Learning to protect my retirement fund.

December 22, 2008 10:59 AM

Like many people, my retirement fund took a hit when the market crashed. My question is--who should I have been reading before this happened? Who was the consistent voice of sanity telling everyone, "Hey, stick your retirement in something safe RIGHT NOW."

Burn me once.

posted by mecran01 to work & money (32 comments total)

Galbraith's book The Great Crash of 1929.
posted by zippy at 11:04 AM on December 22, 2008

No one knows what the future will bring.

No one knows what the future will bring.

But some people have been predicting a crash from the housing bubble and the problems in default credit swaps for awhile, but the general financial population wasn't really listening to it. So while those folks may have been right once, they probably won't be right again (look at other market prophets that were right once - but consistantly wrong afterwards). Depending on your age, this draw down is not really that serious in the long run. If you are 35, you probably won't really even notice it be the time you retire. I forgot who said it but a safe mix of investments is the same percentage as your age so if you are 30 you have 30% invested in bonds and t-bills and the rest in equities.

Now, if you want to know something that you could have done about it (I'm going to get shamed forever on this one) - have a look at some trending technical analysis indicators. If you would have had some stops on your accounts (esp in such a trending market as was happening before this crash) you probably wouldn't have lost so much. You'd really only have to pay attention to your portfolio about once a week to set your stops and look at the type of market we are likely in and set your stops accordingly.
posted by bigmusic at 11:11 AM on December 22, 2008

That is not helpful.
posted by mecran01 at 11:11 AM on December 22, 2008

here's a FPP that (cough) somebody did back in 2006 referencing the condo crash in San Diego and the excellent blog Calculated Risk.

The ml-implode.com website has a useful sidebar of blogs in their "Economic & Finance" section.

Russ Winter is kinda oddbally but entertaining, Mish is a monotonically minarchist twat, TheMessThatGreenspanMade is a self-satisfied goldbug, The Big Picture is a centrist common-sense (if a tad self-promoting) blog with good data dumps, and Karl Denninger's Market Ticker forums at tickerforum.org would be my go-to recommendation.
posted by troy at 11:12 AM on December 22, 2008 [1 favorite]

It's not specifically about the crash, but the Guru Grades site has been quantitatively tracking overall market forecasts of experts for quite some time now. It's important to take a detailed approach in analyzing predictions, because otherwise it's easy for someone like Jim Cramer to wildly predict various different things and then only reference his correct predictions in the future and ignore the incorrect ones.

Although obviously knowing about the crash ahead of time would have been nice, it's very hard bordering on impossible to find people who can consistently predict anything substantial about future market trends. Sure, some people predicted the crash, but a lot of those people predicted the crash over and over again before it actually happened, and many of them suggested alternatives such as investing in commodities which faired no better than the market itself. If you look at managed investment funds in general, almost nobody consistently beats the market, which suggests that the market may be to a large extent unpredictable at a fundamental level.
posted by burnmp3s at 11:16 AM on December 22, 2008

That is not helpful. was a reference to Zippy's comment, not the other excellent stuff that is coming through.
posted by mecran01 at 11:25 AM on December 22, 2008

Benjamin Graham's The Intelligent Investor and Security Analysis would have given you the tools you to figure for yourself that equities were becoming overvalued relative to their forward prospects.

The great value investors like Warren Buffett (shareholder letters, recent op-ed) and Peter Lynch (Beating the Street, One Up on Wall Street) would tell you not to try to time the market.

Market timing, however, is what you're asking about. These have to be in a format that's a little timelier than a hardcover book. My two favorite market timers to read are Brett Steenbarger and Richard Kirk (subscription required). I've learned a huge amount from both of them.

For someone just getting started, though, and wanting an introduction to thinking about these kind of things, I don't think you can do better than Jim Cramer's Real Money. After you read that, you can start watching his CNBC TV show in context, understanding what he's getting at in the different segments, and filtering out the circus clown stuff. Cramer is really smart, knows a lot about the markets, and he's got a gift for communication. He's also a clown and you need to have the context provided by the book so you understand what tack he's on when he's making his pitches.
posted by ikkyu2 at 11:29 AM on December 22, 2008

Peter Schiff

Nouriel Roubini

Both are youtube videos on live interviews from 2006-2007 of them telling people what was coming and being laughed at.
posted by sophist at 11:30 AM on December 22, 2008

Nouriel Roubini is fantastic. He's been predicting the current market crash since 2002.

Even a stopped clock is right twice a day. Roubini is the dullest-witted sort of stopped clock that there is.
posted by ikkyu2 at 11:32 AM on December 22, 2008

safe mix of investments is the same percentage as your age so if you are 30 have 30% in stocks - the rest in bonds and treasury bills.

I am not an expert, but don't you have that backward — you'd want less risk and volatility as you get closer to retirement, not more, no?
posted by enn at 11:32 AM on December 22, 2008

Finally, if you are thinking about retirement, equities and being in them versus not being in them, you need to read up on the concept of asset allocation. Fidelity has some pretty cool tools I use to make sure my retirement asset allocation stays on-strategy.
posted by ikkyu2 at 11:34 AM on December 22, 2008

I am not an expert, but don't you have that backward — you'd want less risk and volatility as you get closer to retirement, not more, no?

Yeah, bigmusic has it exactly wrong. And is marked best answer, so oops. The conservative conventional wisdom is that you want a percentage equal to your age in bonds, not in stocks. So at 30 you'd have 30% bonds and at 60 you'd have 60% bonds.

I'm not agreeing or disagreeing with this wisdom. But I don't think anyone would advise actually increasing the percentage of your portfolio in stocks as you near retirement age.
posted by Justinian at 11:36 AM on December 22, 2008

enn: yes, I have that backwards.
posted by bigmusic at 11:36 AM on December 22, 2008

Heck, I'll throw one more thing into your recommended reading list: my CAPS blog. If you'd been reading and following my advice, which I myself was not doing, you'd have sold out about 3% from the market top in Oct 2007.
posted by ikkyu2 at 11:39 AM on December 22, 2008 [1 favorite]

Socialists: Socialists were right about de-regulation, the Iraq War, free trade.. etc, etc. I lost money because I didn't stick to my beliefs ie: banks and corporations can't be trusted.

The more practical example I think is the P/E ratio and the amount of debt companies have. I saw alot of people saying "the economy is great" when it looked like companies were over-valued, and had too much debt.
posted by Deep Dish at 11:39 AM on December 22, 2008 [2 favorites]

I am not an expert, but don't you have that backward — you'd want less risk and volatility as you get closer to retirement, not more, no?

Yeah. And if you're thirty, you probably want a lot more in stocks than 30%. I think the formula most people agree on is:

120 - age = % to put into stocks.

This is too simple.Why should your age determine how much risk you can take? If you're saving for a house, then you might want a more stable investment. If you're an 96 year old widower with £2 million and a huge pension, then you'd be pretty silly to put most of your money into bonds.

Stocks are riskier and provide higher returns. If you really need that money, put it in bonds.
posted by I_pity_the_fool at 11:43 AM on December 22, 2008 [1 favorite]

Sorry, it's 100 minus your age.

Also, cash might be more sensible than bonds. Depends.
posted by I_pity_the_fool at 11:44 AM on December 22, 2008

I don't know who you should have been reading, but I know one source i should not of listened to, and that is brokers in general. On several occasions i approached my broker with a clear sense that things were about to crash, only to be told that i was a fool for doubting the gospel of "think long term."

My sense is this crash reinforces the need for a more flexible more diverse strategy. I would say for the short term. long term is dead. My investing is now tactical rather than strategic. I will never again work with an investment advisor that gets a commission.
posted by Xurando at 11:46 AM on December 22, 2008 [1 favorite]

Thanks for the excellent advice, and especially for reframing my question for me in ways that make future research more focused and useful.
posted by mecran01 at 11:56 AM on December 22, 2008

I am seconding Karl Denninger over at his blog The Market Ticker (and his much shorter "Best Of" collection at Market Ticker Classics) and more importantly The Market Ticker Forums. Note that registering there (for free) gets you access to some forums that are usually hidden from the general view.

But note that his writings (though prescient and usually correct) are also hyperbolic in the extreme, that many of his readers/posters are Big Swinging Dicks, that the latest Madoff case has brought some of the anti-Semite posters out of the woodwork like cockroaches, and so on. He has minimal moderation on his forum (except where people post something in the wrong section), for good or for ill. But if you can put up a strong internal filter for all that, you'll find some very good information there.

Even a stopped clock is right twice a day. [Nouriel] Roubini is the dullest-witted sort of stopped clock that there is.

Oh, come on. Roubini wrote this famous "twelve steps or stages of a scenario of systemic financial meltdown" piece in FEBRUARY, 2008, back when most people thought he was a loon. EVERY one of those steps has happened this year. So maybe he was early for a few years -- he was still very, very, very right, too. I wouldn't bet against him, going forward. although I also don't agree with everything he's proposed as a governmental remedy for the problem, either.
posted by Asparagirl at 12:23 PM on December 22, 2008

I meant my recommendation to be helpful - and I'm sorry that it wasn't. I read the Great Crash just before the dot-com implosion, and nearly everything Galbraith described fit the pre-crash world to a tee. I found it helpful (and instructive) in knowing how to act before everything came falling down.

So, my recommendation for the book is not so much 'read about how bad things were in 1929' as 'the things that Galbraith describes as leading up to 1929 fit any other bubble and subsequent crash, and are pretty good predictors of such a situation.'
posted by zippy at 12:30 PM on December 22, 2008 [3 favorites]

Get a subscription to the Lowry Research Market Trend newsletter. They've been measuring buying and selling in the market for 70 years.
posted by TorontoSandy at 12:34 PM on December 22, 2008

I don't think anyone can predict the future. All those guys who made billions shorting houses, read buying CDSs, knew there were fundamental problems, but they didn't know those problems would ever materialize. So you need to think about opportunity cost :

A young person should invest in stocks because the chance that they increase significantly translates into significantly improved quality of life for the rest of their life (earlier retirement) while the chance that they decrease has little impact (maybe need a less expensive car). Otoh, an old person should invest in bonds because the chance that they decrease can profoundly harm the quality of life (returning to work, unaffordable medical expenses, etc.) while the upside has little personal impact (more inheritance for their kids).

Investing really is about your personal goals.
posted by jeffburdges at 2:02 PM on December 22, 2008

James A. Shepherd called it. His newsletter is $750 a year (tax-deductible), and well worth the money. In addition to keeping people out of the market during all of this, he directed subscribers to short the Dow with half their capital just before the horrendous past few months, giving them an 18% gain in a year where nearly everyone else lost money.

There is a caveat: if you get antsy when it comes to investments, you won't be able to gain from his advice; capital reallocations happen about once a year or so, so you will see shorter term gains you could have made if you had been in the market, or put all of your money in gold, or oil, etc. His advice is for patient people.

Full disclosure of a lack of conflict of interest: I am a subscriber, but unaffiliated with the service and make no money from recommending the service or getting anyone else to subscribe.
posted by UrineSoakedRube at 2:27 PM on December 22, 2008

There was a big ad in the WSJ a month or so ago for Barron's, which was titled something like "Because sometimes it pays to listen to contrarian views".

I wish I could find it again, but it had a few example articles from before the crisis (how oil was going to plummet, how Fannie/Freddie were going to get destroyed, etc) that purported to predict this current mess we're in.

Of course, maybe they just cherry picked a few articles to try to prove that point; I didn't look into it any further. If you're really interested you might poke around their web site and look at their archived articles.
posted by losvedir at 2:58 PM on December 22, 2008

Mr. Zippy: apologies for reading snark into your post when none was intended. I will check out Galbraith.
posted by mecran01 at 3:06 PM on December 22, 2008

The problem is that the people who were right this time won't be right next time.

I knew there was trouble a-coming when I saw a banking indicator spike relating to borrowing to cover their reserves. But I didn't know what to do with it. And I too lost much of my 401k.

One problem with trying to time the market is that unless you are checking things out every day or every week, you won't win.

Another thing to consider is that while the market value of your investments has gone down, you still own what you owned before. If your investments were solid, they still are. 80 shares of Walgreens is still 80 shares of Walgreens.
posted by gjc at 6:38 PM on December 22, 2008

I would take the doomsayers more seriously if they hadn't called 10 out of the last 1 crashes. Even a stopped clock is right twice a day, right?

The problem with the stock market is it's almost impossible to figure out who really knows what he/she is doing and who just got lucky. Imagine a stadium full of people flipping coins. If you flip heads, you stay standing and keep flipping, if you flip tails you sit down and stop playing. After 10 flips some people will still be standing. Does that make them particularly skilled at flipping heads? No... they got lucky, and they have just as much chance of flipping tails next time as anyone else. Many financial "experts" who have had many "right" calls in a row are similarly just lucky.

I suggest reading A Random Walk Down Wall Street and Fooled by Randomness.
posted by Jacqueline at 7:16 PM on December 22, 2008 [1 favorite]

ikkyu2> Nouriel Roubini is fantastic. He's been predicting the current market crash since 2002. Even a stopped clock is right twice a day. Roubini is the dullest-witted sort of stopped clock that there is.

Jacqueline> I would take the doomsayers more seriously if they hadn't called 10 out of the last 1 crashes. Even a stopped clock is right twice a day, right?

mecran01, here's another bit of advice. You hear ikkyu2's and Jacqueline's refrain a lot (perhaps not so much these days, what with the severity of the crash). So here's another metric you want to consider. Let's say that you have someone like Nouriel Roubini, and let's say that he had been predicting the crash of '08 since '02.

Most of the people I know who have been bearish since 2001 and 2002 took one of two tacks. They either went with gold (and maybe silver) or they went with bonds (usually the 30-year). Both of these investments crushed stocks over that time period.

So the question you want to ask yourself is: if I had smashed my watch to bits back when Doomsayer X started his or her predictions of market doom and moved my investments to either of these standard alternatives until he/she told me it was safe, would I now be ahead? Did Doomsayer X go on the record during the 80's and 90's and said, "We are in a bull market and the bulk of your investments should be in stocks?" And again, when did he/she do so? How soon after '82 did he/she jump back in?

If so, you can reasonably ignore this particular argument. Look, there are people who have been in investing long enough to have recommended stocks during the long bull market from '82 to '00 and bonds/cash (or gold/silver) during the up/down bear market from then to now. Malkiel and Taleb in the coin-flip argument are focusing on mutual fund managers, not so much these people.

First, it is insane to bring up Taleb as an exemplar of the "stocks for the long run" school, because he suggests that he has all of his money in bonds and doesn't trust stocks, and very consciously played the downsides of major corrections.

As for Malkiel, he dismisses the idea of timing secular (as in long-lasting, not as in non-religious) bull and bear markets with a single paragraph about how you'd be better off having stayed in stocks all the way up until the most recent edition was published as opposed to following Robert Shiller's (the Irrational Exuberance guy) lead and pulling your money out of the market in 1997. I wonder what the most recent edition of his book says, because that statement is now obsoleted by reality.
posted by UrineSoakedRube at 8:57 PM on December 22, 2008 [1 favorite]

Eric Janzen at Itulip.com called the dotcom bubble, called the bottom in gold prices in 2001 and started back full time in 2006 to warn about the housing bubble. The outline of his long term thesis is available for free (right sidebar), but a lot of current content is subscription only.
posted by T.D. Strange at 10:26 PM on December 22, 2008

The problem with the stock market is it's almost impossible to figure out who really knows what he/she is doing and who just got lucky

This is crap thinking. We know for a fact that hundreds of billions of dollars were borrowed by households every quarter & spent into the economy 2003-2006 in a very unsustainable manner, resulting a four or five trillion dollar debt overhang we have now and that hundreds of billions of dollars -- or perhaps a trillion or two if things get out of hand more than they have already -- of debts are going to be written off for pennies on the dollar.

Seeing this was going to end badly is not "getting lucky" but a grounded, common-sensical understanding of the fundamentals of wealth production and consumption -- that is is impossible to soley borrow one's way to long-term prosperity, that there must be actual wealth creation eventually or the party will come to an end.

Flipping houses to each other was not wealth creation.

FWIW I was a superbear 2005-2007 but found the November slide to be a little Shock & Awe.

Denninger and his ilk believe we're going to have another wave down sooner or later (by 1Q09) but I'm about 50% hopeful that 750 on the S&P was the V bottom capitulation low and that the market interventions will start to produce traction (and decreased panic) soon.
posted by troy at 1:33 AM on December 23, 2008 [2 favorites]

For what it's worth, I did a final check and I've lost 20 percent of my retirement. I was protected in part by having 30 percent in bonds. I lost a lot less than these guys.
posted by mecran01 at 11:35 AM on January 19