16 ms·

So, children of summer (there are many here who have only known the longest bull market in the last century), let me give you some free advice. If you're looki

by cletus 7y ago

So, children of summer (there are many here who have only known the longest bull market in the last century), let me give you some free advice. If you're looking at this and wondering when to get in, to bargain hunt essentially, and you're asking yourself questions like "today? next week?", you need to step back and think again. Some points to consider: - If your time horizon is 10+ years out probably none of this matters - If your time horizon is less than 5 years out, you should really question if you should be in the stock market at all - Be familiar with the term "dead cat bounce". This is a temporary period of recovery followed by a steeper drop. You're going to see this kind of thing. - Large market drops often lead to or are because of a likely recession. This can go on for months or years. - After the GFC the markets went down and then sideways for over a year. You essentially missed nothing by waiting two years. This could easily happen again. - Learn what "reversion to mean" means. It means that at times the markets generally follow a long term upward trend. At times the market will go above or below that. This can be a useful indicator of whether equities are cheap or expensive. In a given cycle you have boom (above the mean when equities are overbought) to bust (an overcorrection to below the mean when equities are oversold). Bear markets are paved with the blood of optimists.

gameswithgo 7y ago
as usual, the financial advice is "who knows what to do good luck"
- spelunker 7y ago
  Maybe don't buy things yet because it could go down more! Dead cat bounce! Bulls take the stairs but bears take the elevator! Etc etc
- flatline 7y ago
  I think he’s saying, invest for the long term without concern for the present market movements, and if in the meantime you want to gamble, good luck.
- asdfman123 7y ago
  There's no good active trading solution here because no one knows what's going on. People occasionally make the right calls, but they also occasionally make the right calls on coin flips, too. There's a reason for that: the only good solution is a passive one. Ignore the panic, hold, stay the course, and put more money into the stock market when it's down. The large majority of active traders do worse than the market average because of panic selling in situations just like this one.
  - throwaway34241 7y ago
    Plus if you follow a textbook approach with some % stocks / bonds you'll end up buying when the market dips and selling when it goes up (since if stocks go up you'll have to sell a little to bring the percent back down and vice versa). So if the market swings up and down a lot you get a little extra.
- themagician 7y ago
  YOLO options. This is the way.
  - vzcx 7y ago
    Back to wsb with you! There are no tendies to be had here.
    - themagician 7y ago
      Tendies are everywhere friend.
neural_thing 7y ago
The Nikkei is still ~50% below its 1989 high. Hasn't even approached that level since. Downturns can go on for decades.
- ktta 7y ago
  Doesn't that have to do with Japan's specific long term problems though?
  - greenshackle2 7y ago
    Thankfully the U.S. doesn't have specific long term problems. (Edit to make this less flippant: like bubbles in education, housing and stocks.)
    - ktta 7y ago
      > like bubbles in education, housing and stocks Those aren't long term problems if you compare them to Japan's. It has been 30 years+ since 1989, and I'd believe that is long enough time for the bubbles in US to correct themselves.
      - greenshackle2 7y ago
        That's fair.
- 3fe9a03ccd14ca5 7y ago
  Lifetimes.
- cletus 7y ago
  I didn't think this could still be true but apparently you are correct [1]. Wow. That being said, there are factors to contribute to this: - Essentially zero population growth [2] - A government and a system that propped up an insolvent banking system that likely extended the downturn significantly [3] - A massive asset bubble that we really haven't seen the likes of, not even in the subprime era. [1]: https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data https://www.macrotrends.net/2593/nikkei-225-index-historical... [2]: https://en.wikipedia.org/wiki/Demographics_of_Japan#Current_natural_population_growth https://en.wikipedia.org/wiki/Demographics_of_Japan#Current_... [3]: https://qz.com/198458/zombies-once-destroyed-japans-economy-now-theyre-infecting-chinas/ https://qz.com/198458/zombies-once-destroyed-japans-economy-...
dannylandau 7y ago
With zero or negative growth looming both in China and Germany in the coming quarter, it is a safe assumption that this market has much lower to go to reflect those new realities.
- joosters 7y ago
  You: 1) think know better than the rest of the market, and 2) are sure of yourself (‘it is a safe assumption...’) Please don’t go trading!
  - dannylandau 7y ago
    Yes, agreed -- will not trade. I'll go with Warren Buffet's refrain that trading is for losers.
Frost1x 7y ago
>Bear markets are paved with the blood of optimists. I'm going to shamelessly borrow this.
- shock 7y ago
  Make sure to return it in mint condition :)
- 1121redblackgo 7y ago
  I wonder if the inverse rings true as well. Bull markets are paved with the blood of pessimists.
  - Frost1x 7y ago
    So do the meager realists get to avoid bloodshed? Or, better yet, capitalize on the blood of pessimists and optimists?
    - camjohnson26 7y ago
      Realists miss out on volatility
    - deleted 7y ago
      [deleted]
    - shredprez 7y ago
      Rarely! They're mainly collateral damage that gets hurt during the downturn AND the upswing.
    - Natsu 7y ago
      The real money is in collecting some % of the money invested as fees.
    - idclip 7y ago
      Hodl, fren. Hodl.
  - kibwen 7y ago
eli_gottlieb 7y ago
Honestly, spring just happens to be the season when I contribute to my Roth IRA, so hey, I guess this year I get my index funds at a low per-share price. Thanks log-normal random walk!
- cletus 7y ago
  Before you get too excited about Spring essentially solving this problem, I present to you the history of the Spanish Flu [1]. > Reported cases of Spanish flu dropped off over the summer of 1918, and there was hope at the beginning of August that the virus had run its course. In retrospect, it was only the calm before the storm. Somewhere in Europe, a mutated strain of the Spanish flu virus had emerged that had the power to kill a perfectly healthy young man or woman within 24 hours of showing the first signs of infection. [1]: https://www.history.com/news/spanish-flu-second-wave-resurgence https://www.history.com/news/spanish-flu-second-wave-resurge...
  - rmah 7y ago
    And the decade following the spanish flu epidemic -- which killed a massive # of people -- was great (financially).
    - cletus 7y ago
      True, before it all fell apart. This sort of thing isn't unprecedented either [1]: > In this downturn, however, the ground for the next economic explosion after 1500 was being laid. Wages rose and huge swathes of society had more money to spend on consumer goods, from beer to clothing to furniture. With fewer people to feed, the largely agricultural economy could focus more on livestock or specialty cash crops like hops or sugarcane instead of grain. Diets improved and, plague aside, so did health. More and more people were drawn into the market economy and trade networks grew wider and deeper. [1]: https://theconcourse.deadspin.com/after-the-black-death-europes-economy-surged-1821060986 https://theconcourse.deadspin.com/after-the-black-death-euro...
  - eli_gottlieb 7y ago
    I wasn't expecting Spring to "solve the problem". I was expecting an ongoing economic disaster to make this year's retirement account contribution a "buy low", which I may someday benefit from if we all come through this.
lisper 7y ago
On the other hand, it's also possible that the CV will recede in the summer, and that will very likely make the markets bounce back. To quote Carl Sagan, prophecy is a lost art.
- ouid 7y ago
  The doubling rate is 3 days. Either we will be in a 3 month long quarantine, or in three months the infection rate will be slowing because there's no one left to infect.
  - in_cahoots 7y ago
    That’s only true under current conditions. If we move to social distancing themselves the doubling rate may slow down significantly, which would actually increase the time to burnout.
    - munk-a 7y ago
      It seems unlikely that will happen in the US due to the executive branch messaging very much being "Everything is fine folks - oh please don't stop going to work!"
      - jliptzin 7y ago
        It is comically right out of the plot of every pandemic-type movie where no one in charge takes it seriously enough at the beginning and it therefore spreads wildly out of control.
    - nostrademons 7y ago
      That's the "3 month quarantine" case in his comment.
- takeda 7y ago
  The market already was showing signs of problems, the CV was just what broke the camel's back.
ouid 7y ago
When China put 10% of the worlds population on travel restrictions, a put on SPY with a strike of 300 expiring this Friday was 29 cents. The optimism is frankly unbelievable.
- senordevnyc 7y ago
  A few weeks ago, I spent $730 to buy 73 SPY put option contracts expiring this Friday with a strike of $270, so about 10 cents per share. Unbelievable. I've been selling them over the last week and just finished getting out today with a realized gain of about $30k. Wish I had put $50k in instead of $1k, but I suppose that's always the lament when an ultra-risky trade goes your way :)
  - idclip 7y ago
    Teach me your ways. Literature ?
    - ouid 7y ago
      If the news says "China puts 760 million people on travel restrictions", you should look at the price of puts.
      - senordevnyc 7y ago
        This. It was really just insurance. I fully expected the $1k I bought to expire worthless, and the first $230 did, but these ones I was able to exit for a nice profit. I highly suspect the expected value of options trading is negative, but it's useful as a hedge. Really wish I could spend like 10% of my salary on put options for my employer in case I get laid off, but it's forbidden apparently.
        jliptzin 7y ago
        Insurance by definition is negative expected value (otherwise insurance companies wouldn't be in business). Great job hedging!
8ytecoder 7y ago
It's unfortunate to ignore the sentimental nature of markets. In the history of market there has always been either a discount or a premium over fair value. As if by coincidence, I'm reading the intelligent investor and a lot of what Graham said remains true to this date. There's almost always a premium/discount to the fair value of the stock market as a whole. The last few years have been extraordinarily good. Everyone knew a correction was coming. That's happening now. It's impossible to time the market but it's possible to differentiate between a correction to a fair value and a huge discount on price. In any case, the investor should be willing to wait for a while before the market realizes the value that they think the stock is worth. Similar to how the last few years felt like everything was getting more and more expensive, the current downturn also seems like an over-correction (time will tell if I'm wrong). But what I'm sure is this - if the markets are down for a prolonged period - over 5 years - we have way bigger problems than the rate of return. Here are the tips that I stick to: - DO NOT try to time the market. Exception: when you strongly feel the market went into an over-correction or you feel the market is highly over-valued. (Graham uses a range between 25% - 75% for stocks vs bonds.) - DO NOT invest money that you need in the short term in the market. Corollary: keep a buffer in cash/high-interest savings account + Treasury bonds for short term needs. - DO NOT PANIC - it's really hard to resist the urge to buy when the markets are going up (FOMO) and the urge to sell when it's crashing. Of all the strategies, this one (buy high, sell low) is guaranteed to return a loss. - For most passive investors, index funds + dollar cost averaging is the best way to go. These days robot managers do a good job of also expanding this into stocks + bonds + international coverage covering more scenarios - for example, a hedge against the US market or one's home market not doing well (enough) in the long run. - Hold individual stocks only if you think you'll hold it even if there's no ticker for it with up-to-date price info. I split my portfolio into 1) Cash/short term funds 2) Long term retirement fund and 3) Speculative investment. All the money on (3) is money I'm willing to lose (not that I want to lose). That's the only account where I buy riskier bets which are pretty much most individual shares. I keep completely separate accounts to make this assumption explicit and clear.
- hosteur 7y ago
  > keep a buffer in cash/high-interest savings account Where do you find such an account?
maerF0x0 7y ago
IMO this is a sort of gamblers ruin that happens in the markets. If you can wait long enough you usually will see a positive return (across well indexed purchases) . However, often times you need the money sooner. This could be because that money was actually for a major purchase (like a home) or because a recession means you lose your job and are on the brink of financial disaster (meaning you have to sell out at lower than cost).
- greenshackle2 7y ago
  Buying a house is not like losing your job, you're not supposed to put all your money in risky investments if you know you're going to need it in less than 5 years (for retirement, to go on extended unpaid leave, to buy a house, etc.). But even for longer time horizons, I think the common wisdom that stocks are low risk over a long planning horizon is overblown: https://web.archive.org/web/20170911171611/http://www.norstad.org:80/finance/risk-and-time.html https://web.archive.org/web/20170911171611/http://www.norsta...
tech-historian 7y ago
As an investor, if you believe the market is going to drop, there are various ways to profit from this. One of the easiest is buying ETFs that move inversely to certain market indexes (shorts them). For example, SH [0] is an ETF that moves inversely proportional to the S&P 500 index. So if the S&P 500 is down 2%, SH goes up 2%. More exciting are the leveraged ETFs that track double or triple the underlying index. SDS [1] moves 2X the inverse of the S&P 500. ETFs can be bought like stocks. Unlike mutual funds, their prices change throughout the day. These funds can be used to hedge against losses in your retirement or option portfolios. Trade with care! [0] https://finance.yahoo.com/quote/SH/ https://finance.yahoo.com/quote/SH/ [1] https://finance.yahoo.com/quote/SDS/ https://finance.yahoo.com/quote/SDS/
- ping_pong 7y ago
  Inverse or leveraged ETFs are terrible for anyone except for day traders. You can't buy and hold them, because they degrade over time, especially the leveraged ETFs. If you really want to short, then short the stock directly with proper stop losses or buy puts, but options are very complicated with various types of premium, most importantly time premium which also causes prices to degrade.
  - atombender 7y ago
    Correct in principle — from what I recall, leverage ETFs' beta decay over time is caused by the overhead of the leverage. You can see this with SH, for example; while it seems to perfectly mirror SPX, there's a slow rate of value loss over time. However, if you look at ETFs like TMF over time, short-term gains easily overcome the decay. If you'd invested in TMF on Jan 1, you'd be up 92% now. And it's not like options and shorts don't come with premiums. There's no free lunch, but there's the possibility of returns wildly beyond your initial investment.
- kccqzy 7y ago
  Inverse and short ETFs are terrible for medium to long term holdings. Because it resets each day. Here is an example of what this means: Consider a hypothetical index having a volatile week (like these days). The index was at 100 on day 1, dropped to 90 on day 2, recovered back to 100 on day 3, rose to 110 on day 4, and finished the week flat at 100. If you were invested in an ETF that tracks the index, you would neither lose nor profit. But if you were invested in an inverse ETF, you actually lost money overall: the percentage day change of the index is -10%, +11.1%, +10%, -9.1%. So the percentage day change of the inverse ETF is +10%, -11.1%, -10%, +9.1%. Add one and multiply these, and you would have lost 4% overall. This is not even accounting for the increased expense ratios of these ETFs. But wait, here's more: if you were invested in a 2x leverage ETF, you would have lost 4% as well! The percentage day change would be -20%, +22.2%, +20%, -18.2%. Add one and multiply these and you arrive at the same number. This is simple math. And I think, this should convince everyone that inverse and leveraged ETFs are terrible in typical volatile market scenarios. Link to spreadsheet: https://docs.google.com/spreadsheets/d/1XEyE4DxXOilXz4PnGBSXQEERXSYs8eLfSEhsE6Eqkho/edit https://docs.google.com/spreadsheets/d/1XEyE4DxXOilXz4PnGBSX... If you really really want leverage, consider having a long /ES future with suitable level of leverage, and roll quarterly. For the typical Hacker News audience who are not finance professionals, don't even think about shorting the market.
m3kw9 7y ago
Your statement is true if you just blindly invest in an index, times like this you need to invest in a trend but is more difficult.
aazaa 7y ago
Don't forget the part where the Fed swoops in, making a murky situation even murkier with market manipulation. Expect a massive rally when the Fed announces QE4. Buy the rally at your own risk. The largest DJIA rally in history (15.34%) occurred in the middle of the Great Depression in 1933. Second place was yet another Depression-era rally of double digits. https://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average#Largest_percentage_changes https://en.wikipedia.org/wiki/List_of_largest_daily_changes_... Bear markets suck people in and spit them out. Every rally seems like the end of the misery, but it's just more of the same. Only consider buying stocks when nobody but nobody thinks it's a good idea. When "buy the dip" has utterly left the popular vocabulary. When dividends + valuations are at bargain-basement levels.
- senordevnyc 7y ago
  Expect a massive rally when the Fed announces QE4. Let's hope, good chance to scoop up some cheap(er) put options.
- arbuge 7y ago
  > Only consider buying stocks when nobody but nobody thinks it's a good idea. When "buy the dip" has utterly left the popular vocabulary. When dividends + valuations are at bargain-basement levels. I would say the above is definitely true for certain sectors of the market now. Energy (oil & gas) comes to mind. Perhaps banks and emerging markets too. The broad market, on the other hand, isn't even down 20% yet.
  - RhodesianHunter 7y ago
    I'm not sure why anyone would buy oil and gas given the way the world is changing but that's just me.
    - arbuge 7y ago
      There you go...
eanzenberg 7y ago
The only people who lose money are selling in a panic (or buying during a rut). CV has been with us (in the western world) for months now, and people haven't been dropping dead. So unless you believe 2% of the world will die then sure, buy your bunker and your guns and ammo and wait it out. If you are a bit more level headed, you can't go wrong with buying and holding now (and when times were/are/will be) good again. ^For entertainment purposes only, this is not financial advice.
- lottin 7y ago
  Exactly right. After all humans co-exist with much more serious illnesses in many parts of the world. Somehow people adapt to circumstances and life goes on.
sombremesa 7y ago
If your time horizon is 10+ years out, make like your 401k and invest on schedule regardless of whatever the market is doing. (Though you might want to rebalance if no one is doing that for you - i.e. if you handpicked your stocks) And I would reword the 5+ year rule as: don't put any money in the stock market that you think you might need within the next 5 years.
throwaway34241 7y ago
> If you're looking at this and wondering when to get in, to bargain hunt essentially, and you're asking yourself questions like "today? next week?", you need to step back and think again. > Bear markets are paved with the blood of optimists. I agree with exercising caution in the sense that trying to time the market is difficult and probably inadvisable in general, but I don't agree that people should be careful specifically because of the recent drop. IMO the time for caution was weeks ago when the market was much nearer all time highs and it was clear the Coronavirus' growth rate was not under control (and that the measures necessary to contain it might reduce economic growth). Now is a considerably worse time to exercise caution. People investing for the long term should probably have equities as a substantial portion of their portfolio. If someone doesn't already, I think it would be a mistake to hold back just because the market has dropped. The market may go up or down from here, but the alternative investments of cash and bonds aren't obviously better choices (and it's expected that stocks will be pricier than they were in the past if bonds return less than nothing after inflation). I think a lot of how things play out will depend on future political decisions around monetary and fiscal policy that are not realistically predictable.
- 01100011 7y ago
  Cash may be a perfectly fine choice over the next year. You don't have to invest in something if the conditions are not right.
  - throwaway34241 7y ago
    Cash may be a perfectly fine choice, it could also be a very sub-optimal choice. Same goes for stocks, bonds, gold, etc. Of course you don't have to do it if the conditions are not right but knowing if the conditions are right is the tricky part. In order for some people to beat the investment average by timing the market someone else must underperform the average. Active investment management is in general a zero-sum game in which you compete with a bunch of math PhDs at hedge funds that do it as a day job (and even they have a tough time). Of course you can win if your own analysis of when the conditions are right is better, but trying to do so is usually not recommended for individual investors. Holding cash sounds simple but if it goes up from here how do you know when to buy? If it goes down from here how do you know when to buy? And if you never buy, over a couple decades you will almost certainly do worse (Japan is a different case because at the bubble peak their stocks were measurably more overpriced compared to almost anything else in history including where the US market is now). In the end I think the only simple thing is the advice most economics professors would give which is to give up trying to time the market and just buy a low-fee mixed stock/bond index portfolio (with the ratio based on your risk tolerance).
NeoBasilisk 7y ago
Yep, anyone that started investing in 2012 or later is about to learn the true meaning of "Past performance is no guarantee of future results."
vl 7y ago
But does it just mean that the best current strategy to buy is do either time-based or price-based spread out buying? I.e. invest a bit every month or invest a bit when market drops another 15%.

by cletus 7y ago

gameswithgo 7y ago

as usual, the financial advice is "who knows what to do good luck"

spelunker 7y ago
Maybe don't buy things yet because it could go down more! Dead cat bounce! Bulls take the stairs but bears take the elevator! Etc etc
flatline 7y ago
I think he’s saying, invest for the long term without concern for the present market movements, and if in the meantime you want to gamble, good luck.
asdfman123 7y ago
There's no good active trading solution here because no one knows what's going on. People occasionally make the right calls, but they also occasionally make the right calls on coin flips, too. There's a reason for that: the only good solution is a passive one. Ignore the panic, hold, stay the course, and put more money into the stock market when it's down. The large majority of active traders do worse than the market average because of panic selling in situations just like this one.
- throwaway34241 7y ago
  Plus if you follow a textbook approach with some % stocks / bonds you'll end up buying when the market dips and selling when it goes up (since if stocks go up you'll have to sell a little to bring the percent back down and vice versa). So if the market swings up and down a lot you get a little extra.
themagician 7y ago
YOLO options. This is the way.
- vzcx 7y ago
  Back to wsb with you! There are no tendies to be had here.
  - themagician 7y ago
    Tendies are everywhere friend.

neural_thing 7y ago

The Nikkei is still ~50% below its 1989 high. Hasn't even approached that level since. Downturns can go on for decades.

ktta 7y ago
Doesn't that have to do with Japan's specific long term problems though?
- greenshackle2 7y ago
  Thankfully the U.S. doesn't have specific long term problems. (Edit to make this less flippant: like bubbles in education, housing and stocks.)
  - ktta 7y ago
    > like bubbles in education, housing and stocks Those aren't long term problems if you compare them to Japan's. It has been 30 years+ since 1989, and I'd believe that is long enough time for the bubbles in US to correct themselves.
    - greenshackle2 7y ago
      That's fair.
3fe9a03ccd14ca5 7y ago
Lifetimes.
cletus 7y ago
I didn't think this could still be true but apparently you are correct [1]. Wow. That being said, there are factors to contribute to this: - Essentially zero population growth [2] - A government and a system that propped up an insolvent banking system that likely extended the downturn significantly [3] - A massive asset bubble that we really haven't seen the likes of, not even in the subprime era. [1]: https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data https://www.macrotrends.net/2593/nikkei-225-index-historical... [2]: https://en.wikipedia.org/wiki/Demographics_of_Japan#Current_natural_population_growth https://en.wikipedia.org/wiki/Demographics_of_Japan#Current_... [3]: https://qz.com/198458/zombies-once-destroyed-japans-economy-now-theyre-infecting-chinas/ https://qz.com/198458/zombies-once-destroyed-japans-economy-...

dannylandau 7y ago

With zero or negative growth looming both in China and Germany in the coming quarter, it is a safe assumption that this market has much lower to go to reflect those new realities.

joosters 7y ago
You: 1) think know better than the rest of the market, and 2) are sure of yourself (‘it is a safe assumption...’) Please don’t go trading!
- dannylandau 7y ago
  Yes, agreed -- will not trade. I'll go with Warren Buffet's refrain that trading is for losers.

Frost1x 7y ago

>Bear markets are paved with the blood of optimists. I'm going to shamelessly borrow this.

shock 7y ago
Make sure to return it in mint condition :)
1121redblackgo 7y ago
I wonder if the inverse rings true as well. Bull markets are paved with the blood of pessimists.
- Frost1x 7y ago
  So do the meager realists get to avoid bloodshed? Or, better yet, capitalize on the blood of pessimists and optimists?
  - camjohnson26 7y ago
    Realists miss out on volatility
  - deleted 7y ago
    [deleted]
  - shredprez 7y ago
    Rarely! They're mainly collateral damage that gets hurt during the downturn AND the upswing.
  - Natsu 7y ago
    The real money is in collecting some % of the money invested as fees.
  - idclip 7y ago
    Hodl, fren. Hodl.
- kibwen 7y ago

eli_gottlieb 7y ago

Honestly, spring just happens to be the season when I contribute to my Roth IRA, so hey, I guess this year I get my index funds at a low per-share price. Thanks log-normal random walk!

cletus 7y ago
Before you get too excited about Spring essentially solving this problem, I present to you the history of the Spanish Flu [1]. > Reported cases of Spanish flu dropped off over the summer of 1918, and there was hope at the beginning of August that the virus had run its course. In retrospect, it was only the calm before the storm. Somewhere in Europe, a mutated strain of the Spanish flu virus had emerged that had the power to kill a perfectly healthy young man or woman within 24 hours of showing the first signs of infection. [1]: https://www.history.com/news/spanish-flu-second-wave-resurgence https://www.history.com/news/spanish-flu-second-wave-resurge...
- rmah 7y ago
  And the decade following the spanish flu epidemic -- which killed a massive # of people -- was great (financially).
  - cletus 7y ago
    True, before it all fell apart. This sort of thing isn't unprecedented either [1]: > In this downturn, however, the ground for the next economic explosion after 1500 was being laid. Wages rose and huge swathes of society had more money to spend on consumer goods, from beer to clothing to furniture. With fewer people to feed, the largely agricultural economy could focus more on livestock or specialty cash crops like hops or sugarcane instead of grain. Diets improved and, plague aside, so did health. More and more people were drawn into the market economy and trade networks grew wider and deeper. [1]: https://theconcourse.deadspin.com/after-the-black-death-europes-economy-surged-1821060986 https://theconcourse.deadspin.com/after-the-black-death-euro...
- eli_gottlieb 7y ago
  I wasn't expecting Spring to "solve the problem". I was expecting an ongoing economic disaster to make this year's retirement account contribution a "buy low", which I may someday benefit from if we all come through this.

lisper 7y ago

On the other hand, it's also possible that the CV will recede in the summer, and that will very likely make the markets bounce back. To quote Carl Sagan, prophecy is a lost art.

ouid 7y ago
The doubling rate is 3 days. Either we will be in a 3 month long quarantine, or in three months the infection rate will be slowing because there's no one left to infect.
- in_cahoots 7y ago
  That’s only true under current conditions. If we move to social distancing themselves the doubling rate may slow down significantly, which would actually increase the time to burnout.
  - munk-a 7y ago
    It seems unlikely that will happen in the US due to the executive branch messaging very much being "Everything is fine folks - oh please don't stop going to work!"
    - jliptzin 7y ago
      It is comically right out of the plot of every pandemic-type movie where no one in charge takes it seriously enough at the beginning and it therefore spreads wildly out of control.
  - nostrademons 7y ago
    That's the "3 month quarantine" case in his comment.
takeda 7y ago
The market already was showing signs of problems, the CV was just what broke the camel's back.

ouid 7y ago

When China put 10% of the worlds population on travel restrictions, a put on SPY with a strike of 300 expiring this Friday was 29 cents. The optimism is frankly unbelievable.

senordevnyc 7y ago
A few weeks ago, I spent $730 to buy 73 SPY put option contracts expiring this Friday with a strike of $270, so about 10 cents per share. Unbelievable. I've been selling them over the last week and just finished getting out today with a realized gain of about $30k. Wish I had put $50k in instead of $1k, but I suppose that's always the lament when an ultra-risky trade goes your way :)
- idclip 7y ago
  Teach me your ways. Literature ?
  - ouid 7y ago
    If the news says "China puts 760 million people on travel restrictions", you should look at the price of puts.
    - senordevnyc 7y ago
      This. It was really just insurance. I fully expected the $1k I bought to expire worthless, and the first $230 did, but these ones I was able to exit for a nice profit. I highly suspect the expected value of options trading is negative, but it's useful as a hedge. Really wish I could spend like 10% of my salary on put options for my employer in case I get laid off, but it's forbidden apparently.
      - jliptzin 7y ago
        Insurance by definition is negative expected value (otherwise insurance companies wouldn't be in business). Great job hedging!

8ytecoder 7y ago

It's unfortunate to ignore the sentimental nature of markets. In the history of market there has always been either a discount or a premium over fair value. As if by coincidence, I'm reading the intelligent investor and a lot of what Graham said remains true to this date. There's almost always a premium/discount to the fair value of the stock market as a whole. The last few years have been extraordinarily good. Everyone knew a correction was coming. That's happening now. It's impossible to time the market but it's possible to differentiate between a correction to a fair value and a huge discount on price. In any case, the investor should be willing to wait for a while before the market realizes the value that they think the stock is worth. Similar to how the last few years felt like everything was getting more and more expensive, the current downturn also seems like an over-correction (time will tell if I'm wrong). But what I'm sure is this - if the markets are down for a prolonged period - over 5 years - we have way bigger problems than the rate of return. Here are the tips that I stick to: - DO NOT try to time the market. Exception: when you strongly feel the market went into an over-correction or you feel the market is highly over-valued. (Graham uses a range between 25% - 75% for stocks vs bonds.) - DO NOT invest money that you need in the short term in the market. Corollary: keep a buffer in cash/high-interest savings account + Treasury bonds for short term needs. - DO NOT PANIC - it's really hard to resist the urge to buy when the markets are going up (FOMO) and the urge to sell when it's crashing. Of all the strategies, this one (buy high, sell low) is guaranteed to return a loss. - For most passive investors, index funds + dollar cost averaging is the best way to go. These days robot managers do a good job of also expanding this into stocks + bonds + international coverage covering more scenarios - for example, a hedge against the US market or one's home market not doing well (enough) in the long run. - Hold individual stocks only if you think you'll hold it even if there's no ticker for it with up-to-date price info. I split my portfolio into 1) Cash/short term funds 2) Long term retirement fund and 3) Speculative investment. All the money on (3) is money I'm willing to lose (not that I want to lose). That's the only account where I buy riskier bets which are pretty much most individual shares. I keep completely separate accounts to make this assumption explicit and clear.

hosteur 7y ago
> keep a buffer in cash/high-interest savings account Where do you find such an account?

maerF0x0 7y ago

IMO this is a sort of gamblers ruin that happens in the markets. If you can wait long enough you usually will see a positive return (across well indexed purchases) . However, often times you need the money sooner. This could be because that money was actually for a major purchase (like a home) or because a recession means you lose your job and are on the brink of financial disaster (meaning you have to sell out at lower than cost).

greenshackle2 7y ago
Buying a house is not like losing your job, you're not supposed to put all your money in risky investments if you know you're going to need it in less than 5 years (for retirement, to go on extended unpaid leave, to buy a house, etc.). But even for longer time horizons, I think the common wisdom that stocks are low risk over a long planning horizon is overblown: https://web.archive.org/web/20170911171611/http://www.norstad.org:80/finance/risk-and-time.html https://web.archive.org/web/20170911171611/http://www.norsta...

tech-historian 7y ago

As an investor, if you believe the market is going to drop, there are various ways to profit from this. One of the easiest is buying ETFs that move inversely to certain market indexes (shorts them). For example, SH [0] is an ETF that moves inversely proportional to the S&P 500 index. So if the S&P 500 is down 2%, SH goes up 2%. More exciting are the leveraged ETFs that track double or triple the underlying index. SDS [1] moves 2X the inverse of the S&P 500. ETFs can be bought like stocks. Unlike mutual funds, their prices change throughout the day. These funds can be used to hedge against losses in your retirement or option portfolios. Trade with care! [0] https://finance.yahoo.com/quote/SH/ https://finance.yahoo.com/quote/SH/ [1] https://finance.yahoo.com/quote/SDS/ https://finance.yahoo.com/quote/SDS/

ping_pong 7y ago
Inverse or leveraged ETFs are terrible for anyone except for day traders. You can't buy and hold them, because they degrade over time, especially the leveraged ETFs. If you really want to short, then short the stock directly with proper stop losses or buy puts, but options are very complicated with various types of premium, most importantly time premium which also causes prices to degrade.
- atombender 7y ago
  Correct in principle — from what I recall, leverage ETFs' beta decay over time is caused by the overhead of the leverage. You can see this with SH, for example; while it seems to perfectly mirror SPX, there's a slow rate of value loss over time. However, if you look at ETFs like TMF over time, short-term gains easily overcome the decay. If you'd invested in TMF on Jan 1, you'd be up 92% now. And it's not like options and shorts don't come with premiums. There's no free lunch, but there's the possibility of returns wildly beyond your initial investment.
kccqzy 7y ago
Inverse and short ETFs are terrible for medium to long term holdings. Because it resets each day. Here is an example of what this means: Consider a hypothetical index having a volatile week (like these days). The index was at 100 on day 1, dropped to 90 on day 2, recovered back to 100 on day 3, rose to 110 on day 4, and finished the week flat at 100. If you were invested in an ETF that tracks the index, you would neither lose nor profit. But if you were invested in an inverse ETF, you actually lost money overall: the percentage day change of the index is -10%, +11.1%, +10%, -9.1%. So the percentage day change of the inverse ETF is +10%, -11.1%, -10%, +9.1%. Add one and multiply these, and you would have lost 4% overall. This is not even accounting for the increased expense ratios of these ETFs. But wait, here's more: if you were invested in a 2x leverage ETF, you would have lost 4% as well! The percentage day change would be -20%, +22.2%, +20%, -18.2%. Add one and multiply these and you arrive at the same number. This is simple math. And I think, this should convince everyone that inverse and leveraged ETFs are terrible in typical volatile market scenarios. Link to spreadsheet: https://docs.google.com/spreadsheets/d/1XEyE4DxXOilXz4PnGBSXQEERXSYs8eLfSEhsE6Eqkho/edit https://docs.google.com/spreadsheets/d/1XEyE4DxXOilXz4PnGBSX... If you really really want leverage, consider having a long /ES future with suitable level of leverage, and roll quarterly. For the typical Hacker News audience who are not finance professionals, don't even think about shorting the market.

m3kw9 7y ago

Your statement is true if you just blindly invest in an index, times like this you need to invest in a trend but is more difficult.

aazaa 7y ago

Don't forget the part where the Fed swoops in, making a murky situation even murkier with market manipulation. Expect a massive rally when the Fed announces QE4. Buy the rally at your own risk. The largest DJIA rally in history (15.34%) occurred in the middle of the Great Depression in 1933. Second place was yet another Depression-era rally of double digits. https://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average#Largest_percentage_changes https://en.wikipedia.org/wiki/List_of_largest_daily_changes_... Bear markets suck people in and spit them out. Every rally seems like the end of the misery, but it's just more of the same. Only consider buying stocks when nobody but nobody thinks it's a good idea. When "buy the dip" has utterly left the popular vocabulary. When dividends + valuations are at bargain-basement levels.

senordevnyc 7y ago
Expect a massive rally when the Fed announces QE4. Let's hope, good chance to scoop up some cheap(er) put options.
arbuge 7y ago
> Only consider buying stocks when nobody but nobody thinks it's a good idea. When "buy the dip" has utterly left the popular vocabulary. When dividends + valuations are at bargain-basement levels. I would say the above is definitely true for certain sectors of the market now. Energy (oil & gas) comes to mind. Perhaps banks and emerging markets too. The broad market, on the other hand, isn't even down 20% yet.
- RhodesianHunter 7y ago
  I'm not sure why anyone would buy oil and gas given the way the world is changing but that's just me.
  - arbuge 7y ago
    There you go...

eanzenberg 7y ago

The only people who lose money are selling in a panic (or buying during a rut). CV has been with us (in the western world) for months now, and people haven't been dropping dead. So unless you believe 2% of the world will die then sure, buy your bunker and your guns and ammo and wait it out. If you are a bit more level headed, you can't go wrong with buying and holding now (and when times were/are/will be) good again. ^For entertainment purposes only, this is not financial advice.

lottin 7y ago
Exactly right. After all humans co-exist with much more serious illnesses in many parts of the world. Somehow people adapt to circumstances and life goes on.

sombremesa 7y ago

If your time horizon is 10+ years out, make like your 401k and invest on schedule regardless of whatever the market is doing. (Though you might want to rebalance if no one is doing that for you - i.e. if you handpicked your stocks) And I would reword the 5+ year rule as: don't put any money in the stock market that you think you might need within the next 5 years.

throwaway34241 7y ago

> If you're looking at this and wondering when to get in, to bargain hunt essentially, and you're asking yourself questions like "today? next week?", you need to step back and think again. > Bear markets are paved with the blood of optimists. I agree with exercising caution in the sense that trying to time the market is difficult and probably inadvisable in general, but I don't agree that people should be careful specifically because of the recent drop. IMO the time for caution was weeks ago when the market was much nearer all time highs and it was clear the Coronavirus' growth rate was not under control (and that the measures necessary to contain it might reduce economic growth). Now is a considerably worse time to exercise caution. People investing for the long term should probably have equities as a substantial portion of their portfolio. If someone doesn't already, I think it would be a mistake to hold back just because the market has dropped. The market may go up or down from here, but the alternative investments of cash and bonds aren't obviously better choices (and it's expected that stocks will be pricier than they were in the past if bonds return less than nothing after inflation). I think a lot of how things play out will depend on future political decisions around monetary and fiscal policy that are not realistically predictable.

01100011 7y ago
Cash may be a perfectly fine choice over the next year. You don't have to invest in something if the conditions are not right.
- throwaway34241 7y ago
  Cash may be a perfectly fine choice, it could also be a very sub-optimal choice. Same goes for stocks, bonds, gold, etc. Of course you don't have to do it if the conditions are not right but knowing if the conditions are right is the tricky part. In order for some people to beat the investment average by timing the market someone else must underperform the average. Active investment management is in general a zero-sum game in which you compete with a bunch of math PhDs at hedge funds that do it as a day job (and even they have a tough time). Of course you can win if your own analysis of when the conditions are right is better, but trying to do so is usually not recommended for individual investors. Holding cash sounds simple but if it goes up from here how do you know when to buy? If it goes down from here how do you know when to buy? And if you never buy, over a couple decades you will almost certainly do worse (Japan is a different case because at the bubble peak their stocks were measurably more overpriced compared to almost anything else in history including where the US market is now). In the end I think the only simple thing is the advice most economics professors would give which is to give up trying to time the market and just buy a low-fee mixed stock/bond index portfolio (with the ratio based on your risk tolerance).

NeoBasilisk 7y ago

Yep, anyone that started investing in 2012 or later is about to learn the true meaning of "Past performance is no guarantee of future results."

vl 7y ago

But does it just mean that the best current strategy to buy is do either time-based or price-based spread out buying? I.e. invest a bit every month or invest a bit when market drops another 15%.