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Some Thoughts on Wall Street Panic 2011 (Update)

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coaster
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Some Thoughts on Wall Street Panic 2011 (Update)  Reply with quote  

Update here: http://www.money-talk.org/msg85102.html#85102

My thoughts on the Wall Street panic of Aug 04, 2011:

These things happen.

Yes, it's scary.

Yes, it's ugly.

Yes, people are losing money.

Yes, maybe it's a new bear market.

Yes, maybe it's a double-dip.

Yes, you have reason to be concerned.

Now, allow me to make a few more points from the perspective of some 25 years of investing. And that math puts the beginning of my active investing career just before the market crash of 1987. Which, at the time to a new investor, was a whole hell of a lot scarier than what happened today. And I made all the new investor mistakes and as a result sold several good investments at substantial losses. And from the perspective of only a decade later in the late 90's that famous market crash of 1987 turned into just a blip in a long-term uptrend. So, what about today? Here's my points:

1. It's too late to sell. If you sell now, the chances are you'll regret it. Don't sell unless it's money you will absolutely need; money you absolutely cannot do without for the next five years. And if it's 401(k) or IRA money, do not sell, period. You'll be starting over with less time to make up.

2. Realize things may get worse before they get better.

3. Implicit in #2 is that things will get better. As they always do.

4. How long will it be before they get better? I don't know, but the longer you can wait, the bigger an opportunity this might be to "buy low".

5. So combine points #1 and #4 and if you do have any money you're absolutely sure you're not going to need for the next five years, right now is a very good time to BUY.

6. Combine points #2 and #5 and realize that if you buy now, the value of your investment might go down before it goes back up.

7. Because you never know how low it will go, when it will start going back up, and how long it will take to go back up, you cannot wait to buy at the exact low. So, combine points #2, #3, #4, and #5 and mix in lessons learned from point #1 and conclude that NOW is your opportunity. If you missed the opportunity to sell at the top, you're also going to miss the opportunity to buy at the very bottom. These things are only seen in hindsight, and by the time that you realize there's been a bottom, and by the time you realize that things are going up and getting better, and you're sure about that, then it will be too late to buy.

Hindsight doesn't make any money. But it does teach lessons. So learn the lessons from the cyclic nature of markets and the lessons of human psychology, combine those lessons with the math of compound growth which puts a dear value on time, and hopefully come to conclusions that will benefit the growth of your net worth.

Remember: you haven't lost real money until you've sold. You sell now and you lose real money by locking in your loss. Until then, your loss is "on paper". If you don't like the way the numbers look on paper, don't look at the numbers.

I'm going to do some stock research over the weekend, and hopefully, on Monday, I'll be able to buy something "on sale." Don't you also like to buy stuff on sale? Smile

~Tim~


Last edited by coaster on Tue Oct 04, 2011 5:58 am; edited 3 times in total
Post Fri Aug 05, 2011 12:44 am
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It's scary. Darn politicians should have put aside their partisan differences and did what was best for the country. But at least the super mega rich didn't get a tax increase. Rolling Eyes

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Post Mon Aug 08, 2011 4:25 pm
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littleroc02us
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I had my wife put some money into VTSMX right now since it dipped to around $29.90 a share down from $34.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Aug 08, 2011 4:35 pm
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seang11
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Those are good points that have been made. I guess the short version is to take a long term view. In the long term stocks have always gone up. Of course, the last ten years have been particularly trying as stocks have not gone up much, and ten years is a long time.

Another key point is to make sure that your portfolio matches your risk tolerance, and your time horizon. Even if it doesn't, now is probably not the time to adjust. Panic selling although probably a 50/50 game in the near term, is not wise because you probably not fully considered what your long term position should be. This should be done after careful consideration.

But if the past weeks developments have scared you unduly, then you may want to evaluate what your risk tolerance truly is. For a lot of people this is a rare test of their ability to deal with the loss of significant money. If it worries you that much, you may have too much risk in your portfolio. You may, after the markets calm down, want to consider allocating your investments so that they are not hurt as much during turbulent times such as these.

The market is up for today. Lets hope the worst is behind us.
Post Tue Aug 09, 2011 9:48 pm
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eastmn
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Joseph Stiglitz in the news today:

http://finance.yahoo.com/blogs/breakout/failed-monetary-policy-helped-create-economic-crisis-stiglitz-124946107.html

http://www.businessinsider.com/joseph-stiglitz-americas-debt-crisis-2011-8


Last edited by eastmn on Thu Aug 11, 2011 3:12 am; edited 2 times in total
Post Wed Aug 10, 2011 6:15 pm
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coaster
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I committed the remainder of the cash in my investment accounts today, adding to four existing positions. What we're seeing is nuts. Makes no sense. But markets are rational only in the long term, not day by day. And when I can buy equity in a going business for less than book value and earn over a four percent dividend yield, that's such a good deal I can tolerate irrationality over the short term and I'm still going to sleep nights.

Further thoughts on the market activity: I think what we're seeing is not the result of investor trading, it's the result of trader trading. I think that in coming weeks and months we're going to be reading about big hedge funds that went bust in a big way over these two weeks. I think we're going to be reading more about what's called "flash trading." I think we're going to reading about selling to meet margin calls. In sum, we're going to be finding out that what's been going on is not the result of any fundamentals but the result of money chasing return without regard to the fundamentals, without regard to any reason or rationality, just money looking for a trend. There's a place for that, but I think it's become too much in terms of its proper place, and what's happening may actually be healthy for investors in the long term if it's washing out excess speculation.

~Tim~
Post Wed Aug 10, 2011 10:10 pm
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KeithSpringer
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The Shot Heard Round The World  Reply with quote  

History shows that sovereign downgrades spark action in governments to tighten their belts and cut budgets. Less spending, whether it be in employment, infrastructure or social services including Social Security and Medicare means less aggregate demand in an economy and thus less revenue and profit.
Post Thu Aug 11, 2011 3:57 pm
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coaster
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quote:
less aggregate demand in an economy and thus less revenue

Bingo.

mod's note:
But we'd prefer you post a summary of your comments here rather than redirecting our readers to your website via a link in your post body. You have your sig links as permitted. Post body links to a member's own site are generally not allowable.


~Tim~
Post Thu Aug 11, 2011 9:59 pm
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eastmn
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Who do these flash crashes (shark snips) hurt the most?
The short term trader and/or the green?

Roubini @ WSJ Today:
http://www.marketwatch.com/video/asset/roubini-warns-of-global-recession-risk-2011-08-11/C036B113-6D5F-4524-A5AF-DF2F3E2F8735?dist=beforebell#!C036B113-6D5F-4524-A5AF-DF2F3E2F8735
Post Fri Aug 12, 2011 7:17 am
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Lex
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Re: Some Thoughts on Wall Street Panic Aug 2011  Reply with quote  

quote:
Originally posted by coaster
My thoughts on the Wall Street panic of Aug 04, 2011:

...


Really well-put. First of all, this is a well-analyzed article and has been based on facts rather than rhetoric. #WellPlayed!
Post Mon Aug 22, 2011 11:16 am
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coaster
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Thank you.


mod's note:
...but it wasn't really necessary to quote the whole thing and so I edited it for you.


~Tim~
Post Mon Aug 22, 2011 3:46 pm
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3door
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Great post. You are the expert here but I'd like to add to your Point #6.

It's not always a bad thing to sell at a little less than the top, and buy at a little more than the bottom in the long run...Buy low sell high doesn't necessarliy mean buy at THE low or sell at THE high. I mean come on noone's perfect.

Moral of your post to me - Don't be greedy, take it slow and be happy with profits if you have to or choose to sell.

Brian
Post Wed Aug 24, 2011 12:40 am
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coaster
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Right on. Well said. And if I might add a corollary (sp?) to your words of wisdom: It doesn't make any difference whether you buy at a point half-way down or at a point half-way back up. Except that after the half-way point back up has been identified, it's way too late to buy at that point. Whereas if you buy anywhere in between half-way down and half-way back up, you've made a pretty good buy.

~Tim~
Post Wed Aug 24, 2011 1:18 am
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LottomagicZ4941
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Yes I like to buy stuff on sale;)

But today I need to see if my 7 year old car needs some $$$ put into it.

When the market crashed in 87 it made me sort of lose a scholarship. Got to claim that I won the scholarship but didn't get the money from it.

The scholarship couldn't give out money due to the state of the stock market. It was below it's projected value.

I did earn money from a different scholarship; but, I think 1987 made many of us more frugal.

Frugality is good as long as it is limited.

When I was young my mom always had me save money for college so when I became a freshman I went through it like a hot knife through butter for a while.

Anyway, great post Coaster. I'll read it over a few more times;)

And for those of you who can even put 1 or 2% into a 401K do it!!!

Especially if your lucky enough to have a company that matches!!!!

I've previously told the story about how my take home went up when I started my 401K.

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Post Fri Sep 23, 2011 2:45 pm
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