Stock Market

No_one21No_one21 Posts: 2,184 ✭✭✭
Well, the stock market sucks right now. Figured we could talk about it here.

Quick question from me as I'm relatively new, but do have a good percentage of my non-retirement savings in the market. What's your threshold before you sell and accept losses? I was trying for long term, but recently I'm down like 6%. I realize that I'm not actually losing any money if I don't sell, but if this storm goes critical I don't want to just lose everything I put in.

Comments

  • silvermousesilvermouse Cape CodPosts: 6,342 ✭✭✭✭✭
    I had the same concern and asked my advisor, here's what he said:

    "The short answer is, “I don’t know.”  The longer answer is, “Neither does anybody else.”  Given the doom and gloom of the prediction, I was surprised that the piece said equities could fall only 10% to 20%. 

     

    I remember the mid to late ‘90s when stocks rose by 20%+ a year for five years in a row.  After the first three, a lot of investors thought stocks were too pricey, and broadly sold, missing the compound appreciation of 52% during the next two years.  True, stocks fell by half during the next three years, before recovering, and rising by 25% in the year following, and then resuming an upward trajectory.  The point is if investors tried to time all of that, and missed good parts of the rises, their portfolios could suffer negative long-term performance consequences.  The problem with market timing is that you can guess right once, twice, maybe even or three or four times in a row.  But when you miss on the fifth try, you could wipe out all of the benefits of the previous correct guesses.  There’s also the psychology of when to re-enter after exiting.  It goes something like this:  the market bottoms, but timers fear it will drop even further, so they wait.  Then the market begins to rise, but now those same investors want those just past low prices, so they wait for the market to retrace.  It doesn’t.  And they end up throwing in the towel, and buying back in after the market has risen by 20 or 25% - all of which they’ve missed.  Then there are the taxes on realized capital gains and transaction costs to do all of the in and out trading.

     

    So we look at longer horizons, satisfied to be the tortoise, rather than the hare.  Stocks have grown by an average of 10% over the last 100 years+.  That’s partly because of increased productivity, increased standards of living and increasing population, all of which is growing the markets for goods and services.  But to actually realize that benefit, you need to suffer the stock market declines that happen along the way, and weather them.  Markets don’t move straight up. 

     

    That said, we do hedge a bit.  We’ll raise a little cash when stocks we own appear fully or over-valued.  That of course happens more when the markets are broadly highly appreciated.  In practice that means is we usually target about 3-4% in equity earmarked cash in portfolios.  About a year ago, we lifted our target to 4 to 6% or so.  And now we’re at 7-9%.  That’s mainly to have some cash available to buy when there are declines in stocks we want to own or own more of.   You and Rachel are currently at 9.7% in cash, although we’re likely to spend some of that soon, given the recent broad market pullback.

     

    I suppose it’s a form of guessing, but we do it only a the margins.  We don’t sell everything or even a quarter or a half of equity holdings.  We’re not that smart.  And we’re confident no one else is either.  The same goes for the price of oil.  Twenty dollars a barrel?  Could happen, but I don’t know.  Sixteen dollars a barrel?  I’d be surprised, but it could happen.  What I do know is that, despite all of the alternative energies coming into use, global oil consumption is still rising.  Eventually supply and demand will sort out, and oil prices will rise.  I just don’t know when."
  • No_one21No_one21 Posts: 2,184 ✭✭✭
    That certainly seems in line with the advice I've gotten. But I wonder if that applies across the board or is different for people in different situations. For now I'm gonna wait and suffer but I think if it starts getting past 20% I might sell and buy cigars instead as advised by @stubble and @Usaf06
  • Usaf06Usaf06 FloridaPosts: 7,495 ✭✭✭✭✭
    Good choice Sam
    "I drink a great deal. I sleep a little, and I smoke cigar after cigar. That is why I am in two-hundred-percent form."
    -- Winston Churchill
  • Gray4linesGray4lines KentuckyPosts: 4,497 ✭✭✭✭✭
    It definitely depends on how long you have remaining to save. The longer the timeline, typically the more risk you can take on.  Falling price does mean a good buy if you are planning on holding it longer term. Ive heard to buy or sell in smaller chunks, if transactions costs don't eat too much, that way if you are trying to guess whether the market is going up or down it isn't all contingent on one good guess
    LLA - Lancero Lovers of America
  • Puff_DougiePuff_Dougie Mr. Rogers NeighborhoodPosts: 4,601 ✭✭✭✭✭
    Time horizon is a big part of the equation. The longer you have before you need to use the money, the more you're able to ride out the volatility in the market and recover from short-term losses. There are strategies that can be used to hedge against short term losses, such as trading options, but they're also not fool proof. Most people panic and sell when the market drops dramatically like it has so far this year. Warren Buffet once said the secret of his success in investing was that he did the opposite of what everyone else was doing. Some of the answer to your question depends also on the particular positions in your portfolio. Energy stocks are taking a beating right now because of plummeting oil prices, but that might also indicate it's a great time to buy. Utilities are getting beat up because of interest rate issues, but long term they are a solid investment. Market timing is a very difficult thing. Bailing in a falling market is kinda like jumping from a moving train. My suggestion would be to find a well-qualified advisor and have them evaluate your portfolio before making any decisions.
    "When I have found intense pain relieved, a weary brain soothed, and calm, refreshing sleep obtained by a cigar, I have felt grateful to God, and have blessed His name." - Charles Haddon Spurgeon
  • No_one21No_one21 Posts: 2,184 ✭✭✭
    I certainly have a long time to take hits like this, and my instinct is to ride it out. I even bought some more recently hoping to get some good stuff for cheap. I guess I'll just sit still but at least one of my holdings could be really painful.

    I'm not specifically in any of the sectors with the worst drops, but I have some ETFs that follow the S&P, healthcare, and cyber security. I guess we'll see.

    My main reason for even getting in the market was to beat not only my savings account, but also my car payment. I was doing that quite well until maybe November.
  • jarublajarubla Posts: 2,328 ✭✭✭✭✭
    Ya know, it hurts looking at investments suffer. A shoit ton of work goes into building that nest egg. 

    That being said, I am in it for the long game. Retirement age is a ways off. God willing, it'll rebound just fine
    “There’ll be two dates on your tombstone and all your friends will read ’em but all that’s gonna matter is that little dash between ’em.” -Kevin Welch
  • raisindotraisindot BostonPosts: 1,308 ✭✭✭
    As someone who has been invested in and has worked in this horrible investment industry for decades, and I advise that unless unless you really need the money, keep it in the market. The market is going through a natural correction right now, caused by concerns over China's economy and record low oil prices. However, most economists say that economical fundamentals in general are sound. Remember that all of the people who sold their stocks in the crash of 2008 were out of the market once it rebounded in 2009 and 2010. As said before , marketing time almost never works for individual investors. Think strategically about your goals and capital needs, and let that keep you steadfast in scary times. 
  • No_one21No_one21 Posts: 2,184 ✭✭✭
    Looks like a lot of people expecting a volatile year or more. I guess it seems worse to me since I've barely just entered the market but I would like to see if I can ride it out and maybe benefit from doubling down like I did.
  • raisindotraisindot BostonPosts: 1,308 ✭✭✭
    The best time to get into the market is when a correction is occurring or has occurred. That way, if you lose, you won't lose that as much as you did if you invested at a peak. And the gain potential is much greater.
  • cbuckcbuck Milford, CTPosts: 4,994 ✭✭✭✭✭
    Buy low, sell high! If we only knew when that was!
  • HaysHays Costa del Sol, SpainPosts: 2,338 ✭✭✭
    Lots of good advice here, and seems like a lot of you gents have a heckova lot more experience than I do. With that said, I've been studying investing for a long time, and this past year I decided to get into active trading with some minimal long-term holds. Honestly, it really depends on what your goals are - if you want minimal work and long-term growth, don't touch your portfolio. Warren Buffet has already been mentioned, but he's been known to say that he buys and never sells - money is made over the long term. Even still, I wanted to learn about active trading, so that's been my experiment since August of last year, and since I ended 2015 about 48% up, I guess that's been working out alright.
    ¨The cure for anything is salt water: sweat, tears, or the sea¨ - Isak Dinesen

    ¨Only two people walk around in this world beardless - boys and women - and I am neither one.¨
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