#BlackMonday 2015: China down 8%+, Dow Jones opens at 15500

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KnightExemplar
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#BlackMonday 2015: China down 8%+, Dow Jones opens at 15500

Postby KnightExemplar » Mon Aug 24, 2015 1:51 pm UTC

First "correction" in many years as Chinese consumption slows, commodities prices remain low (Oil is below $50 and has been for months!). The Chinese stock market can be described as nothing but absolute panic as all the gains this year have now been wiped out as of today.

There is speculation that this slowdown in commodities and consumption is going to force companies to cut back, which of course leads to job losses. And of course, a market drop like this will spook investors: companies like Uber or Tesla (which haven't had any real profits in their lifetime) may have their funding dry up as people reallocate their investments towards safer blue chips. This has already happened with the US 10-year Treasuries, as investors flock to safety the 10-year yield has dropped to 1.92 as of now (lower yield means a more expensive bond).

Dow Jones has dropped from its 18,000+ high and is trending at 15,500 today. There's of course the chance that it all bounces back, but true fear has begun to start up in the news feeds, on social media (Twitter #BlackMonday), and so forth. I'm thinking this is going to be the first bear market in many years. I'm not fully aware of the economic implications of all of this though. But lets get some discussion going.

Thoughts?
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby eran_rathan » Mon Aug 24, 2015 2:02 pm UTC

well, the only good thing I can see is that the idiots running for President will stop talking about repealing the 14th amendment and instead start talking about the economy.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby CorruptUser » Mon Aug 24, 2015 2:03 pm UTC

Any chance talking about the economy will kill Chump's chances at the nomination?

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby eran_rathan » Mon Aug 24, 2015 2:05 pm UTC

CorruptUser wrote:Any chance talking about the economy will kill Chump's chances at the nomination?


one could only hope.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Dauric » Mon Aug 24, 2015 3:02 pm UTC

eran_rathan wrote:
CorruptUser wrote:Any chance talking about the economy will kill Chump's chances at the nomination?


one could only hope.


Depends on if anyone cares about more than buzzwords. "I'm a (successful) businessman." is a popular soundbite about almost any economic issues in Republican voting demographics.

Now Trump's record is hardly sterling in that regard, but he's got enough mastery of the media that it might not matter.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby moiraemachy » Mon Aug 24, 2015 3:31 pm UTC

KnightExemplar wrote:And of course, a market drop like this will spook investors: companies like Uber or Tesla (which haven't had any real profits in their lifetime) may have their funding dry up as people reallocate their investments towards safer blue chips.

I wouldn't bet in these two specific companies being severely affected: money pulled out from China should more than compensate for the temporary investor panic.

But anyway. Apparently the Chinese government wants to do some anti-cyclic spending. What the fuck? I mean, they are still going to grow like, 6% this year. Will Chinese workers really get fired by this? I'm guessing this is just their economic elite panicking that their 5-year profit plan won't be met.

I really hope someone in the Chinese government manages to sell some redistributive measures as remedy to their crisis.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Mon Aug 24, 2015 3:45 pm UTC

moiraemachy wrote:
KnightExemplar wrote:And of course, a market drop like this will spook investors: companies like Uber or Tesla (which haven't had any real profits in their lifetime) may have their funding dry up as people reallocate their investments towards safer blue chips.

I wouldn't bet in these two specific companies being severely affected: money pulled out from China should more than compensate for the temporary investor panic.


For Uber, I think you have a point. I'm not sure how much Chinese exposure Uber has. I sorta just picked those two out of a hat for companies that don't have a profit yet.

Tesla however is in a different situation. They need to grow and find new demand. China was supposed to be a major growth center for them.

http://www.reuters.com/article/2014/01/ ... O720140124
http://www.marketwatch.com/story/tesla- ... 2015-06-22

With the Chinese economy going south, Tesla probably can't rely on China for volume. Tesla does have some nice profit margins of course, but their gross margin is still negative until they can sell more cars. Furthermore, with the Gigafactory plans up, Tesla needs to start finding buyers for their cars. IIRC, they haven't really taken advantage of "economies of scale" yet, and are still reliant on piggy-backing off laptop batteries.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby sardia » Mon Aug 24, 2015 5:08 pm UTC

moiraemachy wrote:
KnightExemplar wrote:And of course, a market drop like this will spook investors: companies like Uber or Tesla (which haven't had any real profits in their lifetime) may have their funding dry up as people reallocate their investments towards safer blue chips.

I wouldn't bet in these two specific companies being severely affected: money pulled out from China should more than compensate for the temporary investor panic.

But anyway. Apparently the Chinese government wants to do some anti-cyclic spending. What the fuck? I mean, they are still going to grow like, 6% this year. Will Chinese workers really get fired by this? I'm guessing this is just their economic elite panicking that their 5-year profit plan won't be met.

I really hope someone in the Chinese government manages to sell some redistributive measures as remedy to their crisis.

I don't think you understand what the foundation of Chinese oligarchy is based on. It's dirt simple. Did you grow above 7%? Then you're free to be corrupt and abusive. Is growth slowing? Execute the entire leadership. Look it up, the party leaders are terrified of this happening.

PS. Don't sell your stocks. http://fivethirtyeight.com/datalab/worr ... dont-sell/
If anything, but some more. Don't let Knight exemplar's article scare you into selling.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby speising » Mon Aug 24, 2015 5:15 pm UTC

Yes,
Nathan Rothschild wrote:buy on the sound of cannons, sell on the sound of trumpets


the question is, when to buy exactly.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Tyndmyr » Mon Aug 24, 2015 5:27 pm UTC

sardia wrote:PS. Don't sell your stocks. http://fivethirtyeight.com/datalab/worr ... dont-sell/
If anything, but some more. Don't let Knight exemplar's article scare you into selling.


I never sell when everyone else is panicking. Why? I ain't retiring soon. Stocks are just on sale right now, that's all.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Mon Aug 24, 2015 5:29 pm UTC

sardia wrote:PS. Don't sell your stocks. http://fivethirtyeight.com/datalab/worr ... dont-sell/
If anything, but some more. Don't let Knight exemplar's article scare you into selling.


That's true. I'm still planning to buy on my next paycheck actually. I might sell put options even: hedge funds and everybody needs those options to feel safer at night. If I provide those options, I might walk away with a profit.

Tyndmyr wrote:
sardia wrote:PS. Don't sell your stocks. http://fivethirtyeight.com/datalab/worr ... dont-sell/
If anything, but some more. Don't let Knight exemplar's article scare you into selling.


I never sell when everyone else is panicking. Why? I ain't retiring soon. Stocks are just on sale right now, that's all.


While that's true, I keep a portion of my non-retirement savings in the market. So if the market doesn't recover in 5 years or so, I'll be forced to sell for a loss on my next big purchase. I'm kinda kicking myself in the ass for not having enough 10-year treasuries on my portfolio right now...
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Tyndmyr » Mon Aug 24, 2015 5:32 pm UTC

If it makes you feel better, the odds of a rebound in the next five years are...very good. Much as everyone likes to cry about another great depression every time the market takes a dump, most downturns don't actually last that long.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Mon Aug 24, 2015 5:34 pm UTC

Tyndmyr wrote:If it makes you feel better, the odds of a rebound in the next five years are...very good. Much as everyone likes to cry about another great depression every time the market takes a dump, most downturns don't actually last that long.


Yup. Its a calculated risk though. And every time the markets dip, it does make me feel uncomfortable. Always the chance that "this could be the one"... ya know?
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby CorruptUser » Mon Aug 24, 2015 6:53 pm UTC

KnightExemplar wrote:
Tyndmyr wrote:If it makes you feel better, the odds of a rebound in the next five years are...very good. Much as everyone likes to cry about another great depression every time the market takes a dump, most downturns don't actually last that long.


Yup. Its a calculated risk though. And every time the markets dip, it does make me feel uncomfortable. Always the chance that "this could be the one"... ya know?


In which case the money you wisely saved away becomes worthless anyway.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Tyndmyr » Mon Aug 24, 2015 7:25 pm UTC

'sall a calculated risk. Just gotta play the odds.

Worst comes to worst, have a small bit of your stash in gold, food and bullets if that makes you happy. Odds are good it'll never come up, but if it gives you peace of mind for the rest, meh.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Mon Aug 24, 2015 7:56 pm UTC

Image

With oil prices dropping significantly, and with oil storage maxing out with worldwide demand for oil dropping... and with Iranian Oil about to enter the unfettered market...

I'm thinking we might have below $2.00/gallon gas soon folks. In 2008 Oil was $140 a barrel. Cratering oil prices is good for truckers, retail, shipping, etc. etc. But its bad for energy producers (Exxon, Russia, etc. etc.). Dunno how it plays out overall, but it might be time to plan an awesome road trip.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby CorruptUser » Mon Aug 24, 2015 8:34 pm UTC

Tyndmyr wrote:'sall a calculated risk. Just gotta play the odds.

Worst comes to worst, have a small bit of your stash in gold, food and bullets if that makes you happy. Odds are good it'll never come up, but if it gives you peace of mind for the rest, meh.


Gold is worthless if the economy disappears. Just stock the food and bullets. Also, friends are better than bullets...


As for gas prices below $2? BUWAHAHAHAHA. Oil could be free and the gas companies would still refuse to drop the prices.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Mon Aug 24, 2015 9:05 pm UTC

CorruptUser wrote:As for gas prices below $2? BUWAHAHAHAHA. Oil could be free and the gas companies would still refuse to drop the prices.


It depends where you are in this country. IIRC The West (California) and Chicago area are having refinery shortages right now, so their prices remain elevated.

But the rest of the country is looking upon the greatest crude oil oversupply in this country ever. The US is literally running out of storage for crude oil, so there is only one place for all that oil to go: through refineries and into gas pumps. Summer vacation time is literally over as schools begin to open this week, so US Gasoline demand is going to drop for the winter lull.

Recent reports I've seen indicate a $0.60+/gallon crack spread for refineries. Refineries are making tons of money on Gasoline right now. Refineries are going to be running as hard as they can to take advantage of the low crude oil prices and the (relatively) high price of gasoline. There is some news that refineries are up for maintenance though, so maybe they will miss the opportunity. In any case, the price of crude oil will continue to plummet, and will very likely drag gas prices down with it.

Will $2.00 happen? Obviously, I don't know. We won't know till it either happens or it won't. But its a possibility at this point. The greater implications across the economy can be seen as either a plus (retailers / truck drivers / shipping industry) or a negative (energy producers, oil companies, OPEC in general)
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby duckshirt » Mon Aug 24, 2015 9:26 pm UTC

CorruptUser wrote:As for gas prices below $2? BUWAHAHAHAHA. Oil could be free and the gas companies would still refuse to drop the prices.

And yet that's what they've been doing
lol everything matters
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Mon Aug 24, 2015 9:31 pm UTC

duckshirt wrote:
CorruptUser wrote:As for gas prices below $2? BUWAHAHAHAHA. Oil could be free and the gas companies would still refuse to drop the prices.

And yet that's what they've been doing


Sort of. California and Illinois (and the surrounding regions) have not benefited from the low cost of oil due to a number of factors. CorruptUser might be from those affected areas.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby sardia » Mon Aug 24, 2015 10:11 pm UTC

BTW, low oil prices is a net gain for the US economy. Not as much as it used to be due to the petroboom in the us but still a net plus.
"
While that's true, I keep a portion of my non-retirement savings in the market. So if the market doesn't recover in 5 years or so, I'll be forced to sell for a loss on my next big purchase. I'm kinda kicking myself in the ass for not having enough 10-year treasuries on my portfolio right now...


The real question is, why are you buying something with money stored in stocks? If the purchase can't wait or is a dire necessity, then you shouldn't ever put it into stocks on such a small timescale. Like I have some money invested in a small business, I do not expect that money to be there to pay for x major purchase 5 years from now. On the other hand, I also have money in inflation protected I-bonds. These are set to match inflation and guaranteed by the faith and credit of the US. That's rock solid protection there. Most purchases don't need that level of protection, and will be somewhere inbetween that.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Djehutynakht » Mon Aug 24, 2015 11:23 pm UTC

Tyndmyr wrote:I never sell when everyone else is panicking. Why? I ain't retiring soon. Stocks are just on sale right now, that's all.


I suck at economics, but honestly I've always agreed with this.

It seems to me, with my limited understanding, that much of these "crises" are self-perpetuating. People panic, so they sell, and so other people panic, and they sell...

Just make sure your particular companies are doing fine and, if so, hang on to your shares.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby duckshirt » Tue Aug 25, 2015 12:11 am UTC

Djehutynakht wrote:
Tyndmyr wrote:I never sell when everyone else is panicking. Why? I ain't retiring soon. Stocks are just on sale right now, that's all.


I suck at economics, but honestly I've always agreed with this.

It seems to me, with my limited understanding, that much of these "crises" are self-perpetuating. People panic, so they sell, and so other people panic, and they sell...

Just make sure your particular companies are doing fine and, if so, hang on to your shares.

Aren't you contradicting yourself in your last sentence - that you only want to keep your stocks if they're doing well?

KnightExemplar wrote:
duckshirt wrote:
CorruptUser wrote:As for gas prices below $2? BUWAHAHAHAHA. Oil could be free and the gas companies would still refuse to drop the prices.

And yet that's what they've been doing


Sort of. California and Illinois (and the surrounding regions) have not benefited from the low cost of oil due to a number of factors. CorruptUser might be from those affected areas.

Maybe so but that's a bit different from saying gas prices wouldn't drop.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby elasto » Tue Aug 25, 2015 1:45 am UTC

duckshirt wrote:Aren't you contradicting yourself in your last sentence - that you only want to keep your stocks if they're doing well?

He is saying just make sure your companies are doing fine in terms of revenue flow, profits, growth potential etc.; If so, their stock prices may vasillate due to short-term panic but that doesn't matter.

In fact, if the fundamentals are sound, stock market panic should cause you to buy, not sell

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby moiraemachy » Tue Aug 25, 2015 2:00 am UTC

KnightExemplar wrote:
moiraemachy wrote:
KnightExemplar wrote:And of course, a market drop like this will spook investors: companies like Uber or Tesla (which haven't had any real profits in their lifetime) may have their funding dry up as people reallocate their investments towards safer blue chips.

I wouldn't bet in these two specific companies being severely affected: money pulled out from China should more than compensate for the temporary investor panic.


For Uber, I think you have a point. I'm not sure how much Chinese exposure Uber has. I sorta just picked those two out of a hat for companies that don't have a profit yet.

Tesla however is in a different situation. They need to grow and find new demand. China was supposed to be a major growth center for them.
Say China grows 2% less than Tesla's projection for the next 5 years. 10% poorer Chinese buyers doesn't seem that much of a hit. IMO the low price of oil is much more of a threat for them.

Who really gets screwed in this kind of situation are people who sell steel, oil, cement or machinery. That is, goods that are directly related to economic growth. Auto makers suffer a little more than everyone else because their product's demand is somewhat elastic, but not that much. And Tesla sells luxury cars, so it's not like they were counting on the Chinese who just got out of poverty.

Djehutynakht wrote:
Tyndmyr wrote:I never sell when everyone else is panicking. Why? I ain't retiring soon. Stocks are just on sale right now, that's all.



I suck at economics, but honestly I've always agreed with this.

It seems to me, with my limited understanding, that much of these "crises" are self-perpetuating. People panic, so they sell, and so other people panic, and they sell...

Just make sure your particular companies are doing fine and, if so, hang on to your shares.


I agree with the overall spirit, but it's easier said than done. The price of stocks isn't a reflection of what a company is capable of profiting now: it is almost always greater because it considers projections of future growth. And these projections are sometimes very wrong. The big question is: how wrong? Maybe this company will be virtually unaffected beyond the initial shock, maybe the shock is just the result of changes in the economy that made the company's business model a lot less viable over the last years.

Sometimes, a seemingly healthy company really depended on the oil barrel costing 70 USD, or in the exports to a China growing 8%. In this case, the only thing to do is scrap the whole thing and sell for a big loss.

So yeah, panicking and selling because everyone is selling is wrong, but it's hard to separate panicking and legitimate concerns, specially in a market crash (which, by definition, is a sign that the market misjudged the value of something). And specially when you have your own saving on the line. I'm probably only that confident about Tesla because I don't have any money on it.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby elasto » Tue Aug 25, 2015 2:42 am UTC

moiraemachy wrote:Sometimes, a seemingly healthy company really depended on the oil barrel costing 70 USD, or in the exports to a China growing 8%. In this case, the only thing to do is scrap the whole thing and sell for a big loss.

In which case you should have been aware of this when you bought the shares, and should have sold them before the market crash, not during it.

It's fine to buy shares without doing this kind of detailed research, but in that case you should buy a broad basket of shares, and just leave them all be - aware that, over the long term, some will win and some will lose. If you join the rout and panic sell, you're as likely to sell the undervalued shares as the overvalued ones...

Pre 2000, my dad bought shares in loads of different tech companies. When the dot-com bubble burst, many of the companies were decimated in value. My dad sold all his shares at a huge loss. If he'd just kept hold of them all, he'd have shares in Amazon, Apple, Ebay and so on that would have been worth a fortune today - more than making up for all the shares that dropped to nada...

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Thesh » Tue Aug 25, 2015 3:10 am UTC

Most people are better off just investing in index funds anyway and leaving their money there.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Cleverbeans » Tue Aug 25, 2015 3:42 am UTC

Thesh wrote:Most people are better off just investing in index funds anyway and leaving their money there.

Or even better dollar cost averaging in an index fund. It's stupid easy and takes all the guesswork out.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Derek » Tue Aug 25, 2015 5:20 am UTC

CorruptUser wrote:
Tyndmyr wrote:'sall a calculated risk. Just gotta play the odds.

Worst comes to worst, have a small bit of your stash in gold, food and bullets if that makes you happy. Odds are good it'll never come up, but if it gives you peace of mind for the rest, meh.


Gold is worthless if the economy disappears. Just stock the food and bullets. Also, friends are better than bullets...

I think that depends on what kind of collapse we're talking about. Zombie apocalypse? Gold is pretty worthless. Collapse of governments into local warlords or something? I think history indicates that gold will retain substantial value in this case.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Thesh » Tue Aug 25, 2015 5:25 am UTC

I somewhat agree with CorruptUser: if you can't eat it or drink it, it's worthless; so stock up on food and friends.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby sardia » Tue Aug 25, 2015 7:19 am UTC

Thesh wrote:I somewhat agree with CorruptUser: if you can't eat it or drink it, it's worthless; so stock up on food and friends.

Note to self, don't be Thesh's friend.

It's funny, I didn't learn anything useful about the stock market in high school, or even the investors club we had. It's a shame/wonder that I had to learn my financial education on the internet.
To reiterate, not only pick index funds, and leave it. Also add an automatic savings plan, so you save mental energy. The less time you spend investing, the more efficient you can be.

Has anyone done regular rebalancings(1/a year)? I've been meaning to do it, but I never quite understood the details. Do I only consider the net worth of each market sector mutual fund, or do I have to presume they were financed equally beforehand? I've only been able to 'rebalance' by buying more of my least valuable funds, and not buying my most valued. * By value I mean estimated $ amount. I have the feeling my assumptions are wrong, because re-balancing doesn't make sense each time I tried applying it.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby johnny_7713 » Tue Aug 25, 2015 7:44 am UTC

KnightExemplar wrote:
I'm thinking we might have below $2.00/gallon gas soon folks. In 2008 Oil was $140 a barrel. Cratering oil prices is good for truckers, retail, shipping, etc. etc. But its bad for energy producers (Exxon, Russia, etc. etc.). Dunno how it plays out overall, but it might be time to plan an awesome road trip.


Low oil prices are also bad for renewable energy and make any investments in reducing energy consumption less attractive, which means less CO2 reduction.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby CorruptUser » Tue Aug 25, 2015 9:46 am UTC

johnny_7713 wrote:
KnightExemplar wrote:
I'm thinking we might have below $2.00/gallon gas soon folks. In 2008 Oil was $140 a barrel. Cratering oil prices is good for truckers, retail, shipping, etc. etc. But its bad for energy producers (Exxon, Russia, etc. etc.). Dunno how it plays out overall, but it might be time to plan an awesome road trip.


Low oil prices are also bad for renewable energy and make any investments in reducing energy consumption less attractive, which means less CO2 reduction.


Is this as bad for the environment as carbon credits?

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Tue Aug 25, 2015 2:22 pm UTC

Has anyone done regular rebalancings(1/a year)? I've been meaning to do it, but I never quite understood the details. Do I only consider the net worth of each market sector mutual fund, or do I have to presume they were financed equally beforehand? I've only been able to 'rebalance' by buying more of my least valuable funds, and not buying my most valued. * By value I mean estimated $ amount. I have the feeling my assumptions are wrong, because re-balancing doesn't make sense each time I tried applying it.


Let me use Stocks and Bonds as an example, because these are the best example of rebalancing.

Ahead of time, you decide whether you want high-risk (100% stocks) or low risk (100% bonds). For most people a balance of the two represents the best risk factor. (80% Stocks / 20% Bonds is what I like to go with... younger folks might want more risk... older folks might want more safety). Lets say stocks continue to drop. If you'll notice, the Bond Market is going _up_ this week as market turmoil scares investors towards bonds. So that means you have more money in bonds, and less money in stocks. When you rebalance, you sell bonds (ie: sell high) and buy stocks (buy low).

SPY is an ETF that represents a good chunk of the stock market: https://www.google.com/finance?q=SPY
AGG is an ETF that represents a good chunk of the bond market: https://www.google.com/finance?q=AGG

Notice how AGG goes up while SPY goes down... and vice versa. Furthermore, both AGG and SPY trend upwards over the long term.

A few years from now, bond interest rates will eventually rise (the Fed is going to raise rates eventually). At that point, the stock market will likely be up, while bonds will go down. So you sell stocks (sell high) and buy bonds (buy low) to get back to an 80% / 20% spread.

It matters more when you are in your 40s or 50s, and you can't just make up the difference with your income. When you are older and have a much larger nest egg, the only way you can "correct" your portfolio is by selling or buying your large positions.

Overall, rebalancing only works if you...

1. Feel like all your investments are trending upwards over the very long term.
2. Feel like your investments are not strongly correlated with each other.

If the above two conditions hold, you make more money with less risk by rebalancing. Its like rolling two dice instead of one, the percent-wise standard deviation drops when you add the values of two non-correlated random variables.

There are some anomalies, like in 2008 when stocks and bonds dropped at the same time. But for the most part, choosing non-correlated investments and keeping your money balanced between them is a good, conservative strategy.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby Tyndmyr » Tue Aug 25, 2015 3:01 pm UTC

eran_rathan wrote:well, the only good thing I can see is that the idiots running for President will stop talking about repealing the 14th amendment and instead start talking about the economy.


So much optimism.

Nah, they'll just find a way to connect 'em up. Them furreners are to blame for the economy! Dey tuk ur jerbs!

Also, from a strictly political standpoint, a good economy is usually consider positive for the incumbents, and a negative one, the reverse. Now...this might be over by voting time, who knows. If I could predict the economy with certainty that far out, I wouldn't be posting here, I'd be trading stocks.

CorruptUser wrote:
Tyndmyr wrote:'sall a calculated risk. Just gotta play the odds.

Worst comes to worst, have a small bit of your stash in gold, food and bullets if that makes you happy. Odds are good it'll never come up, but if it gives you peace of mind for the rest, meh.


Gold is worthless if the economy disappears. Just stock the food and bullets. Also, friends are better than bullets...


I agree, but it seems to make some people feel happy and safe, and I suppose that value might be more important than post-crunch reality, given that the latter is a low probability event. If having a feeling of safety allows you to be more pragmatic with the rest of your investments, it can be worth it.

$2 a gallon gas doesn't even seem odd. It's maybe half a buck over that now, on the east coast, and places with lower gas taxes tend to be a shade lower. It'd only take a modest dip for some places to start seeing $2 gas. That's not really a stock market specific thing, though.

duckshirt wrote:
Djehutynakht wrote:Just make sure your particular companies are doing fine and, if so, hang on to your shares.

Aren't you contradicting yourself in your last sentence - that you only want to keep your stocks if they're doing well?


Stocks doing well isn't exactly the same as companies doing well. I don't *actually* think most companies have gotten far worse over the past week. Merely the valuation has changed. If the company fundamentals are sound, there isn't reason to worry. Also, checking fundamentals is something you should be doing regularly, not just post-drop, of course.

I seriously don't even look at the value of my stuff post-contraction. Why? That's just for panic and worry. I don't need that, and it isn't useful.

However, it's worth thinking about the long term and what it means. If the chinese economy is contracting, what will they do to try to stimulate it? How can I benefit from that? Will they attempt to market cheaper production? I can work with that...some industries, that's a big deal.

Cleverbeans wrote:
Thesh wrote:Most people are better off just investing in index funds anyway and leaving their money there.

Or even better dollar cost averaging in an index fund. It's stupid easy and takes all the guesswork out.


Absolutely. A good spread of options is really best. Funds exist for everything you can think of. You can set up a nice spread of funds to further diversify, and automatically deposit monthly however is best. Calculators exist for suggesting risk v retirement age and such. Ideally, you utilize a 401k for as much as possible.

Derek wrote:I think that depends on what kind of collapse we're talking about. Zombie apocalypse? Gold is pretty worthless. Collapse of governments into local warlords or something? I think history indicates that gold will retain substantial value in this case.


It will, and it's interesting from this perspective, so for a "keeping wealth" standpoint it's good, though of course it's unlikely to directly keep you alive. Gold does basically jack-all in a katrina situation.

I don't actually stash any gold myself, though I might as I get older solely for a hidden treasure plan when I die. *shrug*

sardia wrote:It's funny, I didn't learn anything useful about the stock market in high school, or even the investors club we had. It's a shame/wonder that I had to learn my financial education on the internet.
To reiterate, not only pick index funds, and leave it. Also add an automatic savings plan, so you save mental energy. The less time you spend investing, the more efficient you can be.


School is mostly rubbish for a lot of the really important things. Sometimes, I'm glad I never bothered going.

Rebalancing is just that, yeah. You're moving money to your less productive things so your percentages held are more in line with your goals, which generally get more conservative as you grow older. More money into less profitable, but theoretically less risky things*. I don't do it. That said, my spread is aggressive by any standards, so meh. Over a long enough time frame, it works out. Just gotta not flinch when the drop comes.

*There's also a counter cyclical aspect to it, in that some things move in opposition to the stock market, and in theory, you're riding the waves on each if you do this religiously.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby sardia » Wed Aug 26, 2015 3:15 am UTC

KnightExemplar wrote:Ahead of time, you decide whether you want high-risk (100% stocks) or low risk (100% bonds). For most people a balance of the two represents the best risk factor. (80% Stocks / 20% Bonds is what I like to go with... younger folks might want more risk... older folks might want more safety). Lets say stocks continue to drop. If you'll notice, the Bond Market is going _up_ this week as market turmoil scares investors towards bonds. So that means you have more money in bonds, and less money in stocks. When you rebalance, you sell bonds (ie: sell high) and buy stocks (buy low).

SPY is an ETF that represents a good chunk of the stock market: https://www.google.com/finance?q=SPY
AGG is an ETF that represents a good chunk of the bond market: https://www.google.com/finance?q=AGG

Notice how AGG goes up while SPY goes down... and vice versa. Furthermore, both AGG and SPY trend upwards over the long term.

A few years from now, bond interest rates will eventually rise (the Fed is going to raise rates eventually). At that point, the stock market will likely be up, while bonds will go down. So you sell stocks (sell high) and buy bonds (buy low) to get back to an 80% / 20% spread.

It matters more when you are in your 40s or 50s, and you can't just make up the difference with your income. When you are older and have a much larger nest egg, the only way you can "correct" your portfolio is by selling or buying your large positions.

Overall, rebalancing only works if you...

1. Feel like all your investments are trending upwards over the very long term.
2. Feel like your investments are not strongly correlated with each other.

If the above two conditions hold, you make more money with less risk by rebalancing. Its like rolling two dice instead of one, the percent-wise standard deviation drops when you add the values of two non-correlated random variables.

There are some anomalies, like in 2008 when stocks and bonds dropped at the same time. But for the most part, choosing non-correlated investments and keeping your money balanced between them is a good, conservative strategy.

That's easy...if you're investments were balanced to start with. What if you had 10k, 15k, and 20k in 3 different funds. After a year of growth, would you rebalance by comparing the net worth?( sell 5k investment C, buy 5k, in fund A; end with 15k in A,B, and C)? Or would you choose the % gained/lossed? Net worth is simpler, but seems like a bad metric.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Wed Aug 26, 2015 4:05 am UTC

sardia wrote:That's easy...if you're investments were balanced to start with. What if you had 10k, 15k, and 20k in 3 different funds. After a year of growth, would you rebalance by comparing the net worth?( sell 5k investment C, buy 5k, in fund A; end with 15k in A,B, and C)? Or would you choose the % gained/lossed? Net worth is simpler, but seems like a bad metric.


Assuming you were happy with your earlier allocations, you want to keep it percentage based. The different funds will grow (or maybe even shrink) over time. So keeping it percentage-based is the only way it works out.
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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby sardia » Wed Aug 26, 2015 10:59 pm UTC

Ah, so if I want to make rebalancing easy, I'll have to deposit extra into the lower balance funds. That's what I was already doing, but it's good to make sure.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby CorruptUser » Thu Aug 27, 2015 10:51 am UTC

Well, markets bounced back. Someone made a fuckton of money recently.

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Re: #BlackMonday 2015: China down 8%+, Dow Jones opens at 15

Postby KnightExemplar » Thu Aug 27, 2015 2:55 pm UTC

CorruptUser wrote:Well, markets bounced back. Someone made a fuckton of money recently.


The stock market almost always bounces back. The question is whether or not it is the "dead cat bounce". In any case, traders are probably loving the volatility right now.

Its more interesting to watch VIX in times like this. VIX is the volatility index, and is roughly the standard deviation of the market for the next month. You can calculate the future standard deviation of the market by looking at the price of options. The more expensive options are, the higher the expected variance of the stock market.

VIX spiked at 50 (representing +/- 50% == one std deviation in a month) on Monday. VIX is hovering at around 25% to 30% right now. VIX was hanging around 10 to 15 most of the time this year.

So the stock market bounced back, but VIX is still way higher than it was last week. Traders are expecting prices to move severely still. FYI: If you think volatility is too high and will drop soon... you can sell options (and delta-hedge) and make money. If you think volatility is too low and will rise soon, you can buy options (and delta-hedge) and you'll make money. So watching VIX is watching the option traders argue about what the Standard Deviation of the market should be. The correct option traders make all the money.

Some people like to buy VIX while buying stocks. (Although IMO, you should just buy options directly if you're worried about volatility...)
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