things turn around, we get a post here about disaster in the offing. We had a post suggesting $2.00 euros just before the recent dollar rally and a 15% inflation post just before the biggest CPI drop ever.

At this point, we are in the second worst bear market since 1929. It is incredibly difficult to watch your net worth decline with every market drop. So stop watching. I'm currently shredding my brokers' statements without opening them. Selling now is the absolute worst thing to do. There is far more upside than downside.

I think we are at or near the bottom. We have a lot more bad news ahead. GM is going to go Chapter 11, earnings are going to continue to decline, unemployment is going to continue to increase, GDP is going to continue to contract, at least for a couple more quarters.

But the market has most of that priced in. It also tends to look 6 months ahead. The current increase in volatility is another sign of an approaching bottom. But I've been wrong before and will be wrong again.

-- Doug

These are the times that advocates of "dollar cost averaging" hope and pray for. Buying in bull markets makes you little money. The real investing money is made by buying throughout bear markets, not by selling at lows.

Any long term investor that continued to invest during the bear markets of

1973 to 1975 and 1980 to 1982 is way ahead of the game even with the S&P 500 at 800.

The main problem is actually having the money to continue to invest during a severe bear market.

S&P's total return data for the S&P 500:

1927 +37.5% 1928 +43.6% 1929 -8.4% 1930 -24.9% 1931 -43.3% 1932 -8.2% 1933 +54.0% 1934 -1.4% 1935 +47.7% 1936 +33.9% 1937 -35.0% 1938 +31.1%

It's interesting that as of this morning the S&P 500 has lost ~52% since its peak close in October 2007, not factoring in dividends. Compounding the figures above, the cumulative loss from 1929-32 was ~64%, including dividends.

Meaning the stock market decline of the past year, half of which happened in just the past 2 weeks, is comparable to the cumulative losses during the worst stock-market period of the Great Depression - a period that spanned four years.

Another interesting data point: the dividend yield on the entire US stock market is north of 4% at the moment, subject of course to changes in dividend payout (up & down). The 30-year Treasury bond yield is about

3.7%.

-Tad

On Nov 21, 5:50 am, "HW \"Skip\" Weldon"

That's a 7-20% decrease; pretty significant in my book.

If you believe that might be the case, why not cash in now, hold for at least 31 days (to avoid wash rules), then jump back in?

Arguably, you are risking being wrong and missing a (sustained) market rebound.

But realistically, understanding the factors that are driving the market down (or wildly sideways) now and perhaps recognizing the fact that those factors will not change for the better at least until after Jan 20 (and probably much longer), just how much of a (sustained) market rebound do you really believe is possible in the next 31 days?

On the flipside, if you cash in now and manage (by dumb luck) to hit the market low (more likely soon thereafter), your "bullish" gains will start from the current market value instead of an even deeper hole of 7-20%. Remember: to recover from a 7-20% loss, you need a gain of 7.5-25% just to break even.

The cost of such a strategy depends on whether it occurs in a taxable or tax-deferred account. "No cost" in a tax-deferred account (other than trading costs). "Negative cost" in a taxable account, probably for several tax seasons, due to the large cap loss that will offset future gains.

With 20-20 hindsight, is there really anyone who doesn't wish he applied that strategy at the beginning of the year? ;-)

I think it would be untruthful to say "no". So the only reason not apply that strategy now would be a conviction that the market has indeed bottomed out, or nearly so. Personally, I think the economic factors that has been driving the market decline, most notably the sell-off in the last few days, will continue for a long time.

My point is: I think the reasonableness or not of the outlined strategy turns not on platitudes, but on one's feeling about the market and the economy. I feel it has a lot of downside potential. "Reasonable people can disagree". But my opinion is no less valid than yours.

So I return to my original question: for those who believe, as I do, that the market has "a lot" more to fall, what strategies are reasonable to preserve the value of your liquid assets and avoid taking potentially many years to recover?

Good luck with that, Doug.

Housing will see further decline, lending is still hard to find. This Christmas shopping season is slated to be the worst in 30 years. Unemployment is on the rise, no one is buying automobiles and the big three have an excellent change of going into chapter 11. I think 2009 won't see a lot of progress in the averages.

"kastnna" wrote

Vanguard 500 is down 47% year to date. That's 'Kodiak' enough for me. QQQQ, the Nasdaq100, is down 50% year to date. IWM, Russell 2000, is down 49%.

" the typical Bear shows a 30 per cent loss. "

Right now it looks like the future is not clear. It could be a midsize bear market or huge bear market. It could also recover as a small bull market or huge bull market.

But do not forget that the future is never clear. The more people think that it is clear, the more troublesome it actually is.

In any case, with valuations of stocks down so much by a factor of two, there is a lot less risk to owning stocks, than there was. At the same time, the upside is also twice greater.

i

I'm sorry. I'm not sure what you are saying. That the shorts have been having a party they'll remember for the rest of their lives? No doubt.

My comment that this is the absolutely wrong time to sell is addressed to folks that are normally long and still are.

-- Doug

It's hard to see that it is as deep as the liberal media would like you to believe. Today there were long lines like in the 1930s bread lines. Except today the lines were for buying $200 Blackberrys. People still have money and are still willing to spend it.

Elizabeth Richardson

Maybe I don't understand your question, but if you are so sure the market is going to fall a lot, then why not just short the indexes, there are plenty of Ultra short funds where you can get 2x or more upside for every tick down in the market. That would be acting on the courage of your convictions.

The replies you are getting from a lot of other posters are admitting to less certainty and hubris regarding their knowledge about where the market is going next. I also admit I have no idea where it is going in the short term. I am staying invested because I am not smart enough top "know" where the market is going, and at this time suspect that over a moderately long term, there is much more upside potential then downside risk.

It seems to me many people who now "know" the market is going to keep going down are many of the same people that "knew" the market was going to keep going up a year ago...

Sorry, I didn't catch that qualifier. You also said that much of what's happening is already "priced in". Many experts disagree, they readily admit that there are many unknowns remainging in this credit crisis. The lenders still aren't lending, they are using the bailout money to buy other banks. As Elizabeth mentioned, there were long lines to buy the new Blackberry. That line was shorter than the number of insurance companies and other institutions that want to buy a bank or reorganize into a bank holding company so they too can get a piece of the taxpayer giveaway. There is nothing wrong with staying on plan but there are ways to ease the pain.

True, but I do not hear too many people advocating that course of action nowadays. People talk a lot about the advantages of dollar cost averaging when the market is high. It is easy to sit back and think about the increase in the value of stocks over a 50 year period when the market is heading up. But when the market is low, people tend to put rational thinking and their long-term plans aside, and the next 6 months ahead seems like 50 years.