# What if.....the correction/crash happens



## SkyFall (Jun 19, 2012)

So let's say with your current holdings, what if a correction or crash of more than 15-20% happens, which stock(s) will you be able to keep in your portfolio, in other words what stock(s) you can go through a tsunami with?


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## Dom (Nov 29, 2013)

SkyFall said:


> So let's say with your current holdings, what if a correction or crash of more than 15-20% happens, which stock(s) will you be able to keep in your portfolio, in other words what stock(s) you can go through a tsunami with?


All of them


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## cannadian (Dec 30, 2011)

Dom said:


> All of them


This. I'm not a trader or into short-term holds. I'd be fine if the market closed down for 5 years for all I care.

There are quite a few stocks out there that might make momentum players a ton of money, but I would be very fearful going to sleep with some of them. I'm talking about some of the social media high flyers. When something has a PE of 100-500, so much of the market "value" is based on things which haven't yet happened that there's really no floor to how low they could go if the market broke down.


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## NorthKC (Apr 1, 2013)

Agreed. All my stocks are in blue chip funds as well as diversified holding across several industries and globally diversified. Based on the last recession, I only lost 3% of my portfolio vs 15-20% of many of my friends.


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## Cal (Jun 17, 2009)

All of them.


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## uptoolate (Oct 9, 2011)

Same. VTI up 43%, VBR up 46% last year. Really can't expect that kind of return consistently and if I sold them (other than for rebalancing purposes), when would I buy them back.


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## Ag Driver (Dec 13, 2012)

All of them. Why sell on a crash? The whole object of the game is buy low, sell high...not the other way around . It would be a great opportunity for me to top up.


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## SkyFall (Jun 19, 2012)

Ag Driver said:


> All of them. Why sell on a crash? The whole object of the game is buy low, sell high...not the other way around . It would be a great opportunity for me to top up.


never said selling, just that sometimes we hold stocks that aren't meant to be held for a extended period of time


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## youngdad3 (Jun 29, 2013)

I'm still building my core portoflio so most of my stocks are somewhat blue chips but I held TSLA a while ago (sold .. too soon) and it definitively is something I would not want to own if a major market correction would occur. Still a great company though


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## jcgd (Oct 30, 2011)

I've got one or two I probably won't enjoy riding through a crash, but I would be buying more of everything, hopefully.

Most of my stocks I'd intend to hold 1-5 years. Only a few are forever worthy.


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## james4beach (Nov 15, 2012)

What if they start going down and keep doing down for 20 years (or was it 30 years?) straight like in Japan


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## Janus (Oct 23, 2013)

All of them. I'd also have a feeling of "thank god I can finally buy some more again!"



james4beach said:


> What if they start going down and keep doing down for 20 years (or was it 30 years?) straight like in Japan


We've been through this way too many times...

Feel free to use Japan as a stock market returns proxy. I'll use the S&P.


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## scomac (Aug 22, 2009)

Would your perspective change if the correction was 25-40%? We are probably within 24 months of a major correction/crash. They seem to be getting worse with each passing occurrence.

Now is the time to think about derisking a portfolio if you are concerned about your exposure; before the _house of cards _starts to tumble.

Another thing for some of our younger members to think about -- just how secure is your employment situation? Will you still have a job in a major recession, or are you at risk to downsizing? This should have a bearing on how much risk you are willing to accept in your investments. Will you have funds to buy more equities in a crash or are you going to need your savings for living expenses?

There are three things we have control over when it comes to our investments:
1) Time
2) Cost
3) Risk
We have no control over return. Manage those things that can be managed and the returns will look after themselves.


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## Janus (Oct 23, 2013)

scomac said:


> Would your perspective change if the correction was 25-40%? We are probably within 24 months of a major correction/crash. They seem to be getting worse with each passing occurrence.
> 
> Now is the time to think about derisking a portfolio if you are concerned about your exposure; before the _house of cards _starts to tumble.


Dow Jones since 1896: http://upload.wikimedia.org/wikiped...-DJIA_historical_graph_to_jan09_(log).svg.png

Of course the stock market will have a correction over the next few years - it darn well better so we have a chance to buy more. But "Major correction/crash" sounds extremely misinformed. You think we're going to have another major recession immediately after the worst one since the great depression? Have you heard of the business cycle?

Frankly, if the market corrects 40% I'm going to borrow money to invest, sweating like everyone else at the temporary drop in my portfolio. It's the people who fear the 40% corrections that when they occur go "I knew it - I'm done with stocks" and sell at the bottom.


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## My Own Advisor (Sep 24, 2012)

Agreed, all of them.

All my stocks are dividend payers and the other half of my portfolio is in indexed ETFs. 

In a bear market, I only hope I have plenty of cash to buy more.


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## AltaRed (Jun 8, 2009)

Janus said:


> Dow Jones since 1896: http://upload.wikimedia.org/wikiped...-DJIA_historical_graph_to_jan09_(log).svg.png
> 
> Of course the stock market will have a correction over the next few years - it darn well better so we have a chance to buy more. But "Major correction/crash" sounds extremely misinformed. You think we're going to have another major recession immediately after the worst one since the great depression? Have you heard of the business cycle?
> 
> Frankly, if the market corrects 40% I'm going to borrow money to invest, sweating like everyone else at the temporary drop in my portfolio. It's the people who fear the 40% corrections that when they occur go "I knew it - I'm done with stocks" and sell at the bottom.


It is entirely possible the current decade could look just like the last one for equity markets. That means sideways. Global growth has very little opportunity to grow given the economic stagnation of OECD countries. It IS entirely possible we could have another 2008/2009 crisis within this decade for the same reasons we had the last one. Neither the investment banks nor the mortgage market has really learned anything, primarily because no one went to jail and no big banks were allowed to fail.

I don't suggest that anyone run and hide but as Scomac says, control the 3 things you can control. Investors in their early investing years (getting established) and those into, or about to enter into, retirement have the highest need to ensure their downside is protected. Those in mid-career with a solid investing foundation being built under them and 10-20 years to recover from a major financial crisis have the best opportunity to do just as you suggest, i.e. ride it out and buy 'low' when the candy store opens.


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## scomac (Aug 22, 2009)

Janus said:


> Of course the stock market will have a correction over the next few years - it darn well better so we have a chance to buy more. But "Major correction/crash" sounds extremely misinformed. You think we're going to have another major recession immediately after the worst one since the great depression? Have you heard of the business cycle?


Misinformed? I wonder just who is claiming to have the crystal ball here? And yes, I have heard of the business cycle. I've survived a few, more than you I suspect. I also realize that not every business has recovered and for some that have, the recovery is precarious, hence my comments towards younger folks who don't have the job security of older workers. 



> Frankly, if the market corrects 40% I'm going to borrow money to invest, sweating like everyone else at the temporary drop in my portfolio. It's the people who fear the 40% corrections that when they occur go "I knew it - I'm done with stocks" and sell at the bottom.


Brimming with confidence, aren't you? I'm left to wonder just how many market crashes you've actually lived through to not be worried. The people who don't fear the 40% correction are those who often end up selling at the bottom suffering a permanent loss of capital. Those who are worried about such things take steps to reduce their exposure before the correction comes if they are prudent. Alas, greed is a powerful motivator in times like now. Just remember that fear is equally powerful when staring into the abyss.


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## hboy43 (May 10, 2009)

james4beach said:


> What if they start going down and keep doing down for 20 years (or was it 30 years?) straight like in Japan


Ah, the rhetorical "what if" game. OK let's play!

What if I bought White Rose, Canadian Fracmaster, Nortel and about 3 others and they all went bankrupt? 

What if I never bought a Japanese listed share?

What if I bought Norbord and it went down substantially? What if I bought more Norbord and it went down substantially again? What if if stayed down many years and needed to be refinanced in 2008? What if I bought even more NBD shares after the refinancing? 

What if I bought another $10,000 or $15,000 Nova Chemicals at < $2 even though I had lost $50,000 or $60,000 on Nova to that point?

What if I also bought banks and pipelines and energy companies and other stuff that never flirted with bankruptcy and never dropped more than 75%, you know the safe stable stuff? 

What if I bought some US listed companies? And companies with international exposure.

What if I bought more of positions when they were showing a loss instead of stop loss selling them?

What if I occasionally trimmed a position that had done really well?

What if I was getting margin calls in 2008? What if I sold the stuff that fell a little say banks and Fortis and bought the stuff that fell plenty say MX and GE and NBD?

What if I could keep my wits about me and understand probabilities and possibilities?

I'll tell you. I'd be writing this note to you sitting in my quiet home in the middle of my 28 acre park like setting in rural Ontario after being retired 12 years at age 39 with a family net worth in 7 figures.

I have had plenty of investing history with worse scenarios than the 30 years of Japan you and so many others go back to so regularly. Yet in the aggregate I do fine. 

We are not buying one market or one stock on one day in time to be sold on a second day in time 30 or 40 years in the future. Lots of dynamic stuff happens on the 30 or 40 year time line, lots of stuff that can and will provide investment returns to those with the very small amount of ability necessary to capture them. The ability really is no more than buy lowish sell highish and hold your nose in the mean time if you get it wrong occasionally, as you will.

Anyone else want to play the what if game. It's fun!

hboy43


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## Nemo2 (Mar 1, 2012)

AltaRed said:


> I don't suggest that anyone run and hide but as Scomac says, control the 3 things you can control. Investors in their early investing years (getting established) and those into, or about to enter into, retirement have the highest need to ensure their downside is protected. Those in mid-career with a solid investing foundation being built under them and 10-20 years to recover from a major financial crisis have the best opportunity to do just as you suggest, i.e. ride it out and buy 'low' when the candy store opens.


And for the old farts? Liquidate equities now, sit on cash and wait for the downturn?


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## andrewf (Mar 1, 2010)

hboy, CM had a 50% drawdown from last 2007 to early 2009.


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## james4beach (Nov 15, 2012)

Great everyone thanks for setting me straight again and re-assuring me that prolonged deflation and prolonged bear markets will never happen.

Stocks only ever go up, forever, *smacks forehead* I forgot! It's just that simple


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## scomac (Aug 22, 2009)

Nemo2 said:


> And for the old farts? Liquidate equities now, sit on cash and wait for the downturn?


Not necessarily, but it just might be a good time to revisit your risk tolerance model and see how you stack up now versus 5 years ago immediately following the crash. Five years worth of strong returns have a way of making us agnostic to the risks out there. For many, I suspect that equity weightings have crept up well beyond target particularly in-light of the minuscule rates being offered on fixed income. It's tough to willingly choose near nothing returns when the potential for higher in the form of equities are calling their siren song. Problem is that we can't be sure that higher returns won't first be preluded by another nasty correction where, if bad enough, the sequence of returns can severely hamper the sustainability of a retirement portfolio. When your goals are pretty much fulfilled, it's far better to protect what you have than to reach for more.


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## james4beach (Nov 15, 2012)

Here's an exercise that I strongly suggest to everyone

Look at all your investment/savings everywhere, consolidate all of your assets and distill it down to 3 totals:


 Cash, high-interest savings, GICs _(this bucket can not decline in value)_
 Bonds and bond funds _(these can decline in value somewhat)_
 Equities, including preferreds, REITs _(could decline substantially)_

When consolidating, junk bonds behave very much like stocks so you should add them to the Equities bucket, not bonds. Also when looking at mutual funds (e.g. balanced fund) remember to split up the money into the appropriate buckets.

The reason it's important to consolidate all your investments into these categories is so that you can run a risk model and see how much *your total monies* will decline if the stock market were to fall. This will give you a sense of whether you're taking on too much risk for your taste.

The cash/GIC bucket won't decline in value. For bonds you could model a 15% drop based on a scenario of a couple percent rise in interest rates of a typical bond fund. For equities you should model a -50% decline based on the two recent bear markets.


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## marina628 (Dec 14, 2010)

We lost 40%+ in 2008 but sold nothing in fact we bought more as we been DCA for years.I have wondered about selling all my 20%+ gainers I had in 2013 and moving to cash but then what would I buy.BNS,CM,DIS,ENB,TD,MGM,BYD,YHOO and T All up over 20% for me but is there anything better out there now.


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## AltaRed (Jun 8, 2009)

Nemo2 said:


> And for the old farts? Liquidate equities now, sit on cash and wait for the downturn?


No, but as Scomac responded, adjust asset allocation to become more (or stay) more defensive than the TSX/DJIA in general. My guess is that is where you are likely at anyway given your life stage. It is certainly what I have done/am doing. A few more consumer staples, a few more utilities, more preferreds, a few REITs, a bit more in my GIC ladder. It would be nice for my portfolio to not miss a beat with respect to interest/dividend income continuation and for valuation to fall only half of what a correction might be (e.g. 15% instead of 30% in the TSX Composite/S&P500).


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## Greyhound86 (Feb 21, 2010)

A persons outlook can change due to circumstances. A mean recession hits and you and your wife both lose your jobs, your house is now worth less than the mortgage, your retirement savings have lost 25% of their value, you keep making payments from your savings hoping things will turn around, your kids start college, your local bank goes under and is taken over by a larger bank who decides to clean house of the bad mortages and all of a sudden you are homeless. I met a middle aged couple from the Palm Desert area who went through this in 2008/9.

They were not able to buy any equities at the bottom and most of their retirement savings are gone.


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## sags (May 15, 2010)

It may be a sign of the times, that large US pension funds are selling equities to lock in gains, and pouring into corporate bonds.

The top 100 US pension funds have significantly cut their deficits and are now 95% funded.

http://business.financialpost.com/2014/01/13/pension-bonds-equities-shift/


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## Nemo2 (Mar 1, 2012)

AltaRed said:


> No, but as Scomac responded, adjust asset allocation to become more (or stay) more defensive than the TSX/DJIA in general. My guess is that is where you are likely at anyway given your life stage. It is certainly what I have done/am doing. A few more consumer staples, a few more utilities, more preferreds, a few REITs, a bit more in my GIC ladder. It would be nice for my portfolio to not miss a beat with respect to interest/dividend income continuation and for valuation to fall only half of what a correction might be (e.g. 15% instead of 30% in the TSX Composite/S&P500).


As of, (prior to market open) today we're 44% cash/GICs/bonds.......56% equities.....utilities, prefs, pipelines, couple REITs, consumer staples, O&G, Banks, etc...(dividend payers)


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## mrPPincer (Nov 21, 2011)

Increasing cash as well, would probably have done it friday if I had not been eyeballs deep in work.
I decreased equity exposure today by 4.6%, bringing me to 29% cash/FI, in my case both being the same thing.

OFC as soon as I sold the e-funds today, the NA markets plunged immediately.
Could have reversed the transactions but I'd been planning this move for a while so I let it be, we're definitely in a market high atm, how long will it last is anyone's guess.


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## Taraz (Nov 24, 2013)

Why would you sell? You buy in the crashes; that's when the stocks are on sale! Buy solid dividend-paying stocks so you don't get so upset if they go sideways for a few years.


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## mrPPincer (Nov 21, 2011)

I did buy, in 2008/09 I was 100% equity, now though I've decided to go with a more reasonable fixed income component to balance out the portfolio, and to prepare for the inevitable sales down the road.


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## favelle75 (Feb 6, 2013)

I've been thinking about this one a lot lately (since X-mas time). I am not one to try and time the market, but this last week some of my stocks have increased more than they have the last 12 months. Its DAMN tempting to try and lock in some gains....but as someone previously said...when to buy back in? What if it never really goes down and just goes sideways for 5 years...do I give up all those juicy dividends as well?


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