Access from your Country was disabled by the administrator. Access from your Country can you mine cryptocurrencies using a PS4? disabled by the administrator. On what was later to be called Black Monday, in 1987, at the end of a very busy day I called my broker.
Remember now, this was when we had brokers and before cell phones, personal computers, the internet and on-line trading. There was a long silent pause. Jim, we’ve just had the biggest meltdown in history. Customers have been screaming in panic at me all day.
As any educated investor does, I knew that the market was volatile. I knew that on its relentless march upwards there could and would be sharp drops and bear markets. I knew that the best course was to hold firm and not panic. I held tight for three or four months. Stocks continued to drift ever lower.
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Finally, I lost my nerve and sold. Bet no one’s told you that before. Understand this is not to say it is a smooth ride. It is most often a wild and rocky road. We’ve stayed the course, with a side-dish of panic.
Great line there JTH, and staying the course is always served with a side dish of panic. That’s why ya gotta be tough. Because the market always, and I mean always, goes up. Not each week and certainly not each day. Can you find my ’87 blip? It’s there and easy to spot, but not quite so scary in context. Take a moment and let this sink in.
You should notice three things: 1. Trend is relentlessly, thru disaster after disaster, up. It’s a wild ride along the way. There is a Big, Ugly Event. Let’s talk about the good news first.
To understand why the market always goes up we need to look a bit more closely at what the Market actually is. We are looking at the DJIA because it is the only group of stocks created as a proxy for the entire stock market going back this far. Way back in 1896 a guy named Charles Dow selected 12 stocks from leading American industries to create his Index. Today the DJIA is comprised of 30 large American companies.
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Note: As of June 26, 2018, GE has joined the rest of the originals and has been removed from the Dow. It has been replaced by Walgreens Boots. The same is true of VTSAX. It holds virtually every publicly traded stock in the US market. A little over 3600 at last count. Now, picture all 3600 of these companies along a classic bell curve graph.
Those few at the left will be the worst performing. Those few to the right, the best. All those between at various points of performance. Ok, looking to the left what is the worst possible performance a bad stock can deliver? Then, of course, it disappears never to be heard from again.
As new companies grow, prosper and go public they replace the dead and dying. The net result is a powerful upward bias. But note, this only works with index funds. They can, and most often do, make things much worse and they always charge more fees to do it. We’ll talk a bit more about this in a later post.
Owning stocks is owning a part of living, breathing, dynamic companies, each striving to succeed. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. It is also a great tool for reaching short-term savings goals. We talk whenever can and for however long we please. My RW Review tells you how.
Needle helps me sleep at night. While they no longer have an affiliate program, they are still a very cool company with a great product. And they are now a sponsor on this site. Please click on their ad at the top of the page for more info. These are affiliate links and should you chose to do business with them, this blog will earn a small commission. Stocks — Part 1: There’s a major market crash coming!
Stocks — Part III: Most people lose money in the market. I know this is obvious, but I have to say it anyway. I completely agree with your premise here and you’re obviously quite correct. If I was 50 years old in 1928 and looking to retire in a decade and had my money in the market.
Well, it would be 3 decades after that crash before my money would get back to it’s 1928 value! I would be 80 by then. 5 years to recover losses assuming you did not panic and stayed put. Hi, I actually have had this conversation with my 60 year old boss about his bad investments made in 2000 right before the crash.
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If you were unfortunate enough to wish to retire in 1928, and continued to dollar cost average into the market for a few more years, my guess is you would have incredible returns. I believe that the vast majority of young people should invest in the market over time and STAY invested! Don’t try to out-think it or out-smart it! I believe that many people self-sabotage their financial returns by not conquering the behavioral psychology part of investing.
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Don’t ask how I am an expert in this facet of wealth accumulation! Again, don’t ask how I know about this! Folks, this is market timing on purpose! 18 months to reach the very bottom. The astute can take advantage of this trend and add to their wealth. 2 funds , re-evaluating within 5 years of retirement.
There is enough info in this blog, that if followed will most likely lead to a very satisfactory financial future! I am fully anticipating a major market correction and possibly a bear market within the next 2 years. In fact, I am hoping for this! Can you reach out to me to discuss your strategy for reallocating your portfolio along with investing during a bear market? Can you please expound on how an astute investor can take advantage of this trend and add to their wealth? My apologies if these are novice questions but I’m 35 and have just started to take my FIRE journey seriously over the past 2 years.
I make decisions now that may impact my future. I hope you find my response somewhat helpful. It’s really just my thoughts on your questions more than any sort of expert advice, as I’m no expert. Bull markets typically last 6-7 years. Let’s assume you agree, and why wouldn’t you, since history likely sides with Scott at the time of his posting. And now you’re guaranteed to have outsmarted that pesky 18 month BEAR!
April of 2009, and start counting 6-7 years from there. Bull lasts 6-7 years, it’s possible this one could be a little shorter. Better to err on the side of safety, yes? I’m actually so confident in this soon-to-be Bear market I’m going to ALL CASH, baby!
And so you do in June of 2014. At year 6, you’re not too worried, since you know you were playing it safe. At year 7, still no drop. And now at year 9, the market, though volatile, still marches higher. You’re kicking yourself at this point, because instead of 9 years of 15. FIRE dreams are becoming more like a frustration.
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Point is, Paul, no matter the technique to allocate funds in order to time the market, it is exceedingly difficult to do this well. I wouldn’t say it can only be done with luck, but for most people much like myself that’s what it requires. Just keep pumping money into your index funds and march, head down, right past the Bears. Don’t try to dance your way around them.
They’ll reach out and swat you dead. Questions 2-4 I think are answered similarly. I’m not sure why you would hold actual bonds as opposed to a bond fund or ETF of some sort. I suppose there is some sort of risk aversion to increasing interest rates, but you can read numerous articles stating the falsity of engaging in such a technique. Again, these are just my thoughts. And sorry to use Scott’s comments as a basis for my soap box, as I don’t even think he would suggest someone should market time off of just the assumption that Bulls are 6-7 years in general.
But I wanted to make sure to illustrate the fallacy in market timing. He states himself that young investors shouldn’t mess with such methods. Good luck in your journey to FIRE. From reading many other’s posts attempting the same, it seems the journey itself is often a big part of the joy it provides. Thank you for sharing your wisdom. When and how do they gracefully bow out of the drama?
We’ve saved, diversified, and when the side-dish of panic comes along, it rocks our boat big time. These articles are great and understandable for us novices. We’ll be discussing death building and wealth preservation phases coming up. I am learning from some of your writing like this post. Some of that background information on the origination of the DJIA is news to me.
Glad you posted it, because I would have never taken the time to research it otherwise. I agree with you that index fund is — by far — safest way to make money. I also agree with you that markets always go up in the long run. As you’ve mentioned, many stalwarts of past have faded. So, anyone who is investing in a specific stock has to be vigilant as I do. As you point out, investing in individual stocks requires a whole new level of commitment and vigilance.
They had a surprisingly close brush with disaster a couple of years back thanks to what had been their profit leading GE Capital Division. Now Apple is the current darling and soon to be the first Trillion dollar company. I dunno and haven’t done any analysis. But talk like that is enough to make me nervous.
Enjoying reading the series, found this from MMM. Glad you found your way over here! The market always goes up, but if you invested in 1929 you had to wait 30 years for it to do so. What if someone decided to get into investing in their 60s?
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We can’t all invest in VTSAX. You may be right about markets eventually always going up but the wait can be a disaster, witness this story that came out this weekend. Tokyo broad stock market averages at the lowest point in 28yrs. You could very well die before your basket of stocks return to previous levels. Go ask an ancient Roman if ingenuity can sustain a prosperous civilization in perpetuity. Actually, the Romans discouraged many innovations.
They wanted to maintain the status quo in their empire. The USA has embraced the concept of harnessing ingenuity very thoroughly. I call a financial revolution and what my wife calls a financial crisis. I appreciate you sharing your wealth of wisdom and experience here, its life enriching stuff.
I have really enjoyed reading your blog and have been inspired to start this financial revolution, which basically involves having a plan and choosing to aim for financial independence. I’ve been incredibly lucky to have been a financial broker in some incredibly strong markets and made a decent amount of money at a young age. However, it does feel strange to know that I earned the most I ever will in my life at the age of 26 and since then it’s only been decreasing each year. You will cringe but currently the ISAs are invested with a stock broker in a mixture of equity funds, high yield individual stocks and I have a corporate bond too. I’m now keen to pursue cheap fees going forward.
I think the thing I loved most is your certainty. I understand some of your views but still have questions about others. 100 years in equities have been due to dividend reinvestment’. I think this is an interesting statement. That basically says to me that compounding is the key to wealth growth.
When I first read your Stocks series I was very convinced about a lot of your arguments, and I was elated that I had a found a plan to long term wealth building. After rereading, digesting, being blasted by conventional wisdom there is still a lot I like and agree with however it’s the certainty that stocks are the way forward that I find difficult. I’m not sure if I trust them long term. If I was ultimately convinced of this, I reckon I could go all in and buckle up for the rocky ride but currently I’m paralised in my current situation. I trust in starting early, I trust in low cost investments, I trust in tax efficient wrappers, I trust in compounding over time, however I’m not sure I trust in equities .
Any comments, thoughts, advice or recommended reading material would be much appreciated. 20, 30, 40, 50 years for equities to be booming again. Apologies to all readers for such a long post. Sorry for the delay in responding. I just got back from South America and am just now catching up. Your comment brought a smile to my face for a couple of reasons. It is always a pleasure to read the stories of young people like yourself who are so well on their way to FI.
Given how far you’ve already come I can only marvel at how far you’ll go. So I won’t address those issues, you already know what to do. Stocks are not just little slips of traded paper. When you own stock you own a piece of a business. These are companies filled with people working relentlessly to expand and serve their customer base. They are competing in an unforgiving environment that rewards those who can make it happen and discards those who can’t.
It is this intense dynamic that make stocks and the companies they represent the most powerful and successful investment class in history. And I would add that this is happening on a global basis. Past decades and centuries long retreats were tied to the collapse of countries that had their economies far more islolated. Unless you think the dynamic I describe in that quote will dry up, stocks will continue to be the heavy lifters. You say you are not sure if you can trust stocks. Of course you can’t trust them. If you are not very careful, tough and long-term focused the moment you panic they’ll cut your throat and leave you to bleed to death in the dirt.
It is not about trust, it is about understanding the relentless drive upwards and the violent volatility along the way and then adjusting your own psychic toughness to ride the bucking bull. I’m paralised in my current situation. You’ve obviously been reading a lot about this stuff and that’s good. But you’ve also discovered conflicting information. Only you can sort thru what makes sense for you. You need to read my stuff, and others, with a critical mind asking if what is said makes sense. Before you follow my advice, or any other, be sure you fully buy into it.
Do both and, well as I said, I marvel at how far you’ll go. Good luck and stay in touch! Many thanks for your reply and affirming words. I very much agree on your closing statements about exploring more and acting on something I have conviction about. A perfect analogy would be diet. The New Evolution Diet by Art De Vany.