The coronavirus-induced stock market meltdown created a lot of anxiety and opportunity. Let's look at the benefits! I originally wrote this post on February 28, 2020 when the lockdowns first began. Clearly, the S&P 500 and real estate have done well since. The lesson is to keep investing for the long term. Dollar-cost average during down markets.
One of the beautiful things about the internet is that I've never met someone online who has lost money in the stock market. When stocks are going up, the bulls are out in full force telling everyone how much they've made in XYZ. When stocks are going down, the bears all come out and say they shorted heavily right before the crash. As a result, I think we’re going to be just fine.
Unfortunately, I have about 20% of my net worth long in the stock market, which means I am getting my face ripped off as we speak. The stock market corrections are getting quicker and quicker. This latest 10%+ correction has been the quickest one of them all!
Losing money now is particularly painful because I made a silly goal to accumulate $1,500,000 more capital by September 2022 in order to return to early retirement life.
With the way the market is performing, I feel like I'm walking through a Fujita 3 tornado with a 150 mph headwind. Every financial step forward is one ass-flattening lurch back.
For those of you who are also secretly losing money during the coronavirus pandemic, I thought it would be nice to look on the bright side of things.
The Benefits Of A Pandemic Stock Market Correction
1) Fewer annoying people, more friendly people.
You know the annoying person who thinks he hit a home run, but was born on third base and wants to teach other people how they can be just as rich if they invest like him? To hell with him! Or how about the guy who claims he retired early while posting pictures of his vacation, but is really a stay at home dad who doesn't have enough confidence to admit it. Time to get a job ya bum! Or how about the gal who can't help but brag that she's making $50,000 a month from her tech investments. Oopsie!
A stock market correction silences the folks who can't stop telling everyone how much money they're making every month. Losing money quickly humbles us all. As a result, we should also expect people to get friendlier. From now on, pain and suffering posts will outnumber positive money winning posts 3:1 on FS!
Unfortunately, now that the stock market has rebounded, I've got people bragging to me left and right about how much money they made in XYZ stock or bitcoin. Ugh.
2) You finally get to mobilize your excess cash.
Any excess cash past 12 months of living expenses is probably being wasted, unless you're planning on buying a home or some other large purchase. Excess cash tends to build up due to a lack of discipline or simply no idea what to buy. A stock market correction makes it easier to put your cash to work in stocks.
If stocks correct beyond what fundamentals warrant, you'll also get stocks at a better value. Cash is fine for liquidity reasons, but in the long run, cash tends to always lose its purchasing power due to inflation.
Make sure you deposit your cash in a high-yielding money market account because you can now get a higher interest rate than the 10-year bond yield. The spread has never been greater.
I ended up investing about $200,000 in the meltdown in March 2020.
3) You'll get smarter about money.
When times are good, we tend to forget about our investments, our risk exposure, and our financial goals. Why bother when we're just making money hand over fist?
When the stock market is correcting, we tend to pay more attention to our money because we're afraid we're going to lose it all. By aligning our investment exposure with our risk tolerance and financial goals, we're better able to achieve our goals with more peace of mind. Pain forces you to learn and change.
4) You might stop obsessing over money so much.
When you start losing a lot of money, you tend to start appreciating more of the things you've been neglecting for money. When it starts feeling pointless to go to work for money, you may start appreciating your significant other, your parents, your siblings, your friends, and your children more. You tend to hold on tighter to those people and things that are left.
5) You get to fund your children's 529 college savings plans.
Investing for your children is easier and feels much better than investing for your future because they truly do have a much longer time horizon than you. It's one thing to tell yourself when you're losing money to think long term. It's another to actually have a long time horizon.
I was doubtful about superfunding my daughter's 529 plan because the S&P 500 was at an all-time high. But now I'm happily contributing during the meltdown because she really does have at least an 18+-year time horizon. Nothing is bringing me more financial joy right now than trying to take care of my kids.
6) You get to more easily fund your 401(k) and IRAs.
People with retirement plans should max them out each year. Over a 10+-year period, you will be pleasantly surprised by how much you've ended up accumulating. A stock market correction is a fantastic time to stretch your pre-tax contributions to the maximum.
Below is my handy dandy chart that highlights what the median and average 401(k) balance is by and what you should aim for.
7) Greater discounts everywhere.
The more stocks correct, the greater the discounts you can get when purchasing a car, hiring home labor, buying an air ticket etc. There are so many other things that go on sale when stocks correct. People who feel poorer simply won't spend as much. Thus, if you happen to be financially secure, you can take advantage of these price discounts.
8) Smaller crowds and less traffic.
The bull market worsened traffic and crowds. It's been harder to get reservations at popular restaurants and shows here in SF. Paying $1,000 for a regular ticket to watch Hamilton or $500 for middle-row seats to your favorite NBA team is absurd. If you dare venture out during a pandemic, you'll surely have a lot more room.
9) You get to save lots of money by refinancing your mortgage.
Not only are your real estate holdings outperforming stocks, you have a great opportunity to refinance your mortgages at a lower interest rate. When fear and uncertainty hits risk assets, bonds tend to rise and interest rates tend to plummet. Just make sure not to get a 30-year fixed mortgage if you aren't planning on spending 30 years paying the darn mortgage off!
Check out Credible, my favorite mortgage marketplace where prequalified lenders compete for your business. You can get competitive, real quotes in under three minutes for free.
10) A narrowing of the wealth gap.
Because the top 1% owns more than the bottom 90% of the world, it is the wealthiest among us who lose the most during a stock market correction. As a result, the bottom 90% should feel relatively richer, thereby reducing social unrest.
11) You can catch up with your peers.
Although you might be several billion dollars closer to Warren Buffett's wealth, he's not in your league. Since everything is relative in personal finance, it doesn't feel good when your peers are making tons of money in the stock market while you are not. A stock market correction gives you another chance to catch up. It may even allow you to surpass them if you were investing in a more stable asset.
For example, in 2018, commercial real estate investors in Fundrise outperformed the S&P 500 by roughly 14%. But then commercial real estate investors underperformed the S&P 500 by 20% in 2019. Commercial real estate investors can take advantage of the stock market sell-off by investing more in stocks to neutralize their 2020 position. As a result, these real estate investors will likely outperform equity investors by perhaps 25% in 2020.
The same logic goes for heavy bond investors who have gladly seen their bond holdings rise in 2020 so far. If they want to change their risk exposure, they can simply sell bonds and buy stocks, or buy more stocks if they have the excess cash.
12) Better work-life balance.
Most people admit to going to work sick because they either feel too guilty staying home or have this relentless desire to make more money by climbing the career ladder. I clearly remember not wanting to miss workdays during the last quarter of each year because that's when year-end bonuses, if any, were decided.
With the coronavirus, there will be a backlash against employees who come to work with even a slight cough, let alone a fever. Therefore, more employees should be more comfortable taking all their vacation and sick leave days. If more employees took all their sick and vacation days, then its perceived negative impact on career progression should lessen.
When you couple increased pressure not to go to work when sick with a declining company stock price, the end result is a better work-life balance.
13) A chance to improve our healthcare system.
It may cost some people thousands of dollars to get checked out for the coronavirus. As a result, people with less financial means or terrible health insurance plans may not bother to seek medical treatment for illnesses. Therefore, more people will end up getting sick because some of these folks will have no choice but to work sick at their lower-paying jobs.
As people get sicker and poorer, the obvious solution is to have cheaper and better healthcare. Viruses do not discriminate between rich and poor.
Unfortunately, my family is paying a whopping $2,250/month for monthly healthcare insurance in 2021!
14) An increase in worldwide-hygiene.
Supposedly, 30% of women and 60% of men don't wash their hands after using the bathroom. Further, we all know plenty of people who got to work unwashed for days. What is up with this lack of hygiene people?!
The coronavirus should encourage people to shower more, shampoo their hair more, cover their mouths when coughing and sneezing more, brush their teeth more, floss more, gargle more, and so forth. The United States might even finally adopt Toto Washlet toilets in public lavatories as standard.
It's nice to no longer feel embarrassed wearing a mask! This is commonplace in Asia. Nobody will ever look at you funny learning a mask any longer.
15) You have a chance to make a lot of money.
Perhaps the greatest benefit for a stock market meltdown is that you get a chance to potentially make a lot of money when the market inevitably rebounds. But to do so, you must take risk and buy.
In my post, Why It's Harder To Get Rich Off Stocks Than Real Estate, I mentioned an example that I would only buy more Tesla stock if it gets below $700/share. Thanks to the coronavirus-induced meltdown, I've been able to accumulate more shares again.
In 10 years, if Elon executes his plan, I'm hopeful Tesla stock will be much higher then. I bought about 10 other names and the S&P 500 index as well. But I always buy more normal when the S&P 500 is correcting more than normal.
There are winners and losers in every stock market meltdown. The winners in 2020 include investments that benefit where more people stay at home or use more cleaning products. These companies include: Netflix, Zoom, Clorox and many others.
Then there are some cities and states that may benefit from greater migration as people flee densely populated cities to work in lower-cost cities with fewer people. The coronavirus pandemic should help support my thesis of investing in the heartland of America.
16) Total deaths are declining!
After more than two weeks of shelter-in-place by many communities around the country, there is a noticeable rejuvenation of life. I see more animals roaming around my neighborhood. Pollution is down. Car accidents are down. Deaths from other infectious diseases are down. Although it is absolutely tragic that people are dying from Covid-19, it is good we are see much less fatalities as a result.
Appreciate The Stock Market Meltdown While It Lasts
If you are able to survive the coronavirus meltdown of 2020, you will be able to tell your children all about it. You will have withstood the quickest correction in history. And if you don't survive, well, at least you had fun while it lasted.
Hopefully, you guys held on and invested money during the coronavirus-Induced Stock Market Meltdown. The S&P 500 closed up 16% in 2020 and real estate is rebounding.
Related: Predicting A Stock Market Bottom Like Nostradamus
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Check out the Innovation Fund, which invests in the following five sectors:
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The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum.
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Great post as always. Glad to see that you are using the opportunity to accumulate more Tesla shares. I know you are conservative about the cars you drive but I wanted to ask if you have/ or plan on buying a Tesla car?
My high in January was $840k. Watched about $160k evaporate since then.
I’m Down about 19%. Allocation is 55% SP500 index and 45% International Index. I have a 6 months expenses in cash.
This is definitely humbling for sure and I’m staying the course. I will continue to add new as scheduled but it’s nice to get some cheaper shares. When we hit our goal of $1,500,000, I’ll change the allocation to 30% bonds.
I’m proud of myself for holding strong, not cashing out and being part of history.
Thanks for writing this article. Hang in there.
As I’m, writing this, SP500 is down 4.6%.
Hi Andy,
Thanks for sharing. It is definitely painful right now, and the way the bond market is acting, it’s trading as if we are going to 2008-2009 level type recession. However, I’m keeping the faith that we will see no more than 2 quarters of negative growth and a rebound in activity in 3Q.
It seems like we will head down to 2018 lows unfortunately. But I’m buying steadily.
GL to us!
Sam
Good luck to you also. I’ll try and remember to keep your blog updated on how low my portfolio goes with that allocation.
It’s the world market cap allocation. I’m copying Vanguard Total World Index.
Hello – inquiring about today! July 21, 2021. Would you recommend moving my 401k to a stable value money market for a few months as I feel the market is unpredictable at this moment? 84% is invested in high risk stocks.
Thank you
Am I missing something? Everyone seems to be talking about losing money YTD. I am retired (and have been for 20+ years). No debt – none. I have a conservative portfolio 18% stocks, 70% mixture of bond funds, and 12% cash (high yield savings paying 1.70%). I’m UP about 5% YTD and 10% one year. I worry about the virus for health of my family and the whole world – esp. the poor but, not about money. Not many people my age contribute to this blog so maybe my situation is not relevant. I am healthy, happy, and peaceful. I spend freely, give money away (esp. to help Maya people in Guatemala). Our children are financially secure and don’t need my money. May you all get to the point where you can say along with Sam — “When you have won the game, why keep playing?” Thank you Sam. I am grateful. My 2 cents. Thanks for reading/listening.
Yep. Most people haven’t been retired for 20 years and most people don’t have 88% of their portfolio in bonds and cash.
So, congrats to you! I’m trying to look at the positive side of a stock market meltdown for most readers here.
Easiest way to think about the world is thing from a different perspective.
I would caution using the 6-month and 12-month future S&P returns in the case of this particular outbreak. To wit, stock valuations (not price, but rather valuations) are starting from nosebleed territory in 2020’s case…this isn’t 1981 where a 15-year stock bear had depressed PE’s into the single digits or even the 2003 SARS outbreak, where once again, stock valuations were (comparatively) lower given the stock market crash of 2000-02. In those cases, strongly depressed valuations going into a crisis meant that bad news had already been priced into the market from exogenous factors. This time may indeed be different, as the infection rate of roughly 2.6/pp and fatality rate of 3.4% (WHO updated today), is quite severe and we are starting from a point of incredibly lofty stock valuations, whose foundation largely has rested on finding a greater fool to purchase said shares at ever higher prices (e.g., Apple whose stock rocketed up 84% last year on 2% Y-O-Y earnings growth lol).
This article is quite disturbing in any event. Make no mistake, there will be people you know who suffer, perhaps even who die, because of this outbreak. First world countries, like Italy and Japan (whose populace is notoriously clean and considerate, hence the face masks they ‘always’ wear when they are sick…to help prevent the spread of their germs to help their fellow humankind) are being infected at an alarming rate. If only the USA were so hygienic. But their story is a likely glimpse into the USA in a few weeks. The fact there are still many stock speculators salivating at “buy the dip” out there amongst us tells me this market correction has far far longer to go. In retrospect, a 12% retraction in stock prices after a better than 400% run-up after 11 years is a blip…most historical stock metrics are a good 40% overvalued even at this level. And the very same Fed who assures us we live in the “greatest economy ever” has now been forced to cut 1.25% on the FFR since last year–at a time when unemployment is at a record low, stock valuations are at a record high, and the CPI has been running around the Fed’s 2% target rate. Hmm…reminds me of Ben Bernake a decade ago saying “subprime is contained,” while those of us with boots on the ground had already witnessed folks intentionally defaulting on their houses and watching home prices crater for over a year. These guys/gals in the Ivory towers are typically well behind the curve.
Holy Mackerel! Am I crazy or is this one of the funniest financial blog posts ever??
I can’t tell if you are writing with a straight face or cracking up the whole time, but I am lmao at your droll view of stock market reality. This is a breath of fresh air compared to the decrepit meanderings of the mainstream financial media, and God knows we can use some fresh air to flush out all the germs!
And yes, of course, we are all guilty of pretending to be stock market geniuses when things are going well, and then we are suddenly monkishly subdued when the sh%t hits the fan.
Here’s a true story: 2 weeks ago I said to my wife “my spidey senses are tingling…maybe I should sell off our 7 figure portfolio, hold the cash and just enjoy the fruits of our risk taking labor.”
She laughed and said, “you’ve been saying that every week for 3 years, shut up and go back to playing your slide guitar” (she didn’t actually say “shut up” but I know she was thinking that)
Most of the people panicking right now seem to be the folks who bought in the last year or so.
The moral of my story is, how do you sell equities that you bought when the DOW was at 6,000? answer: You don’t.
BTW, love the chart with all the epidemics and how they affected the market. Quantifying stuff is cool. It forces charlatans to run for the hills.
The huge volume of comments you get dwarfs every other blogger I follow. It does puzzle me why so many people appear to get upset with your opinions and come at you hard in the comments, or come across as passive aggressive. I honestly find it very hard to disagree with much you’ve written because it’s either grounded in data or common sense. Not that my opinion has any particular significance. I’m curious why do you think so many people lose their cool?
I’m not sure. Maybe it’s my writing style or the carefree way I look at things? Really enjoy approaching things from different angles and also trying to make an argument when I believe in something.
It might also just be a law of large numbers. If even one percent of the people just don’t like you, if you have a large readership, the absolute number is quite large.
It’s fun though. Making money and losing money is always very emotional so when there are big swings I can see how people who are caught on the wrong side of the trade and really get fired up.
My thought is that his blog reads at a much more personal level by using personal anecdotes and interjecting his own real-life decisions into the topic and it’s easy to attack a person and their opinions. Other blogs seem to stop at the facts and/or theory.
FS constantly talks about the WHY. Many of the posts include “Why” in the title, which elicits the personal opinions, opinions that differ, which brings out the crowd with different opinions that have no way of comprehending why people would do something different than themselves, and thanks to the anonymous nature of the internet, they post.
In way, it’s a relief (other than worrying about parents and grandchildren getting the virus, of course). Had to be a correction sooner or later and this is probably as good it gets, timing wise, for us.
We have stable jobs (and yes, we could both telecommute if need be) and will be working at least five years more, plenty of time (normally and hopefully) for all of this to blow over and recover. Even then, we won’t need to be drawing any of it until RMD time, many, many years later. We’d like to, but we won’t need to. Passive income is a marvelous thing.
Meantime our undiminished 401k contributions should be going a bit further.
On the less economic side, it’s also good that this hit before any proposed budget cuts on the CDC had time to be implemented and take effect.
I agree that the stock market is overvalued but are you surprised when interest rates are this low for this long? What alternatives do many investors have? Bond yields and CD rates are simply too low.
I’ve moved some money but it’s not available to be traded yet. I hope the prices are still low in a couple of days.
Yeah, we have to look at the positive side. I moved some money into stock last week, but I don’t think it’s over yet. The virus is spreading around the US and the number of cases probably will explode in the coming weeks. The market will keep dropping in the short term. I hope everyone has some reserve funds to take advantage of this and for emergencies.
How much is it going to cost if you get sick? 2 weeks in the hospital will bankrupt most people.
All of the stock market corrections post-2008 made me squirm to the point where I’d actively avoid checking my portfolio’s balance, but this time it’s different.
In the past two weeks or so I probably set a personal record in losses (on paper), but I actually don’t care, lol. Will my balance fall even more? Probably. But will I still continue to invest? 100%
Maybe it’s experience. Maybe I’ve gotten desensitized to the volatility. I don’t know what it is, but it feels good to not panic at all.
That’s really good to hear. It’s probably the sensitivity as we get older and experience more of these corrections. I still care about losing hundreds of thousands of dollars in a week on paper. But as we grow older, it becomes a smaller and smaller part of our net worth.
Hi Sam,
Maybe this has been asked but I am curious in all the other viral situations where markets bounced back, do you know if the markets prior to the viruses were as heated as our current markets?
I am seriously considering moving to a conservative portfolio under the premise that this time around, because markets were shaky prior to the virus, there is a lower chance that we will see the larger gains that we saw in the last times.
thanks,
Dylan
I don’t think so because this is one of the longest bull runs ever and we are our record highs.
I enjoy your work and positivity. I find the long Tesla stock position questionable. Coming from one who has TSLA puts in my IRA, I’m of course biased. But we both have a finance background. Do the math and check out $TSLAQ on Twitter.
For sure, that’s the beauty of the market. It’s not a valuation play that’s for sure. Neither was my investments in Amazon, Netflix, and Google for the past 8-10 years. It was hard for me to rid myself of fundamentals, but I had to, to accelerate my wealth goals.
I always carve out about 10% of my public investments and speculate.
I’m sorry you are short Tesla. That must sting a little. Hope the position isn’t too big. I wouldn’t use fundamental valuation analysis to value momentum / big idea stocks. It just doesn’t work.
I was thinking about targeted areas to invest that go beyond the 3M masks, test kits, and vaccination companies. Those stocks are all way up. But when I did some basic research on intensive care ventilator and ECMO machine manufacturers I didnt see the same pop. I thought maybe this is second order problem the mass public has not caught on to yet. However, it would seem all hospitals do not have the number of machines they need and are probably ordering up right now. Thoughts on this angle?
Sam – I’ve been reading your blog for a couple years now. Thank you for a great resource. I’ve gotten a lot of value out of it and would like to think you and I are similar minded.
I’m around age 30 living in New York, working in finance. I luckily have about half my net worth in cash at this time, because I was just about to stretch to buy a nyc apartment as a primary residence. (The rest of my net worth is in stocks & lower beta alternatives). I’d be spending the vast majority of my cash on the down payment, and the price of the property was agreed on just before this week’s selloff.
The thesis on this was to finally stop renting and improve lifestyle. I’ve also wanted to own property for a long time given the various benefits. Finally given equity valuations were at the highs (and rates low) in months leading up to now, I liked shifting into a defensive asset with real utility. I agree with your thesis about heartland real estate / outflow from cities but thought the pros outweighed the cons for a primary residence in my case. It took a while to find a property I liked in my price range.
For this property, all-in monthly carry vs rent are about equal, and price is about flat vs 3-5 years ago despite some improvements having being made. (Both pretty decent for this market, as I understand at least). The nyc market has supposedly been in a correction the past couple years, but that seems to be concentrated in luxury product.
The equity market dislocation has given me pause in moving forward with this purchase. My income potential will be related to financial markets. I’ve been waiting for a chance to buy discounted equities for a long time. I’m also worried about the value of the apartment going down right after I buy it (although it’s a historically resilient neighborhood).
Wondering if you have any view on whether it still makes sense to go through with this property purchase?
Hi Sam! Crazy week. I work in finance in SF and am currently in the middle of a refi – bought my house in 2017 and have a 3.875, I locked a 3.49 no cost 30 year refi on Jan 31. Called my lender friday telling him I wanted to delay due to market volatility – he countered with 3.375 30 year also no cost. no penalty if I refi again later and rates drop to 3 over the next few months. trying to decide by tonite if I want to lock friday’s rate or wait until the market opens tomorrow to see if it drops further.
I am very torn!
Glad you got an easy counter at no cost! What is the rate for a 7/1 ARM or a 10/1 ARM?
You can’t really lose with a no cost, except for your time.
Hi Sam,
If he already paid 2+ years of mortgage and refinance to another 30 yr fixed, tho no cost, wouldn’t that increase the total interest to be paid?
I’m having similar issues here: bought a house in 2018 at 3.625 1/7 arm. Now if I refinance to 15yr fixed no cost is 2.99, 30 yr fix is 3.275. 15yr will make me negative monthly cash flow, while 30 yr makes the long two more yes longer.
What to choose?
Thank you Sam!
hi Maria – my plan is to pay the exact same payment I am paying now (~3800 even tho with the 3.375 refi my payment on a 30 year will be 3351 or so) that way without even changing my payment I will payoff 3 years earlier than my original 2017 mortgage (if that makes sense!)
Just have to decide by tonite if I am going to roll the dice and hope for a lower rate tomorrow or lock in the no cost 3.375….
I see that makes a lot of sense: basically you refinance to a much lower 30 yr loan but pay a bit more principle each month, making the loan duration the same. Very smart strategy!
Looks like the treasury yield is down again after a very weak Monday Asian Market. I would wait for a bit to decide.
Thanks again for sharing your insights!
I’ve been selling equities on market peaks for a year and a half to change the risk profile of my portfolio. It’s buy low, sell high and the market has been going up for 11 years and is 111% above the mean. OF COURSE IT’S GOING TO MEAN REVERT! So simply siphon off some profit and buy something low like gold bonds BTC FX. Now stocks are low and the others are high (EDV is up 45% year over year, GLD is up 25% yoy and SPY is up only 8% yoy) So the profit I siphoned to EDV and GLD has tempered my losses (the SPY is down 16% my portfolio is down 5%). Down equities = a chance to realize tax loss. I have 500K in tax loss harvested to use against cap gains in my taxable portfolio turning my taxable into something that behaves like a Roth. Equities low = a perfect time to Roth convert. If you own 1000 shares of BRK.B and you convert that at 250/share MFJ your tax bill is 42K. At $200/share the tax bill is 30K. You convert the same amount of property at a 40% tax savings.
Surviving a downturn is simply a matter of working through the Bayesian probabilities and front running the crash. TO BE SURE I DID LOOSE 5%, but I didn’t loose 16% or 10%. I run a trading account in one of my Roth’s and now since you can trade ETF’s and stock for free at FIDO I actually made 3% in that account over the past 10 days, trading long only v cash i.e no shorts. Making 3% further hedges my loss. As long as the VIX is >30 I’m not doing anything <30 I may start to rebalance back into stocks, or not depending on the rate of change in this virus. If the virus hasn't hit the inflection point I'm holding pat. It means the worst is yet to come.
Why was gold down 3% Yesterday? I thought gold goes up in times of crisis.
I thought the same and the only reason I can think is everyone is selling their gold position and buying equities and other risk assets that are down. High sales volume puts downward pressure on the price.
Possible. was watching the intraday day price movements of EDV And a couple of intermediate and long-term corporate bond funds last week. They dropped about .4 to .9% Then popped back up when the market crashed. Treasury funds on the other hand, short, intermediate and long prices were consistently up. Just can’t figure it.
Any quants out there who can explain the technicals? Currency movements? Large trading algorithms moving money? Profit-taking?
1. Gold is denominated in dollars and dollars are down so gold is down.
2. The volatility of gold has sky rocketed so the (inverse correlation SPY goes down GLD goes up) is less correlated (less reliable) (http://www.cboe.com/delayedquote/detailed-quotes?ticker=%5eGVZ)
Gold trades in a range like SPY The SPY vol (VIX) changed from 13 to 48 in one month Gold vol (GVZ) went from around 12 to 20 in the same month so the SPY vol tripled (300%) while gold went up only 66%. When VIX gets >30 the market becomes univestible since the correlations all go to hell. As the VIX falls back to 20 the correlations will re-approximate so we have a ways to go to reliably understand the price action of gold relative to spy
For me gld is a buy on the dips proposition with this kind of volatility at this point in time. Stocks are a sell into the rally proposition. If the market is crashing 16% I’m happy to own an asset that crashes a couple percent and maintains my wealth. I bought some gld Friday and a little more yesterday. This virus is just getting started in terms of the economic disruption it will reap. Homey wants less risky assets in that environment
Thanks for your reply. I sort of had a hunch that the R squared wasn’t one. But couldn’t quite figure what the dynamics were
I think the most accurate thing to say about gold is that it’s uncorrelated to other asset classes. The most compelling correlation thesis i’ve seen is that it gold correlates to real interest rates:
https://finance.yahoo.com/news/gold-negative-real-interest-rates-064248238.html
But on a day to day basis, it’s pretty random how it moves relative to the stock market.
Thanks for your reply. I sort of had a hunch that the R squared wasn’t one. But couldn’t quite figure what the dynamics were.
Sam, I recently came into a lot of cash while trying to educate myself on investing in the market I put 800k in an index account , I’m still up 12k should I pull this money out asap and start buy some stocks to take advantage of the bargains out there?
reading through these comments, there is no fear, there’s no capitulation. There in fact obviously-there is no bottom here. No chance the market accommodates all these amateur investors and even Mr. Samurai. The market may well be entering a black monday Crash ala 1987. Bill Gates just said this is “once in a century pathogen.” I don’t know exactly what he means but it probably is clue the market is no where near going down. Again, we will not see a bottom until we see comments on these public forums indicating despair and panic. Not the casual oh let’s buy for my kids 529 or I have 10 years to wait it out. Nope – we may be looking at another 2008 Crash but at a faster pace.
The Index Fund Sheep will be getting slaughtered next few months until a vaccine is approved and or a miracle drug eradicates the disease. The only risk to the guys who press shorts right now is that volatility options are very high and everything is way oversold. You could get a fed emergency meeting Monday after another market wipeout and see the market go up 3000 points in one day. The pro’s will of course sell into that – the downtrend has been born and it will not stop until the virus is killed. 200 ma is not to be f’d with. Just like don’t fight fed – 200 day is supply demand and doesn’t have feelings. Bottom line, Samurai Sam will have to show some panic before this market bottoms that’s for darn sure.
Good luck amateurs! Take that ass kicking and see your sp500 index fund take your assets down by half. The Index Fund bubble has burst and it’s time for the mania to end badly as usual. The market will always find a way to disappoint the largest possible number of people. 2020 is the new 2008. Corona Virus is the Black Swan event none of us saw coming.
Bill Gates is referring to the 1918 Spanish flu pandemic. You can Google it for info.
Black Swan? Hardly.
With a global population of 7bn, and with globalisation, events like these are to be expected every now and then. In recent history we have had Ebola, Sars, Swine Flu to name just 3.
Will one of these regular events wipe us out? Maybe – who knows? It will not be the current one though if the experts are to be believed.
Funny trying to scare us with 1987.
Peter Lynch, patron deity of investors, and manager of the Magellan Fund at the time, was playing golf in Scotland when someone brought him word of the 1987 crash.
His first thought was that he should get to a phone (nothing like today’s internet was available back then).
Then he realized that he had already made the best investments he could make and that was that. He went on to finish his round of golf.
The biggest lesson from 1987 was to have a diversified equity portfolio because then, regardless of what happens, time will be in your favor. In fact, by the end of 1987 the downdraft had already been wiped away.
It feels great to mobilize cash in times like this for the long term. And I’m all about less traffic and fewer crowds. Thanks for pointing out a lot of positives. It’s nice to focus on the things we can control when markets are melting down
Hey Sam, I just stumble your post from Singapore. This is the perfect post for the perfect time. I am considering to do a refinance for my home right now since the interest rate is all-time low. Not sure if the rates will fall even lower if I wait for another 2-3 months though. But this post really got me thinking. Thanks!
My best guess is that first the trade war and now this will trigger a recession. So, I don’t plan to get really aggressive until I think the Fed stopped cutting interest rates. I could be completely wrong of course, but have 50% of assets in stocks, hedge funds, real estate etc and 50% in cash, managed futures, gold, bonds. So I’m not committed one way or the other really. Lost about 3% in February in Australian Dollar terms. Will be buying more Australian Dollars.
I’d like the help of the readers with this option I’m considering. Should I take a credit card cash advance of $28,000 at 0% for 12 months and invest in the market? It is through Capital One. They would send me a check in two weeks. They have a 2% transfer fee if u transferred a balance from another card which I assume would apply to the cash advance as well. The only reason I am even considering this is that I will inherit conservatively $250,000 from the sale of the family farm to be paid out this fall.
I am 59 with $700,000 in index/mutual funds as of today (post melt down). I put most of my emergency fund in the market already this past week. I don’t happen to have access to any cash except for my paycheck. I regularly put $2,000 to $4,500 in the market every month from my pay, I’m on commission so it varies. I want to take advantage of the low market while it is here. I just don’t have a lot of cash right now. I have $250,000 equity in my home and have even thought about a home equity loan of $50,000 but that may be more trouble than it is worth.
Anyway I’m interested in your thoughts on this. I realize an investment of $28,000 isn’t going to be life changing but it seems pretty low risk with the inheritance coming soon. There will be a minimum payment to manage but I think I can handle it. Thanks!! Bk
You should ask yourself…if you had 28k just laying around, would you invest? If yes – borrow (assuming you will have cash to pay in a year).
A quick point of clarification that may not be needed, I would pay off the remaining balance of the $28,000 this fall with the inheritance. That is why this seems pretty low risk to me.
Thanks
Bk
A little trick I do when the market is crashing is to put extremely low buy orders into companies I wish I have invested in earlier. AMZN at $1200, MSFT at a $100, DIS at 80, BMY at $50. Even though I’m getting crushed this week these buy orders have me rooting for the market to keep going down. It definitely helps to keep you in the game.
I am, like many, one who lost plenty on paper this past week. No problem. I’m so lazy I just do 100% stocks and I never seem to re-balance. Stupid? Quite possibly. But I keep sleeping well at night since I don’t have to do anything or time anything.
It’s the old, “losses and gains are not realized” so I don’t care right now. At least 10 years to go until I will access the funds.
I feel fortunate to have amassed an 8 figure nest egg by my mid 50s. My allocation is aggressive: 80% diversified US and Intl equities, 10% REITs, and 10% muni bonds. I have weathered several market contractions with this allocation. They are always painful (lost just over 7 figures in value this time), but the REITs and muni bonds provide me some nice income and downside protection. I give up some upside potential for sure, but even after this week’s correction, my 10 year CAGR exceeds 10% – I certainly can’t complain. Would welcome everyone’s thoughts on my allocation and ways to mitigate risk going forward.
I guess it depends on what percentage of equities is your net worth? If you’ve found your comfort zone since you’re already in your 50s and if you feel you can withstand another 10% to 20% drop, then keep it the way it is.
I would like to build my equity as a percentage of net worth to about 25% and just stay more or less there. I really love the stability of real estate and the darkness of private investments.
When counting equities as a % of net worth. Does that include bonds and REITs? Or is your 25% only stocks and bonds and reits are considered separate?
I don’t understand. Do you equate equities with fixed income?
What are you doing during this downturn?
I thought that investments in the market was considered stocks, bonds, and REITs. I was confusing the above as being in the ”market”