More than a couple of times recently, readers have left comments that they close out in such a way that they let us know they are just venting.
That people need to vent and choose to do on this blog does not bother me personally but in the context of what I write about and the things I try to convey it's a little disappointing. The market action is unfriendly, has been unfriendly for quite a few months now and more importantly might become yet more unfriendly if history is any guide.
So either I can get ready for more venting but of course that does you no good or you can get ready for market turbulence.
As all of this has been unfolding I have, in addition to the blog posts, sent out the occasional email to my colleagues to then forward on to clients trying, ahead of time, to express how bear markets usually work, what to expect and so forth in order be out in front of any reactions.
Part of smoothing out the ride, the way I look at it, besides within the portfolio, is to try to prevent big emotional reactions. Just like with the blog I sent these emails before things got ugly and while things have been ugly.
Based on feedback from my colleagues, I believe the communication has been effective in helping clients deal better with what has been going on.
The point of writing this is that, as I tried to convey, mentally preparing for a market downturn can be an effective way to avoid getting emotional and succumbing to that emotion with panicked trading.
To be clear staying unemotional is no guarantee that your plan for defense (if you have one) will be exactly right, or that your timing back in will be right either but underlying this is that bear markets come along every once in a while and then they give way to a new bull. If nothing else time will bail you out. On this go around it might be a normal amount of time (this is my opinion) or it may take longer but bear markets end.
Navigating any market environment is a serious of decisions. Some will be correct and others will be incorrect. Just as it is impossible to be right every time it must also be that being wrong every time is impossible too. Knowing ahead of time that you will get some right and some wrong might also offer the chance for less emotion.
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18 comments:
if it makes you feel better i am willing to help you out by leaving comments boasting about my portfolio (blog.livememories.com) in this "difficult" market. To counter-balance those who vent that is :)
p.s. this is just a humor attempt. do not flame me.
I find 2 things really help.
1. Get out of the habit of checking your accounts daily or weekly. Get out of the habit in BOTH good times and bad. This does NOT mean that you shouldn't follow the market or understand why the market is doing what it's doing.
2. Enjoy the process of finding buy opportunities. hell, I even enjoy the process of updating all the ETF portfolios I track, just to see whose scheme works best.
Now all I have to do is somehow keep the kids from sucking away all the cash I used to invest. Haven't figured that one out yet.
VENT....VENT!!!!!! I AM NEVER GOING TO VENT ON THIS BLOG. NEVER. NEVER!!!!!!!!
The problem I have is the dollar losing half its value and inflation flying out of control. In real terms everyone paid in dollars is losing. My portfolio is down 10% from the highs and I may trade it all in for GLD if the fed doesn't stop ruining our currency.
down 10% means you've done a good job right? SPX down 15%? so kudos so far.
i realize there is a tongue in cheek element to your comment, but if the dollar decline is your concern going forward why not a diversified portfolio of stocks, bonds and currency and commodities with the stocks, bonds, currency portions being more foreign (or all foreign depending on how agressive you are.
stocks bonds and cash from other countries would help a us-based investor if you are right about the dollar still declining from here without making a huge bet on one thing.
just a thought.
Roger, you are a generous soul who apparently wants peace in the valley but rude flaming venters are an embarrassment to all of us and I hope you don't take it too personal. We appreciate your calm attempts to try to modulate the financial static in our universe. I do not share your sanguine view that markets eventually go back up, that there could be a return to the dollar a la 2001 etc.The damage done by this government to our economic system is long term and systemic and using the retrospectascope of historical economic cycles to reassure solely us on the basis of past performance doesn't reassure me and I hope since you have been a long time and respected(certainly by me!) observer of the current fiasco, that you will try to keep an open mind to the possibility that the economic paradym may be changing.
i don't take the venting personally in the least, its just unfortunate that people get emotionally wrapped up but perosnally no. thank you though (not a sarcastic thank you).
I mentioned in the comments yesterday or the day b4 that the way I am positioned i do not have to guess correctly that this time could be different.
Correct, I don't believe that it is but if i am wrong and the market goes down to SPX 650 the double short will grow dramatically offsetting some portion of the rest of the portfolio's decline...assuming I do no more selling which is not a good assumption.
The point to this sort of writing I have done is to put yourself in a position where you do not have to be very right.
I'd rather protect client assets than make the exact right call on the market.
Keep up the good work Roger - I encourage you to just ignore the flames and just respond to the serious posters
not too many flames;-)
Roger, re; your post at 10:18am, when I first read it I thought your last point about putting all your eggs in one basket meant diversifying everything out of the $US, upon reading it again I realise you mean not putting everything into gold. That makes much more sense.
Agree diversification is probably the most sensible thing to do, and I'm getting out of equities and into commodities, I've completed exiting China today (was out of India 6 weeks ago) and now I've just got a BRIC fund and a small exposure to Africa. The £UK is looking wobbly so I'm happy to have a small exposure here (about 17%) although I'll probably add more if/when Barclays and/or Persimmon look firmer.
Regarding currencies, the $NZ still looks very strong, although my only foreign currency exposure at the moment is the $US via commodity ETFs!
I'm quite aggressively chasing growth, but this is because I'm worried about inflation shrinking my pot. To do this I'll be increasing my commodity %, mainly grains and softs.
I read your blog every day, keep up the good work!
Seems to me the most you can hope for is the posts here are civil. It wasn't too long ago when that wasn't always the case.
the post was simply about reader comments as a gage of sentiment.
It may be too late to add to commodity exposure as they have run up so fast.
A gentleman earns respect. You have earned respect.
T
Agree diversification is probably the most sensible thing to do, and I'm getting out of equities and into commodities,
.....
I'm quite aggressively chasing growth, but this is because I'm worried about inflation shrinking my pot. To do this I'll be increasing my commodity %, mainly grains and softs.
Hmmmmmm... I read something like this and juxtapose it against the recent price action in the CRB, and it makes me think the probability of a top here is quite high. Recently (last week or so), it sure seems like the C in CNBC stands for commodities.
I've been smart enough?/lucky enough? to have substantial commodity exposure the past 12 months and it has benefited portfolios greatly, but things seem to be getting frothy. Might be time to cut the commodity allocation in half.
Just my opinion, but there is a big difference between experiencing emotion and acting on emotion.
Except for Spock-like humans with ice water running through their veins, most people are going to experience emotions when the market swings and/or does poorly. I don't think there is anything abnormal about that.
Where one makes mistakes is when they allow their emotional state to take over rational analysis, and they start making changes to their portfolio and buying/selling things based on the emotions of fear and greed. I don't want to pick on one commenter excessively, but one of the comments about moving wholescale into commodities *NOW* after a 6 month 50% run-up in the CRB smacks of an emotional decision driven by a combination of fear and greed.
I think instead of trying to turn off emotions which isn't probably going to work, one should understand when emotions are there so they don't infect the decision making process.
Thanks for the comments, Mike. I've been following the markets closely since last July (what a ride!) and those emotions have been on a roller coaster. I was lucky enough to get into China in the summer of 2006 but feel the emerging market equities need a pause before continuing their march upwards, as do equities in more developed markets - that will be healthy, after all. As to your point, yes 6 months growth is nice, and come July or August I see those prices stabilizing or even falling as the drop in equity markets slows, but if I'd dropped out of emerging markets after 6 months I would have missed out on a lot of gains. To be fearful would be to put all my cash in bonds and get below-inflation returns. I'm young enough to take a hit if my investment goes south so I'm happy to trade, partly, on sentiment. If it's good enough for the rest of the market...
"it sure seems like the C in CNBC stands for commodities" - CNBC can certainly be accused of a lot of things and ramping under-performing stocks and investments is one of them, but to denounce every recommendation the analysts there make would be a folly, especially if Mr Santelli is on the same wavelength.
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