Stock market correction or bear market/crash? Either way I bailed.

Discussion in 'Investments' started by landlord, Sep 21, 2015.

  1. landlord

    landlord Frequent Poster

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    Last edited: Sep 21, 2015
    I only started studying the stock market at the start of this year. So would still most definitely consider myself a rookie. I invested a large lump sum at the start of August and lost just over 10% within three weeks and about 12% when I sold last week. (Mid sept 2015).
    After a six year bull run I believed when I started investing in early August that the equities market had a year or two to go before it peaked and this may still be true. My goal was a 15 year long term investment.
    It is said that the long-term investor should not try to time the market and sure, had I left my funds alone for 15 years I probably would have beaten deposit rates by a descent margin. But it just doesn't make sense to me to continue investing at the top or close to the top of a 6 year bull run, especially when there are so many negative indicators, both politically and economically. Stocks are massively overpriced and there currently seems to be tremendous economic instability. Statistical history suggests that this bull market may end fairly soon, so it seems logical to wait for better value.
    I would hope within a year or two my original chosen funds would have dropped in value to a point below or significantly below what they are at now. (But who knows).
    As for the timing of my exit, I did consider hanging in for a bit longer to at least try to recover my losses and at best pull out closer to the peak of the current bull run. (Greed?)
    However after several restless nights concerned over when exactly that peak will be, I started to think to myself what would I do if the market suddenly dropped 5 or 10% in one day, well probably the same as most investors and consider the drop to be a temporary blip and wait for the rally the following day, potentially suffering an even greater loss if it's a genuine crash. After all the volatility in the markets in the last few weeks has frequently seen 2 to 3% falls and rises in the main indices in a single day. However I suspect a true crash would likely catch many including myself by surprise.

    As Rory Gillen says in his book 3 steps to investment success (A great book I have to say), "Avoid letting volatility interrupt your savings or investment plan. I personally psychologically couldn't handle this volatility even though I had a 15 year long term investment plan. I suspect I would have handled it much better at the end of a 6 year bear run as opposed to the end of a 6 year bull run.
    I am aware that I have possibly made a stupid rookie mistake and converted what may have been a temporary loss into a permanent loss. However perhaps I have saved a small fortune. Only time will tell. But either way I would prefer to bail out a year or two early then a day too late.
     
    Last edited: Sep 21, 2015
  2. RobFer

    RobFer Registered User

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    Last edited: Sep 21, 2015
    It would be worth calculating out in the event of a crash being on the horizon how soon would the crash have to be in order for keeping money out of the market to make sense.
     
    Last edited: Sep 21, 2015
  3. Fella

    Fella Frequent Poster

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    Landlord I'm suprised you bailed but understand why, it's hard for people that are not used to losing money to suddenly start investing and watch as they value of their investment declines.

    one thing I have learnt through years of gambling trading etc is that markets are generally efficient , this really helps me when I view my positions the markets will correct themselves if they are over priced or under priced , I never ever worry or entertain anything I hear or read about bull bears or prices . I buy very liquid efficient products that should produce a positive expected value over time , forget opinions most importantly your own . I constantly have to block out my own opinions when gambling trading and and follow my set rules and this is what makes money for me long term , I use the same tactics with stock market ,
    Buy and hold high liquidity low spread low cost and don't sell or rebuy , the stock market could go any way this next few months short term nobody knows.

    Glad you posted if nothing else it will open a discussion on stocks and the mental side of investing .
     
  4. Gordon Gekko

    Gordon Gekko Frequent Poster

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    Sadly all that probably happened is you turning a temporary loss of capital into a permanent one.

    The key in my view is to take on a level of risk that you're comfortable. Take a medium risk balanced portfolio. If markets fall by 40%, you'd expect your portfolio to fall by around half that. In such circumstances, you'd probably feel okay about things. The behavioural side is all about the volatility and your ability to withstand it.
     
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  5. Bronte

    Bronte Frequent Poster

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    You shouldn't invest in shares.
     
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  6. username123

    username123 Frequent Poster

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    Sorry to hear that. What's your plan for the remaining 90%?
    Those large drops is one reason I'm using DCA approach rather than lump lump sum approach. TBH id welcome a 20% drop, means I'll be buying at discount next month....
     
  7. Brendan Burgess

    Brendan Burgess Founder

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    It is extraordinary that you have concluded that stocks are massively overpriced, yet you invested anyway.

    How much of your net wealth did you invest? While the likes of "Dollar Cost Averaging" appears to make sense, it's complete nonsense from a rational, financial point of view.

    However, it might allow you to sleep better by dipping your toe in the water.

    Brendan
     
  8. landlord

    landlord Frequent Poster

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    Brendan you have miss read my post.....
    I did not start investing after realising stocks were massively over priced.
    I said in my original post.....
    It just doesn't make sense to me to "CONTINUE INVESTING" when stocks were massively over priced.
    It took a few weeks of investing, a crash in China and futher research to appreciate just how over priced stocks were/are.

    Talk about kicking a man when he's down!!!!
    I wrote this post with my hands up saying yes I have potentially made a mistake. I did mention at the start of this post that I considered myself a rookie stock market investor.
     
  9. landlord

    landlord Frequent Poster

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    Last edited: Sep 22, 2015
    Hi U123
    I have seen this megaphone graph (of the DOW JONES) now used by several economists to describe the next bear market or crash.

    https://staticseekingalpha.a.ssl.fa...4418435388064744-Gregory-Mannarino_origin.png

    No idea if it will come to fruition, but I will consider investing in smaller amounts (if only for peace of mind) on the down side of the next bear market. I am in no rush. Once bitten twice shy!!! so I am currently sleeping better with a strong cash position. (He says writing this at gone 1 in the morning ha ha).
     
    Last edited: Sep 22, 2015
  10. SBarrett

    SBarrett Frequent Poster

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    Hi Landlord

    It seems to me that you are trying to time the market. No one can time the market on a consistent basis. You may get lucky once or twice but that's all it is, luck.

    If you have a 15 year investment horizon, you should stay with that view and not be looking at your portfolio on a daily basis. Once a year is enough.

    If the volatility of the stock market is too much for you, don't invest it all in equities. Spread your risk and look at the portfolio as a whole.

    Steven
    www.bluewaterfp.ie
     
  11. Brendan Burgess

    Brendan Burgess Founder

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    Hi landlord

    My apologies. I didn't mean to kick you when you were down. In fact, I admire you for admitting your mistakes.

    I am still confused though. You began studying the market at the start of the year. You waited until early August to invest. Surely there must read other articles which suggested that the market was overvalued before you invested?

    I don't think you learned anything materially new about the market in those 6 weeks. You did learn something important about yourself, though.

    The big lesson is to invest a small amount of money early on in life and get used to wild gyrations of the stock-market. I encourage young people, especially college students of business or finance who have some savings, to buy one share and watch how it rises and falls. That bring their academic studies to life.

    The way to long term wealth is by investing in shares for the longer term. A lot of people have been deprived of this wealth growing opportunity by sudden losses early in their investment career e.g. eircom investors. You should not let your loss put you off.

    Brendan
     
  12. username123

    username123 Frequent Poster

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    Hi Brendan,
    Could you elaborate a little on your opinion about DCA above? Do you think it's nonsense due to fees, time taken to invest the lump sum or otherwise?
    Thanks
     
  13. Fella

    Fella Frequent Poster

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    Landlord you should watch some Warren Buffet he speaks a lot of sense when it comes to the stockmarket. He says if you buy a house or Farm you don't get it valued everyday , so don't go checking the value of your investments everyday, just check now and in 15 years ,everything inbetween doesnt matter!
    You'll just drive yourself mad checking, I automate it as best possible , to avoid charges I have to invest every 90 days with saxobank , so I have reminders by email to buy xxxx at 90 days from last purchase , don't care what price I buy at its an open market so i'm likely getting par value (-fees and spread) .
     
  14. RobFer

    RobFer Registered User

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    I am trying to avoid market timing like a lot of new investors but I have to stay when one sees a respected stock like Volkswagen massively drop in price its so tempting to try to step in and grab a bargain. I have never felt the same when a stock I hold drops in price but maybe its due to the fact that I have a pretty small portfolio. Perhaps that is is an major advantage of starting small.
     
  15. Sarenco

    Sarenco Frequent Poster

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    Hi Landlord

    I think Brendan is absolutely right when he says that you have learned something about yourself from this experience - you have learned that you actually have a very low risk tolerance.

    History tells us to expect a stock market correction of 10%+ roughly every 12 months on average. If a 10% drawdown is causing you to lose sleep, then it seems obvious to me that you are not a good candidate for having a significant proportion of your liquid assets invested in equities while carrying large amounts of property-related debt.

    By bailing out at the first sign of trouble you have crystallised a permanent, irrecoverable loss but in the long run it may prove to be a small cost to pay for this valuable lesson regarding your own psychology.

    When you say that equities are over-priced, I would make the point that all valuations are relative. Are stocks over-priced relative to bank deposits, bonds, real estate, gold? Staying in cash while waiting for stocks to become "cheap" is market timing, pure and simple.

    Fair play to you for reporting back to us and do let us know once you decide your next move.
     
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  16. galway_blow_in

    galway_blow_in Frequent Poster

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    timing is the key difference between great investors and the majority , there are thousands of great companies out there , getting them at the right price is the trick , take VW , its still a great company but anyone who bought last week or worse three months ago , has made a horrible call

    OP , perhaps you might be better investing a small amount every month on an ongoing basis , that way over the long term you are going to be buying at a decent average , you might also find it easier to ignore price movement , say someone began such an approach in the year 1999 and maintained that system to this day , they would have bought when stocks were very expensive in 1999 , saw a severe drop from 2000 - the end of 2002 , then a very strong run up from 2003 - 2007 , then the mother of all bear markets from that top to early 2009 , only to see one of the largest ever bull markets since early 2009 , overall they would be doing fine since 1999

    some might try and incorporate such an investment plan into a tax efficient pension plan

    to summarise , it sounds like you went in with a lump sum at a bad time

    could be worse , 10% is not enormous , how do you think someone who bought VW shares at 260 euro in march feels ? ( not me by the way , i just noticed today the stock was at that price only six months ago )
     
  17. galway_blow_in

    galway_blow_in Frequent Poster

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    VW is being massively shorted right now , the kind of fall we have seen in the companies share price since yesterday only happens to penny stocks ( which are scams to begin with and are hyper volatile ) and with once in a generation global market crashes like in 1929 , 1987 or 2008

    VW could continue to fall for another few weeks or months before it bottoms but a stock doesnt fall 40% plus in two days without manipulation
     
  18. Brendan Burgess

    Brendan Burgess Founder

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    Hi username

    I believed it myself until a few years ago when someone on askaboutmoney pointed out the nonsense that it is.

    Loads of articles online to show that it's complete bunkum.
    This is a fairly good one:

    Myths and Fallacies of Dollar Cost Averaging



     
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  19. Sarenco

    Sarenco Frequent Poster

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    Dollar cost averaging is just market timing by another name.

    By having less assets "on risk" for longer, your risk of suffering a loss is obviously lower but, critically, so is your expected return.

    There is a consistent and immutable link between investment risk and expected return and nobody can consistently time the market.
     
  20. Jim2007

    Jim2007 Frequent Poster

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    And what calculations did you use to arrive at the conclusion? Because a quick look at some average P/E ratios would suggest reasonable prices rather than 'massively over priced' as you seem to think.
     
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