# How much of a drop in your portfolio are you able to stomach?



## sensfan15 (Jul 13, 2011)

I don't like the idea of my portfolio dropping more than 20-30%
As a result, I use a 60/40 equity to bond allocation...


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## daddybigbucks (Jan 30, 2011)

personally, i can lose it all and it wouldnt bother me.
Its just paper.

i think that is why im fairly good at stocks because i have no fear of losing it all.


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## ddkay (Nov 20, 2010)

10%


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## sensfan15 (Jul 13, 2011)

I get what you mean by saying "it's just paper". Yes, money is nothing more than processed cut down tree. But it is what money represents that is most important. Money is freedom to do the things that we want in life. It allows us to follow our dreams without tying us down and being dependent on paid work. 

Saying this, you really don't mind losing all of your hard earned savings?


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## Argonaut (Dec 7, 2010)

Pretty easy to stomach any drops when you buy puts. If you make money on them you'll have cash to balance your losses and redeploy when the time is right. Otherwise you'll be waiting another year or two to get back to even. Again.


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## funinagg (Jun 10, 2010)

25% excluding cash. all my investments (stocks and bonds) are in registered accounts. i am all cash outside of registered account limits.
10% including cash.


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## gibor365 (Apr 1, 2011)

funinagg said:


> 25% excluding cash. all my investments (stocks and bonds) are in registered accounts. i am all cash outside of registered account limits.
> 10% including cash.


So what you will do if you are down 25%? Sell everything and walk away with leftovers?

BTW, I'm also "all my investments (stocks and bonds) are in registered accounts. i am all cash outside of registered account limits."


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## cannew (Jun 19, 2011)

I get excited when the market drops as it did this morning.

Bought BCE with a 5.5% dividend. Hope it continues so I can get a few others I'm watching.


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## marina628 (Dec 14, 2010)

I went through about 40% drop in 2008 ,I played poker and drank a bit more but survived


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## gibor365 (Apr 1, 2011)

marina628 said:


> I went through about 40% drop in 2008 ,I played poker and drank a bit more but survived


I'm already lately playing ping-pong in the backyard and drinking a bit more 
hopefully will survive 

But soon rains will start so i won't be able to play ping-pong  maybe markets will start improving


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## bloschuk (Jul 20, 2011)

marina628 said:


> I went through about 40% drop in 2008 ,I played poker and drank a bit more but survived


do you play mostly cash or tournaments? i play semi-pro cash out of calgary. what parallels are you able to draw out of investing and poker?


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## marina628 (Dec 14, 2010)

Bloschuk ,
I play both and played in WSOP this year.I play quite a bit online and usually $200+ Buy in games.
As for parallels between stock market and playing poker , both require a reasonable amount of skill to be successful at it but there is always the luck factor.I see some people here gambling more in the markets than I do at the tables


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## Dmoney (Apr 28, 2011)

I could take a 50%+ haircut and would be unhappy but would hold on. Age is a huge factor, as well as the approach that I'm now getting to buy more stock at a 50% discount. 

I can see 20 years down the road having less of an appetite for risk, but at the moment if I lost 50% of my portfolio, I could save and make it back in a year. As my portfolio increases in size relative to my annual salary, my feelings might change.

Edit: As long as I keep getting my dividends, I'm pretty much content.


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## daddybigbucks (Jan 30, 2011)

sensfan15 said:


> I get what you mean by saying "it's just paper". Yes, money is nothing more than processed cut down tree. But it is what money represents that is most important. Money is freedom to do the things that we want in life. It allows us to follow our dreams without tying us down and being dependent on paid work.
> 
> Saying this, you really don't mind losing all of your hard earned savings?


All depends what your dreams are.. I got two healthy great kids and they are the most valuable thing to me. Just having them, I am living the dream. My Dream.
Money to me isnt freedom at all. Not caring about money is real freedom.

hard earning savings? I believe everyone should pull their weight everyday and provide something to society. So even if i didnt get paid i would still work.

My wife thinks the way you do and she thinks i'm kooky. But she is always chasing more money and is always worried about the future. So i think she is kooky.


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## bloschuk (Jul 20, 2011)

marina628 said:


> Bloschuk ,
> I play both and played in WSOP this year.I play quite a bit online and usually $200+ Buy in games.
> As for parallels between stock market and playing poker , both require a reasonable amount of skill to be successful at it but there is always the luck factor.I see some people here gambling more in the markets than I do at the tables


Yeah I find investing in equities to be similar to poker. Both are super swingy. In the case of poker you need tons of hands (volume) to see proper results. In the case of equity investing you need tons of years. In poker your benchmark is zero and you have to overcome the rake or additional buy in fee. In investing your benchmark is the market and you have to overcome management or trading fees. Coming from poker it makes the swings in equities easier to handle I find.

I was going to play in a couple $1500 buy in events this year at the WSOP but went golfing in Palm Springs instead. How did you make out at the WSOP?


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## Eder (Feb 16, 2011)

marina628 said:


> Bloschuk ,
> I play both and played in WSOP this year.I play quite a bit online and usually $200+ Buy in games.
> As for parallels between stock market and playing poker , both require a reasonable amount of skill to be successful at it but there is always the luck factor.I see some people here gambling more in the markets than I do at the tables


Cool...I played in the WSOP this year as well. 
Poker and investing both require making the most EV (expected value) play every time, leading to your true win (profit) rate over the long run.
Easy game!!


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## Oldroe (Sep 18, 2009)

I've been waiting for this sale for 2 years. It's my 5th and will be the 4th time for me to cash.

I'm in the best stocks so not much to worry about just making my cash last and see how low it goes.


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## Belguy (May 24, 2010)

In the first dip of this recession, my 60 per cent equities to 40 per cent bond portfolio was down 43 per cent peak to trough.

I currently have the same target allocation and so this second dip could result in similar paper losses--or maybe even worse!!

All that I can hope for is that I have a long enough time horizon left to see it all come back but I am not optimistic because the world economy looks like it is not ready for a robust recovery for the next few years at least.

I can't see the markets looking forward with much enthusiasm at all.

Anything more than a 50 per cent paper loss, at this point in my life, would likely make me sick to my stomach.


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## marina628 (Dec 14, 2010)

On Poker Stars playing WCOOP Qualifiers now. I am not worried about my stocks and I have never sold much ,been buying a few more of my core stock like ENB ,RY,BNS,FTS ,TD . Thinking about Mcdonalds but I will probably be here 6 months from now still thinking lol.WSOP I was about event ,played 6 games including the main event.Going to be playing quite a bit more ,found online room with lots of fish who think they can play lol


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## donald (Apr 18, 2011)

Marina,you ever met some of the pros?like phil ivey or helmuth?
The big difference between poker and investing is time,you make a bad bet or lose out on the river,your finished,you'll live another day but its instant.

I respect and admire how the pros play,they have all factors and probabilities worked out to the tenth degree,anybody who thinks poker is random gambling is a idiot,i noticed the pots have gone down in wsop....3 million dollar pots were insane,seems like the poker crazy is dying down abit,ridiculously popular a couple yrs ago.


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## leoc2 (Dec 28, 2010)

marina628 said:


> ,found online room with lots of fish who think they can play lol


Marina which room has the fish? I'd like to meet some of them


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## Eder (Feb 16, 2011)

donald said:


> I respect and admire how the pros play,[/QUOTE
> 
> Most of the "pros" highlighted in WSOP coverage are busto long ago, and are so far into make up that they need to win the main event to be able to afford breakfast.


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## marina628 (Dec 14, 2010)

Yes i have met them I played Jonathan Duhamel online many times and knocked him out 3x at full tilt.I got to tell him about it in person a few days after he won WSOP 2010 .I cannot name the player but I was asked to loan one of them $50,000 to play in some cash games after i won a 35,000 euros game last year in Europe so I believe many of them are not smart with their money.This player had won $300,000 that I know of in 2010 . BTW I have been offered a pro sponsorship by one of the online poker rooms based on my rankings but I have health issues probably could only play 2-3 months a year.


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## marina628 (Dec 14, 2010)

Leo ,
I love to fish and do not want my fishing spot to get tainted


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## KaeJS (Sep 28, 2010)

cannew said:


> I get excited when the market drops as it did this morning.
> 
> Bought BCE with a 5.5% dividend. Hope it continues so I can get a few others I'm watching.


I got it at 6%. I win. 



daddybigbucks said:


> *hard earning savings? I believe everyone should pull their weight everyday and provide something to society*. So even if i didnt get paid i would still work.
> 
> My wife thinks the way you do and she thinks i'm kooky. But *she is always chasing more money and is always worried about the future*. So i think she is kooky.


The first part about contributing to society sounds exactly like my mother. I don't like it when people say that though. I do enough. I shouldn't have to pay extra because people can't keep/arent looking for a job. You know what I say? The hell with them, and tough luck!! (yes, I am from the city, and I am cold hearted.) For the past 7 years I have been solidly employed. Never been out of work, and that was across 5 jobs. Sometimes I was working two jobs at once. If I can work two jobs, than somebody can definitely work ONE. The problem is that people don't know how to get a job, can't be bothered to look, or lose the ones that they get which makes their resume look bad. Why should I pay for that? I am a hard worker. I don't deserve to pay for someone to sit on their *** all day. That **** would never fly in the wild, if we _weren't_ a "society". Animals work, or they don't eat. It should be the same for us in "society". You have no job? Good. Bread and Water, thats what you get. 

As for the last part, your wife sounds exactly like me when it comes to money.


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## KaeJS (Sep 28, 2010)

Oh, and I can stomach about a 50% drop.

Anything more than 50%.... and things are not good. I start to get really bothered. But of course, I'd never want to sell at 50%!


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## webber22 (Mar 6, 2011)

Isn't it amusing how people are talking poker when Belguy could lose half his nest egg !!


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## daddybigbucks (Jan 30, 2011)

KaeJS said:


> The first part about contributing to society sounds exactly like my mother..


YOUR MOTHER??!!

but she does sound like a smart level-headed lady.

another smart guy:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." Thomas Jefferson


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## sensfan15 (Jul 13, 2011)

I don't want any handouts from anyone. And just because you are financially independent does not mean that you have become useless to society. If I didn't have to work for money I would love to open an animal shelter or volunteer overseas. It isn't like I would stop working and watch Dr. Phil all day.

This is what I mean by not being dependent on income from a job. You can pursue other things that you dream of doing. In this case people can become MORE useful to society rather than working for a corporation that sells sugary and fatty foods. Now THAT is what I call being useless to society.


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## KaeJS (Sep 28, 2010)

sensfan15 said:


> It isn't like I would stop working and watch Dr. Phil all day.


But that's what a lot of people are doing - seriously.


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## Dmoney (Apr 28, 2011)

daddybigbucks said:


> YOUR MOTHER??!!
> 
> but she does sound like a smart level-headed lady.
> 
> ...


The rest of the quote:

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.

A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine.

*I, however, place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared.

I am for a government rigorously frugal and simple. Were we directed from Washington when to sow, when to reap, we should soon want bread.

I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.* "

Those who have saved for the future have already put in their time and work. They then become the second half of the production function (capital) and allow labour to become more efficient and property allocated. The issue isn't with the rich doing nothing, the issue is with those who contribute nothing to society and constantly want "bread" from the government doing nothing.

Like KaeJS said, anyone can get a job, and I'm in the same boat, I've been working since I was 16 and have been constantly employed at various crappy jobs. Now I've got a great job that will hopefully allow me to retire early _if I want to_. Why should the "industrious" allow the "parasites" anything more than the absolute basics without any contribution?


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## funinagg (Jun 10, 2010)

gibor said:


> So what you will do if you are down 25%? Sell everything and walk away with leftovers?
> 
> BTW, I'm also "all my investments (stocks and bonds) are in registered accounts. i am all cash outside of registered account limits."


sell and then closely follow technical indicators to re-enter.

all cash is too extreme in this zero interest rate world so got to remain invested in the registered accounts. recall the good old days of 5%+ money market returns. that is all i need.

during the last crash, if one sold and bought per SMA/EMA then one would have been much better off than simply holding through down and up. i think in zero interest rate world one has to be a little active. too much capital for traders and speculators to play with.


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## gibor365 (Apr 1, 2011)

funinagg said:


> sell and then closely follow technical indicators to re-enter.
> 
> all cash is too extreme in this zero interest rate world so got to remain invested in the registered accounts. recall the good old days of 5%+ money market returns. that is all i need.


I'm not selling because all my equities only in registered accounts (maybe this is wrong - I don't know), even though sold about 25% from TFSA.

I remember just couple of years ago GIC were giving about 5%


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## KaeJS (Sep 28, 2010)

I think its silly to sell at a 25% drop.


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## hboy43 (May 10, 2009)

Hi:

I look at money and investments more in the abstract.

If a company making widgets is valued at $10 yesterday, and $5 today, so what? Did 50% of the plant and equipment get hauled off, or is it all still there?

A 50% drop is not a loss of money, but rather a loss of ACCESS to the money. It becomes a defacto loss of money if you sell at the lower price.

This all asumes that the stock market drop is just all the psychological stuff, and not because cars replaced buggys and the buggy factory really has suffered a loss of economic value.

Keep enough cash, bonds, job or whatever to meet your minimum money ACCESS requirements, and forget about all the temporary noise.

hboy43


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## kcowan (Jul 1, 2010)

Market price reflects forward earnings, not breakup value. So any uncertainy about future earnings potential hits the price.


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## funinagg (Jun 10, 2010)

KaeJS said:


> I think its silly to sell at a 25% drop.


that was oversimplification. what i meant was to get out when one hits the stop. stop can be 10%, 25%, 50% or based on some criteria. not very different from a stop loss order for an individual stock. i have not touched my holdings yet. though if i followed my logic (technical indicator criteria) then i should have.


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## daddybigbucks (Jan 30, 2011)

hboy43 said:


> Hi:
> 
> If a company making widgets is valued at $10 yesterday, and $5 today, so what? Did 50% of the plant and equipment get hauled off, or is it all still there?
> A 50% drop is not a loss of money, but rather a loss of ACCESS to the money. It becomes a defacto loss of money if you sell at the lower price.
> ...


Good post.

Yes, but is the company worth $10 or $5?

I do agree with your second point right now, as i need a new vehicle right away and most of my money is tied up in stocks.
Ill have to pay as much cash as i could and loan the rest till the stock market equalizes a bit.


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## Abha (Jun 26, 2011)

funinagg said:


> that was oversimplification. what i meant was to get out when one hits the stop. stop can be 10%, 25%, 50% or based on some criteria. not very different from a stop loss order for an individual stock. i have not touched my holdings yet. though if i followed my logic (technical indicator criteria) then i should have.


Sometimes you have to override the stops though. There are times that the market just gets in this steroid phase and takes everything down with it.

For instance, lets say I had a trailing stop on Apple of 10 - 12%. I would have sold a solid company just because its being dragged down with the whole market.

You have to do some work and think what your time frame is and whether the company is still important to you.

I don't remember where I read it, but one pro had said that a simple trick is to ask yourself if you would buy at the current level. If the answer is no, then you need to sell that stock.


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## KaeJS (Sep 28, 2010)

Everything Abha said is on the money.

And I don't use stop losses. Most professionals don't, either, unless they are managing higher net worth clients that are risk averse.


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## funinagg (Jun 10, 2010)

KaeJS said:


> Everything Abha said is on the money.
> 
> And I don't use stop losses. Most professionals don't, either, unless they are managing higher net worth clients that are risk averse.


i am a low net worth risk averse person!
i know and understand what you are saying but i still can not stomach say a 25% drop.
when everything is so strongly co-related then one can reduce the risk (2008) and even profit (2010 and 2011) from selling at the stop price and then buying back on the up.
of course investing/trading style is a personal thing. and a stop loss strategy can be implemented in many ways. it can be different for different stocks, sectors, regions, cycles, times..


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## Lephturn (Aug 31, 2009)

hboy43 said:


> Hi:
> A 50% drop is not a loss of money, but rather a loss of ACCESS to the money. It becomes a defacto loss of money if you sell at the lower price.
> hboy43


Bull - a loss is a loss. That kind of thinking will get you wiped out. One key to successful investing is being able to cut losses short and let your winners run - thinking like the above quote will lead you to do just the opposite.

For me the answer is 15% loss. No, that doesn't mean I sell - it means I protect myself with options. Yes this reduces my gains, but where I can I sell call options against that protection to fund it. It means if the market drops 40% over a few weeks or even months, I won't take that hit. That insurance costs money of course, but for me it's worth it to be protected.

If your holdings go down 50%, they then have to go up 100% from there to get back to the same spot. Convexity is a *****.


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## Plugging Along (Jan 3, 2011)

I’m more of a paper loss is not a loss yet. If I had gone away on vacation and the investments dropped 25% and then came back up, then I really haven’t lost anything. I think trying to say that have losses (and gains) will drive people crazy. I have my long term strategy and just keep plugging along. I may make some adjustments to try and capitalize on drops, but I usually don’t loose too much sleep.

I can stomach quite a bit of risk, but it is dependant which part of my investments it’s referring too. I have some investments, which are purely gambles, and when we went into it, we expect nothing back. I then have my investments in my trading account, and I’ve have tolerated 60% drops, where I added more money in. In my retirement portfolio I still had 40% drops in 2008. I do have that professional managed, and am okay with that, I tend to be a tad more conservative there. My thoughts are that we don’t need any of the money anytime soon, and can weather the losses. If I was older, or needed the money, or didn’t have a human capital, I would be much more conservative. In the big scheme of things, it’s just money, and if it takes me an extra few years to retire, then be it.


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## Four Pillars (Apr 5, 2009)

There is no doubt that if your portfolio goes down in value, you have suffered losses.

However, in my opinion it's the relevancy of those losses that matter.

If you don't need that money for 20+ years, it doesn't matter at all if the portfolio loses 5% or 95%. By the same token, having a great year performance-wise doesn't necessarily matter either.

It's what you have when you need it that matters.


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## HaroldCrump (Jun 10, 2009)

One way to handle this is to ask yourself where is the best probability for recovering the [paper] losses...staying invested in that particular stock/security or bail out and invest elsewhere.
We all know a 25% loss requires a 33% appreciation just to break back even, and the higher the loss %, the worse your chances are of ever breaking even.
So the question is what is the probability that this security will appreciate 33% within a given time frame, or whether there is a better investment avenue (of similar risk profile) where the probability of recovery of 33% is better.
If no, then stay invested; if yes, then bail and re-allocate.

Of course, easier said than done and I'm just as guilty of this "paper loss" mindset than anyone else


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## Four Pillars (Apr 5, 2009)

HaroldCrump said:


> One way to handle this is to ask yourself where is the best probability for recovering the [paper] losses...staying invested in that particular stock/security or bail out and invest elsewhere.
> 
> We all know a 25% loss requires a 33% appreciation just to break back even, and the higher the loss %, the worse your chances are of ever breaking even.
> So the question is what is the probability that this security will appreciate 33% within a given time frame, or whether there is a better investment avenue (of similar risk profile) where the probability of recovery of 33% is better.
> ...


I don't think this strategy is very realistic.

If a person couldn't predict the 25% drop, why would they have any better luck predicting a future gain?

Also - once an investment goes down, the "loss" is a sunk cost. You should really be evaluating what the future return will be (compared to the current value, not your book value).


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## HaroldCrump (Jun 10, 2009)

Four Pillars said:


> You should really be evaluating what the future return will be (compared to the current value, not your book value).


Right, that's what I said (maybe I wasn't clear).
When you evaluate future return, you compare against the returns of similar securities as well (similar risk profile, that is).
Then the decision is whether to stay the course, or dump and invest in that other security where you may have a better chance of recovering the losses, or dump and invest in a different risk profile security (lower or higher).
In any case, you have make some sort of bet in either direction.
By holding (or selling) you are making an implicit bet in any case.


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## Guigz (Oct 28, 2010)

Lephturn said:


> Bull - a loss is a loss. That kind of thinking will get you wiped out. One key to successful investing is being able to cut losses short and let your winners run - thinking like the above quote will lead you to do just the opposite.



Is this not the complete reverse mindset of rebalancing investments?

I am no expert, but would'nt it be better to stick to an asset allocation and rebalance when it goes out to whack?

I know I would not be comfortable right now if my allocation consisted of 50% gold when it was supposed to be 10% (just pulling numbers out of my beautiful hat).


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## Belguy (May 24, 2010)

As the baby boomers grow older, the average age of stock investors is increasing. Generally, as people age, they become more conservative with their investments and less risk tolerant. This does not bode well for equity markets for the next several years.


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## larry81 (Nov 22, 2010)

Hey Belguy, i know that you are not optimist about the future return of equities . Here two very good books to distract your mind from the current market turmoil:

*Against the Gods: The Remarkable Story of Risk*
http://www.amazon.ca/Against-Gods-R...=sr_1_1?s=books&ie=UTF8&qid=1314217300&sr=1-1

*Triumph of the Optimists: 101 Years of Global Investment Return*
http://www.amazon.ca/Triumph-Optimists-Global-Investment-Returns/dp/0691091943

I enjoyed both


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## blin10 (Jun 27, 2011)

bottom line, nobody knows what is better, bear will say cut the losses and relocate somewhere else, bull will say why sell if it'll recover.... stick to what works for you


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## hboy43 (May 10, 2009)

Lephturn said:


> Bull - a loss is a loss. That kind of thinking will get you wiped out. One key to successful investing is being able to cut losses short and let your winners run - thinking like the above quote will lead you to do just the opposite.


Ok. I use in the abstract a different currency to evaluate my portfolio. I use as my currency the underlying reality behind the stock, ie the plant and equipment and patents and people etc.

Look at Methanex circa 2008. I was showing a goodly loss (Canadian dollars)when it was trading at $8. I don't know off hand whether 1/2 or 1/3, something like that. Evaluating in dollars, yea we are down here. However if you evaluate in plants and inventory and ships and brainpower, pretty much the same as when it was trading at $34. I bought 1500 more shares. I sold some at $21, $25, $27 and still have more shares than I went into the downturn with. Plus all the money I took out selling on the way up.

Or GE, I was showing a loss and bought more at $8.

Or Nova Chemicals, I was showing a huge loss and bought at more at $2.

Or Hudson's Bay, I was showing a loss and bought more at $7.

Or Inco ...

Or, Or, ...

Where is it written the the only or best currency to evaluate a stock is Canadian Dollars? Canadian dollars are just a made up fiction used to buy other made up fictions and realities. If I can use fewer made up fictions (Canadian dollars) to buy other fictions (stocks) that own the same reality (plants and ships) for way fewer made up fictions (Canadian dollars) than in times past, why wouldn't I? Seems to me that I am gradually acquiring more reality behind the fictions all the time. These realities are in turn spinning off more fictions (Canadian dollars) by way of dividends every year.

I look forward to taking many more "losses" and growing wealthy as a result of the new buys initiated at the lower prices. I see it as a great big flag on my monthly paper report waving "buy me, buy me, I'm on sale".

I try to buy low and sell high. If I buy something and Mr. Market reprices it down 75%, I failed that time. If nothing is particularly wrong with the company, I don't compound my error by selling, I choose to buy low today when the new opportunity presents itself.

As long as the soup can isn't dented and bulging, if it goes on sale, I load up. You don't sell your soup to the neighbour if this week it is selling at $0.25after buying it at $1 last week do you? Most of us race off to the store and load up. The key to investing is to see a Campbells Soup can when you are looking at a stock of a good company that is for some reason priced low.

Oh, it is also interesting how many "winners" I let run and lost a pile of money on because I didn't take the opportunity to sell some when high. Canadian Fracmaster and Gandalf Technologies are two sad examples from my investing history.

Anyhow, there is more than one way to financial heaven. I am in financial heaven, so must be doing something right. I've been investing under the direction of my own counsel 30 years. If my thinking were going to "get me wiped out" it probably would have happened by now.

Maybe this all sounds grumpy. Sorry, I have heatlh problems these days.

hboy43


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## jmlz1987 (Jun 8, 2011)

I think honestly I can stomach a 40-50% drop before I get worried. With over 30 years until I plan on retiring (with a nice career in Finance) I'm pretty sure the more I learn the more that will change.


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## canadian_investor (Jul 4, 2011)

hboy43 said:


> Look at Methanex circa 2008. I was showing a goodly loss (Canadian dollars)when it was trading at $8. I don't know off hand whether 1/2 or 1/3, something like that. Evaluating in dollars, yea we are down here. However if you evaluate in plants and inventory and ships and brainpower, pretty much the same as when it was trading at $34. I bought 1500 more shares. I sold some at $21, $25, $27 and still have more shares than I went into the downturn with. Plus all the money I took out selling on the way up.
> 
> Or GE, I was showing a loss and bought more at $8.
> 
> ...


so your approach is averaging down and then selling in chunks on the way up.
the trouble with this approach is that you need a constant supply of cash to keep pouring into one stock as it keeps going down.
very soon you will be overweight in one stock.
to use your own example if you first bought at $34 and then kept buying along the way to $8 this stock must have formed a big part of your portfolio.
and how did you know that $8 was bottom?
for someone withough a constant supply of cash how can he keep averaging down like this?
do you keep selling your winning stocks to pour money into such a stock?
just curious how you do it.


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## hboy43 (May 10, 2009)

canadian_investor said:


> so your approach is averaging down and then selling in chunks on the way up.
> the trouble with this approach is that you need a constant supply of cash to keep pouring into one stock as it keeps going down.
> very soon you will be overweight in one stock.
> to use your own example if you first bought at $34 and then kept buying along the way to $8 this stock must have formed a big part of your portfolio.
> ...


Well, much of the time, years went by, I was working, and generating a large annual surplus from employment income. The new money did some buying low for me. I also use leverage. Finally, in the chaos of 2008, I sold the stuff that dropped 25% and loaded up on the stuff that dropped 75%. Yes, this violated the diversify rule, but the buy low rule dominated my thinking. Yes, Methanex was large for a long time, thus the hiving off as it recovered.

Just to clarify, I never bought Methanex at $34, it merely noted that it got got that high before the plummet. On the way down, I added at $19, $17, and $8, approximately $9-12K at each level. It was about 10% of portfolio from time to time, and is currently 6% some.

Oh, and am not necessarily overweight in a stock as I average down. More likely I am underweight as it fell hard, and am merely getting back to the 5% range. Remember, valued in Canadian dollars, I was showing losses. One needs to see past what one did in the past that lead to a loss - sunk cost. The thing to focus on is what is the bargain today and also happens to be underweight in the portfolio. I try to see the forest, the entire portfolio as a unified entity, not the trees, the individual duds and winners. When I am short maple trees, I plant maple trees, when overweight oak, I take out the chainsaw.

I need to apply the same discipline on the sell side. I only sold 200 SU at 47 when I should have sold double or triple that. This investor is a work in progress.

hboy43


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## canadian_investor (Jul 4, 2011)

hboy43 said:


> One needs to see past what one did in the past that lead to a loss - sunk cost. The thing to focus on is what is the bargain today and also happens to be underweight in the portfolio. I try to see the forest, the entire portfolio as a unified entity, not the trees, the individual duds and winners. When I am short maple trees, I plant maple trees, when overweight oak, I take out the chainsaw.
> 
> I need to apply the same discipline on the sell side. I only sold 200 SU at 47 when I should have sold double or triple that. This investor is a work in progress.


thank you for the insight hboy43.
your comments and strategy is very interesting.
I'm glad to be on this forum.


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## Lephturn (Aug 31, 2009)

hboy43 said:


> Maybe this all sounds grumpy. Sorry, I have heatlh problems these days.
> 
> hboy43


Not at all! I was just taking that one quote - which is the sort of thing I hear from people who get blown out on a few horrible positions after many small wins.

I don't have any problem with you trading the same equity - exit with a small loss and get back in lower is no problem - managed properly you might get stopped out multiple times before you get a good entry - but that's far better than riding it down. Yes sometimes you will miss moves this way, but you won't end up with one or two huge losers blowing you out.

Personally my choice is to use options to protect my downside on core holdings so that I can ride out any big down moves and still be protected.


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## jcgd (Oct 30, 2011)

I like this thread and want to revive it a bit. 

hboy43, I like your style a few posts back. That's my idea of investing.

Personally, I started investing in Feb, 2009. While completely ignorant of what I was doing, I managed to start investing at the bottom... worst of the worst. So my first year I made something like 36% with a few mutual funds. Unfortunately, this didn't amount to much with the few hundred I was investing each month. 

Anyways, because my timeline is so short and the market has been so strange the last few years, I find myself very excited when the market drops and I throw money at it. And when it starts to run up I get anxious. I just freeze, and have no idea what to do. I'm literally terrified of buying while prices are rising. When they drop, like in August and October, my heart races and I get confident enough to buy. 

So far for me, I'm more comfortable buying when everything is looking terrible, because I feel like I have a buffer for my mistakes.


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## KaeJS (Sep 28, 2010)

^ This means you are doing it correctly.


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## Lephturn (Aug 31, 2009)

+1 jcgd

Buy when others are fearful and sell when others are greedy. Buffetism for the day but very true.


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## kcowan (Jul 1, 2010)

jcgd said:


> ...So far for me, I'm more comfortable buying when everything is looking terrible, because I feel like I have a buffer for my mistakes.


How are you doing? Have you got the urge yet?

We have had the Arab spring. Now wave the the Europe fall. Papandreo, Burlusconi. Who is next?


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## jcgd (Oct 30, 2011)

Yes, today is killing me because I liquidated my mutual funds yesterday so they can be transferred to questrade. I inadvertently sold before the drop today. There are a few dividend players I'm itching to buy, but my money is tied up for who knows how long.


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## Causalien (Apr 4, 2009)

Let me balance out Buffetism by saying that the great depression, burned those who bought 2~3 years at the height of the dip. When a double dip wiped out everything and everyone.

Buffet was not investing back then. And we are facing the great recession, the scale of which is only surpassed by the great depression. Who's to say this won't be the greater depression.

Anyway, it sure looks to suck to be in this generation, bad timing.


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## doctrine (Sep 30, 2011)

Not true. It's a great time, as always. If you bought in every year of the Depression, you would be ahead very quickly. People often quote the worst case, ie. buying in 1929 or maybe after the bounce in 1931-32 but if you consider the average case, which includes buying every year including during the '32 crashes, then one would have make out quite well by the end of the decade.


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## jcgd (Oct 30, 2011)

I believe that if you DCA, you will always come out on top if the market recovers. Which it will.

Timing it is a different story.


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