Four Letter Words in Investing

As the market turns down, I expect there will be a lot of four letter words being used.   Here are some of the common ones in investing, in order of desperation:

Can't - The price can't go down any further.

Want -  I want the price to reach what I paid before I sell.

Hope -  I hope the stock gets back to what I paid for it.

Pray -  I pray that the stock stops falling and returns to the price I paid.

It probably won't be long before these four letter words are being regularly used,

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This is not financial advice. Please consult a professional advisor.

Copyright © 2015 Achievement Catalyst, LLC

What I Learned from the Last Crash

The market volatility of the past three days has caused me to think back to the last major stock market crash in 08/09.  Here's what I learned from then:

The  new Fed chairman will make a mistake.   Back in 2006, Ben Bernanke claimed there was no subprime mortgage issue and did not address it.   He was a new Fed chairman at the time.  Janet Yellen has been chairwoman for less than a year.

It will get worse before it gets worse.   Monday's volatility will be repeated many times. Monday's lows will get taken out.

The market will take a while to bottom, up to several months.   During that time, being in the market will be extremely painful.

The market will recover and reach new highs, as it has from every other bear market.

My plan for now is to keep our current investments and add funds with every 10% decline in the market indices, with a target of being fully invested around a 50% decline.  While good in theory, I expect the plan will be difficult to execute as our current stock investment values are reduced by 50%.

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This is not financial advice. Please consult a professional advisor.

Copyright © 2015 Achievement Catalyst, LLC

The Party Feels Like It's Over

This is the third longest bull market in U.S. history, and all bull markets must end.

There's a tremendous amount of negativity on the current bull market.

Bull markets rarely last over six years. 

China's economy is slowing significantly.

Emerging market currencies are in a crisis.

The Fed is raising interest rates.

Commodities and precious metals are in a bear market;

Oil is at a 6 1/2 year low.

31% of S&P 500 stocks are in a bear market.

39% of S&P 500 stocks are in a correction.

The 2.8% decline during the first three days of 2015 was the worst start since 2008.

The only positive I found was that 2015 is the third year of a presidential term.  Since WWII, the market has not experienced a loss during the third year.   However, it has closed flat during two of those third years: 1947 and 2011.

The negatives far outweigh the positives.  Unfortunately.

So it is very likely the market will continue to fall this week.   The only question is, "How far?"

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This is not financial advice. Please consult a professional advisor.

Copyright © 2015 Achievement Catalyst, LLC

It's Probably Going to Get Really Ugly

The 1017 point drop in the Dow this week has wreaked havoc on my investment portfolio.  Unfortunately, I believe the indices will continue to fall next week.  At this point,China and the Fed have lost their economic credibility with the market.  Hence, I expect the selling will continue.

One factor that may contribute to a steeper decline is the high level of existing margin debt.  As stock prices fall, accounts with margin debt may receive margin calls that require further selling of stock. I have also read that the emerging market currency crisis may be another factor causing a stock market decline, just like in 1998.

Right now, I'm anticipating at least a 20% drop in the market indices.   During that time, I will be trickling in a small amount funds into commission free broad market ETFs.  In addition, I will make some small purchases of specific stocks to build our retirement dividend portfolio.    For now, I don't expect to put more than 20% of our cash position back into the market.

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This is not financial advice. Please consult a professional advisor.

Copyright © 2015 Achievement Catalyst, LLC

Managing Our Investment Risk

With the recent volatility of the U.S. stock market, I decide to revisit how we are managing our retirement investment risk.

My simple qualitative measure is whether i would be relatively free from worry in the event of a major market downturn.  In 2007, I gave an unequivocal yes as the answer.  However, during the 08/09 bear market, I was far from worry free.   I had too much invested in my company stock and not enough cash reserves in our accessible funds.

My answer today is a qualified yes.  Yes,  mainly because we've significantly increased our cash reserves, which we didn't do in 2007. Qualified due to my continued exposure company stock, even though I've greatly reduced the amount and reinvested the proceeds in a diversified stock portfolio.   Unfortunately, some of my company stock will need to be sold in the next two years, no matter what the price.   Hence, the possibility of higher worry during a near term bear market.

So from a risk perspective, we're better than in 2007 but not as good as I hope we will be in 2018. If we are lucky, the current bull market may last for three more years.:-)

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This is not financial advice. Please consult a professional advisor.

Copyright © 2015  Achievement Catalyst, LLC

Market Pain Is Increasing

The market volatility and decline is starting to worry me.      At first, I believed the market was similar to 2012, i.e. lots of volatility but still finishing higher.    However, I'm starting to believe 2015 is going to be more like 2008, i.e. lots of volatility and a big downward spike.  The main difference from 2008 is that market indices are still near the all time highs highs.

One argument against a significant decline is that almost everyone expects one to happen.  In fact, many of the pundits turned negative on the market over the last couple weeks.  Often, high negative sentiment is a good contrarian indicator that a market correction time frame is not near.  And the sentiment seems very negative at this time.

At this point, I'm still in a wait and see mode.  I'm ready for a downturn and trying to prepare myself to buy should there be a 20% or greater drop.   Hopefully, if there is a significant drop, I will have the discipline to put some funds into the market.

For more on Reflections and Musings, check back Saturdays for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2015 Achievement Catalyst, LLC