History Rhymes
I wanted to throw up. My body flashed hot and cold, and I could feel the blood thumping in my temples like giant drums. My thoughts raced like wild fire, a tempest out of control.
I kept thinking about what I could do with the $1,000 I had just lost in the stock market. I could have paid down more of my student loans. I could be that much closer to eliminating the PMI on my mortgage. I could just have it in my bank account as an emergency fund.
It would take me weeks of work to regain that money after taxes and normal cost of living. What was I thinking putting my money in something risky like stocks? Stupid, stupid, stupid!
My life was over.
The automatic 401k contributions from my paycheck continued. I should have had them stopped, but it was too much hassle to go to the HR office. I just ignored it instead.
A few weeks later, I dared to look at my 401k again. It was up!
Over the next few weeks it was up $1,000, down $1,000. Up $1,000, down $1,000.
This was nothing a spoonful of Pepto-Bismol
couldn’t cure.
—
“My Pets.com stock is up 150%!”
“Global Crossing is up 300%!”
“Qualcomm is up 10x!”
My friends were excited about their big gains in tech stocks in 1999. The Internet economy was changing everything, brick and mortar businesses were on their way out.
I felt like I had missed the boat, having focused on paying down my student loans. Stupid! My 401k was up, but nowhere near as high as these companies that were changing the world overnight.
And then, also overnight, I lost $10,000! The market imploded, and I felt like I had just been punched in the throat. $10k was easily enough to finish paying off my student loans. How could I have been so reckless?! Stupid, stupid, stupid!
I buried my head in the sand for months. The 401k contributions continued. The fear and worry slowly passed.
—
In September of 2001 I woke up to footage of a plane crashing into the World Trade Center in NYC.
Before trade on the stock market was halted, I had lost over $10,000. I felt sick to my stomach, but for reasons completely unrelated to money. I cried on the way to work, listening to the radio coverage of the terrorist attacks.
When the markets opened again, I put all of the cash I had into an index fund.
Over the coming years I would gain and lose $10,000 in a single day countless times. No big deal.
—-
The first time I lost $100,000 is a vague memory. I know it happened, but it is unclear to me how or when.
I do remember 2008 though. The market dropped 25% and I put half of my cash and bonds into a stock index fund. The market dropped another 25% and I went all in.
The market dropped further, and I was pissed that I didn’t have more cash! I considered borrowing money on margin to buy more stock, but my conservative side won out.
When the losses were summed up, I would be down over $400,000.
I slept like a baby.
—
This past week I’ve seen our portfolio gyrate up and down, the value changing by more than we spend in 4 or 5 years.
Yet I looked in our brokerage account and the number of shares of stock we own hasn’t changed in the slightest. Kind of like our lives.
The hysterics in social media are mildly entertaining. Donald Trump blames it on China and Megyn Kelly. China blames it on an international conspiracy and rogue traders. I yawn and go back to sleep. This is what markets do.
This too shall pass.
—
What is next? Who knows. Maybe the market will plunge downwards. Maybe it won’t.
But the engine of innovation continues. Human ingenuity knows no bounds.
I gaze back at our portfolio’s history and it looks nothing like an emotional roller coaster, and everything like an amazing creation of wealth.
And to think, once upon a time I was worried about losing $1,000. Exposure therapy works.
Memory Lane
You definitely did the right thing by not selling. We all know what a dangerous move that is for novice investor. In times like these, you stay the course. In 11 years of investing, I’m also finally sleeping like a baby! Great post.
I have a question on the Chart Jeremy.
Does it show the total return performance of your portfolio since 1996 relative to S&P 500 total returns
OR
Are you simply comparing the value of your portfolio relative to the S&P 500? I am asking because the value of your portfolio could be going up simply because of adding fresh capital to it, rather than because the price of investments went up.
Please advise,
DGI
The S&P500 is solely for reference
The portfolio line includes added capital as well as investment return, and even home equity during the period when I owned a house.
As an early retiree, what percentage of your net worth allocation do you leave in cash to be able to sleep like a baby?
About 3 months. https://gocurrycracker.com/cash-flow-management-early-retirement/
Is your withdraw strategy different during bear market vs normal? Say next year market is down 20%, do you take distribution across the board of asset classes (stocks and bonds), or do you take a greater % from the bonds and leave stocks to recover? I don’t worry much currently since I am still contributing into the market, but am not sure how other smart early retirees handle the down turn withdraw if they need to live off the investment.
Probably not for 20%, but for 50% I would withdraw from bonds first.
Same for me (2 years post-FIRE). Roughly 3 months expenses held in cash.
Yawn is right! Bring the volatility during my wealth accumulation years! I just hope there’s no large rebound in the next couple months so that I can take advantage of the cheaper prices! And i definitely agree, exposure therapy works – “cousin Jimmy is juggling flaming knives!!!!” “Oh…again??? That happens all the time.” :)
Sounds like cousin Jimmy might enjoy Burning Man
I’m super excited about the dip! Like Fervent Finance said, it’s a great time to take advantage of the low prices. Now I just need to get up to speed on a few companies that I might want to test out, and of course continue to contribute to my mutual funds and retirement accounts as normal. Dollar-cost averaging always works in the long run!
Buy the same great companies, only cheaper. What is not to like
Hi GCC, great post explaining the emotional part of investing. I am curious to know what is in the GCC’s portfolio? Is it all mutual funds or is there some individuals stocks in there? Thanks!
99% ETFs / Mutual Funds. Details here.
I’m not quite as excited as the other posters who are still accumulating wealth. But I still take advantage of crazy times like these. And smile the whole time I’m doing it. :)
So far I rebalanced into emerging markets a bit since they got hit hard. In the process, I sold one investment for a $3,500 capital loss and bought something similar (but not substantially identical!). I have the same number of shares and a $3,500 tax write off.
I also happened to be awake and in front of the computer at 9:30 am Eastern time and realized the market was literally falling apart with almost no liquidity in some ETFs I own. So I provided some liquidity and picked up a few hundred shares at 25% off for an instant $5000 profit. Within 15 minutes of the purchase, things returned to normal and I had almost two months of living expenses in exchange for a few clicks.
Crazy times. Don’t panic, profit. Or at the worst, do nothing. The market goes up. It goes down.
Playing Market Maker is a nice job if you can get it
Thank you for this post it will be helpful to a lot of people. Wish I had something like this to read in those past times when the market dropped and at the wrong times I moved my money to more conservative positions. And thus locking in my losses.
It is pretty scary when the market turns against you and the losses add up. It definitely takes some will to stay the course at first. Practice makes perfect
I remember that I decided to start investing right before the tech bubble burst. I mean everyone and their mothers were making a killing in the stock market. Unfortunately, I literally started right when it was about to burst…but since I was still in college, it wasn’t too much money (a lot for me at the time though). And during the 2008 recession, I decided to shift a lot of my investments into a stable fund missing out on part of the bull market. So I think I’ve learned my lesson. I honestly haven’t paid much attention to the recent stock market volatility.
I have picked up some shares in the last week or so, but just let my automatic contributions do their work, too. I still don’t like seing my Apple stock down so much, but I don’t think traders will let them go too low with all that cash they have.
Some people never look at their 401k’s because they don’t understand them. It might not be a bad thing after all (assuming they are not in crazy high fee mutual funds).
Perfect example of how to handle swings in the market. I’m sure you made a killing when everything rebounded, and in the process scooped up some great dividend stocks/ETFs for cheap.
Aaahh memories! Well I don’t remember the 1929 crash since I was not alive at that time. :) But I do remember hiccups in the 70’s, 80’s, 2000, and 2008.
In 2000, I worked for a dot bomb company where we had funny money stock options. Every day my co-workers spent more time looking at the stock price then their work. I cashed out at about 75% of the high and bought some good quality stocks like Qualcomm, Global Crossing, and then some actual companies like IBM and Wal-Mart. My co-workers thought that I was crazy because our company stock was going to the moon.
History teaches us that slow and steady wins the race. I see the same outcome for the recent market pull back.
Sounds like your old company stock is still on the moon. Hard to cash that stuff in
At least you were able to turn some of the funny money into IBM and Wal-Mart
Great reminder. I wasn’t involved in the stock market in 2001 and the internet bubble since I was bit young but I do remember the financial crisis. For us in the market for the long term, just continue investing and keep moving. I’m ready to pull a few buys in the next few weeks, we’ve also enroll in DRIP for more of our positions with the recent price drops.
The Financial Crisis was far more terrifying. Billion dollar businesses were disappearing off the face of the earth, people were predicting total market collapse, etc… Just one more reason I don’t watch TV
I remember those years of extreme volatility too (Sep 11, 2001, 2007 great recession) my portfolio tanked. Just as it has this August. But it came back in 2001 and in 2007 and made even greater gains. It will again.
It will again indeed
I like the confidence from the article and commenters alike. This is my first correction since I started paying attention to my portfolio, so this is a nit scary for me. I’m just sad I don’t have cash available right now to buy a bit more at a discount.
Even if you didn’t buy any more stock, you gained from exposure therapy.
Good post. Forgive me if this is already included somewhere: What do use to track your portfolio?
I used to use Excel and do it manually. Now I use Personal Capital.
Since I’m new to this, I’m going to ask the stupid questions about the methods of how to buy more or shift more into stocks to take advantage of the low prices at the dip:
1. Simply put more savings cash into the total stock mutual fund.
2. Rebalance the existing accounts to sell some bond fund and buy more stocks fund. This will tilt the bond/stock percentage to less than 20/80, how and when to rebalance back to 20/80?
Anything else?
Thanks for any input!
Great questions. It looks like you understand the process very well.
General rebalancing advice is to do it annually or whenever the allocation shifts by a large amount, maybe 20%.
Thank you!
Perspective is interesting. I love your point of view and agree with it. I did just get off the phone with my mother (who knows very little about money) who told me that because I was young, I needed to invest in something more stable than the market. I tried not to laugh, but told her wisdom lies in not worrying about the market, but in riding it out long term. BECAUSE I’m young, I should invest in the market. It’s been funny/sad/interesting/reflective to see people freaking out this week.
Our mothers sound similar in this regard.
She also said it was probably good that I was invested in index funds because they’re “not as tied to the market!” Hilarious.
For those of us new to the game, thanks for the post :)
This too shall pass :)
Nothing better than low stock prices when you want to buy
Exposure therapy indeed! After years of hoarding cash and trying to time the market (I know, I know) I’ve been binge-reading this blog, jhcollinsh, MMM and Mad Fientist, I finally decided to take the plunge last week. The market just gave me a big F-You this week.
I am counting on not needing this cash for another 10 years, so hopefully the long game plays out in my favor.
Although its better late than never, if I had come across these blogs 10 years ago, I might have been FI already. Oh 2008, I miss you now.
Maybe not an F-You, just some quality fraternity-style hazing to welcome you aboard :)
I love this. I wish more people would take a step back from the ledge and chill. I had former students of mine e-mailing that they were scared and they wanted to hide. I talked them down from the ledge, but I do wonder about some of my students who have only experienced a market going up how they will deal with it.
It is scary stuff until you internalize that it is all just window dressing. The fundamentals are still the same as they were
Swings like this used to bother me, as well, but I feel like it was more due to my lack of control and, more so, my lack of understanding of how the markets worked. With a ton of reading, ton of research, and a lot more experience, I feel comfortable going into these big market declines. It really DOES offer opportunity to buy. If ever there was a time to consider buying on margin, market crashes are it if you can stomach it. Obviously, you still need to be careful, but it is much less risky than doing so at the top of a cycle.
Additionally, understanding the economy is also huge. Economic cycles tend to lag market cycles. So, as the economy is still growing stronger, some sectors – like basic materials, commodities, and energy – should, theoretically, perform better.
Anyway, it’s all experience and perspective. I’m with others in that the crash of last week/early this week was a huge buying opportunity!
-DP
Excellent point, DP. A large part of my own tolerance to volatility is increased knowledge
My parents put 100k into the market in 2008. When it crashed and was near bottom, they decided enough was enough and took everything out.
From what I understand, this is stupid for two reasons. One, you’ve permanently lost your money because over time the market ALWAYS goes up. Always. Keep the shares you own, don’t sell, because it will go up again.
Even if it doesn’t, if our economy crashes and the markets go to ZERO, then all the money you have isn’t worth anything anyway, right? You could use it to wallpaper your house, like confederates did with confederate money after the Civil War. Worthless paper.
So, basically, as I understand things…the one thing you fear, losing all your money, will never happen. It can’t happen, unless all markets crash and go to ZERO.
When that happens, the money you thought you rescued halfway down the black hole is now worthless, also. The one doomsday scenario are afraid of will destroy your money whether it’s in the market or it is not in the market.
So stay IN. And keep putting money in. It will keep going up over time. If it doesn’t, and the only way it doesn’t is that the whole world economy went to ZERO. In that case, all your money is worth nothing anyway. You haven’t saved your wealth by withdrawing, you have lost either way you go.
Conversely, you have nothing to lose by diverse investing in the market and staying invested.
Yessir, stay the course. It isn’t important what happens in the short term
David G Your assumption is that there are only two options-money money in stock market or money in cash.Aren’t there other options/vehicles.
Well, I was not assuming anything, really. My parents, however, are a different breed altogether. You are either risking everything if it is not in cash someplace, or you have it in cash where nothing bad could ever happen!
I really like the storytelling aspect of this post. And, of course, the message is right on point: just keep buying through the downturns. Unfortunately, I didn’t have extra capital to take advantage of the dip, but I certainly wasn’t selling anything either. Since I’m still accumulating, I’m hoping it trends down a little farther as the year wraps up. Who knows though? Mr. Market’s mood swings are unpredictable.
Yup, who knows. I’d love a good 25% correction to exit our bond position
This was my first correction, first time seeing my portfolio drop by more than $10k (not in one day, but over a few days).
My only regret is that I hadn’t held much cash and it looks like it will rebound before my next pay day so I’m missing out on the sales.
Bring on the first $100k drop.
This is the perfect way of looking at it. The fundamentals are still sound even if the market has a temper tantrum from time to time
I can understand now why the guys I worked with were obsessing over stocks around late 2008. Comments like, I’ve lost over $100k in my 401k were rampant around the office, yet the other camp had comments like, “It’s a long game, quit checking the market everyday.”
That’s more my approach, but it is kind of exciting watching yourself “lose” a whole lot of money in a day or three. And then we bought more stocks while they were low… Hahaha
Exciting huh… :). I have to look at the opportunity end game. I was n’t excited losing that money. I was excited picking up HD stock at $92 and change and watching it close at $112.
It is the long game. Buy some and buy more when it’s lower….
Cheers!
It is pretty exciting when the portfolio changes by big tangible numbers. With our 2008 losses, I could have bought a house or two.
Of course someone aged, say, 50 or above, will have much more of a challenge remaining so sanguine about the stock price crashes that have become routine. Yes, stock prices always recover (so far), but for someone retired or with retirement in sight, the salient question becomes will prices recover, and recover sufficiently, in a time frame that makes a difference to me? Or will my retirement plans be eviscerated?
Hi Kurt
This was my first bout of volatility as someone retired (I think.) Still sleeping like a baby. I’m fairly certain I’ll do the same in 10 years at age 50
I slept pretty well this week too. I have been through a few down cycles and this one isn’t a big deal. That’s why everyone should invest as soon as possible. It’s a learning experience and you need to go through a few down cycles. I took the opportunity to contribute to our Roth and my i401k so this week was pretty good for us.
Very nice. That early experience is super valuable, like training wheels
Having now been in the market since 2010 and it’s only really gone up from there I’ve been pretty positive about it… See lots of green usually.. 2 weeks ago was my biggest drop ever on dollars… I just start pitching my cash in the market…
I was down 12-15%… About $40k. Yowsers. While still down I was looking for bargins and while Monday was a down day I executed several orders on the 1000 point drop and ended the day making close to $5k. How sweet was that on an over all down day. Picked up some stocks I’ve been waiting for a pull back on and a few on other to lower my cost basis.
It only sucks a little I had some new worth targets for the end of the year and next and will probably miss those targets. But in th end I’m just frustrated if we are going back to the volitale 2012 year… As I don’t have as much cash as I would like..
Cheers!!
Not having as much cash as you would like sounds like me in 2008. It worked out in the end
Okay I have to say it but as I read this post I was completely sure it was a guest post from Jim Collins. Sounded like the same style of voice and narrative.
Now on to actual topic
I haven’t even looked at portfolio through these drops. 401k is on automatic and I only check it at the end of the month( on the months I remember) when putting together networth picture.
Hmm now I’m curious it would be quite a sight to see a down month. We are aggressively shoveling money into accounts so even with a small drop the end pictures is still usually a gain even if its minor… So it would be interesting to see my reaction to an actual drop compared to my previous month.
In this instance I think ignorance is bliss and like you said plenty times above I could just ignore it….
But maybe then I’m not actually getting exposure therapy… Hmmm
You’ll get another chance for exposure therapy. And another one. And another one after that :)
I definitely would NOT be able to sleep well at night down $400,000, so kudos to you!
I was down just under that and did a crazy thing and started my site in 2009 as part therapy!
S
I think that is when I truly internalized the concept of “enough”
The brokerage account statement had a lower number on it (although the same number of shares) but life was exactly the same as before.
Great story for staying the course. We were slightly nervous checking Personal Capital but didn’t lose any sleep. We’re still all in with the market but just wish we had more money to buy.
Heard a couple stories from friends who moved assets to the sideline until this settled. How does one when it does settle? No one knows. What they haven’t figured out is they have permanently lost money between the sell and buy back in…..
I just wish we had more money…..everything is on SALE! Slow and steady wins the race. :)
Novice question for the group: In general I understand the markets will always go up, but do you ever lose sleep at night wondering about the Japanese stagnation phenomenon whereby a stock market can provide zero real return over a two decade time frame due to a confluence of factors (including initial over-valuation)? In other words, the concept of the markets always go up has been historically true in the U.S., but not everywhere else in the developed world.
https://publications.credit-suisse.com/tasks/render/file/?fileID=AE924F44-E396-A4E5-11E63B09CFE37CCB
There are lessons to learn from Japan, but it isn’t something to fear or lose sleep over
> a stock market can provide zero real return over a 2-decade time frame
It has happened in the US several times
The Nasdaq from peak in 2000 to start of 2015 has had a real CAGR of -1.9%
The S&P500 from Oct 1929 to Oct 1943 and from Jan 1966 to Jan 1983 returned 0%
One possible conclusion is don’t go from 100% cash to 100% equities on the day of the peak
All of the info on maxing out savings, 401k’s is good advice, but what about those of us (ME!) that are tangled in horrible webs of anxiety? I knew all of this, made the mistakes, robbed my 401k, squandered more than 1/4 million on stock options, and now know that every cent for the next couple of years is just going to debt: min pmts and pmts to get to the point of getting back to “here” – meaning, doing what you say.
Is there another way of looking at my mess that I am not seeing? I can’t get out of it completely by having no car, etc., but have cutout all else. I feel cutting out savings / 401k contribs is best because the debt has a higher interest rate than the savings would be. Applying that to debt would be best for now right? THEN, re-attack the saving with a vengence? Thanks so much!
R
Hi Reid
Maybe think of it as an expensive education? A lot of people have spent great sums of money on college degrees they don’t use, you just got a different education in the real world and the stock market
Definitely treating debt as an emergency that needs to be fixed asap is critical. Then the savings
The 401k contribs may still be worth it if there is a company math (a 50%-100% immediate ROI), and depending on income the tax savings of 10-39.6%
Hello I’m new to investing and I was wondering about the whole buy/sell aspect of stocks. I’m not sure if I read correctly, but you guys just buy during the downturns? You don’t sell at high points to use that cash to buy on the downturn?
Thanks for your time.
If you can time if to buy in all the downturns and sell on the upside to re-position yourself to buy again on the downturn you will do JUST FINE!!! That being said.. Re-balancing buy selling appreciated assets to buy depreciated assets is prudent as long as it is within reason and aligns to your overall all asset allocation as well.
I dunno, if market timing was so easy there would be more market timers on the Forbes 400
Hey Jeremy. Great name
Nobody ever really knows if we are at a low or a high. We can speculate, but most of the time we are just guessing and usually wrong.
Dollar Cost Averaging is the way to go. Just keep adding to your investments each and every month and ignore the overall market.
Thanks for taking the time to respond to my questions!
I was just looking at the S&P Index graph for all time and it is hard to not think of the current value as being the biggest bubble we have ever seen. The 80s and 90s show a steady (sustainable?) growth and the two peaks in 2000 and 2007 have been corrected for. Since 2009 the index has taken off like Space X rocket. The recent dips in Aug/Sep look rather insignificant compared to trail behind them. According to Shiller, the GDP growth is lagging way behind the growth in the stock market.
Despite this, I’ve sunk most of my savings into equities in the past few weeks while reminding myself that I should not time the market. I am nervous as hell. How are others dealing with this? Are most people in a holding pattern or you seeing the mini corrections as buying opportunities? Do you think this is the largest bubble of all time?
Unprecedented bubble is affirmative. It will pop… But getting in now gives you time in Market.. I’m expecting a 50% cut to the market within 3 years… All I can do it plan to keep buying on the way down and into it… I believe it will stabilize and resume growth in the longer term say 15 year horizon…
BUY AND HOLD AND BUY MORE.
“Sure, the market could fall by 50% in a temporary panic, unrelated to valuation, as it did in late 2008 and early 2009. But for it to drop by 50% in a long-term valuation re-rating, a move that actually sticks, investors would need to undergo a sea change in portfolio allocation preference. They would need to want their equity exposures reduced to the record lows of the early 1980s, a period when the competition–cash and bonds–was yielding double digits. Right now, the competition is yielding virtually nothing.”
http://www.philosophicaleconomics.com/2014/03/the-u-s-stock-market-is-expensive-and-it-should-be/
I read the article, but this one paragraph you quoted was worth reading over and over again. Thanks.
The whole blog is great
Not even close
The S&P500 would need to triple to be at the largest bubble of all time
http://www.multpl.com/ (more actually, when factoring in the last 15 years of earnings)
You may be better served looking at the S&P500 adjusted for inflation
http://www.multpl.com/inflation-adjusted-s-p-500
Yes, the PE ratio helps with getting a more realistic picture. The inflation adjusted S&P graph by itself indicates that May 2015 was the all time peak (without looking at the PE ratio, this can be misleading)
Thanks for the pointers. Still learning how to read the market…
Here is a graph I put together that might help give a quick snapshot by combining 3 graphs.
https://dl.dropboxusercontent.com/u/9307944/S%26P-Index.jpg
I used to like roller coaster rides, but as I get older ….. :) Welcome to the 2018 Feb 2 drop! … As soon as you hear folks are putting record amounts etc into the stock market … warning bells are ringing? …. I am looking for the Pepto bismal ? spelling …. soon :) Michael CPO
Love the angle here. It does kind of make sense that when you have so little, starting out, that losing a grand, or ten grand, really feels like quite a lot. The losses (and how we feel about them) give an indication of how much closer to “zero” we are, and how things like a job loss paired with a market downturn could be pretty bad events.
As we accumulate a lot more, and we’re ‘further from the street’…shit, way, way far from it, then the losses aren’t as big of a deal.
Well said, sir.
Part is psychological, but real security is even bigger. For many, $1,000 can mean not having a roof to sleep under. At the upper end of the scale, it’s a rounding error.
Or as PRyan so eloquently put it, $1.50
Wooow..finally a great post worth reading twice!! Well done GCC
Lost many 100s of $1000s this week, so far, but still looking to nibble here and there on some stocks and ETFs. Not selling and holding for the inevitable turnaround. It might take a week, a month or two, or even a year or two, but it will come. It isn’t easy to lose money this way, but we are blessed to have what we have in the first place. Be thankful for what you have, enjoy life, and go back to bed!
❤️ this! I just opened my first IRA (at 24) and I needed someone to tell me the $65 I lost overnight is nothing and I should just keep on keeping on.
Nothing better for a beginning saver than a falling stock market. Better to buy low.
While I do not have that much money in the stock market I am always amazed at how quickly the lemmings follow whatever the mainstream media put out for consumption! Fear mongering is big business, and sheep fall for it and lose every single time. I watched my parents put $100,000 into the market in 2006, take it out when everything hit bottom in 2007, and to this day they pat themselves on the back for making the right decision! I put $300 into various stocks every single month, rain or shine, and when I see big crashes like this all I am tempted to do is buy more…In no small part thanks to GCC and the rest of the FIRE brigade.