I'm not sure if this has been talked about, but I constantly wonder what my strategy will be if and when the market crashes.

I have started to sit on a large pot of cash and short term treasury bonds. I'm still dollar cost averaging into the market, but my problem is, I'm having my best year ever financially, and I will be sitting on a large pot of chalk.

So, my hypothetical question is, if the market tanks tomorrow, what does the timing look like of shoving it all in? Or do you try and reduce variance by doing larger chunks?

Do I shove it all in tomorrow? Or can I wait a few days, weeks, or months, to shove it in?

I know these are all "Timing" questions, but I'm curious as to have a deeper conversation about strategy before the actual day comes eventually.

"Does this look dirt cheap to me? Could it 5x in a decade easily in an improving economy?" is the only question you should ask when buying. Market or timing is irrelevant. There were a lot of companies like that in 2009 but not 2008.

"Cheap relative to the likely range of future economic and market conditions" is all that matters.

not sure what you mean by market "Crash". a crash means different things to different people. is your definition of a crash a 20% drop, 30% ect? most recessions avg 35-40% pullbacks from new established highs and often takes many months for true "bottoms" to form.

if you look at virtually any market you will see that in bear markets there are multiple lows that will get retested (to new lows which will be broken) before any true reversals happen. so there is no need to go "All in" right when the market crashes as you will have more time than you think to get your money in good.

i would pay close attention to sectors that peak your interest now to see how they perform in the coming downturn. acquiring large blue chip quality tech stocks after the downturn should be a no-brainer as everyone thinks they have been overvalued forever which should cause them to fall faster than they really should. watch out for "scandals" that the media will be overhyping on purpose during this next downturn with certain no brainer companies you should be owning. don't underestimate the power of the media to install fear and panic and just remember that is their job in down markets.

overall just remember we haven't had a downturn in almost a decade so this next one should be very serious. most of the largest investing group in the last decade (millennials) have never had a losing year since they began investing and are used to earning 15-20%+ returns each year which is obv way above expectation. it will be difficult to predict how this group will behave when they see all the blood in the water. it is my guess there will be mass selloffs that will make the last recession look like nothing. just imagine a guy that has never had a losing year in his poker career and then all of a sudden experiences the abyss.

be prepared.

True passive investors believe:
The market return is sufficient to meet my goals.
I don't get the return without accepting the risk.
A diversified portfolio of index funds is the best way to capture market return.

Active investors believe:
They can forecast market directions before they occur.
They can get some or most of the return with little of the risk.

If you are a passive investor, then the time to invest is now. If you have an international / domestic US mix, most likely your asset allocation would dictate putting money into the international side as international has lagged US equity over the last few years. That is one reason it is best to have a diversified portfolio, it causes you to buy the under performing asset.

If you believe that you can correctly forecast the next market decline, I can't really help you. I would state that most research says you can't do it consistently enough to outperform the "tortoise" of passive investing. Many people in the last 5 years have thought the next big one is right around the corner. If they acted on those beliefs and went to cash they have lost out on more than they would have saved by missing the correction.

You are exposed to international when investing in US markets. 45% of SP500 sales come from outside the US for example.

That's true in reverse as well. If you want to passively index, it makes a ton of sense to buy international equity as part of your strategy.

A minority of millennials invests in the stock market and their share is probably very small.

And you could say this with any crash, because if a crash happens every 7-10 years then there will always be a group whose first time it is to experience it.

So don't see how this will make a big impact.

wedge it in > shove it in

what if you're mostly indexing?

I thought millennials were buying bitcoin?

This is what I have often thought, which is, that there shouldn't be any rush. I basically started investing in 2010/2011 which was a couple years after the last crash....

Agreed about tech stocks.

Not sure about the millennial thing. Are they even making enough money to invest? I would assume they would have a very small foothold in the overall market. But, I think your point can be applied to any age group. Older people are certainly not immune to acting emotionally when it comes to money.

I misread your OP and so my previous post answered a question you did not ask. To answer the question "in the event of a downturn do you push it in or do chunks" my answer would be smaller chunks.
If you do smaller chunks you might miss some smaller corrections, but when the big one comes there is plenty of time and room to let it drop. In 2008 a lot of people thought in July it can't get worse. It did. In October we thought the bottom had surely been reached. It hadn't. By December we were sure the new year would start better. It didn't. It finally hit the bottom in March of 2009, though of course we weren't sure about that for a few months.
So if you are committed to waiting for a downturn, then I would say start levering it in after a 20% drop.

Yes. Thank you. This is exactly the answer I was looking for. Makes perfect sense.

I've been dollar cost averaging in for the last year or so, after lump summing before, so, nothing really changes except for maybe specific amounts.

Not necessarily predicting a crash tomorrow, but a loss of interest for one week ITT gives me the tingles to build a short.

Off by two months.

(in before "this is not a crash". I know)

I agree with unfrgvn and cstevens. Nice posts. I moved from 90%+ long equities (some index in my 401k, some single name of intuitive, supposed, quality-momentum (largely tech)) to about 30% long equities, this year. I moved 401k to cash with no tax consequence. And all poor or mediocre performing single names. So as to avoid capital gains (which would mostly have been long term anyway).

I'm going with the intuition that it's getting to be the right time for a significant "correction" now. If this dip turns out to be another flash crash--I won't be too annoyed. I'll try to pick up some good single names in that case if it seems to hold up.

But if we do start getting like well under 2500 spx, I'll start piecing in 5% or 10% of my assets at a time, and try to get some bigger chunks of bottom picking by feel. I think it's nothing to sweat too much. if you're able to get in cheap at all, you've done fine. If you didn't get perfectly lucky with your timing--shrug.

But now we also have to acknowledge that we've become very accustomed to the dip and bounce dynamic. But look around history and you'll also find the dip and die for a decade taking place too. Nothing you can do about that. But if you made some money in this amazing run, and you're sitting on enough cash to cover you for the next 10 years--then that's probably all you can do.

edit: One thing I haven't ever gotten around to fooling with is trying selling puts on names I'd like to own, in a (seeming) bear market. I'm not sure if I'll try it.

millennials are/will soon be the largest population investing in the market. the majority of them are well into their careers (late 20's, early-mid 30's) and have experienced way above ev returns in the market over the last 9 years. millennials are also saving a higher % of their incomes than previous generations and investing in the market.

if you were planning on investing some cash, i think right now is a good time to allocate a certain % to some of the areas i highlighted in this post. certain quality tech stocks look pretty juicy now and if this current selloff doesn't lead to the real blood it's a good way to get in on some amazing companies at 20-30% discounts. if you paid attention to the latest 3rd quarter numbers they were pretty awesome for the most part. the market is just so fragile right now that unless companies hit it out of the ballpark their stocks dropped a ton for no real reason. all the general economic indicators are solid as well.

just remember - dont freak out if things go lower. thats why you don't go all in right away. but not putting at least a certain % of your investible cash in the market right now i think is a huge mistake.

i like this plan. though if we do start to go below ~2500 spx we might have some real problems so i'd hold off. let the market play itself out and understand you will have plenty of time to get the goodies you like at a later time.

i honestly wouldn't be surprised if we continue to have strong gains for the next 3-5 years though from now until then the probability of a major downturn increases exponentially.

i also wouldnt be surprised if we have a downturn in 2019 either.

I'm still skeptical of your millenial claim. If it is, what percentage of the actual market do they own though?

Anyway, beat you to it. I've been buying tiny pieces since last week. I've bought on all three of the biggest downdays. A few tech stocks, and VGT mostly. Still sitting on a ton of cash, will still have about 20% cash after that. I probably put in about %5-8 this week.

I agree that a 3-5 year run could still be on the horizon as much as a big downturn in 2019 too. Who knows?!?

Amazon dropping as much as it did was the biggest surprise to me this week. I guess I should't be though. I assume its just defensive profit taking?

This is relevent and interesting.

https://www.youtube.com/watch?v=5OFa...ist=WL&index=5

What I'd be curious about is how do managers handle a hypothetical crash that lingers with no quick recovery, sure the effects of 08/09 are still being felt but price only took a few years to recover off the lows. You look at what happened to Japan in the 1980s as a prime example. I love to put in (and currently have) a handful of GTC limit orders at absurdly low prices in case the market flash crashes but in a total asset bubble/crash it wouldn't be too smart.

OP, if by crash you mean like 1987, the VIX will go ballistic, like above 50. If you ship it all in then and your thesis is that this is a one off, then you will be up almost immediately and not ever be down. If you ship it all in a couple of day later you are down a little there is still hope. If you ship it all in and a couple of weeks to months later you are down, your thesis was probably wrong.

If by crash you mean '08 esque, then it won't be the VIX that tells you any thing. It will lighting up every couple of days / weeks. It will be some type of systemic bottom created by something like TARP. Then you ship it all in.

Yeah, that also begs the question of whats the likely-hood of a standard pullback that lasts 1-2 years vs a longer sustained downturn?

What are the factors that have lead to the sustained downturns in the past? Is there a book about this stuff? Would be fascinating to read about all the history.


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Bump

You're looking for 'A Template for Understanding Big Debt Crises' by Ray Dalio.

Actually reading that right now!


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