Tuesday, August 25, 2015

Dow falls: "an air of holiday menace"

    I don't usually have a Tuesday column. But after I posted a vignette about my wife's timely advice Monday, the paper asked me to write something about the stock market, so I wrote this, taking that story and expanding upon it.

    Looking for context as the market was in free fall Monday, I pulled down my journal from 1987 and checked what I wrote on Oct. 19, another Black Monday, when the Dow shed nearly a quarter of its value.
     It was the biggest one-day loss ever, far beyond anything in the Great Depression, or this Monday's stomach twisting dive and return and dive again.
     Young me was surprisingly disengaged on Oct. 19, 1987.
     "Much interest and speculation over plunging stock market, which lost 550 points by late afternoon," I wrote, noting that the event cast "an air of holiday menace over the day, like a storm when you are a child."
     I was nearly a child, 27, and didn't have any investments to speak of, and could afford to be blase. But even now, twice as old with an all-important nest egg the only thing between me a an impoverished old age, "holiday menace" still sounds right. You saw that 1,000 point drop and thought "Wow!" almost whistling in admiration, without necessarily associating it with the money you've just lost.
     Like most investors, my strategy is a blend of fear, ignorance, superstition, snatches of conversation overheard in locker rooms, , various articles skimmed in doctor's offices, and did I mention fear?
     Fear is my primary motivator; 2013 was a very good year for stocks. More than 29 percent up. Even I knew that was a lot. So knowing that such a rise had to be followed by a considerable fall, I began pulling out.
     Slowly. That's a second mantra. Do everything slowly, gradually. Be a snail investor. Fear and dawdling.
     So in 2014 I begin slowly pulling out. Slowly. While the market goes up another 10 percent, I'm shifting my money into dull-but-safe 1.6 percent a year bond funds.
     It's very hard to make money at 1.6 percent a year.
    This year, I figure time to nudge back in. Which brings up my third motivator: greed. Fear, dawdling and greed. The market is pretty flat. It's gotta start coming back.
     Or not. Last week. Pow pow pow pow. Four down days. And we all know what you do when the market goes down. You buy.
     So on Sunday, I move a big hunk of change into the market. Trying to be the smart investor that I'm really not.
     Now it's Monday morning, in bed with the wife. The clock radio stirs us with the doom from the East. The Chinese market is down 8.5 percent.
     Summoning courage, I tell my wife I just pushed a big chunk back into the market.
     "A couple thousand?" she said hopefully.
     "No," I said. "A lot more."
     "The markets haven't opened yet," she suggested. "Maybe you could cancel your order."
     "I don't think it works like that," I said.
     I had no idea how it works. To me, investing is just pushing stuff around. I don't have a broker, just a computer screen. I feel like a child deploying his toy soldiers across a carpeted playroom.
     I went upstairs, logged in, went to transaction history, which I had never done. There was the automatic deposits, my previous nudging of funds back into the market. And one pending transaction. Plus two words. "Cancel Transaction." Yes! I clicked on them. The transaction was cancelled.
     I flew downstairs to congratulate my wife for being a genius. And so greeted the 1,000 point swoon with more relief than the average investor--choosing to focus on my dollars who were safe on deck instead of joining those flailing around in the sucking vortex of loss and volatility. Yes, some money was going down the drain. But not as much as could have been.
     Better for amateurs to ignore this stuff, lest it drive us crazy. Take a set amount, have it automatically sacrificed into a 401(K). Adjust as your night terrors dictate, but don't fret about it. It's all lost money anyway. Either the market will eat it, or I'll die suddenly and my wife will spend it on Aegean island cruises with her new boyfriend. Or she'll go and I'll blow it on babes and bourbon. Or we'll both linger and the money will be hoovered up by whatever grim hellhole of a nursing home we'll end up in. Or we'll both go, and the boys will stare with shock and disappointment that this, this was all their parents managed to sock away from a life of toil.
     However the chips fall, it's a losing game, eventually, whether the market goes up or down.


  1. So true about nursing homes, but often much needed.

  2. Sounds like someone at the Paper is watching your blog for ideas. That means you get overtime pay this week.

    1. Highly doubtful. More like they needed a warm body and I answered the call.

  3. The Ghost of Christmas PastAugust 25, 2015 at 7:51 AM

    Luckily, my two main investments are completely safe--the change jar on the kitchen counter, which probably has about $17 in it by now, and the case of 12 cans of sardines in the pantry. This morning, my checking account balance was 10 cents. I have no savings account. So the market can go down to zero and it won't bother me.

    1. You must be wasting your $ elsewhere.

  4. Wonderful article. I am reminded that Edward Thorp showed that the math in Las Vegas and on Wall Street are essentially the same, and that the odds astronomically favor the house in both cases. While the Bellagio and Goldman Sachs execs buy their 7th homes, the rest of us feed the beasts, clean up after the parade, and fight over the crumbs. At least we have our idioms for comfort as the well runs dry.

    1. I took Eugene Fama's finance course at the U, Of C. GSB many years ago and took to heart his teaching, which ultimately won him a Nobel Prize, that stock movements are unpredictable, at least in the short run. (As Lord Keynes put it, "in the long run we're all dead.") And followed his advice to put what little discretionary income I had into "no load" index funds. Was grateful in 1987 when contemporaries were losing sleep about putting off their retirements.

      I imagine this episode will encourage people to click on the video currently playing on the internet of Ron Paul predicting economic doom because of the nefarious actions of the Federal Reserve. I couldn't stand to listen to the whole thing, but assume the old fraud is pushing gold, a very bad choice for the small investor.

      Tom Evans

    2. love the econ. philosophy of John Maynard Keynes

    3. FDR liked it too

  5. My guess is that you changed a "right" answer to a "wrong" one, as so many students do on multiple choice exams. Time will tell. I've got so little money in my 401K that I actually enjoy watching it fluctuate like a tiny barometer or perhaps more like the canary in the mine -- when my 401K expires, Warren Buffet take heed!


  6. Damn those hedge fund managers and their tricks. Gov't lets them get away with too much and that's how conservs like it.

    1. It's a shame that China can make or break us these days.

      So much for they're being anti capit., like they said in early days,when they actually like big business as much as any nation.

  7. Don't be emotional, be rational. Asset allocation. Low cost index funds. Rebalance every few quarters. Ignore the daily swings. Read John Bogle.

    1. https://personal.vanguard.com/us/insights/article/market-volatility-082015


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