The Coming Crash?

[sharkman]

No one knows where the markets are going? There are plenty of people who do. You do, for instance. You've expected the market to be growing the last few years, and it did. I'm just looking saying it's going to rain when I see some rain clouds, not really that complicated. If the Chinese market drops again tomorrow, the DOW probably will too.

You sound a little worried.

[Bonam]

Naw, msj is precisely correct. The stock market is on sale right now. It doesn't particularly matter if the sale will deepen tomorrow or if prices will start to go back up, because no one can know that. I like buying things when they're on sale.

It's funny, most people like to buy stocks when they are overpriced and run away from them when they're on a discount. Great way to lose money. This time isn't any different than every other time. The world isn't ending. Stocks will eventually go up to new all time highs (whether it takes a week, a month, a year, or a decade), and any significant pullback from previous all time highs is a great buying opportunity.

Edited August 26, 2015 by Bonam

[sharkman]

Yes, certainly things are on sale right now, and stocks will eventually go up again. Once they finish going down, that is.

Edited August 26, 2015 by sharkman

[Bonam]

Great, then if they go down even more we can all buy some more when they're even cheaper!

[Argus]

Great, then if they go down even more we can all buy some more when they're even cheaper!

Nice, unless, of course, you already own the stocks which are getting 'cheaper and cheaper' of course.

[Bonam]

Nice, unless, of course, you already own the stocks which are getting 'cheaper and cheaper' of course.

Not a big deal unless you were planning to sell them soon, or unless those stocks are getting cheaper because the companies in question are actually doing poorly. If the stocks are getting cheaper as part of a broad market selloff while the underlying fundamentals remain solid, then I don't see why you would worry about the current price. In fact, if you own particular stocks because you think those companies have solid growth/return prospects, then you should take the opportunity of them getting cheaper to buy even more!

[msj]

No one knows where the markets are going? There are plenty of people who do. You do, for instance.

I do?

That's news to me.

I surmise that over a long period of time the markets will go up.

History is no guarantee however.

I also guess that when I buy stocks/sectors/countries that are cheapish (based on my valuation metrics) that they too will go up with time.

But I'm not going to lose sleep if I pay an extra bit here and there because I'm worried the bottom is going to happen tomorrow or the next day or next month or next year.

That's how those who follow Marc Faber and Peter Schiff stay in gold and on the sidelines for years and years so they can hit a home run every decade or so while missing out on dividends and market runs like we have had in the past several years.

You've expected the market to be growing the last few years, and it did. I'm just looking saying it's going to rain when I see some rain clouds, not really that complicated. If the Chinese market drops again tomorrow, the DOW probably will too.

Sure, and if they don't, or one or the other doesn't then it won't. And maybe you will put your cash to use or maybe you won't. Maybe you will buy a few more shares than me or maybe none at all.

You sound a little worried.

Not sure how any of my words can be interpreted this way.

I don't read any emotion into anything I have stated here.

In fact, whenever you read my posts you should assume no emotion even if I'm using cuss words (which is usually a sign of slight humour/incredulity rather than anger).

At any rate, I bought some Deo today. Always wanted to own some liquor!

Also picked up some Gpro.

But for fun, I bought Tube. Look that one up.

Let's just say that howardlindzon, some trader involved in the creation of Stocktwits, stated yesterday to only buy stocks with a market cap greater than $3 billion.

Tube has a market cap of around $350 million.

As I tell my wife: I've got ballz!

But that's bought with my fun money so no matter if it goes down the tubes.

Edited August 26, 2015 by msj

[msj]

Nice, unless, of course, you already own the stocks which are getting 'cheaper and cheaper' of course.

I've never known anyone who has only owned investments that only go up and never go down.

Not even Buffett/Munger.

You, sir, must be a guru extraordinaire!

Or some anonymous dude on the internet....

[Bonam]

Yes, certainly things are on sale right now, and stocks will eventually go up again. Once they finish going down, that is.

Doesn't look like things went down very much today

That's why it's useless to try to guess which way stock markets will go on any given day. The only things that can be said about stock markets with any certainty better than a guess are long term, statistical, statements.

[msj]

Doesn't look like things went down very much today

That's why it's useless to try to guess which way stock markets will go on any given day. The only things that can be said about stock markets with any certainty better than a guess are long term, statistical, statements.

It's not only that - look at the indexes and compare it to specific stocks.

I bought some Diageo, GoPro and Tube this week.

Right now I am about break even on Diageo - I put my order in yesterday while the stock was just going down. It continued to go down and then went up today but not quite to the level that I bought at.

Now, should I be concerned that I did not buy exactly at the bottom earlier today or on Monday? Um, no. We're talking about a small difference that should be rendered meaningless with the passage of time.

The same with GoPro - despite the indexes being up I would have been better off to have waited to buy it today around 12:15pm EST.

Once again, how would I know this before hand?

All I know is that it was in the price range where I was happy to buy it.

As for Tube, well, ok, I got lucky there and I'm up around 10%.

But I could have done better if only I had known to buy shares first thing Monday morning when they opened around $9.15 rather than pick them up a short while later around $10.

Once again, how would I have known?

I don't know where the bottom or top is and I don't really care as long as I get it going down, it eventually goes the other way, and then I end up selling it at a higher price.

This is the bottom line: am I making a good enough return to fund my retirement?

It has nothing to do with timing the market perfectly.

That's for fools.

[sharkman]

And if someone comes on here talking about timing the market perfectly we can all share a laugh. Hopefully things start to normalize now, after 6 days in a row of dropping, it's nice to see some good news.

[Bonam]

I mostly avoid individual stock picking cause I don't have the time to research them enough. Plus, stats show that almost no financial professionals can outperform the market as a whole over the long term, and while I'm smart, I doubt I would be better than 90% of professionals in a field that I'm not even in

So instead, I mostly just buy SPY.

[msj]

And if someone comes on here talking about timing the market perfectly we can all share a laugh. Hopefully things start to normalize now, after 6 days in a row of dropping, it's nice to see some good news.

Yet you are trying to time the market perfectly.

Re-read what you have written here in the past few days and consider your purchases (or likely lack of them).

Have you been waiting for the price to go down some more?

Do you think that it is going to go down to whatever level will become the bottom and you will somehow just know that that is the bottom and you will buy?

I don't think you know the bottom any better than Bonam or I do.

I know I do not know any bottom until I see it clearly with the benefit of hindsight.

[msj]

I mostly avoid individual stock picking cause I don't have the time to research them enough. Plus, stats show that almost no financial professionals can outperform the market as a whole over the long term, and while I'm smart, I doubt I would be better than 90% of professionals in a field that I'm not even in

So instead, I mostly just buy SPY.

Yeah, I know I should just buy SPY but I can't help it.

There are certain countries, sectors, stocks on my watchlist that I just have to own one day.

And when I get that email saying it has hit my strike price I tend to pounce like a kid in a candy store with money burning a hole in his pocket.

No surprise here - I am now light on cash until next month when I put my usual contribution in.

[sharkman]

Yet you are trying to time the market perfectly.

Re-read what you have written here in the past few days and consider your purchases (or likely lack of them).

Have you been waiting for the price to go down some more?

Do you think that it is going to go down to whatever level will become the bottom and you will somehow just know that that is the bottom and you will buy?

I don't think you know the bottom any better than Bonam or I do.

I know I do not know any bottom until I see it clearly with the benefit of hindsight.

Nonsense. I'm not trying to time anything. I'm just calling a spade a spade, something people seem scared to do when it comes to the markets.

All I've said is when you see rain clouds, it's probably gonna rain. I have zero money in the stock market at this point btw, I'm doing retirement planning the old fashioned way, with company paid pensions. And yes, I know that means I have money in the market, just none of my after tax stuff.

[msj]

Nonsense. I'm not trying to time anything. I'm just calling a spade a spade, something people seem scared to do when it comes to the markets.

What is a spade?

Do you think the market cares what you call it?

The fact that you were wrong as Bonam pointed out above - does that mean you called it a spade but it's now a diamond?

Markets go up and they go down so stop pretending you know their gyrations any better than anyone else.

Most of it is random noise and BS.

Do you honestly think it makes sense for Tube to go down 15% (or whatever it was) and then up over 20% in the span of 3 sessions?

The markets may make sense in the long run but in the short run its all fear and greed and if you buy when things go on sale (fear) then your chances of having better returns go up considerably.

[Bonam]

Yeah, I know I should just buy SPY but I can't help it.

There are certain countries, sectors, stocks on my watchlist that I just have to own one day.

And when I get that email saying it has hit my strike price I tend to pounce like a kid in a candy store with money burning a hole in his pocket.

No surprise here - I am now light on cash until next month when I put my usual contribution in.

Yeah I've got stocks I own just for fun as well. They make up probably 1/4 of my equities or so. The rest just goes to index funds like SPY.

[sharkman]

What is a spade?

Do you think the market cares what you call it?

The fact that you were wrong as Bonam pointed out above - does that mean you called it a spade but it's now a diamond?

Markets go up and they go down so stop pretending you know their gyrations any better than anyone else.

Most of it is random noise and BS.

Do you honestly think it makes sense for Tube to go down 15% (or whatever it was) and then up over 20% in the span of 3 sessions?

The markets may make sense in the long run but in the short run its all fear and greed and if you buy when things go on sale (fear) then your chances of having better returns go up considerably.

Huh? Man, you are really over thinking this.

[msj]

Huh? Man, you are really over thinking this.

This is just strangely extreme: I've gone from being some worried fearful dude to some overthinker.

How about this is a discussion where views are expressed and thoughts conveyed while you label people with your ad hominem nothings?

[Moonlight Graham]

Yeah I've got stocks I own just for fun as well. They make up probably 1/4 of my equities or so. The rest just goes to index funds like SPY.

What do you guys think of an actively managed fund vs a passive index fund like SPY?

Also, how do you trade? Do you have an account at a bank and pay a financial advisor, or do it on your own somehow? I've done the former for the longest time, since I was a student, but I don't know too much about finance & markets until I've started to learn more recently. I'm considering ditching the advisor and doing what Warren Buffett says, put the vast majority of money into an S&P indexed fund with low fees and just let it ride.

[Bonam]

All the stats show that the vast majority of actively managed mutual funds under-perform low cost passive index funds like SPY over the long term.

A financial advisor is just there to enrich themselves. The vast majority are not adding anything to your returns, but are charging a hefty fee for their services anyway. Unlike many other professionals that work with clients, financial advisors do not legally owe their clients a fiduciary duty. So yes. I'd recommend investing on your own. It's not difficult, there are many discount online stock brokers that you can open an account with. I'd probably look at Virtual Brokers as they seem to be the cheapest in Canada that I've heard of. Alternately, all the big banks have their own associated online brokerages, and you should be able to open an account with whichever bank you do most of your business with and trade online through their website. You should be able to open an account entirely online.

In the US, there are now many "roboadvisor" brokerages like wealthfront and betterment. They will automatically set up a portfolio of ETFs for you and do all the stuff a typical financial advisor would do, but at a small fraction of the cost. However, I'm not sure if these services are available in Canada yet.

If you're in Canada, I would recommend splitting your investments between an ETF that tracks the TSX index (like XIU) and an ETF that tracks the S&P500 (like SPY). You can throw in an ETF or two that tracks international markets in there as well, if you like. I wouldn't put it all into US securities because that exposes you to too much currency risk. For example, if you buy SPY now and then the Canadian dollar returns to parity with the US dollar, then your investment in SPY will lose ~32% of its value in Canadian dollars (or it could gain value if the Canadian dollar falls further relative to USD, but the point is it's an extra layer of risk on top of the risk of owning the S&P index itself).

Also, check that your brokerage allows for automatic dividend reinvestment. Most of these ETFs pay in the neighborhood of 2-3% annual dividends (usually split up into 4 quarterly payments) and you don't want those small batches of cash just ending up sitting in your account where you'll have to pay $5-10 per transaction to invest it into something. Instead, some brokerages will allow those dividend to be automatically reinvested into more shares of the stock/ETF, some will even allow you to hold "fractional shares" in this way (useful if your investments are relatively small and the quarterly dividend isn't enough to buy a whole share). 2-3% dividends may not sound like much, but over the long term they make up a big chunk of overall stock market returns and you want to make the compounding work for you.

But before you dive into investing, do some introductory reading online. Lots of good info out there for beginners. A few evenings reading and learning will set you financially free.

Edited August 27, 2015 by Bonam

[Argus]

I mostly avoid individual stock picking cause I don't have the time to research them enough. Plus, stats show that almost no financial professionals can outperform the market as a whole over the long term, and while I'm smart, I doubt I would be better than 90% of professionals in a field that I'm not even in

So instead, I mostly just buy SPY.

I am an individual stock picker and I have always outperformed the market. The problem with buying a broad ETF, as one analyst once said is that it contains all the companies, good or bad, and I prefer to own only the good. There are always companies clearly superior to those around them. Own those.

[Argus]

If you're in Canada, I would recommend splitting your investments between an ETF that tracks the TSX index (like XIU) and an ETF that tracks the S&P500 (like SPY).

This is not good advice as the Canadian index funds are overloaded with oil, commodity and finance stocks, none of which are doing very well at all. XIU is down 4% for the year. The only Canadian index fund I know of doing at all well is XST, which tracks Canadian consumer staple stocks. Its up 10%.

[msj]

I am an individual stock picker and I have always outperformed the market.

Of course you do!

I'm also an anonymous forum user and I get returns better than Buffett!

[msj]

What do you guys think of an actively managed fund vs a passive index fund like SPY?

Also, how do you trade? Do you have an account at a bank and pay a financial advisor, or do it on your own somehow? I've done the former for the longest time, since I was a student, but I don't know too much about finance & markets until I've started to learn more recently. I'm considering ditching the advisor and doing what Warren Buffett says, put the vast majority of money into an S&P indexed fund with low fees and just let it ride.

I use self-directed accounts to trade without assistance from an expensive advisor.

I'm a pretty good buyer and a terrible seller - I have real problems selling.

I'm getting a little bit better at this however.

For example, Western Forest Products went up fairly quickly - about 70% from Nov, 2013 through to around Jan/Feb of this year.

I sold a good part of my position near the high (sheer luck) and then a few weeks later started to buy again after it went down to the low $1.80 range.

Probably should have sold that position when it hit $2.30 a short while later but got busy, forgot to set the sale limit, so still hold the shares. Whatever. Opportunity will strike later in the year.

This is a company that is usually good for trading - it tends to go up and down along with the industry.

Sometimes the uptrend is long, sometimes the downtrend is long (and/or permanent as in bankruptcy) but I have reasons/connections to the industry that make me comfortable with it (no insider knowledge - just enough knowledge to make me dangerous!).

Other than that, I maintain a list of companies that I want to own because I think they will make good long term investments. I set up the prices I would like to buy them at (usually low to absurdly low prices) and if they hit that price I get an email and hopefully I have the cash to go in and buy.

Recently I have branched out from my usual "only buy the beat up companies" and have bought Tube and GoPro.

They go against almost everything I stand for (CAPE's, dividends, real economic moats) but you have to push yourself to learn and that's what I am doing with these.

I find it better to learn when you have skin in the game.

I also buy based on narratives that catch my fancy.

Sectors like ITB and XLF were bought with a view of a recovering US economy with home sales eventually rebounding which should increase the home builders and the banks. I still wait this out.

I buy countries - I have bought Europe in the recent past because valuations were getting low (on a CAPE level) for certain individual countries (Italy, Portugal, Austria).

All of these funds are passive.

I have considered buying Cambria ETF's as they tend to fit in with my main philosophy - they are CAPE biased, they tend to buy companies that are beat up in foreign countries. They are also reasonably priced on the fee side (a little more than passive funds but not nose bleed levels).

CAPE is cyclically adjusted price earnings. It is a useful tool (among many) in looking at businesses.

It gets far too much press because Robert Schiller is famous for it (and he "predicted" the US housing market crash).

It has flaws, the specifics I will not mention here other than it has consistently tracked above its average/median for the US market for a very long time and if you listened to it you would likely not have invested in the US market for a good portion of the 1990's and 2000's and would not be invested there today.

I am heavily invested in the US market right now so obviously I use CAPE in my own way that allows me to ignore such facts.

My main philosophy is that you are better off controlling what you can - contributions - and if you get those high enough then you will not need really high returns.

But if you can stomach volatility (which I can at a psycho level) then hopefully you can get the best of both worlds.

For example, if you put $40,000 away each year you need a smaller return than if you are only socking away $30,000 per year.

But, if you get a good return on either amount then less chance of eating dog food period (which is goal #1 - avoid dog food in retirement).

Time is also a big factor - the sooner the better since more time in the market tends to lead to better returns.

In the end, for most people, go with Bonam's advice above - buy index funds.

Consider your asset allocation - VEE/VWO for Emerging markets, SPY for the US, XIU for Canada, VGK for Europe (you may want to get Canadian dollar equivalents rather than USD ones). Maybe find a good bond fund if that is important to you.

When a market is beat up consider putting your monthly contributions there - so consider VEE/VWO now since they have been sucking wind big time.

Then when they pop up again in, say. 2017 (or whenever) then consider moving your monthly contributions to another beat up country - maybe Canada will be cheap by then.

Rotate your monthly contributions like this and even if you never sold any investments you should end up with a nice retirement portfolio in 20 to 30 years.

I should do this, and to a certain extent I do do this, just with more funds/stocks because that's where I get my kicks.