What will you do if (when?)...."frothy" markets turn into a Scheisse Fest?

Baseball_Fan

Question: What will you do if the market pulls back by over 20% slowly, suddenly or a combo of?

Which funds will you sell, buy, keep for the long run etc? I saw some of my cohorts have that deer in the headlights, forlorn look during last March's market Scheisse fest. Or are you already sitting mostly on the sidelines already? I do remember some on this board like Mr Rono and others were stepping in and buying in steps which depending on how much and at what level was very likely an excellent move looking back at it.

I'm heavy in PMEFX Penn Mutual 1847 Income. Fund mgr's have pulled back on their equity holdings and have stated they would step in with purchases if there is a market dislocation. They are former fund mgr's of BERIX Berwyn Income and over the time period there have shown the ability and willingness to do so. Kind of comfortable with FEVAX First Eagle US Value as well. Both those I would be buying...I think...maybe...

I'm starting to formulate my strat of what stonks I would buy in a downdraft of 20-25-30% and will be placing limit orders for the HD's, JNJ's, BRK-B's, ACNs, CLs at those lower levels...

Like they say...the time to buy an umbrella is when it is sunny out, no?

Good Health and Good Luck to all,

Baseball Fan

Crash

I will stand pat, but in that case would hope to add a single stock, maybe two. I have my old favorites, but am also monitoring a new watch-list of stocks with already-low share prices and which would become bargain basement deals. My penchant for Canadian banks is a thing I've mentioned here often. Those "others" include:
AQN
IQEPF
BDRBF*
PBR
BBVA*
ENIC*

*favorites on this list.
Hopefully my own free cash stash will have grown enough to be useful, by the time a correction or a bear shows up.

https://www.cnbc.com/2021/05/06/fed-warns-of-possible-significant-declines-in-stocks-as-valuations-climb.html

DaveSch

I'm 71yo and have my Scheißfest plan all set. The plan is to do almost nothing.
My AA is almost 70% equities, all in mutual funds and ETFs. I keep 5 years of expenses in my credit union savings account. I am a low spender.

March 2020, I sold some ETFs in my taxable account where I could TLH. Anything that had gains, stayed. Within a few weeks, all that loose money was invested in new ETFs. So I'm fiddling with my taxes.

Since I likely won't need the money in my investment accounts, it doesn't matter what they do in the near term. I'm able to weather the storm, it seems. In March 2020, the value of my portfolio went down by more than my house is assessed, and I shrugged and did something else. This was part of my written plan. In late 2019, after a great year, I restated what do when the Scheiß hit the fan. Didn't know I would have to implement it so soon.

rforno

I'm 90% equities across my portfolios but also have a decent cash pile from recent sales. That said, mt Scheißfest Plan is to sell very little (if anything.) Rather, I plan to buy (or add to) quality stocks and funds (mostly value-oriented but some growth if attractive) that I want/have that go on "deep sale" and then hold them for the long haul ... which is my general investing plan anyway.

So, essentially, no changes anticipated for this 48 y/o. (nb: said plan subject to change as necessary, of course - I'm not dogmatic or fire-and-forget.)

Tarwheel

Same thing I’ve always done during market drops. Nothing. I periodically rebalance my accounts when the markets are up, but I never hold cash waiting for a drop. That’s a losing proposition in my book, unless you need a certain amount of cash to live on.

Derf

I believe Baseball_Fan forgot one point. Would you & you're well thought out plans be able to withstand a long drawn out Mr. Market collapse of two or three years ? Patience, can & will slowly go away , at least for me . During the 2008-9 market fall I was able to make a few buys as the market sank. Then at some point I got caught in the headlights & the buys stopped ! I sold nothing so trying to buy back into the market wasn't a problem. Also age & wealth play into these so called plans.
To answer the questions , I'd be a buyer on the way down or possible on the way up. Time will tell.
Have a good weekend, Derf

davidrmoran

Shiller p/e gonna hit 38 presently, SPX blown past 4200

carew388

I'm phasing out mutual funds in favor of etfs. The only mutual funds I would keep are PRWCX MERFX ADANX ARBOX , maybe JHQAX and a few other alt mutual funds, and take profits in my etfs. If the selloff continues, dip my toe back in with etfs.

hank

Baseball_Fan said:

I'm starting to formulate my strat of what stonks I would buy in a downdraft ...

@Baseball_Fan - Stonks? Would that be stinks or stocks?

It hurts a little when markets tumble, but in recent memory it’s always proven a great buying opportunity. Who knows about next time?

Couple tidbits from some of the bubble-vision gurus:

- Gundlach commented that The Dow and other averages don’t mean much if we get runaway inflation. His comment (rough approximation) - “If inflation takes off you can tack another zero onto the end of all those averages.”

- Another guru (name unknown - sounded pretty intelligent) suggested more frequent rebalancing during the current exuberant markets. Instead of quarterly rebalancing, do it monthly or whenever things get unbalanced. I kind of like that one.

Personally - So diversified and conservatively set that it really doesn’t matter much what markets do. You younger & cleverer ones can make the big bucks.

davfor

What will I do if the stock market declines by 20% or more? Nothing except maybe reallocate some $'s from cash/bonds to stocks/other. What -- if anything -- gets sold will depend on the reasons for the decline and tax considerations. What gets bought will depend on what the market presents when the pullback occurs.

Gains have already been harvested a couple of times this year to get back to the January allocation %'s. That has resulted in significant increases to the $'s allocated to cash and bonds . That process will continue as the year progresses if the risk markets continue to shine.

sma3

I think it is worthwhile ensuring that in the event of a substantial bear market with drops like 2008 and a duration like 1930's you have enough cash to avoid selling at the bottom.

It is possible that it will take five or more years for losses to recover, even after a modest bear market.

QQQ didn't hit it 2000 peak until 2015. DJIA lost 40% in the 1930's, was up only 5% in the 1970's and many of us can remember the loss of 10% in the 2001-2010.

https://www.barrons.com/articles/how-the-dow-jones-industrial-average-performed-over-the-last-100-years-51620421855?mod=past_editions

Having just entered retirement without a pension, I can ill afford to loose 30% of my savings nor wait ten years for it to come back.

To answer your question, if there is a substantial drop, I might DCA back in to about 50% of where I was at the start but little more.

Baseball_Fan

@davidmoran, ya, markets way overvalued highly. But,but please remind me how many billions and trillions have, are being pimped into the markets via central banks balance sheet expansion and Biden handouts. Not sure if the fools are the one's staying highly in the market or the one's staying out. ???

@carew38. Do like thinking of more tax efficient ETFs. Can get out without exit fees of many mf's. Which one's? Nobl? Dstl?

BTW. Nice article in Barron's today. Associate at Bridgewater had comments about old 60\40 I'll recap and ping out when I get the chance

@Derf do you think politically they would allow something like an old fashioned multi year drawdown? I'm not sure. I see more extreme downs, ups, vol, you know Vegas type of excitement.

Best

Baseball fan

davidrmoran

@sma3

My thinking aligns with yours ('ill afford to lose...') and is what caused me to leave the market altogether 1y ago plus a couple other breakeven selling points. (Except for the occasional rally play since.) I have missed out on some hundreds of thou solely for the sake of protective decisionmaking at age 74. I shoulda stayed the course and left DSEEX and PONAX and FRIFX completely alone, but did not. Yet as the saying goes, Was it the right decision at the time? Sure.

A small correction about QQQ: its breakeven after the 9/1/2k plummet came during July '14. Still, your general point is altogether taken.

carew388

Baseball fan: I'm investing in etfs solely to avoid early redemption fees. If, for example, Fidelity would eliminate early redemption fees on their funds, I would buy their funds and reduce my etf purchases. CDC MGV DIVO DGRW XLP XLV JEPI IVOL VIG SCHD are among etfs I'm using. I ignore the tax consequences of etfs, since I'm actually trying to boost my yearly MAGI amount.

JD_co

carew388 said:

I'm investing in etfs solely to avoid early redemption fees. If, for example, Fidelity would eliminate early redemption fees on their funds, I would buy their funds and reduce my etf purchases.

Hi Carew,
Fidelity eliminated short-term (under 60 day) fund trading fees from their own FIDO mutual funds years ago. Did you mean from all of their 3rd party fund offerings?

carew388

JD I thought short-term fees were eliminated for transactions under 10k. Do you have a link showing all short-term fees for fidelity funds have been eliminated? Thanks !

JD_co

carew388 said:

JD I thought short-term fees were eliminated for transactions under 10k. Do you have a link showing all short-term fees for fidelity funds have been eliminated? Thanks !

Here ya go: https://www.fidelity.com/mutual-funds/all-mutual-funds/fees

"Short-term trading fee: Fidelity charges a short-term trading fee each time you sell or exchange shares of a FundsNetwork NTF fund held less than 60 days. This fee does not apply to Fidelity funds, money market funds, FundsNetwork Transaction Fee funds, FundsNetwork load funds, funds redeemed through the Personal Withdrawal Service, or shares purchased through dividend reinvestment. In addition, Fidelity reserves the right to exempt other funds from this fee, such as funds designed to achieve their stated objective on a short-term basis."

JD_co

Carew, just came across your $10K threshold. "You were right." Had to google it, could not locate directly on Fido's website.

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/mutual-funds/2020-08-31-Excessive-Trading-Policy-Web-Post.pdf

Derf

@JD_co : Thanks for the link. I would like to see some of Fido's data when the last market dropped in Feb. 2020. Did ETF's or MF's lead the way.
Derf

carew388

Thanks JD . I was conflating the terms "redemption fees" and "short-term trading fees." I'll make sure my transactions affecting Fidelity Funds are less than 10k per trade.

LewisBraham

PHDG is interesting for the nervous:

https://invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=PHDG

https://spglobal.com/spdji/en/documents/methodologies/methodology-sp-500-dynamic-veqtor.pdf

Regarding the assumption that inflation will kill the golden goose because of monetary and fiscal stimulus, one word--Japan. It could just as easily go the other way when the stimulus and "handouts"--somehow what happened last March with the Fed for the stock market wasn't handouts, but now that the money is for working people it's "handouts"--stop. We could have unemployment and deflation. But markets are overvalued either way.

carew388

+1 Lewis-thanks for the info !

davidrmoran

What a costly price to pay for avoiding the March '20 dip.

JD_co

Its so scary to buy equities at this point, but FOMO keeps you playing. Some kind of hedge seems sensible - I've been watching HEGD, slowly accumulating.

carew388

I'll probably use PHDG and JEPI , as Fidelity gets crabby when I try to buy etfs with lower trading volume.

JD_co

JP Morgan's JEPI had made my watchlist, but I prefer their hedged MFs better (JHQAX, JHDAX-2, JHTAX-3).

davidrmoran

carew388 said:

I'll probably use PHDG and JEPI , as Fidelity gets crabby when I try to buy etfs with lower trading volume.

elaborate?

carew388

One etf, which unfortunately, I don't recall, I purchased at Schwab after Fidelity said the limited volume made the etf an illiquid investment. The trading volume was around 2k shares. After that experience, I try to limit my etf purchases to those with a daily trading volume of at least 100k.

JD_co

davidrmoran said:

Shiller p/e gonna hit 38 presently, SPX blown past 4200

All time high of 44.19 was back in Dec-1999.

So we've got room to run.

davidrmoran

ha, good line, and good to remember

Someone posted recently the decade-plus it took for breakeven from that peak (for gogo tech anyway) ... only (only) 6y+ for SP500.

Completely OT --- can anyone explain why M* gives 4* to FXAIX and 5* to the faintly underperforming VOO?

davfor

LewisBraham said:

Regarding the assumption that inflation will kill the golden goose because of monetary and fiscal stimulus, one word--Japan. It could just as easily go the other way when the stimulus and "handouts"--somehow what happened last March with the Fed for the stock market wasn't handouts, but now that the money is for working people it's "handouts"--stop. We could have unemployment and deflation. But markets are overvalued either way.

Global markets currently appear to be operating under the assumption a third way will be chosen that successfully threads the needle. MMT will be adequately but not overly embraced and the increased level of central bank intervention will continue to be successfully modulated based on evolving market conditions. If so, are the markets "overvalued"? Their actions suggest they don't think so......