There is no doubt that the declines in housing prices and stock market prices are a serious matter and that people will be impacted in various ways as a function of circumstance or because of their own actions and the potential impact on the economy at large could be unpleasant.While I believe the above to be true it is also true that many people will not be meaningfully affected.
If you have a mortgage you can afford and you want to stay in your house it is likely that a drop in your home's value won't matter a whole lot if at all.
My wife and I recently bought a house and I can't imagine we could sell it today what we bought it for six months ago. All things considered I would of course rather that the value did not go down (I am assuming it is down some but I don't know with any certainty) but we can afford the mortgage and want to keep the house.
If three houses on your block each sold for $500,000 a year ago you might assume that is what your house is worth but if you did not try to sell you really don't know. You can only know the value of your house when you and a buyer meet on price. What your house might have been worth a year ago really means nothing.
If you own a house that you want to stay in you don't need to worry about the value today you just need to make your payment (if you have one) and fix things that need fixing.
Think about your stock portfolio now. At year end the SPX was at 1468. Let's suppose that between now and the end of the quarter SPX goes up another 100 points. If that happened the SPX would finish the quarter down 2.6%. A person whose only exposure is a 401k with a 70/30 mix would likely be down less than 2.6% for the quarter. If this same person does not follow the market at all and only checks his 401k balance once a quarter he might be totally oblivious to what a wild ride this quarter had been.
Think of all the ink spilled and TV segments over the last three months, all the big mistakes that have probably been made by people panicking and we are only a good week away from what might end up netting out as not that big of a deal.
If you have the proper asset allocation (this is crucial!) a bad year is unlikely to really have anything more than a psychological impact. All of the gloom and fear that this time could be different notwithstanding I think it is a good bet that American capitalism is not permanently broken.
You don't need to worry about stock prices you need to focus on having enough money when you need it in the future. That means a lot of saving and a couple of prudent decisions along the way.
This entire post is a matter of perception and I concede that any of it can be refuted but it is just how I view things.
13 comments:
Roger,
Please change your blog name to something like "reasonable, realistic, reliable" Roger!
While I realize that we investors seek out confirmation of our true values and resulting behavior, every extreme bull and bear should have you bookmarked. A dose of RRRoger every day will offset the terrible noise reverberating on most of the investment blogs.
Well, I'm sleeping better since I followed your advice and Money Magazine's advice to maintain my exposure to the market during these psychologically nervous times. I'm newly retired and after reading several articles on the net advising some drastic changes in my asset allocations, I fearfully caved in and went about 80% cash. Unfortunately, I didn't sleep any better than when I had my original 60/40 allocation.
Thanks for beating your drum about "don't miss the up market while trying to prevent a down market". Your common sense attitude was and continues to be.....very helpful to this "newbie investor".
well thanks for all that but the bigger macro is simply plan ahead.
think about what to do strategically/tactically and what to do emotionally before it hits the fan.
even if we can't predict the timing the market bear market will end and then work high. anyone too freaked out probably needs to make changes as we work higher not at the bottom.
Off topic.
Try to have an evening meal at the Rusty Pelican on Key Biscayne during your stay in Miami. Excellent food, plus a not to be equaled evening vista of Miami.
A front table to the panorama can be arranged.
T
"Think about your stock portfolio now. At year end the SPX was at 1468. Let's suppose that between now and the end of the quarter SPX goes up another 100 points. If that happened the SPX would finish the quarter down 2.6%."
I have the S&P at 1329.51 down 9.46% YTD according to CNNMoney.com
Now you have this panacea about looking at the market 100 points higher or a 7.5% rise over the next 6 days. Seems realistic to me and the guy from Mars looking over my shoulder, but the guy from Venus says you are less in touch with reality than I am.
How about looking at things the way they are not the way we wish our portfolios were.
you are missing the point entirely, you are adding 1+1 and getting 11 there.
i am not looking for a 100 point rally any attempt along those lines would merely be a guess.
I am saying that if it happened (and I wouldn't discount 100 points in either direction) the quarter might end up as not being that memorable.
People often freak out over short term moves and make poor decision as a result of their freak out. A good week, were it to come, would have made anyone's freak out a total waste.
"freak out"
When have you seen treasuries drop like they have recently?
When have you seen Bear sterns trade for $5.00 a share?
When have you seen so much AAA debt priced so poorly?
I do not think people are "freaking out"
I think they are reacting normally to a bear market.
Hmmm, 8:58pm seems to have mistaken this blog for Calculatedrisk.com, or perhaps he is one of Mike "Mish" Shedlock's posters.
We're really not head in the sand types here, 8:58; actually, we're trying to look past the minute/hour/day trading horizon and keep some historical perspective.
Yes, there are ALOT of indicators suggesting that this is pretty bad. But in every Bear market, and every recession, there are such indicators. They are not always the same indicators.
Consider a statistical distribution, but try not to give 0% probability to the possibility that the market will go up again.
Even on a shorter time frame, and even if this is "as bad as it ever was" (or worse), bear rallies are simply a part of a trading market.
Not from Venus, and not wearing a tinfoil hat either,
R in NY
reacting normally to a bear market?
exactly my point. normal reaction is one of emotion. bring emotion to the table is what leads to poor decisions.
WRT to all the things you cite, none of them are unprecedented. As failures go BSC is not that big. Treasury yields dropping, we had that this decade. I would suggest a Trader's Almanac and a couple of history books.
The normalcy of all of this is exactly why freaking out is very counter productive.
a big focus here has been to make a plan for defensive action and then stock to it when things get ugly. doing this removes emotion.
"WRT to all the things you cite, none of them are unprecedented."
I am not saying they are unprecedented, just not indicative of a bull market.
BTW can you please explain a Fed guaranty of 30 billion dollars in bearstern bonds? Is this legal?
i was in the bear market is coming so watch out camp months before it came, and publicly said I thought it was here in November. That doesn't change any of what i said.
as far as legal or not I am not a Fed scholar. John Hussman is out saying it is illegal. you can read his site for the specifics or find the same content on seeking alpha.
Nice shot of the Grand Canyon.
Favorite vacay destination for the wife and me.
Did you take that shot?
we took that pic.
we live 2 hours from the canyon and have done several rim to rim hikes.
that pciture is from 2003.
Post a Comment