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Aug 16, 2006 11:16 pm

There is a reasonably good possibility that this market is going to suffer a severe drop soon.  So my question is, what are all of you who spend so much time on this forum debating imbecilic meaningless junk all day long going to do if this occures?  Sure, ol'boys ride this little wave we are on and enjoy it because at the end of this rainbow there isn't a pot of gold for most of you.  For most of you there are a bunch of pissed off unhappy clients.  Youre gonna give all these gains back. 


For those who have brains however and who have the skills to take advantage of what may happen this is a wonderful opportunity to become a hero for our clients and make our big books even bigger.  What a great time it is going to be taking money from all you tadpoles!


So my question is, what are you going to do if the dow drops 30%?  How are you going to anticipate if this is going to happen and what are you going to do to protect your clients?   Do you know signs to look for to anticipate a huge drop?  Do you understand anything about the stock market?  You are stock brokers right?


The room falls silent as blank eyes stare toward the blinding light that approaches.  It's a deer..no, no, its an "investment advisor!"   


Aug 16, 2006 11:18 pm

Yeah, that must be it.

Aug 16, 2006 11:20 pm

You must be tired.  Get some sleep and spend some time thinking about a better response.  I'll give you a couple days.  Best of luck.

Aug 16, 2006 11:38 pm

A couple of days?


I'll get right on that, too.

Aug 17, 2006 12:49 am
Greenhills:

There is a reasonably good possibility that this market is going to suffer a severe drop soon.  So my question is, what are all of you who spend so much time on this forum debating imbecilic meaningless junk all day long going to do if this occures?  Sure, ol'boys ride this little wave we are on and enjoy it because at the end of this rainbow there isn't a pot of gold for most of you.  For most of you there are a bunch of pissed off unhappy clients.  Youre gonna give all these gains back. 

For those who have brains however and who have the skills to take advantage of what may happen this is a wonderful opportunity to become a hero for our clients and make our big books even bigger.  What a great time it is going to be taking money from all you tadpoles!


So my question is, what are you going to do if the dow drops 30%?  What will you do if the market rises 30% when you've positioned your clients for a 30% drop? How are you going to anticipate if this is going to happen and what are you going to do to protect your clients?   What happens if you protect your clients from the drop and it doesn't happen as anticipated?  Do you know signs to look for to anticipate a huge drop?  Do you understand anything about the stock market?  You are stock brokers right?


The room falls silent as blank eyes stare toward the blinding light that approaches.  It's a deer..no, no, its an "investment advisor!"


Unfortunately, we lived this kind of market a few years back and I survived by realizing that I had no way of predicting near-term market movements and playing things relatively conservatively...lots of large cap value stocks and intermediate term bonds.  My clients didn't participate in the dot-com boom or bust.  I didn't understand why these stocks were so unbelievably expensive and I wasn't comfortable recommending piling on the bandwagon.  I had a few speculators play these stocks, but there wasn't one solicited trade among these.  While this wasn't very sexy, it tended to limit losses and kept clients from giving up in late '02.  What has happened in the last 3.5 years has solidified relationships with these clients who went through '00-'02 under my advice.


I don't pretend to "know" what is coming over the next 3,6,9, or 12 months.  I have a better sense of what to expect over the next 10-15 years, and this makes me relatively stubborn with my general client recommendations.  Sure, I make some short-term tactical recommendations, based on whatever I perceive as the most likely market leaders and this has led me to recently recommend that clients reduce small cap, foreign and emerging markets exposure, and replace that with large cap domestic stocks, with a tilt toward growth companies over value companies.  I've also begun reducing stock exposure and redeploying the proceeds in short and intermediate bonds, mostly of the tax-free variety.  This is more as a result of improvement in rates on the short end than any imminent fear of a large market decline.  That may happen, but my crystal ball is not clear enough to make any wholesale bets here.  About the biggest bet I'm making these days is a small shift toward the healthcare sector and that's based mostly on my contrarian nature and the fact that these stocks in general, appear relatively cheap on the fundamentals.  If I'm wrong, I've not made any bets large enough to torpedo anyone's portfolio. 


Today, a doctor client vetoed a shift in allocation to this sector in favor of international real estate.  Although he's hardly on the front end of that run, it's less than 3% of his portfolio, so either way, I think he'll be OK.  He took the momentum play over the contrarian play.  In 12 months, we have an appointment to take a look back and see how the two positions compare.


I don't use technical indicators to shape trading policies.  I'm aware that several of you do and that's fine...I'm glad it works for you.  No doubt, technical indicators can be a self-fulfilling prophecy, and I'm aware that the market has traded in a relatively narrow range for some time now.  No doubt, if the market breaks that range in either direction, technical traders will push it further by trading on the breakout.  My clients will hang on regardless of which direction the market breaks, and when the dust settles, eventually, the market will reflect the underlying fundamentals.


In short, that's my philosophy...invest with a long view, and enhance performance with modest short-term tactical moves based on perceived relative fundamental measurements.  While I haven't posted hedge fund-worthy numbers over the years, clients have generally beat related indexes, and I've very rarely lost a client due to performance.


You've made some cryptic predictions, but haven't shared your underlying rationale as to why you feel like a market collapse is likely.  This forum can be a useful tool for us to learn from each other without all the unnecessary insults and name-calling.  If you feel strongly that you have something worthy to share, quit teasing us and tell us how you do it, oh wise one.


...and more specifically, what your backup plan is if your initial prediction is off...and don't tell me that never happens...

Aug 17, 2006 1:40 am

You won't be taking any $ from me.


Take your profits or they likely will be taken from you.   I say that every day to clients with substantial gains, particularly in certain individual stocks.  I can say with out hesitation that I have done a tremendous job helping willing (i.e those that take advice) with their portfolios.


The key to managing $ is to properly diversify, and tailor portfolios to each client's needs.  Don't get cute and NEVER think you are smarter than the market.  When in doubt, take the conservative route- easier to apologize for "only" being up 7% than explaining why there has been a 30% drop. The market will always have its ups & downs. 


Your post reminds me of a lot of these doom & gloomers out there.  I read them frequently on the web, simply to ascertain the bearish case.  Problem is, they have been continually wrong and when the big "correction" comes along, it will likely be after the market is 20% higher than current levels, so investors will still make out OK.


BTW you post reeks of arrogance and self-indulgence.  Post something constructive. 

Aug 17, 2006 7:58 am

I find it amusing that there are those who think what happened in 2002 was reflective of what will happen sooner or later.


Yes, the tech sector was crazy overvalued and there are a lot of us, including me, who simply avoided it.  But we have not had a true bear market since the 1970s.


It is possible for everything--as in EVERYTHING--to lose 30 to 40 percent at the same time.  What we've been experiencing is sector rotations that diversification can help control.


But all the diversification in the world can't protect you when a real bear market comes--and they do come, the business cycle has not been repealed.


What normally accompanies the free fall--and that's exactly what it is, a free fall--is higher interest rates.  So we get to witness stocks dropping as if they stepped off a cliff and bonds also dropping.  There is nowhere to hide, nowhere to run.


People who see their retirement nest egg slipping away will fuel the decline--it will start with the very nervous types who will liquidate their portfolios first.  Fund managers will deplete their cash reserves to honor those redemptions.


The market will continue to drop and less fainted hearted types will eventually issue liquidation orders and fund managers will be forced to start to sell their holdings to honor those redemptions.  Intially this will force the fund managers to liquidate some of their weaker holdings, but the selling of anything causes prices to drop so the market will continue to fall.


Clients will liquidate in sequence--weak first, strong last--but they will all liquidate.  Giant pension funds will liquidate too--it's easy to sit here in August 2006 and talk about having balls of steel, but when people see THEIR money going down the drain they get worried.


One of my themes is how it is possible to be a twenty-five year veteran of this industry and never had the need to develop bear market broker skills.


The arrogance is as thick as pea soup.


As for Greenhills not citing his indicators--you really only need one.  The old adage, "No tree grows forever."  We haven't had a big bear for about thirty years---it's long overdue.


When you've put your client's money into the Smegma Fund how do you think that fund manager is going to be able to take advantage of a bear market?


If you're long, you're wrong.  Maybe not today, or tomorrow--but damn sure before your clients plan to retire.


I don't care how many client appreciation cookouts you have, when a guy with $500,000 today gets a statement saying he's worth $300,000 he's going to blame you for being so financially illiterate that all you ever did was walk around like Alfred E Neuman.

Aug 17, 2006 8:24 am

Earlier Indyone said something about technical analysis being a self fullfilling prophesy.


I happen to agree--but 'splain this to me.  When the market breaks down--and it will--and the technicians start to scream that the sky is falling does that mean it's not?


Your clients won't hear you when you sit there with a schidt eating grin on your face and mutter something about self fullfilling prophesy--what they're going to see is their money going down the drain and they're not going to want to hear excuses.


They're also not going to accept, "It's a natural rotation, hold on and it will come back...." because they know that it took them a lifetime to accumulate what they have and a really bad month to watch nearly half of it just disappear.


I know, I know--you have your clients in insured situations.  Put a smile face on charging a guy an annual fee for performance less than he'd have gotten in a passbook savings account.

Aug 17, 2006 9:43 am

Nasty, I'm curious about the differences you've observed in the last two significant bear markets (70's vs 00-02).  From my vantage point, the 00-02 market had the magnitude of what you consider to be a serious bear market (30-40% decline) and in fact, some areas are not even close to recovery from that slide today (NASDAQ)and the even the more conservative Dow is now more than six years from it's high water mark.  The only thing I can see missing from that decline is higher interest rates.  Otherwise, both of these bears appear to qualify as a bear market on a grand scale.


I'm with you on the fact that the business cycle hasn't been repealed, but I'm still struggling with not counting the carnage we went through a few years back as a significant bear market.  Please feel free to pontificate...I'm genuinely curious...

Aug 17, 2006 9:46 am

You young 'uns don't even KNOW what a bear market was like.  I was there for the 'big one'.

Why son, when I was your age I had to WALK to school, uphill both ways in a foot of snow under the blazing sun!

In the old days we did things the hard way without those fancy computer thingies.


Aug 17, 2006 10:13 am
Indyone:

I'm with you on the fact that the business cycle hasn't been repealed, but I'm still struggling with not counting the carnage we went through a few years back as a significant bear market.  Please feel free to pontificate...I'm genuinely curious...



Two big differnces.


1.  Interest rates were not rising at the same time, so the bond market held up pretty well.  Investors were not faced with seeing everything they own plunge in value.


That is not the case right now--regardless of what you Pollyannas want to think interest rates are actually pretty low.  If the prime goes into double digits as banks scramble to maintain earnings the bond market cannot hold up.


2.  As for equities.  The difference between the drop in 2002 and previous drops of similar percentages was that investors held on, as part of their "duty" as a participant in the war on terror.


That psychological support will not be there the next time--plus the boomers will be that much closer to retirement and that much more worried that they won't have time to recoup their nesteggs.


In previous generations almost everybody had a defined benefit retirement so the average layman gave very little thought to what Wall Street was doing. These days huge numbers of people are attempting to manage their own investments--many with advisors who this board has revealled are very poorly educated.


It can become like Chinese water torture, down, down, down.  Nothing spectacular like the crash of sorts that happened in the wake of September 11th--just day after day, week after week of negative results.  Fear that seeps in slowly is far more insidious than watching your portfolio crash while also hearing about people being crushed to death in falling skyscrapers.


It's far easier to not panic when you see yourself as making a sacrifice in a war.

Aug 17, 2006 11:12 am
NASD Newbie:

One of my themes is how it is possible to be a twenty-five year veteran of this industry and never had the need to develop bear market broker skills.


Simple, get into management where you really don't have to handle client's money for a living. This really sounds like the fat, old Finance branch Colonel lecturing the young Infantry Majors about what happens when you're attacked from the flanks after he's had a few too many G&Ts. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


Seriously, show of hands here, who thinks the markets NEVER go down, hasn't given the slightest thought to preparing clients mentally for the day it happens and has done nothing towards minimizing the blow that would come to the portfolio and the client’s financial goals? Anyone? Bueller?


Now that that’s out of the way, how about YOU Put, telling us what you suggest, since the danger of such a decline is ALWAYS with us?


Oh, and in your answer please don’t lecture us about the days of old when brokers hit said bear market because we know what they did. They;


1)     Left the industry in droves


2)     Made as much money when clients liquidated as the day they initially bought because they were ONLY paid on transactions and didn’t much care about the whys and wherefores


3)     Didn’t have to content with gain and loss much since they didn’t provide that information to clients on their statements and their stubby pencil broker books of their own didn’t lend themselves to compiling such figures.


4) Didn’t face the competition of $8 trades and no-load funds


Aug 17, 2006 11:16 am
NASD Newbie:

It is possible for everything--as in EVERYTHING--to lose 30 to 40 percent at the same time.  What we've been experiencing is sector rotations that diversification can help control.


But all the diversification in the world can't protect you when a real bear market comes--and they do come, the business cycle has not been repealed.



Tell us, Put, what did real estate and, say, gold, do during the bear market of the 1970s when EVERYTHING went down and diversification didn't help?

Aug 17, 2006 11:34 am
mikebutler222:

Tell us, Put, what did real estate and, say, gold, do during the bear market of the 1970s when EVERYTHING went down and diversification didn't help?


Gold soared in value during the Carter years--primarily because of the uncertainty in the middle east with a weakling in control of the US government.


The reality, however, is very few investors own enough gold to support their assets when both stocks and bonds are crashing.


Real estate also did well because people were fleeing to hard assets--however most real estate partnerships, which were wildly popular at the time actually under performed because they paid too much for what they were buying and Congress changed the tax code in the early '80s making most of the partnerships real bad ideas long before t they hit the crossover point.

Aug 17, 2006 12:17 pm

So hard assets (partnerships structure aside, since Congress killed them by changing the tax law, while the value of the asset itself stayed firm) didn't drop when EVERYTHING went down? Gee, sounds like diversification to me. (BTW, most economists would tell you gold and other metals soared due to dollar weakness and a  flight to perceived "quality". The reason for the dollar weakness, which also caused those soaring interest rates is another matter)<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


When you say people didn't have enough hard assets like gold to "support" their portfolio it sounds like you're saying diversification means that total portfolio value shouldn't ever decline. Is that the case? Isn’t the end affect of proper diversification simply that you never have a case where “EVERYTHING” declines?


BTW, when people took that percentage of their portfolio that had been in cash and either bought more equities or gathered up some high coupon, high quality bonds with it, what was their portfolio’s value a handful of years later?


Aug 17, 2006 5:22 pm

[/quote]


Two big differnces.


1.  Interest rates were not rising at the same time, so the bond market held up pretty well.  Investors were not faced with seeing everything they own plunge in value.


 2.  As for equities.  The difference between the drop in 2002 and previous drops of similar percentages was that investors held on, as part of their "duty" as a participant in the war on terror.


 [/quote]


Newbie-


Number #2 a pretty bold and broad statement.  Interesting viewpoint, but I'm not sure what to make of it.  


Alot of people calling for the "big" bear (>10%) drop are pointing to many things, but the reason I hear most is the length of time since extreme market weakness (like in the 70s...)


How the Naz Tech. implosion of 2000-2002 and the events of 9/11 falls into the history of the fin. markets is an interesting topic.

Aug 17, 2006 5:38 pm
mikebutler222:

So hard assets (partnerships structure aside, since Congress killed them by changing the tax law, while the value of the asset itself stayed firm) didn't drop when EVERYTHING went down? Gee, sounds like diversification to me. (BTW, most economists would tell you gold and other metals soared due to dollar weakness and a  flight to perceived "quality". The reason for the dollar weakness, which also caused those soaring interest rates is another matter)<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


When you say people didn't have enough hard assets like gold to "support" their portfolio it sounds like you're saying diversification means that total portfolio value shouldn't ever decline. Is that the case? Isn’t the end affect of proper diversification simply that you never have a case where “EVERYTHING” declines?


BTW, when people took that percentage of their portfolio that had been in cash and either bought more equities or gathered up some high coupon, high quality bonds with it, what was their portfolio’s value a handful of years later?



Yes diversification does work.  Do you suppose that those who came along after the 1976 to 1981 years have the benefit of hindsight that those who came before you did not.


Take gold--it had traded for around $35 an ounce for generations, then all of a sudden, without ringing a bell, it took off and sometime around 1980 it hit $800 per ounce.


Lots of retail clients were running around buying little gold bars and wrapping them up in socks and storing them under their sofas or other "safe" places.  Naturally they still hold them--the odd lot theory come to gold.


My point is you know that gold is a good hedge against inflation, but if you had been alive in 1979 you would not have.


Aug 17, 2006 5:57 pm
NASD Newbie:
mikebutler222:

So hard assets (partnerships structure aside, since Congress killed them by changing the tax law, while the value of the asset itself stayed firm) didn't drop when EVERYTHING went down? Gee, sounds like diversification to me. (BTW, most economists would tell you gold and other metals soared due to dollar weakness and a  flight to perceived "quality". The reason for the dollar weakness, which also caused those soaring interest rates is another matter)<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />


When you say people didn't have enough hard assets like gold to "support" their portfolio it sounds like you're saying diversification means that total portfolio value shouldn't ever decline. Is that the case? Isn’t the end affect of proper diversification simply that you never have a case where “EVERYTHING” declines?


BTW, when people took that percentage of their portfolio that had been in cash and either bought more equities or gathered up some high coupon, high quality bonds with it, what was their portfolio’s value a handful of years later?



Yes diversification does work.  Do you suppose that those who came along after the 1976 to 1981 years have the benefit of hindsight that those who came before you did not.


Take gold--it had traded for around $35 an ounce for generations, then all of a sudden, without ringing a bell, it took off and sometime around 1980 it hit $800 per ounce.


Lots of retail clients were running around buying little gold bars and wrapping them up in socks and storing them under their sofas or other "safe" places.  Naturally they still hold them--the odd lot theory come to gold.


My point is you know that gold is a good hedge against inflation, but if you had been alive in 1979 you would not have.




Your argument until now has been that diversification doesn't work when "EVERYTHING" goes down and how the pathetic creatures pretending to fill the shoes of the giant brokers that walked the Earth in your days are without a clue.



Now you tell us this generation of advisors is better prepared and that diversification does, indeed, have value....

Aug 17, 2006 6:08 pm

I asked the other day if any of you had your clients in gold and one guy said he thought there were gold stocks.


By the way, gold can go down in value too--it was once $800 per ounce.


I will never admit that more than 10% of those who have been registered less than twenty years have a clue to what they're doing--90% of you are pretending to be financial advisors--but what you do is immediately turn the money over to somebody else.


This very forum is a place to brag about how uneducated you are, and how this seems like a good gig until you get your garage band's first CD out, or until you can get on the skate board tour.

Aug 17, 2006 6:34 pm

Newbie,

Keep preaching your big downward correction...eventually it may come.

Hell, even a broken clock is right twice a day.