# What to do during this rapid market decline?



## runner39 (Mar 11, 2010)

1) dump everything to cash
2) dump everything into bonds
3) wait it out

During the last downfall I chose to wait it out and while everything came back and it really upsetting to see your money pissed down the drain. Although I am relatively new to the market it appears to me that the whole thing is criminal, up and down like a friggin yo-yo. The rich get richer because when the market crashes (started to believe the wealthy want this and honestly I can now see why) they buy more units then the market goes up and the rich prosper again (lucky bastards).


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## dilbert789 (Apr 20, 2010)

I'd say if you are a long term investor, and have the stomach for it hold and if you have any cash, this would be a great time to buy. 

While typing this I just watched the ishares dividend fund(xdv) go from down 7% today to down only 1% in a like 4minute span. That was a swing of like $1.20. like 160k shares just changed hands.. oh how I wish I had some cash to play with....


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## runner39 (Mar 11, 2010)

dilbert789 said:


> I'd say if you are a long term investor, and have the stomach for it hold and if you have any cash, this would be a great time to buy.
> 
> While typing this I just watched the ishares dividend fund(xdv) go from down 7% today to down only 1% in a like 4minute span. That was a swing of like $1.20. like 160k shares just changed hands.. oh how I wish I had some cash to play with....



exactly if had some a shitload of cash to buy then I would not care about the decline but would rather enjoy it for obvious reasons, unfortunately do not have that option just have to sit back and watch our investments go down the drain so to speak, kind of want to put everything into cash and wait to buy back but not sure if worth it (e.g. capital gains, broker fees)


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## brad (May 22, 2009)

It all depends on your time horizon. In my view, as long as you've still got all your shares you haven't actually "lost" anything if you're investing for a long-term goal. You effectively lost your money when you put it into the stock market: you accepted the risk that the value of your shares could fall while betting that they would rise. That bet is still probably a good one -- for the long term. Over the short term, though, you have to be prepared to see the value fluctuate.

When I put my money in the bank or other secure place, I view it as my money. When I put it in the market, it's no longer my money -- it's my shares. The value of those shares is out of my control, so I consider that money effectively gone the moment I convert it from dollars to shares. That's why I never think "wow, I'm losing a lot of money" if the stock market declines. All that's happening is that the value of my shares is declining. They could zip right back up to where they were in a few days' time.

If you're investing for the short term and you were planning to convert your shares back to dollars sometime soon, that's an entirely different story, of course.


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## CanadianCapitalist (Mar 31, 2009)

runner39 said:


> 1) dump everything to cash
> 2) dump everything into bonds
> 3) wait it out
> 
> During the last downfall I chose to wait it out and while everything came back and it really upsetting to see your money pissed down the drain. Although I am relatively new to the market it appears to me that the whole thing is criminal, up and down like a friggin yo-yo. The rich get richer because when the market crashes (started to believe the wealthy want this and honestly I can now see why) they buy more units then the market goes up and the rich prosper again (lucky bastards).


As long as you have a very good financial plan and are investing according to the plan, it's best to wait it out. It's very difficult to switch nimbly between stocks and bonds and beating the market averages.

Stocks fluctuate a lot. That's a fact of life when it comes to investing. Stock investors should be prepared to endure a sharp downturn in stock prices and have the emotional discipline to ride it out. I know this is easy to say but hard to follow through but it is critical to investing success.


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## Sampson (Apr 3, 2009)

Nice mugshot CC!

Personally, I'm just trying to maintain my asset allocation, using these dips as opportunities to get into some areas where the portfolio has been lacking.


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## Cal (Jun 17, 2009)

Yes it isn't fun watching the market decline.

During the last dip, I went to cash. Then bought back in. Not easy to time.

This time, I currently only own dividend paying companies. So I think I will allow them to continue to drip more shares. 

As per what brad had mentioned, this will allow me to accumulate more shares quicker (b/c the quarterly dividends are hopefully constant).

Also, in theory dripping the shares keeps me on track long term and doesn't let me get sidetracked in the new or next big thing.

I will probably use this as a buying opportunity, but not yet...


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## dogcom (May 23, 2009)

I have been in cash before this thing started so I didn't lose when it crashed. I still own a core position in gold that has come down in price but had played the HGU which payed back what I lost and sold it near the high last week. Today I took a bit of a gamble and bought HEU near the close hoping for a bounce here, but if not I will sell and stay in the cash. 

If we go through the May low here it could get a lot worse before it gets better. I will wait for some kind of volume reversal to go long and will sell that in the summer probably, as I see this bear market rally topped out in May and the decline after a failed rally will get ugly after summer and we will go through the March 2009 low.


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## MortgageMan (May 20, 2010)

There isn't much you can do during, if you feel it coming you can prepare. The "sell in May and stay away" people I am sure are very happy right now!


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## Doug Out West (Apr 25, 2010)

Started selling a couple of months ago so had a fair amount of cash, though don't seem to now. Could have waited a bit longer but was looking for stocks to drop 10% or so . Some have dropped more then that.

Making some money buying back options. Hoping Imax tanks so can close out short.


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## Oldroe (Sep 18, 2009)

This is just market noise, 25% cash and waiting.


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## dogcom (May 23, 2009)

If this is just market noise then why have 25% cash. I am also sure that all these bailouts and sovereign debt and collapsing currencies is just noise. Also something not mentioned is our savior China Shanghai stock exchange has been dropping all year.


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## moneymusing (Apr 3, 2009)

About 1/3 cash in the trading account right now. Really interested to see the fallout of the American financial reform on top of all of the PIIGS fiasco


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## Spidey (May 11, 2009)

I think the best approach is to choose an appropriate allocation for one's situation and risk tolerance and stick to it. Becoming fretful during corrections is an indication of an incorrect investment allocation. (As I found out the hard way during the 2009 crash.)


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## Broke (May 11, 2010)

Spidey said:


> I think the best approach is to choose an appropriate allocation for one's situation and risk tolerance and stick to it. Becoming fretful during corrections is an indication of an incorrect investment allocation. (As I found out the hard way during the 2009 crash.)


I didn't become fretful during the 2008 "correction" and I still haven't recovered almost 2 years later . As I mentioned in another post, capital preservation is now a priority for me, so I have switched most of my mutual fund stocks into bonds and I have sold some stocks at a small loss so that I have enough cash in my investment accounts if buying opportunities do arise in the near future.


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## andrewf (Mar 1, 2010)

Spidey said:


> I think the best approach is to choose an appropriate allocation for one's situation and risk tolerance and stick to it. Becoming fretful during corrections is an indication of an incorrect investment allocation. (As I found out the hard way during the 2009 crash.)


"Fretful", perhaps, but a trend-following strategy helps reduce risk. TSX is now below the 200 day SMA, if it still is at the end of the month I will be selling and going to cash. I did buy VXX a couple weeks ago and sold for 80% gain, offsetting the drawdown experienced on the equity side in the past few weeks. I shouldn't have done that, really, as it's not in my investment plan, but vxx seems like it could be useful as short-term insurance in times of uncertainty.


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## mogul777 (Jun 2, 2009)

Doing something after the fact is not productive. At this point you've already experienced about a 10% correction. Sell and buy all you want during the noisy periods but you'll most likely be worse off for it.


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## 50invester (Feb 10, 2010)

*Shorting Stocks*

In this discussion I have not heard anyone discuss shorting stocks. If the mood is so grim, why is this not a viable alternative. I have never shorted, so I don't understand the risks involved. Anyone?


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## dogcom (May 23, 2009)

50invester market declines can happen so quickly that by the time you go short the market bounces and you lose money. You can also be caught in a short squeeze if a lot of people are short the same stock. 

Even when we are sure it will drop a topping process can take a long time and the market can also grind a lot higher despite overbought conditions before it ultimately begins to correct.


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## HaroldCrump (Jun 10, 2009)

50invester said:


> In this discussion I have not heard anyone discuss shorting stocks. If the mood is so grim, why is this not a viable alternative. I have never shorted, so I don't understand the risks involved. Anyone?


Easier said than done.
How do you know when you have reached the bottom?
Think about Mar 2009 - not too long ago.
If you had shorted stocks at the bottom of the market, given the rally than happened in April - June 2009, you'd been wiped out.
OTOH, if you had shorted in Oct 2008, you'd have made a killing.
_But how do you know ?_


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## canadianbanks (Jun 5, 2009)

Can I suggest the following:

4) Average down

This of course requires discipline and sufficient cash reserves. I'm trying to follow my own advice for a small number of stocks I own, but it's hard do it while watching everything going down...


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## Mockingbird (Apr 29, 2009)

50invester said:


> In this discussion I have not heard anyone discuss shorting stocks. If the mood is so grim, why is this not a viable alternative. I have never shorted, so I don't understand the risks involved. Anyone?


When people talk about the investments here, most are likely referring to their RRSP and/or TFSA Accounts. You cannot technically short sell stocks in these account although you could simulate this by purchasing put options or buying the inverse correlated ETFs. In order to short sell, you need a margin account and the registered accounts do not qualify. Many traders utilized shorting, but more rarity among straight investors.


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## dogcom (May 23, 2009)

Canadianbanks suggest average down but I would only do this with an ETF like XDV or something because the stock you average down in may have a very good reason to be down on its own. Of course if you know the stock you average down in very well and know what you are doing then this is fine to do.


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## Mockingbird (Apr 29, 2009)

HaroldCrump said:


> Easier said than done.
> How do you know when you have reached the bottom?
> Think about Mar 2009 - not too long ago.
> If you had shorted stocks at the bottom of the market, given the rally than happened in April - June 2009, you'd been wiped out.
> ...


Same could be said about longs. If you bought in at the top of 2000 or 2007, then you would be having a similar dilemma. Whether you are long or short, you need to understand the risks associated with each position and have plans to mitigate them.


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## financialuproar (Jan 26, 2010)

dogcom said:


> Canadianbanks suggest average down but I would only do this with an ETF like XDV or something because the stock you average down in may have a very good reason to be down on its own. Of course if you know the stock you average down in very well and know what you are doing then this is fine to do.


If you don't know a stock well enough to average down on it, you shouldn't own it in the first place.


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## MoneyMaker (Jun 1, 2009)

The sky is falling..... Awwwww


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## dogcom (May 23, 2009)

Very true financialuproar, you should know what you own no matter what. The only thing you should do then is make sure nothing has changed since the last time you researched your stock, so you would have to review and check it out again, to see if it is still a stock you would want to own more of or that you should probably sell it.


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