Serious question, is anyone watching this carefully and trying to determine when things will bottom out (perhaps in a week or two), to buy stocks, ETFs, and such at the bottom of the dip?
Hindsight is 20:20 of course, but there's a number of equities that one could have purchased shortly after the 2008 financial crisis that proceeded to make significant gains between 2009 and 2019.
In my experience it's always good to buy when sentiment is bad. If this is just a minor dip that will bounce back up, then you got a nice little discount on your equities. If it is the start of a major downturn then you have taken the first step towards buying at a greater and greater discount and can continue buying all the way down.
I don't consider this to be timing the market. You should always be investing but when sentiment is bad you just buy more than you would normally.
Your logic is vacuous because you can use the exact same rationale to justify the opposite conclusion.
"It's always good to buy when sentiment is good. If the bullish trend continuous, then you got in early and got a nice discount on your equities. If it is the start of a major downturn then you have taken the first step towards buying at a greater and greater discount and can continue buying all the way down"
I'm sure huge numbers of people are watching for exactly that opportunity, but if it was easy to reliably spot the tops and bottoms of markets, there'd be a lot more rich day-traders out there :)
"Serious question, is anyone watching this carefully and trying to determine when things will bottom out (perhaps in a week or two), to buy stocks, ETFs, and such at the bottom of the dip?"
I am watching very carefully to see if the VIX goes to an outlandish number, such as 90 or 100. To give some context, the all-time high of the VIX was ~80 during the 2008 financial crisis, etc.
It is a fools errand to try to predict, and make bets upon, the VIX.
However, while we can't say anything for certain about how long markets can stay calm or how long markets can stay euphoric, we can say with some certainty that you can't panic sell forever. Your hair can only be on fire for a little while. You can only throw yourself off the top of a building once.
So if you believe you see a VIX-crisis-top it is a very good bet that the movement from there will be in only one direction and very precipitous.
VIX converges long-term towards 0, so you will be successful investing in this instrument only for very short periods of times with close to perfect market timing...
I was delaying investing in the stock market waiting for the next recession. My intention though isn't to try to time the bottom (which nobody can predict), but just to start buying when I think prices are "good enough".
It's specifically because there are huge numbers of people watching this carefully and trying to do that that it is irrational on the margin to try to do so.
This, it's not 1940 anymore, the average Joe can setup an investment account in 5 min on his phone and heard his buddies talking about "buying the dips is a foolproof way to become a millionaire".
As an example I saw a lot of discussion about buying the drop of Boeing stock, about 1 month after the 737-max were grounded, expecting things to be back to normal and a quick rebound. People who bought it at 370 now have stock with about 230/share... And still dropping.
Inbalances accumulated over the course of a decade of free money likely won't resolve within 2 weeks. There is a lot of junk and baseless speculation that still has to wash out. Many people will hold for a time in hope it's just a blip and goes right back up. When these give up and flush out, then things are nearing support and the market has a solid base from which to rise again.
My (non professional, this is not financial advice) opinion is it will take awhile (at least 3-6 months or so) for everything to shake out and reevaluation to occur.
Yes, but I think a week or two is laughably naive. I think we could easily drop another 20-30%, maybe more. The market dropped ~50% for the great recession and I'm unconvinced that this isn't going to be worse.
But I got out almost at the all time high, so as long as I get back in before that, I'm good with sitting on the sidelines. I don't need to call the exact bottom. I'll likely buy back in once I can see that there's some kind of realistic path forward with COVID-19 that doesn't destroy the economies in its wake.
I'm not, but I have a system that will do something similar: I target 70%stocks, 30% cash. If it gets to 60-40 or 80-20, I buy or sell enough to get back to 70-30.
Since I started investing in 2012, I've only ever triggered a rebalance through putting in more cash, but I'm making a list of stocks I plan to buy if my portfolio goes outside that bound.
I think you're better off trying to predict when the Coronavirus epidemic will be over. In a way it's more predictable, because we have a fairly good understanding of how it spreads and under what conditions.
> is anyone watching this carefully and trying to determine when things will bottom out (perhaps in a week or two), to buy stocks, ETFs, and such at the bottom of the dip
Yes, hedge funds do this. They hire a lot of smart people to dig full-time into all the same hunches you or I might have (plus some more things we haven't thought about), and make bets about what's going to rebound. What happens is that to the extent that the future is unpredictable, the hedge funds lose those bets (along with everyone else on average), and to the extent that their predictions are right, they make a profit.
No one will be able to time this. We don't even know if this is the start of a [global?] recession or depression.
If you haven't already, put your retirement into bonds and hold on. Honestly it might be a good idea to grab some cash from the bank to keep at home - bank runs are not outside the realm of possibility, although we have credit cards and other internet based payment methods now so it's probably less of a concern now.
Edit: let me just preface my advice by saying if you have extremely high risk tolerance, now is a good time to buy, but be prepared to lose. If you are near retirement, now is probably the time to pull all of your funds out of the markets and into something safer. Based on the 100 year history of the DJIA, and the fact that the virus is just starting to spread in the U.S., the floor could be much lower.
If you look at the 100 year history of the DJIA, there's still a LOONG way for it to potentially drop.
It's about minimizing risk. Those with high risk tolerance I would advise to buy now, but be prepared to lose everything. If you're close to retirement you lose nothing by pulling out now.
> Those with high risk tolerance I would advise to buy now, but be prepared to lose everything. If you're close to retirement you lose nothing by pulling out now.
If your risk tolerance can't handle what's happening, your asset allocation was already wrong. Trying to "fix" that now, as a response to this downturn, would very likely be a mistake.
I'd tweak this advice _slightly_. After this pretty significant swing, it's probably a good time to re-visit your asset allocation. If you're, for example, holding 10% bonds, your allocation is now going to be overweight bonds. So it's a good time to sell some bonds, buy equities, and get back to your 90%/10% allocation.
This advice is both common and crazy. Each individual does not live the average life. Being able to recognize once-in-a-lifetime events, and act on them, is a rational strategy, even if it seems like it is not the optimal strategy for the perfectly spherical portfolio belonging to a person with infinite lifetime.
I agree with this. I'd never touched my 401k until now, well, a few weeks ago. Anyone who couldn't see that this virus was a world-changing event wasn't paying attention. I did 'time' my way out of the market, but not so much back in. Even if I miss some gains, I just want things to stabilize some before going back in long.
I'm not sure it is possible to rationally recognize once-in-a-lifetime events, since by definition you've never seen them before and don't know how they'll play out.
This isn't market volatility. The is a global geopolitical event exposing the weakness of the US and global markets that people have been warning about for something like 3 years.
Some treasury notes have dropped by more than 30%. We're years overdue for a cyclical recession. The fed has little room to lower rates. I could go on but the point is this is the closest we've been to a Black swan in decades.
If it's really your retirement money then presumably you are 20-40 years out from needing it. Cyclical recessions typically last 1-2 years, and even the biggest Black Swan events like the Great Depression last maybe 10 years. By the time you retire you will have largely forgotten about this.
(If your retirement is less than 5-10 years away, you should have diversified away from stocks years ago, and it's a little late now. Most target-date funds and financial advisors do this anyway.)
What? That's how you minimize risk because there's a good chance the markets will continue to slide. It's literally why the markets are down - because investors are pulling out and parking their cash in safer havens.
I think you're missing the point "Nobody can time this" and "If you haven't already, put your retirement into bonds and hold on" are completely at odds. Pulling out of equities to buy bonds is timing this.
People should have an asset allocation, and stick to it. Right now, people should be re-balancing by selling off their now overweight bond allocation to buy equities. What you're suggesting is counter-productive.
Look, until two weeks ago my 401k was tracking 14% gains. By gradually moving it over the last week and last night, I've locked in 10% gains. The alternative would have been 0% gains as of today (market is back about where it was when Trump was elected) and losses in the likely case that the market continues to slide this week.
At this point we have likely entered recession or depression territory. The rebound is unlikely to be instantaneous (unless a convenient cure is found) and when things calm down I can put my money back into the market starting from a 10% locked in gain.
If you are approaching retirement, you should already have a good % of your portfolio in bonds and other lower risk investments. If you have indeed done that, there is little reason to rush off and potentially buy high and sell low right before retirement.
For everyone else not near retirement, most are going to be better served by ignoring the volatility and continuing to invest as usual. Time in the market vs timing the market and all of that jazz.
> What? That's how you minimize risk because there's a good chance the markets will continue to slide.
You don't minimize risk by reacting to daily market fluctuations. You minimize risk by choosing an asset allocation that allows you to ignore those fluctuations.
If you're not yet close to retirement, what happens today in the markets will have almost no effect on what your portfolio looks like in 10, 20, 30 years. Making any big changes would be stupid. Maintain a diverse portfolio and basically forget it exists outside of maxing it out every year. This is especially true if you're lazy and have it all in something like a retirement target fund like Vanguard.
Yes I mentioned Vanguard, and in fact have a good amount invested in their retirement funds. OP is saying to pivot based on recent news. Those retirement funds adjust on a scale of 40-50 years whereas OP is looking at a month of activity, possibly even just today's 7% drop.
So long as bond yields are positive, they cannot depreciate in value, can they? As in if I pull out X dollars from the market and into bonds, assuming yields stay positive, I'm guaranteed X dollars out?
You have totally misunderstood how bonds work on a "present value" or "mark to market" basis.
(All of the below assumes the bonds actually pay as agreed. Actual default risk is something totally different, and still present here.)
When you buy a bond and hold it to maturity, you're sort of right. If you put in $10,000 into buying a coupon bond, you will get the coupons plus the $10,000 back at the end. And if you buy a zero-coupon bond for whatever amount, which will be worth $10,000 at maturity, you'll get the $10,000 back at the end.
In fact, you don't even need to "assum[e] yields stay positive." When you buy individual issues and hold to maturity, you don't really care what everyone else's yields do; you get what you contracted for.
The problem comes if you want to actually sell out of your position, OR to know the true value of your position (essentially equivalent operations) along the way.
If you put in $10,000 into a bond yielding 5% coupon, and the next day yields spike to 10%, nobody will want to buy your bond for $10,000 any more. You most certainly have lost value. "Aha," the naif says, "but I could always hold to maturity and get my principal back!" Sorry. Do the thought experiment where instead of buying the 5% issue on day 1, you instead buy the 10% issue on day 2. Compare the cumulative sum you receive under each scenario. Investing on day 1 (at 5%) is strictly worse than investing on day 2 (at 10%).
Likewise, if yields instead crash from 5% to 1% on day 2, your position will be worth much more. Your $10,000 notional bond yielding 5% will net a buyer so much more than $10,000 spent on a 1% yielding issue that she will pay more than $10,000 for it. You have had a real gain, even if not realized.
The same thing applies to bond funds or indices but with much more smoothing across a portfolio. With bond funds, however, there is not even the illusory "X dollars out" guarantee; since they are marked to market every day you might well never enjoy a breakeven price.
If you're near retirement, you should have already had a large percentage of your allotment in bonds and cash. If you are not near retirement (> 5-10 years) then ride it out.
I am 30+ years from retirement and I don't think this is world ending, so my high-volatility mutual funds will stay right where they are.
People telling you to hold off buying are idiots (the majority as always on here).
This is what every mug retail investor thinks. They always get hosed down. They are usually the people who were in cash until 2018...because they were waiting for the bottom.
If you are investing regularly, continue to do so. If you have cash, deploy it. This doesn't matter if you are young. You are getting a better price. It is good news.
If you aren't a mug, look at individual stocks. Do your analysis, and you will find out whether they are cheap or not. No-one who invested at the bottom in 2008 knew it was the bottom. They saw individual stocks were cheap, they bought.
But really do not try this last one unless you know what you are doing. Parts of the market are looking cheap right now, a minority of this is stuff that has sold off recently. If you can't work out where this value is, just buy an index fund and spend your time worrying about stuff you can control (I used to work in research at a financial adviser, I didn't work directly with clients but the biggest issue for most investors are their emotions...99.9% of people don't have the emotional equipment for this stuff...the harder you try, the worse you will do).
Hindsight is 20:20 of course, but there's a number of equities that one could have purchased shortly after the 2008 financial crisis that proceeded to make significant gains between 2009 and 2019.