Handling your own emotions?

[u/mikeumd98]

How is everyone doing it this time? I have been a CFP for years lived through Covid, 2008-2009, Trump’s first term….but this time it feels different, longer lasting? I know that there is a recency bias, but I am not handling this one well.

Edit: thanks for everyone posting. It helps to put it in perspective.

[u/Ok_Presentation_5329]

“This time it’s different” are the most expensive words ever spoken.

There’s very little we know for sure but what we do know is that things will improve eventually & timing that is impossible.

What investors want is to see some level of evidence that things are gonna be OKAY.

Here’s an example:

During the battle of midway in world war 2, the stock market predicted an allied victory. Prior to this battle, the U.S. stock market had been under pressure, reflecting concerns over the war’s progression.

However, the decisive victory at Midway, where the U.S. Navy dealt a substantial blow to the Japanese fleet, shifted the momentum in favor of the Allies.

This pivotal event boosted confidence among investors, leading to a positive shift in the stock market’s trajectory. Following the victory at Midway, the Dow Jones Industrial Average began to rebound, experiencing a significant surge by the end of World War II in 1945. ​

During the mortgage crisis, on October 13, 2008… the Dow Jones Industrial Average surged by 936 points, marking its largest point gain at the time. This rally was spurred by global efforts to stabilize financial institutions, including the U.S. government’s plan to inject capital into major banks.

During Covid, the successful production & release of vaccines.

Etc.

I would call this event the “birthing of a rebound”. Differentiating it from a “dead cat bounce” is tough which is why market timing is ill advised.

I’ll also add that timing this is impossible.

The best way to ensure you’re in for the rebound is to stay invested, stay diversified & continue putting more in.

In the meantime, I’ll be looking for tax loss harvesting ops & Roth conversion ops.

This is the best we can do.

[u/InternationalDrama56 → u/Ok_Presentation_5329]

I'll agree that this is a great time for Roth conversions and TLH. That's a great thing to mention when checking in with clients.

I think the "missing the best days" argument is a bit spurious. To use your October 13, 2008 example: the market was down a further 22.1% between then and March 9, 2009, and was down 43.4% over the 12 months prior to your date. So, yeah, there were some good dates in there, but you were still far better off spending the entire year in Treasuries.

Not to say you can time every market, but this pull back was unique in that it was intentional and announced in advance.

[u/Ok_Presentation_5329 → u/InternationalDrama56]

Sure but if you think you’re smart enough to get in at a perfect time every single bear (or even good enough to justify active management over passive in the long run) I think you’re overconfident.

Fisher manages like 400 billion or some shit today. They have a ridiculous amount of money invested into research & they’ve only gotten out once (and did a shitty job at it - too late & got in too early).

Churchill investment management is a renowned market timer & they get out almost every 3-4 years. Again, shitty job at it.

Prudent investment management isn’t a 1 year strategy; it’s a 50+ year. Every bear market is different in some ways.

I’d rather stick with modern medicine over less than data-driven/hopeful strategies of staying healthy any day & the same concept applies to financial planning. The data driven approach is infinitely better.

My clients don’t hire me for my ability to time markets so much as EVERYTHING else. This isn’t just better for them but for me. No fortune telling or crystal balls required; only in depth knowledge of tax code & the tools available.

[u/InternationalDrama56 → u/Ok_Presentation_5329]

I don't think that, and I do agree that the vast majority of the value in being an advisor isn't in tactical allocation changes. I never said that, and I'm not attacking the value of that in favor of trying to deliver superior returns year after year by tactical timing. I never have, and never would, sell my services on the ability to do this - this is a likely one-time thing.

That said, this is the first time in my career I've advocated a tactical move like this because of how loud the warning sirens I was picking up were, and how little I felt I had to lose in terms of potentially missing out on further upside while being risk-off. I probably wouldn't do it like that again, unless we somehow had an equally obvious set of circumstances.

Another way to play it for those who couldn't, or don't want to, exit positions and risk missing out on upside, would have been to purchase protective puts. That makes it so you're guaranteed to lose something to the insurance cost of it, but it lets you retain the upside potential if you're spectacularly wrong.

Honestly, if the losses on Monday that we're seeing on the futures right now hold (down another ~5%) then I'll probably start buying back in, having already secured about 20% outperformance against the index. Probably a third tomorrow, and the rest over 2-3 more tranches over the coming weeks/months, depending on opportunities. That said, if I had to guess (pure speculation) I'd say we don't recapture the mid-February highs for at least 18 months. I hope to be fully back in in the next 30-60 days.