What was it like going through a stock market crash?

[BottledWater!]

Keep buying, it will average out.

I had not begun investing during the crash, but I do remember having fear for where we were headed as a nation; very unsettling. I learned a lot about myself and how easy it is to adopt a short frame state of mind, ignoring all the realities of a situation. A very good lesson indeed, the knowledge was definitely worth the price that everyone else had to pay.

 

[overst33r]

"be greedy when others are fearful"

"it's not about timing the market, it's about time in the market"

rebalance and stick to your plan. avoid all forms of market timing. think long-term.

 

[JEDI]

"be greedy when others are fearful"

yup, I'm waiting for the correction for the current record run.
have 6figures ready to BUY!

 

[Fritzo]

I put my 401K in a safe harbor when I heard Jim Cramer say this on the Today Show:

https://www.youtube.com/watch?v=uoSLVCEGKko

My inlaws however did a stupid thing: their $60000 investment dropped to $14000, so they pulled it out at a 30% penalty because they said "They wouldn't have anything left". It was just a paper loss until they acted on it. Six months later the investment would have been worth $52000. A lot of the loss in the market crash was due to people that didn't know how to handle money being scared to death by the 24/7 news channels.

 

[JEDI]

I put my 401K in a safe harbor when I heard Jim Cramer say this on the Today Show:

https://www.youtube.com/watch?v=uoSLVCEGKko

My inlaws however did a stupid thing: their $60000 investment dropped to $14000, so they pulled it out at a 30% penalty because they said "They wouldn't have anything left". It was just a paper loss until they acted on it. Six months later the investment would have been worth $52000. A lot of the loss in the market crash was due to people that didn't know how to handle money being scared to death by the 24/7 news channels.

hopefully your wife isn't as stupid as her parents?
or your handling the finances?

 

[Fritzo]

hopefully your wife isn't as stupid as her parents?
or your handling the finances?

I handle our finances. My in-laws just do whatever the news says

 

[Jeffg010]

^ you are trying to time the market. how do you know the best time to move into bonds? if you do it at the bottom or on the way up then you lose money. if you do it and there isn't a correction you also lose money.

Yes but that crash was over a year time. If I got out a week, a month or even 6 months and got into bonds that a lot of money saved. You got time to get out.

 

[Imp]

^ you are trying to time the market. how do you know the best time to move into bonds? if you do it at the bottom or on the way up then you lose money. if you do it and there isn't a correction you also lose money.

Ah... I love trying to time the market. I fail every time, but I just keep going back because then I can keep imagining a scenario where I gain 10%, then buy back in right at the bottom, and gain it back again. It usually ends up like this: sell for 5%, wait for it to drop, watch it rise another 20+%.

 

[dighn]

Yes but that crash was over a year time. If I got out a week, a month or even 6 months and got into bonds that a lot of money saved. You got time to get out.

you don't really know how deep a correction/crash will go and how long the whole process will take while it is happening. it's easy to look at the plot after the fact and say oh i should have recognized these signs and done this at this time. doing that at the moment and doing it consistently enough as to not lose money is hard. i can't say you can't do it, but it is certainly not trivial.

Ah... I love trying to time the market. I fail every time, but I just keep going back because then I can keep imagining a scenario where I gain 10%, then buy back in right at the bottom, and gain it back again. It usually ends up like this: sell for 5%, wait for it to drop, watch it rise another 20+%.

only if you had a time machine.

 

[NikolaeVarius]

you don't really know how deep a correction/crash will go and how long the whole process will take while it is happening. it's easy to look at the plot after the fact and say oh i should have recognized these signs and done this at this time. doing that at the moment and doing it consistently enough as to not lose money is hard. i can't say you can't do it, but it is certainly not trivial.



only if you had a time machine.

Truth. It's too damn easy to look at the signs now and say 'It should have been so easy"

At the time, people actually thought (Probably rightly so to anextent) that the US economy was going to disappear. The crisis was THAT bad. I don't think it was a terrible idea for people to try and save whatever they had left. All the financial institutions were grinding to a halt, manufacturing companies were grinding to a halt, hundreds of billions of dollars simply evaporated.

 

[overst33r]

Yes but that crash was over a year time. If I got out a week, a month or even 6 months and got into bonds that a lot of money saved. You got time to get out.

So what method do you use to know when to get back into the market?

 

[Arcadio]

You haven't even been through the numerous mini-crashes since 2010?

There was the debt-ceiling one, the other one (?) where the DOW lost 400 or 500 points in one day, then 300 the next.

I adopted the "set it and forget it attitude" so I never pay attention to small movements or mini-crashes.

 

[Fritzo]

"be greedy when others are fearful"

"it's not about timing the market, it's about time in the market"

rebalance and stick to your plan. avoid all forms of market timing. think long-term.

The problem with being greedy when others are fearful is you're usually included in that group that lost all their money, which is why you're fearful and can't afford to be greedy

 

[overst33r]

The problem with being greedy when others are fearful is you're usually included in that group that lost all their money, which is why you're fearful and can't afford to be greedy

Which is why one should have some bonds to rebalance into stocks with. Some folks call it dry powder. Either way, you're buying when everyone else is selling (fearful).

 

[JEDI]

Ah... I love trying to time the market. I fail every time, but I just keep going back because then I can keep imagining a scenario where I gain 10%, then buy back in right at the bottom, and gain it back again. It usually ends up like this: sell for 5%, wait for it to drop, watch it rise another 20+%.

yup same here, but I'm patient.
and even if it did go +20% after I sold, oh well.
I still made a few $.

on to the next speculative stock.

 

[edro]

Depends on your age and amount in savings.
My 401K was relatively small compared to a guy in his 50s.

If you were close to retirement and had $1M+ in there, a 50% drop is much worse.

 

[Arcadio]

Depends on your age and amount in savings.
My 401K was relatively small compared to a guy in his 50s.

If you were close to retirement and had $1M+ in there, a 50% drop is much worse.

But if you're close to retirement, you shouldn't risk your retirement money in stocks.

 

[bobeedee]

Was looking to retire at 58-59. Now looking at 62-63. Lost almost half the value of my 401k in 2008. Not the end of the world, but it did change my plans.

 

[Imp]

But if you're close to retirement, you shouldn't risk your retirement money in stocks.

I'm not a retirement or financial anything...

But I see equities as a source of continuous/unlimited income. It bugs me that "traditional" retirement appears (I haven't done it, just what I've seen "experts" say in the media) with the idea that there's an end date (i.e. death) that coincides with your accounts being depleted. You can't take it to the grave, but I'd rather have a sustainable source of income to the end than a defined "hope you're dead because you're out of money now" -- here's hoping they solve that death problem before my current estimated time comes.

 

[Alienwho]

One thing that really set in for me during the financial crash is that for most people wealth gained through markets and real estate is pure freakin' luck (and a healthy dose of experience of course)

When the market crashed on '08 I was still a college student and didn't have a lot of spare cash, but I put everything I had into it when it just happened to hit rock bottom (luck on my part). The way I saw it was either the market would recover and I'd make a ton of cash, or the market would crash and dissolve completely and the US dollar would be worthless anyway, so in my eyes it was a complete win/win scenario. Absolutely no reason NOT to dump all my cash into it. Unfortunately all my cash was only about $5grand.

I decided to pick individual stocks. I looked for companies that were like 100 years old and that were historically very solid and very high. I bought in companies like DOW Chemical which had been around $40 for like 10 years (like 50 years really if you factor in inflation) and was suddenly going for $7! I didn't know anything else about the company at all except it has been a market staple for like 100 years. It was nothing fancy but over decades it has settled on it's true worth, and it definitely wasn't only $7.

Anyway the market obviously corrected and I felt like Dow chemical was back up to it's regular $40 in no time. Today it's at like $54.

Same luck went for my house, I happened to luck into a short sale at the very bottom of the real estate crash. I bought house for $200k that sold for $400k 2 years before I bought it. Today I could sell for $350k easy. It was just luck that I happened to be in the market for a house when the market bottomed out. I actually put 5% down on the house, paid PMI for 6 months then refinanced and the value of the house rose so much that I no longer had to pay PMI. My poor friends and family that bought a house right before the crash out of necessity or who couldn't afford a house until the market recovered too much basically get screwed out of hundreds of thousands of dollars because their luck of timing didn't match mine.

Now I look forward to the next stock market crash and housing crash because I actually have serious money I could invest in it and the experience to make what I believe to be rational choices. Whether or not the market crashes it's a good thing for me at this point, either my current investments and property will go up in value. Or everything will lose its value and I'll be able to buy more at a discount and wait for the value to go back up again. I'm long term though so no worry if it takes a while.

 

[Jeff7]

Since I was young I pumped money into my mutual funds during the previous crash. What's it like? It's like blowing air into a deflating balloon where it's deflating faster than you can blow air in. All that effort and your networth still falls. Thousands of dollars into mutual funds each month and yet at the end of the month you have less money. It was depressing but I'm glad I did it now.

I happened to start putting into my 401k during the recession of 2009. For the first year, my return was always negative, and I wondered if I was reading it incorrectly, or if I just didn't understand what was going on. (I knew nothing about what a 401k actually did, other than that it didn't mean 401,000.)
Since then, I've learned a good bit more about it all.

 

[unokitty]

One thing that really set in for me during the financial crash is that for most people wealth gained through markets and real estate is pure freakin' luck...

Any Monkey Can Beat The Market

Give a monkey enough darts and they’ll beat the market. So says a draft article by Research Affiliates highlighting the simulated results of 100 monkeys throwing darts at the stock pages in a newspaper. The average monkey outperformed the index by an average of 1.7 percent per year since 1964. That’s a lot of bananas!

What is all this monkey business? It started in 1973 when Princeton University professor Burton Malkiel claimed in his bestselling book, A Random Walk Down Wall Street, that “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

“Malkiel was wrong,” stated Rob Arnott, CEO of Research Affiliates, while speaking at the IMN Global Indexing and ETFs conference earlier this month. “The monkeys have done a much better job than both the experts and the stock market.”

Forbes agrees with you!

Uno

 

[Imp]

One thing that really set in for me during the financial crash is that for most people wealth gained through markets and real estate is pure freakin' luck (and a healthy dose of experience of course)

When the market crashed on '08 I was still a college student and didn't have a lot of spare cash, but I put everything I had into it when it just happened to hit rock bottom (luck on my part). The way I saw it was either the market would recover and I'd make a ton of cash, or the market would crash and dissolve completely and the US dollar would be worthless anyway, so in my eyes it was a complete win/win scenario. Absolutely no reason NOT to dump all my cash into it. Unfortunately all my cash was only about $5grand.

Nice job. You were way ahead of me at that point in time.

I just graduated from college when the whole thing happened in 08 and I was completely oblivious to the world -- didn't care about politics, didn't care or understand what was happening, wasn't aware how it affected my job search.

For some reason, I started buying mutual funds in the spring of 09 and made like 20% before cashing out -- dumb. It wouldn't have mattered much anyways though. I put in a very small amount of money because my mom taught me that da markets be evil and you lose all money my entire life. Sigh.

 

[Alienwho]

Nice job. You were way ahead of me at that point in time.

I just graduated from college when the whole thing happened in 08 and I was completely oblivious to the world -- didn't care about politics, didn't care or understand what was happening, wasn't aware how it affected my job search.

For some reason, I started buying mutual funds in the spring of 09 and made like 20% before cashing out -- dumb. It wouldn't have mattered much anyways though. I put in a very small amount of money because my mom taught me that da markets be evil and you lose all money my entire life. Sigh.

I know it sucks. The advice you get about the market comes from people who were either lucky or unlucky. Unlucky people like your mom either got screwed or know people who got screwed so therefore it's evil. Lucky people have the opposite experience and 'it's just so easy why can't everybody do this'.

It does kind of bother me that truly the grand majority of wealthier people just got lucky and now they think they are brilliant financial geniuses or better than the common man.

I make decent money at my job but I'm never going to be wealthy on my salary just like most regular people. Almost every well-off person I know just lucked into a job that had stock options that exploded or threw cash at a down market or bought a couple houses 25 years ago for $60k each that they just sold for over $1 million each. These people aren't especially intelligent nor could they even guess that those decisions would lead to wealth. It was pure luck.

All I know is there is a higher chance for me to be one of the lucky ones and I believe my own experience and hunches more than any poor or rich family member or friend because they were either just lucky or unlucky. My experience tells me that most people are idiots and doing the opposite of what you should actually be doing. Like the quote from above to be greedy when others are fearful and fearful when others are greedy.

No way would I buy stocks right now at it's record high. Does that mean I would short the market? No way. Does it mean I might miss out on huge short term gains? Very possible. But I personally think the dow will dip below 10k in the next few years and when it does I'll go all in. Well not all in but you know what I mean. And I'll bet it recovers to 17k with a couple of years. But even if it takes 20 years I'm okay with that. And if the market never goes down to 10k again and I never put any more money in (except for the obvious 401k/roth retirement stuff which I don't factor into these decisions) then great cause my current investments will be going up regardless. Win/Win.

 

[Golgatha]

Didn't affect me directly much. I just dollar cost averaged through it. However my dad moved money over to stable income funds because he was scared and also near retirement age (2008 drop). I understand his fear and he shouldn't have been into growth stocks like he was at his age anyway, but he really shouldn't have touched the allocations during the drop. I advised him to move back to a more aggressive portfolio and he did recover some losses, but he still would have about 20-30% more money if he had just done absolutely nothing and waited for the rebound.

The learning I took from this for myself was to actively manage your investments to make sure they make sense for the age you are currently. I also look at my overall financial picture every year just to make sure everything still looks good.