Our friend Junkster always touted the importance of having predefined "exit" criteria. He was/is a day trader so he watches for instabilities typically in price movements of what he calls "tight channel" funds. If he sees them, he exits the trade.
Others like Meb Faber practice trend following ... when price drops below say the 10-mo running average, they exit their position, either to cash or something (thought) safer.
So curious if any on the board practice, in disciplined fashion, such techniques?
And, perhaps even more curious of whether buy-and-hold investors, especially retired ones, EVER think of exiting. Or, is it always just about re balancing?
Comments
I can honestly say that in my 20 years of active investing, I've never witnessed more fear than I have the past 2-3 weeks. Even 2008-2009.
At some event level, is there a tipping point? That whatever I can get in CDs is good enough?
Maybe too late to get out now. Old_skeet snd catch22 post good investing monthly commentary/strategies. Maybe others posted good guides to follow if retired /closed to retirement. I am so glad following many others advise and place mom retired portfolio into conservative last year, 35/65. She lost very little past few months. I got out after Ted got out in ~ 2019.
I think we will see seesaw patterns next 4-6 weeks /much volatility until everything open up again/slow recovery. Not everything is working currently even CDs so low yields. You can argue stocks are getting cheaper now and these maybe good vehicles to buy moving forward. Corp Bonds not doing well because companies have no revenues going forward and may not be able to pay their creditors.
If you feel unease perhaps consider place at least 40-60% of portfolio divided in incomes based products [corp bonds/munis/US Tbonds]. Rest of portfolio divided evenly in cash and stocks. You may not loose much on downs days but may not go up if indeed recovery is on the way. Once you see there us indeed recovery 3 -6 months from today perhaps start slowly buy more equities by then.
Stocks /market maybe lower 4-5 weeks from today, but could be much higher 4-5 years from today
Maybe another easier lazy approaches maybe redistribute bulk of your portfolio into Tdf 2015 and cash. let it ride by itself, not much worries.
If you have schwab or fidelity, maybe reasonable to visit their cpa/investment advisors then possibly make up/draw up new escape plans after
On other thought, maybe a great buyer market imho if you have 15 yrs left.
In 2008 & 2009 my asset allocation was 10% cash, 20% income and 70% equity. With this, I averaged down the equity side, booking a good bit of losses, as the market continued to side through this process. However, when things turned at the S&P 500 price level of 666, I was there to enjoyed the ride back up.
Through the years as equities became more overvalued I kept trimming my exposure to them and at retirement I was at an asset allocation of 15% cash, 35% income and 50% equity. This would have been around 2014. I maintained this asset allocation until a little better than a year ago. I continued to reduce my exposure to equities as they became more overvalued and reconfigured to a 20% cash, 40% income and 40% equity asset allocation. I wrote about doing this.
With the recession now in place I have moved to a 15% cash, 40% income and 45% equity allocation. Thus far, in this debacle, I have sold nothing and have been a buyer on the equity side of my portfolio. Now that I have reached a near full asset allocation to equities I have now become a buyer on the income side of my portfolio. This is because many bonds have now taken a hit and from my perspective they offer better value than just holding a greater percentage of cash. Since, my portfolio also generates a good bit of income this gives me the ability to continue to buy in down markets or take the money to my wallet, if needed.
I've been on the board back into the FundAlarm days and have detailed my investment activity through these years. For me, the asset allocation model of investing has worked well although, at times, I've traded around the edges using special investment positions (spiffs). I've written about these in the past as well.
FWIW ... Overall, my success in investing, through the years, has come by staying invested and receiving the benefit of organic growth plus compounding. I was there in 1974 with that debacle as well as those that came during the 80's. And, I've been a buyer in all of them including this current bear market which will pass as well.
And ... so it goes.
Wishing all ... "Good Investing."
I am ... Old_Skeet
Assuming that you are in the appropriate asset allocation between stock, bond and cash. Your loss should be much smaller than say S&P500. This should provide comfort knowing that the recovery period will be shorter than S&P500 for example. During 2008 crisis I stayed fully invest in a conservative allocation and the magnitude of loss was much lower than the typical 40% loss. New $ was invested in stock throughout that period despite it was a scary time. I managed to regain the loss and more in about 2.5 years. Since my retirement is near and the market was getting expensive, I rebalanced several times in 2019 to 15% cash, 35% bonds and 50% stocks. Again my loss is smaller compared to that the market's. I have full confidence that I will get through this crisis.
Our MFO contributor to the Monthly Commentary, Charles Lynn Bolin also writes for Seeking Alpha. Several excellent articles he wrote describe how he constructing low risk and well balanced portfolios utilizing the historical data from MFO Premium site (that you put together).
https://seekingalpha.com/article/4331201-performance-of-low-risk-vanguard-portfolio-year-to-date
https://seekingalpha.com/article/4333593-conservative-portfolios-of-funds-for-this-bear-market
Best of luck.
I tend to stay invested in my taxable investments. I plan on leaving that behind, although I do take some income from it now.
I have quite a bit of cash in it due to an unforeseen event. I have been slow to invest it. I thought the market was over-valued at the time the money came to me.
I am more active in my IRA account. I typically take a hard look at things twice a year. I sell if I have lost faith in the thesis, or the people executing it.
I did take some profit at the end of last year. It seemed as good a time as any to put more money into bonds, and some into cash. And I did re-deploy from some strategies in mid and small caps into some ESG funds with reasonable expense ratios, and low turnover.
The retirement account is meant to be spent down. If interest rates were at some reasonable level I might put the whole thing into an income annuity. I am
eight, seven years out from RMD's. So we'll see how things look then.In my personal account, I exit longer-term positions when a position has appreciated considerably and now it's just hanging around w/o doing anything. The momentum, as assessed by the proverbial 'gut feeling' is what works for me based on what the stock is doing within the context of my assessment of the overall market sentiment. Is it 100% perfect? Nope. But more often than not it works for me -- to wit: more recently, I sold out of several stock positions in mid-February acting that way quite literally the week before the crash began.
By the same token, I've had my finger ready to do something, chickened out, and then find out the next day that I would've been totally right and extremely profitable. A few Fridays ago I *really* wanted to go short over the weekend for various reasons, but chickened out. Monday gapped lower and that one modest-sized futures trade would've netted me probably $30K. Alas.
Apart from some minor TLH, for the most part i've been buying in recent weeks. I rarely if ever sell on big down days, or buy on up big days.
At 66, my plan to semi-retire in May has been put on hold (self imposed) until I see what this will ultimately end up as. So far I've been buy-and-hold except for selling my remaining shares of IOFAX. But even with that I took 1/2 the proceeds to buy into BRK/B and put 1/2 into MM. So I guess I remain B and H in a sense.
One comfort I do have and what keeps the exit door closed is that I set aside 3 years of withdrawal money (safe bucket) in anticipation of semi-retirement. I'm not trying to make suggestions to others, but I think that bucket would be prudent for retirees, even setting one up now, (damn, that is a suggestion
Good luck to all, especially retirees. I'm trying to stay optimistic for now.
What has changed for me since January 1? These are some off the top of my head thoughts....
There has been the onset of a pandemic. It will take maybe one to two years for a new normal to emerge (maybe significantly less). The worlds' economies will most likely recover successfully. (That's been typical after black swan events.)
There has been a major shock in bond land. The Feds actions last Monday have calmed the bond markets so far. This will need to be watched. (Central banks throughout the world seem to be acting in unison regarding this issue.)
It appears there will be a flood of deficit spending in most major countries throughout the world. This will tend to promote some inflation as time passes.
Cash has emerged in the short run as an alternative to owning stocks or bonds in our low interest rate world. Will that last? Too soon to tell but I doubt it.
I don't understand why a 1930's style depression will be a likely outcome from this event. Why might it be a likely outcome?
So far, the balance point for my investments remains at 55% stocks. It dipped to about 50% at the low so far this year. I fed the stock side a little during the initial downturn. Fido tells me I am at 53% stocks as I type this.
@Junkster offered pieces now and then, of what he could "see". He didn't make such a notation to impel or compel any one investor to take a particular action within their own portfolio. But for me, his observation(s); based upon his credibility with me, would be enough to cause me to be more curious as to a given circumstance.
To see: discern or deduce mentally after reflection or from information; understand.
We all "see" differently. I noted on March 11 what I could see relative to our portfolio:
>>>>> From a long ago song lyric: "Nowhere to run to, nowhere to hide."
All of the below government bill through bond types are down in pricing.
Our 72% bond/28% equity portfolio has no support from any area as of 12:30 EST.
Has this happened before in modern times??? Where the correlation between UST issues and equity markets have little meaning to one another.
ADD: Is the U.S. Treasury playing in the background to support yields???
--- SHY = (1-3 yr bills)
--- IEI = (3-7 yr notes)
--- IEF = (7-10 yr notes)
--- TLT = (20+ Yr UST Bond
--- EDV = (Vanguard extended duration gov't)
--- ZROZ = (UST., AAA, long duration zero coupon bonds) >>>>
This was my observation then, from my years of watching and learning, I could "see" that something was broken to hell in the AAA Treasury issues. Was this actionable information for others? I don't know, as this was only my observation.
One's escape plan is personal to the point of what was "seen", to find a portfolio that has arrived to where it is now, and what one "see's" now, relative to the composition of the portfolio going forward.
As to an escape plan for this house. Barring a fully worthless portfolio, which would suggest a full collapse of the global financial structure, for any number of reasons; we will remain with a 75% bond/25% equity portfolio at this time. We're fully invested, and can not invest in other areas without a sale of some other area.
Hoping this is understandable for most.
NOTE: more could be added, but other priorities exist for the moment.
Take care of you and yours,
Catch
Others like Meb Faber practice trend following ... when price drops below say the 10-mo running average, they exit their position, either to cash or something (thought) safer."
Then asked "So curious if any on the board practice, in disciplined fashion, such techniques?
And, perhaps even more curious of whether buy-and-hold investors, especially retired ones, EVER think of exiting. Or, is it always just about re balancing?"
Tough questions but I'll try. NO I do not ever think about exiting. I'm pretty much all invested 99% of the time. While accumulating it was 95/5 figuring that SS would cover my wild abandon. Once retired I drifted down to roughly 75/25 by swapping some REIT's for PCI and PDI. MY portfolio is primarily a mix of individual dividend growth stocks and a handful of equity CEF's for income, PIMCO bond CEF's + IOFIX and 5 mutual funds BIAWX, GLFOX, MGGPX, POAGX and VLAAX. I do hold a pittance in SFGIX but I'm not sure why, maybe in case it ever becomes unstuck from it's funk. It is hard to apply the techniques I use across all holdings equally so I use certain ones for certain types.
I pretty much never touch the mutual funds. That's what I hired their managers for.
Likewise the bond holdings although I do check them occasionally trying to follow Junksters lessons along with a weekly MACD signal. I won't get into what it's all about suffice to say that MACD is an indicator used in technical analysis to identify aspects of a security's overall trend. Most notably these aspects are momentum, as well as trend direction and duration. MACD uses moving averages (trend lines and duration) and plots that difference between the two lines as a histogram which oscillates above and below a center Zero Line. The histogram is a good indication of a security's momentum and so I watch for crossovers signalling buying when moving up from a trough or selling from a peak. Ideally I'd check them more often than I do but I try to pretend I have a life away from watching market action so sometimes I'm behind the curve unless price action screams at me.
My equity holdings are also rarely touched because most were bought during previous market debacles and now have considerable capital gains even after this current hosing. If I found suitable similar replacements I might swap them. Or not.
With these holdings, in addition to the MACD signal I also watch the RSI and the Chaikin Money Flow indicators. Again I am never on top of these 100% of the time but I check them occasionally and whenever Mr. Price beats on me. I use RSI to identify the general trend and watch for divergence especially from overbought or oversold conditions.
The Chaikin Money Flow tells the real story of how much demand there is for a stock whether positive or negative. The concepts of divergences comes into play here as well. If money flow starts to fall while price is rising, then the price will generally follow downward soon. Again, a change in money flow is a signal that something is about to change with price. The weekly and monthly tell you the real big money trend and I want to be on the side of the big money. A day trader could use daily I suppose.
Anyway, in this current meltdown all things seemed to have suffered equally so I see no reason to play with rebalancing and frankly I never look at my portfolio and think that I should. Crazy right? But my portfolio works for me and was planned out to do what I needed it to do which was to provide me with enough income to cover my modest needs along with a little extra to play with. To date I have only had one holding that suspended their dividend (can you say lucky) but I fear that we may be just in the first few innings of this game. Good luck out there.
As for me, staying the course, & bought a little on the drop.
Schwab says cost bias, only 3 or 4 in the green at this time.
Have a good week to all, Derf
I believe we'll see much lower equity prices in the coming months. I'm raising cash because two or three of my adult children, who are just getting going in the world of work, may see their jobs evaporate and need support. Two of them are in outpatient healthcare where staff are already being cut. We also have a disabled daughter whom we support. I'm definitely not exiting the markets, but I feel the need for a big cash cushion these days. We usually take a couple of expensive trips per year; the second one is already cancelled. (BTW, Delta is really generous with the refunds.) This is flying in the clouds with no instruments and a radio that sends out contradictory directional advice.
I hate when that happens.
I looked at
50/200 moving averages--too late/early many time
10 months MA by Faber-It works only in crashes but not good at mild one. You can see it in this (link)
I tracked the performance of GMO, Arnott and AQR Capital Management and they were not good.
Inverted yield, PE, PE10 can be off by months and years
When I was younger I was very heavy in stocks but in the last 7-8 years I learned a lot about bonds, starting with PIMIX.
In the last 5 years and close to retirement I based my timing on the following
1) Bonds rule. Bonds must work rationally for me to be confident. Stocks don't have to be rational, they can go up regardless, at some point they will go down but they can be off by years/months
2) I simply set a rule of max loss from the last top for each fund I own. Years ago it was 3% for bonds and 6% for stocks. Now it's 1% for any bond fund I own, at 0.5% I start checking why.
If I sell a fund then I look at other funds in the same category, it the category bad or just this fund. Then I look at other categories, maybe they are doing OK.
example: rates go up most bond categories go down but wait, bank loans may go up.
make the switch.
When you have enough, it's just a number game. If I sell too soon and it rebounded and I miss the performance...I don't care.
3) Look at VIX. If it's over 30, it's a warning sign. Over 40 a stop sign. continue up, it's a danger zone. The key here is to look at extreme because it's hardly there.
4) Pay attention to the traders. I record fast money and watch it every day, at least the first 15 minutes. Pay attention to Carter Worth. Pay attention especially to an unusual guess Tony Dwyer with pretty good calls. These people give me the market internals, spirit and what the big Wall Street firms are doing. Investing for me is a passion for years.
5) I use simple tech indicators because many algos use it too. 50+200 MA, MACD, trends,
3-line-break (link) This fast indicator tells you to get ready to buy/sell. I used these for riskier stuff for short term trading.
When stocks lose and rebound, they will capture most times 40-50%. I look at the SP500 + 3 line break + daily MACD(weekly MACD is better) when to enter and stay for 1-2 days of trade. The more it's down the more you can make and stay with the trade. It's feeling but if I made money I sell anyway if I think it's enough.
For my longer term bond holdings, I use a simple trend. I have several bond funds I like and just switch.
6) Common sense based on the news.
Examples:
The Fed says they will raise rates, watch your bond fund, stay away from simple IG bonds
The Fed said last week they will support IG bonds, start buying.
Fast trading:
A very known stock had bad news after hours and falls 20%. The next day, you can see the trading prior to the opening. It opens even lower at -22%, you buy, it will go up several %, you sell.
PCI is one of the best known CEFs. It was going down sharply and more than the SPY, then one day it was down another 20%, this means, investors are desperate, then I buy, I made 5% in 30 minutes. The next 2 days it was up another 15% but I don't care. I made money.
So, why I sold almost everything weeks ago because 1) bonds, including treasuries were acting irrationally 2) VIX over 45-50. These 2 are enough to sell but then stocks were crashing and all the news media were talking 24/7 about the Coronavirus.
Bottom line: I have strict written rules that I follow but I'm also flexible. Never say never, I learn stuff all the time and then I test it to see if it works. It took me years to be comfortable to trade and use big %.
@BenWP. Yes, I've had to cancel three flights because of CV-19 so far this year. Only Delta offered refund. Alaska and JetBlue credit only.