Why did we not see this coming?

46

There are always disagreements. There can be as many differing views as there are people :slight_smile: I think it is good that we can have a healthy exchange of views as it can challenge our perspectives and assumptions.

4 Likes
47

This is part of what I referred to as left-tail risk. I already made small adjustments e.g. for gold ETFs, transfer from US ETFs to ETFs with physical holdings in Switzerland. No US Treasury debt (risk of unilateral extension as proposed by Miran).

The US debt/deficits were always going to be a problem but I’d always put that in the ‘long enough away not to worry about right now’ but the new US policies require an urgent re-think on this.

2 Likes
48

One thing I try to keep in mind: most humans are risk averse. If we want to play the game of educated guessing where the market might go, we have to accept that we’ll be wrong plenty of times but we want that, on the aggregate, the impact of us being right outweighs the one of us being wrong.

That still requires us being wrong an awful lot of the time and not being phased by that.

That’s not something that comes naturally to many people.

3 Likes
49

Agree, the other part is also not just to maximize expectation, but also maximize downside risk.

For example, in some game shows, you might have a prize of $1m but if you take a gamble, you have a 50% chance of getting zero or a 50% chance of getting $3m.

Now, going with the gamble has positive expectation, but downside risk is too great to take on.

My take is the current situation is similar, I expect an overall positive expectation over the next couple of years, but there is a chance that it could go very badly wrong and I’m not sure if that is a risk I’m willing to bear.

2 Likes
50

That’s the whole thing. Risk management is part of investment strategy

However it seems there is a belief that global market weight ETFs are best for risk management too. I don’t think so due to very high concentration. But that seems to be the consensus view.

51

I think it’s more that that’s what’s most available.

52

As I said, I did see “this” coming. I have a strict plan for almost everything, including bear markets. BTW: a drop of over 80% is possible and with all that garbage that is contained in most indices with the favoride ETF investments of all youngsters they will be participating in that drop.

The only thing new for me is the kind of short duration of this dip. I had nice Alpha, did lose less and gain more than the indices. But my measures for an end of the bear market still don’t tell me “it is over”.

I don’t like difficult real-time decisions, so I planned in advance: if my portfolio and the SP500 get over 95% of the last high the bear market is (at least temporary) over. I will resume normal operation on both of my mechanical strategies.

1 Like
53

End of January, after seeing the cabinet of Trump and all the shenanigans with trump coin etc, I took some measures;

  • decided to go to 60/40 allocation instead of keeping 80/20, as I had for the past 12 years. In a couple of years we may have a real estate opportunity, so I was planning to do that anyways. I just anticipated it.
  • changed all my US ISIN positions (VT, etc) to Ireland based etf
  • in doing so, I decided to reduce US exposure to 40% of my stock allocation, instead of ~64%. I’ve increased swiss and European exposure.

Now I’m rebalancing business as usual to keep 60/40 allocation.
So I didn’t take any active trade opportunity, bit I did adjust my risk by adapting allocations

6 Likes
54

That doesn‘t make any sense.

If the market drops 80%, your carefully picked stock portfolio will drop close to the same.

Somebody needs to watch this video: https://youtu.be/Nv5CiRSCVxA?si=-ikCSMjRHN-2ygMs

The math is pretty clear on why index funds are superior for the VAST majority of investors.

4 Likes
56

Hindsight bias, also known as the knew-it-all-along phenomenon or creeping determinism, is the common tendency for people to perceive past events as having been more predictable than they were. After an event has occurred, people often believe that they could have predicted or perhaps even known with a high degree of certainty what the outcome of the event would be before it occurred. Hindsight bias may cause distortions of memories of what was known or believed before an event occurred and is a significant source of overconfidence in one’s ability to predict the outcomes of future events.

https://en.wikipedia.org/wiki/Hindsight_bias

10 Likes
57

What annoys me most, is that these drops recently (also e.g. last August) always happen at the beginning of the month and resolve themselves again before the end of the month. Same as it seems now.

And here I am with my passive mindset of investing after salary day, getting annoyed about another missed dip.* :laughing:

*A while back I simulated whether it would be better to put the regular order to another time of the month. But no, in reality market is, as expected, “too efficient” that there is such a pattern.

6 Likes
58

I guess I was lucky this time, cause I “did see it coming” :sweat_smile:

One day before the tariff announcement, I sold all my VT — around CHF 70’000 — and converted it to CHF and held.

Then the tariff news hit, USD and VT dropped, and I avoided a BIG loss.
I re-entered after the 90-day pause was announced.

Because of the USD drop, I ended up getting 46 extra VT shares for “free,” and lowered my average cost basis, even though I now hold more shares. :grinning_face_with_smiling_eyes:

Before sale:

  • Shares: 655
  • Avg. Price: $113.76

After re-entry:

  • Shares: 701
  • Avg. Price: $110.66

It was a stressful time and I’m honestly relieved it’s behind me.
It’s not a strategy I want to rely on.

I’m not proud that I broke my “only buy, never sell” rule as a young investor.
But now atleast I have more experience beyond “number always go up” like in 2024 when I started :joy:

5 Likes
59

I hesitated to do this because I also sensed that the market was not going to appreciate this famous liberation day.

Except that I preferred to hold on, thinking that my average purchase price was low enough for me to remain positive on VT (this wasn’t the case with SLICHA, but today I’m positive again). If I’d sold my VTs, I’d have bought at a higher average price, but I’d have made an easy +10% in terms of value too.

This is the story of my short investment life, I also buy on the day my salary is transferred, but that’s almost always when the market is at its highest again and never when it’s at its lowest. Well, that’s life.

1 Like
60

Excellent that you had the conviction the market would drop, and the cojones to actually act on it, big respect!

61

Thanks for the positive comment, but I am worried that if I feel like this is something I can and should do (market timing), it will bite me in the ass when I inevitably “bet” wrongly.

Is there any rule of thumb or such? As far as I am aware the consesus for investors like us is that it’s just not a good strategy over the long time to do market timing.

4 Likes
62

I think the important things is that you saw the risk and this time it was unusual because it had a definite date. The only thing to consider is what you would do if it didn’t play out e.g. on liberation day, Trump instead said, “we’ll cancel all tariffs and make US the most attractive country to invest in.” and stock prices shoot up.

As long as you’re good to accept the wrong call and buy back in at a higher price, you avoid the ‘sunk cost’ fallacy and stay out of the market for years waiting to buy back in at your original selling price.

4 Likes
63

For sure it’ll bite you in the ass if you make a habit out of it! Phil above makes a more eloquent case.

Don’t know of a rule of thumb, but I remember seeing the following some years ago:

The slippery slope of death:

  1. VT and chill
  2. market timing
  3. leverage
  4. options/futures
  5. crypto
  6. get rekt
  7. VT and chill
3 Likes
64

Thumb rule -: As long as you know that you got lucky, then it’s good :+1:

Please just don’t attribute this success to any talent or skills :slight_smile:

3 Likes
65

Yeah, stay passive for life now, and you’ll always be able to tell the story “WHEN I time the market I ALWAYS won” when the topic comes up. Don’t give away that card. :wink:

8 Likes
66

This reminds me of the first time I went to a casino. I won something like 50 euros.

For a couple of years, I was proud to tell others that I had beaten the casino :slight_smile:
Guess what: the second time, I lost 50 euros.

There wasn’t a third time


4 Likes