So are you all still in? I am and get sick by the day. Don't want to look at my 401K or mutual fund.

Hard to wrap your head around the recommendation to stay put when things are this bad. Though from one of the things I read is that mutual funds managers will be buying stock at a bargain during corrections like this. So if you are out then you don't get in on the bargain. That and the mentioned timing issues. Still hard to watch your funds drop when so close to retirement. I can't imagine what you folks must be going through that are already retired.

I'm just fine having reduced my market exposure to near zero over the last two months.

 

We're pretty diversified but are staying in the stocks/stock funds that we have. We talked it over with our high $$ financial guys and they reminded us that even in the '87 slide, the dot-com bust and 2008, the broad market (not counting idiot web-page stocks) started getting better in less than a year each time. I did sell some Dodge & Cox at what was the bottom of the '09 market and wish I hadn't. Our portfolio is pretty good quality funds and companies so I'm going to hang in there. While I personally think the market was over-valued, the uncertainties over this administration's actions have the market spooked. Hopefully, reason will win out and we'll get a reset.

YMMV

 

As the Bitcoin guys say, HODL if you're still in the market.

Still on the plus side after moving out of the broad market in the summer.

 

1) Money managers are NEVER going to tell you to get out, even when there is

a clear indication a WW depression is about to unfold.


2) Money managers are ALWAYS going to tell you to stay in market for long run.

Why, follow the money. How do they make money ? On your trading activity,

fees, kickbacks from fund managers promoting their hit of the day. They profit

up and down in markets.


3) The Richest 10% of Americans Now Own 84% of All Stocks. I think I saw recently

the 1% now hold 70%. You and I are the pool of money that the wealthy draw from to

inflate their valuation. Likewise we are the pool of money to finance their shorts.

You and I are the LAST ones to know when huge shorts have been placed. You are in

Las Vegas under the twinkling lovely neon lights about to NOT hit it big.


4) Stock valuations are now almost totally unhinged from productivity in the company.

PE ratios almost meaningless. I have seen young CEOs pitch their startup phase and

pontificating its not necessary to make money for a long time.......getting rope to hang

myself because that will feel so much better then the mental disease surrounding me.


5) Chinese have built several cities, new cities, and there are virtually no inhabitants.

Due to Chinese control over where people can invest, eg. apartments mainly.

So nuttin gonna happen brother when Jesus comes to evaluate the actual worth

of an un godly number of empty properties, eh !


6) US and WW debt, put a bag over your head, fill it with water, and breath for

~ 30 minutes. Maybe you will grow some gills, maybe not. Notice serious inflation now

happening across the board.


7) Massive turmoil in social institution on the horizon due to robotic manufacturing.

The hold up for many years, sensor technology, now essentially behind us. So who

Is going to work. When I started in hi tech, mid 70’s, our fab had 150 workers on 2 shifts,

making <<<< 1M devices / month. Last fab I toured making 10M/day, operated by

TWO people. Not counting long term maintenance, just operators. 24/7 that fab ran.

That tour was ~ 20 years ago. So will WW governments change their support systems

for populace in a timely fashion as many will no longer work ? Answer, get out your

library card and read just the last 100 years of history when people slowly descend into

starvation and workless states. My bet is on cockroaches surviving this.


8) Who makes the money in the world ? I believe 99% of the people in any company

create 99% of the wealth, therefore 99% of the net should be returned to those

people in the form, of pay, benefits, services. Not 99% of the net to the 1%’ers.

As a stockholder I want to outsource CEO and CFO and upper management jobs.

But eEven more I want to build a world class CEO, CFO school, where folks are

trained to be managers. these new Harvards, MITs, Cambridges of the CEO world.

No more old school buddy bed hopping drunk cocaine ingesting, incompetent

managers. And set pay, “you get $ 1M in pay, not a penny more”. “You screw up

you don’t get $ 1M”. I will get millions of qualified applications for those jobs. People

with IQs in the triple digit range starving to death and a profound opportunity just

around the corner facing them. And controls, if the community is under stress the

corporation will participate in aiding recovery. Community values we so espouse

and pump each day into the porcelain hopper.


9) Merry xmas.


Regards, Dana.

 

I'm just fine having reduced my market exposure to near zero over the last two months.

Was that pre planned? Or did you see this coming somehow?

 

As the Bitcoin guys say, HODL if you're still in the market.

Still on the plus side after moving out of the broad market in the summer.

Same question as above.

Was I the only one stupid enough to stay in?

My one thought on mutual funds is my tax implications would have been huge if I got out. But then again how much did I loose in value?

 

We're pretty diversified but are staying in the stocks/stock funds that we have. We talked it over with our high $$ financial guys and they reminded us that even in the '87 slide, the dot-com bust and 2008, the broad market (not counting idiot web-page stocks) started getting better in less than a year each time. I did sell some Dodge & Cox at what was the bottom of the '09 market and wish I hadn't. Our portfolio is pretty good quality funds and companies so I'm going to hang in there. While I personally think the market was over-valued, the uncertainties over this administration's actions have the market spooked. Hopefully, reason will win out and we'll get a reset.

YMMV

Oh I see at least John stayed in. Are you retired John or near retirement? I wanted to retire in 3 years. I was right on track for that until this happened and 2019 is not supposed to be much better. Though other articles I have read said it is going to be a great opportunity for stocks so who knows??

 

I have a question. I understand the underlying reasons that cause the price of stock to fluctuate. Well not really based on some of the things Dana pointed out but I still get the basic idea.

I want to know what sets the price of stock? I just can't decide to pay $10 a share for Amazon. So who sets the price? And when I sell my stock where does it go? Does someone else buy it immediately?

 

Pre-Planned

I have an example, dot com bust. I was a field engineer in Boston, during
release of Fast Ethernet. I worked for National Semi who was the primary
player in PHY so all the network companies were talking to us at the upper
levels of management. I had all but one of the switching companies to support
in Boston.

Activity was furious, both in switches and routers. Many many startups, money
flowing like a river. Driving home one night I realized they were all making the
same loaf of bread. Some variation, some with nuts, some with raises, some
with none, but all the same basic functionality. I realized 80% of these companies
would not survive, so I started dumping all my stock (I was primarily a hi tech
investor at that time, small scale).

The rest is history. Read the signs, they are usually right there in front of you.

The signs of what has been going on now have been happening for some time.
Debt financing has limitations, off the books wars have profound affect on
GDP. Dropping regulations on banking from junk bond investments at the banking
level just as negative as new Chinese cities with no significant population
in them. They also have profound differences in net worth in the outlying areas
as cities. Italian and Greek debt. Parts of EU regressive and warlike leadership.
Infrastructure a joke here in US.

Regards, Dana.

 

I got out of the market 20 year s ago. However as a resident of the San Francisco Bay Area, I'm not surprised that the market is now in a tailspin. The supposedly "Booming Economy" is the result of billions in government money being pumped into the region.

Since 2010, Obama and Hillary have visited the San Francisco area at least 27 times to "Fund Raise" and their contributors have been paid back with tons of federal $$$.

I've done a lot of research on the Bay Area economy and in 2017, San Francisco received over $25 Billion in federal and state funding for corporate welfare of some form of another. These multi $ Billion handouts are creating double digit inflation especially in the cost of housing and an exploding homeless problem.

Google is glaring example of a cozy corporate/government partnership and in 2017, the company gave over $18 Million in contributions to Congress and it gives millions more to state and local governments and foreign governments. It's now just a spoiled brat kid that buys it's way to prosperity rather than through legitimate business.

Facebook, Apple, Tesla, LinkedIn, Twitter, Instagram, etc. are all Ponzie schemes built from government money and wild speculation that sucker investors will dump more $$$ into the glorified lottery. This has created an economic monstrosity that cannot be sustained and it will collapse like a house of cards --- And that collapse is now starting.

We cannot keep having these boom/bust economic cycles with the government handing out $ Trillion bailouts like the so called "TARP" Wall Street welfare package in 2008. In fact, the federal government is running up so much debt that I'm wondering if the U.S. is on the verge of being a failed country with the creditor nations (mainly China) waging a political take over of the nation.

Pardon me for sounding like a doom sayer, but the country's on the verge of reaching the financial equivalent of the "Chandrasekhar Limit" and the economy collapsing into a black hole.

 

I have a question. I understand the underlying reasons that cause the price of stock to fluctuate. Well not really based on some of the things Dana pointed out but I still get the basic idea.

I want to know what sets the price of stock? I just can't decide to pay $10 a share for Amazon. So who sets the price? And when I sell my stock where does it go? Does someone else buy it immediately?

Yes, someone buys it immediately. Prices are defined by willing sellers and willing buyers making a transaction. If both parties don’t agree, nothing happens.

What affects people to buy or sell? There’s no answer and it’s one of the most studied topics. For established companies, the price varies in proportion to expected earnings and tends to be about 6 months ahead of reality. For a young company like Tesla, it’s much more complicated and speculative.

I’m more in than out, so it’s now one of these periods where I don’t even want to look. Over the years I’ve accumulated more Apple stock than I should have, because of how successful they’ve been. So I sold a bunch a few months ago at 200+ per share. I just now bought back a bunch at 150. So I’m roughly back where I was but with a pile of cash on the side from the price differential. I scuttled my goal to concentrate less in one stock but I couldn’t resist the bargain.

 

Oh I see at least John stayed in. Are you retired John or near retirement? I wanted to retire in 3 years. I was right on track for that until this happened and 2019 is not supposed to be much better. Though other articles I have read said it is going to be a great opportunity for stocks so who knows??

I've been pretty much retired for several years although I've been keeping the corporation open to service legacy clients and keep the corporate shield active. I may take it inactive after 2019. After 2008, my (way smarter and better at this kind of thing) wife and I searched and found some managers that fit our particular situation and goals. So far so good. They're smarter than I am and way more tuned to how these things work. They are also fee-based, taking a small percentage of our portfolio to manage things. The important difference between fee-based and a 'free' retail broker is that while the retail guys (I've had them) make their money when you buy their product of the week, fee-based guys get paid for positive results. If your portfolio goes down so does their income. They tend to be more conservative - better for old guys like me - and have a broader range of resources to draw upon for info. Works for me.

@wayneh pretty much nails market dynamics in two short paragraphs. And TSLA is a good example of sentiment-driven stocks vs. old-school stuff like GM, ABBV where the values are backed by the potential to make money and they even share some with you in the form of dividends.

Yes, someone buys it immediately. Prices are defined by willing sellers and willing buyers making a transaction. If both parties don’t agree, nothing happens.

What affects people to buy or sell? There’s no answer and it’s one of the most studied topics. For established companies, the price varies in proportion to expected earnings and tends to be about 6 months ahead of reality. For a young company like Tesla, it’s much more complicated and speculative.

I follow TSLA as a hobby.

Merry Christmas!

 

Yes, someone buys it immediately. Prices are defined by willing sellers and willing buyers making a transaction. If both parties don’t agree, nothing happens.

What affects people to buy or sell? There’s no answer and it’s one of the most studied topics. For established companies, the price varies in proportion to expected earnings and tends to be about 6 months ahead of reality. For a young company like Tesla, it’s much more complicated and speculative.

I’m more in than out, so it’s now one of these periods where I don’t even want to look. Over the years I’ve accumulated more Apple stock than I should have, because of how successful they’ve been. So I sold a bunch a few months ago at 200+ per share. I just now bought back a bunch at 150. So I’m roughly back where I was but with a pile of cash on the side from the price differential. I scuttled my goal to concentrate less in one stock but I couldn’t resist the bargain.

OK but I can't set the price buy or sell. So who sets the price? And why is a "sell off" usually bad? Why does it drag the market down? Or do the prices fall first then the selling begins and the selling is just a sign of trouble?

 

OK but I can't set the price buy or sell. So who sets the price? And why is a "sell off" usually bad? Why does it drag the market down? Or do the prices fall first then the selling begins and the selling is just a sign of trouble?

The price is just what @wayneh indicated. Brokers on the sales floor buy and sell at whatever price they can get at that instant. Look at TSLA today. It dropped from about 312 to 295 after the recent high of 375 - run up from about 250 on 10/18/18.
When the stock opened, someone wanted to sell:
'TSLA at 315" Crickets
"TSLA at 310" Crickets
"TSLA at 300" 'I'll take that' The guy who gave his shares to the broker to sell gets $300 for them (less commissions). So at that instant, TSLA shares were worth $300.

The dynamics that set those numbers come in when shareholders and institutions get antsy or happy on news that affects how they think the company will do going forward. In TSLA's case, the news hasn't been real bad, yet, but the stock had been bid up in recent weeks by the better than expected stated Q3 results then took some pressure when some of those results were digested. Analysis showed less real profit from making cars than originally stated. Add to that a big bullish analyst (Alex Jonas, Morgan Stanley) dialed back his enthusiasm for Full Self Driving (because apparently is doesn't exist and will cost $$$ in promised retrofits to make it so), demand for the Model 3 - Elon tweeted essentially 'come in and pick one off the lot right now' in a last-minute effort to boost sales before the end of the year (and the cutting in half of the $7500 federal tax credit on 12/31). Many that have paid attention to the last 12months or so of the Model 3 saga have decided that the promised demand in North American, European and Chinese markets might be fading as well as Elon tweets about a 38000 cost for a hoped-for 35000 car might indicate stress in gross margins. Since the valuation of the stock is more along a tech company (lose money while building market share) that's been OK to date but the story is wearing thin, isn't backed up by solid financials and many are evidently getting out, pushing the stock price down. So when that broker comes to the floor to sell some TSLA, he might have a lot of competition for buyers making him drop the price to get his shares sold. If there are other brokers with other shares still to sell, their market is the buyers that wouldn't bite at that first price so to move the shares, he has to lower the price. The Sell-off is on!

Somewhere in this, the collective thoughts of the market for the shares may decide that the share price is reasonable given the current status of the company and the share price hits a bottom. If there is some good news after that, buyers will be drawn in, raising the price that the brokers can get for their client's shares. If the news gets worse, lower prices may be required to move the shares. Stocks that trade wildly on news are usually trading way above the price justified by actual company fundamentals. GM would be an example of the latter. They've been hit too, but they also made 2.5 billion last year and paid a 5% dividend. They suffered a lot less because the stock price trades much closer to the fundamental value of the company. TSLA (and many others) trade on a lot of future hopes that are way easier to get trashed when they don't come to fruition on schedule.

A final point, its way easier to figure out a GM than a TSLA. You usually can get analyst consensus on a company with solid fundamentals. Stocks with a lot of vapor built-in are really impossible to analyze as their price includes a lot of hope, future expectations, novelty... whatever. Those factors are driven by emotion rather than fundamentals and numbers so when you have a bad day in the markets, the backers get scared, disillusioned etc. and the stock gets hammered.

Just my $0.02 uhhh.. make that $0.0178 after today.

Merry Christmas!

 

So are you all still in? I am and get sick by the day. Don't want to look at my 401K or mutual fund.

Hard to wrap your head around the recommendation to stay put when things are this bad. Though from one of the things I read is that mutual funds managers will be buying stock at a bargain during corrections like this. So if you are out then you don't get in on the bargain. That and the mentioned timing issues. Still hard to watch your funds drop when so close to retirement. I can't imagine what you folks must be going through that are already retired.

Study after study has shown that market timing is one of the worst investment strategies out there, even for full-time players. This is why people that make money using market timing don't do it by actually timing the market themselves, but by selling their market timing secret strategies to others. It is usually a disaster for casual players like most of us are (and that most definitely describes me). Pretty much by definition we never get out particularly close the peaks and we invariably don't get back in until after the market has already gone right past the point where we got out. We end up epitomizing the, "buy high, sell low," mode of investing.

I'm getting ready to make my annual investment into the retirement funds and so I'm thrilled that the market is correcting right now. I'm not pulling out a dime that is already invested -- trusting that it will be find over the long haul.

For people in or nearing retirement, they are almost certainly in a different situation and they should not have been exposing themselves to this kind of risk at this point in their investment timeline in the first place unless they are also in a position to ride the lows.

 

OK but I can't set the price buy or sell. So who sets the price? And why is a "sell off" usually bad? Why does it drag the market down? Or do the prices fall first then the selling begins and the selling is just a sign of trouble?

Yes you can. Setting apart exotics like options, If you own the stock, you can set an ask price. People (or their brokers do this every day). I will sell 100 shares of xyz for $150/share - that offer will stand until I cancel it or the trade goes through.

If you want to buy the stock, you set a bid price in the same way - I offer to buy xyz at $50/share - that offer will stand until I cancel it or a trade is made.

From that fundamental, a bid and ask price are normally close together and move together. When the bids outnumber the asks, the ask will go up. The reverse is true when the asks outnumber the bids. But, no stocks *have* to sell at all, so volume is a big factor. During a lot of sell offs, the ask is driven down. The stocks value falls. On top of all this are market makers (big brokers and influentials) who, in order to maintain liquidity, will buy or sell a stock to make a market. If you are way over the ask, you will not be selling anything and if you are way under the bid, you will not be buying anything.

Alternatively, you can put an order in to buy or sell at the market price (which is another way of saying whatever is bid when they get to you). Remember also that brokers are buying and selling not just individuals or corporations. In fact, if you own the stock, you can sell it to me for whatever we agree on and not go through any broker or market (although it has to be reported at some point).

Initially, the price is set when the company goes public (the first pubic offering) - the priced is based on a bunch of MBAs thinking I suppose, but there is a lot of shakiness. You may not have any prayer of getting in on the public offering and it may skyrocket or tank shortly after hitting.

For people in or nearing retirement, they are almost certainly in a different situation and they should not have been exposing themselves to this kind of risk at this point in their investment timeline in the first place unless they are also in a position to ride the lows.

I don't give any financial advice to people period as I think it is problematic.

What you state above, however, is certainly conventional thinking which basically says that you should reduce your risk (and potential reward or reward likelihood) as you approach a point in your financial life where you can't afford to absorb a loss.

Another "approach" is to know your tolerance for risk. Putting funds in a CD, for example, has a limited risk and known return and it will be decidedly less than higher risk investments. There is absolutely nothing wrong with making that choice, if it suits you. Another alternative is to invest in low risk instruments until you have reached some level of comfort but still have enough time to engage in higher risk/reward investments...if you want.

Everybody finds their own way. Many friends have paid financial planners for evaluations. I am not against that, but in every case that I have seen, the person or couple could have done the analysis themselves. Still, if paying someone gets it done if you are not otherwise going to get it done, well that works.

 

OK but I can't set the price buy or sell. So who sets the price? And why is a "sell off" usually bad? Why does it drag the market down? Or do the prices fall first then the selling begins and the selling is just a sign of trouble?

Sure you can -- and you do, either directly or indirectly.

Back when I was dabbling in day-trading I would watch the actual buy/sell offers on the stocks I was interested in and you could watch the exact dynamics at work. In after-hours trading in the less active stocks I could even identify and watch my orders as they interacted with others and when they got filled.

Just making up some data, if I put in a limit buy order for 200 shares of AZYB at $100 then I might see something like this:

1000@120
50@110
200@105
----------
300@103
200@100
50@99

The top portion are the people willing to sell and the bottom portion is the people willing to buy. It lists how many shares and at what price. These are "limit orders" and or only executed it the price stated or better.

If you place a "market order", which is what I'm guessing you've been doing, what you are telling the broker is that you will buy/sell at whatever someone is willing to sell/buy at. You are choosing to let the other guy to set the price. This virtually ensures that the transaction will happen, but also usually ensures that you will sell lower than you could have or buy higher than you could have had you been more patient -- but it usually guarantees the transaction actually happens.

So let's say that you wanted to buy 400 shares of this company and put in a market order. What would happen is that you would buy 200 shares @ $105, 50 shares at $110, and 150 shares at $120. You bought the stock at the lowest price that willing sellers were willing to sell that stock at that moment. If there are no willing sellers at all (which happens all the time, particularly in smaller volume stocks) then your order goes unfulfilled (at least partially) until sellers make offers. But in most stocks there are enough limit-order placers for both buy and sell sides that this situation doesn't happen often or last for long.

Naturally, people (and machines) watch these market tools constantly and look for opportunities to buy/sell at an advantage (meaning when there is a shortage of buyers or sellers relative to the other) because then they have an opportunity to drive the price in their favor, at least for a short period of time.

When I first saw these tools I got real excited because I knew how I could make a killing -- just find low-volume stocks and put limit orders well outside the normal trading bands and then when one pool or the other dried up, any market orders would be executed at my distorted price. The problem, is that it became immediately obvious that I wasn't the only one to think this way and it was not uncommon to see such limit orders in the queue -- quite a few of them, actually. Some were probably just people that had set limit orders and perhaps forgot about them as the market moved away from their price point, but others were quite dynamic and you could see them responding as other such orders were posted and on the handful of occasions when I got to see a pool dry up you saw a tiny, tiny fraction of out-of-whack market orders get filled but you also saw what I called "shark orders" move almost immediately to near the prior price point as they tried to adjust their prices so as to be the one that actually got the transaction done -- pure supply and demand in action. The speed with which this happened made me pretty sure that most of those shark orders were automatic electronic trading bots. Because I never saw anything but small orders get filled at the out-there prices, I suspected that there were mechanisms in place to prevent even single market orders from falling prey to these strategies -- they probably monitored the same tools and turned a single larger market order into smaller market orders in order to trigger the pricing frenzy. But that's pure speculation.

 

I have a question. I understand the underlying reasons that cause the price of stock to fluctuate. Well not really based on some of the things Dana pointed out but I still get the basic idea.

I want to know what sets the price of stock? I just can't decide to pay $10 a share for Amazon. So who sets the price? And when I sell my stock where does it go? Does someone else buy it immediately?

Before the introduction of decimal pricing and the widespread use of trading algorithms there were people with the job title of "market maker". Their job was to take the other side of every trade. Trades were not concluded with another retail counter party, but with the "market maker". Prices were quoted in sixteenths of a dollar (6.25¢) The spread between the "bid" and the "ask" price was a minimum of 1/16th of a dollar. It could be more in a thin market without a large number of buyers and sellers. The market maker's reward was the spread on every share traded. Today there are electronic market makers but the idea is still the same. Firms that trade on the exchange eliminate counterparty risk for retail investors and they take the other side of every trade. In the early 1960's the NYSE could clear about 20 million shares traded in 1 day. Today the number is in the billions of shares per day. Real people could not keep up with that pace.

https://www.investopedia.com/ask/answers/why-nyse-switch-fractions-to-decimals/
https://www.investopedia.com/terms/d/decimal-trading.asp

 

I chose not to mention the market makers (which, at least when I was dabbling, were not involved with at least some fraction of the after-hours trading -- the very ones I sought out because it was interesting to watch), but one thing to keep in mind is that the market makers weren't guaranteed a profit. The spread was not there for that purpose, but rather to compensate them for the risk they agreed to take because, up to the limits (usually pretty large) that they agreed to trade at, they were obligated to buy any securities offered for sale at their bid price and add them to their own holding and sell any securities requested at their ask price from their holding, regardless of whether those transactions result in a profit or loss for their portfolio. Thus, like casinos, they were truly playing the long game because they recognized that losses and gains over the short term, especially on single transactions, average out in the long run and their spread -- like the house advantage -- would almost always prove reliable in the long term.

 

I chose not to mention the market makers (which, at least when I was dabbling, were not involved with at least some fraction of the after-hours trading -- the very ones I sought out because it was interesting to watch), but one thing to keep in mind is that the market makers weren't guaranteed a profit. The spread was not there for that purpose, but rather to compensate them for the risk they agreed to take because, up to the limits (usually pretty large) that they agreed to trade at, they were obligated to buy any securities offered for sale at their bid price and add them to their own holding and sell any securities requested at their ask price from their holding, regardless of whether those transactions result in a profit or loss for their portfolio. Thus, like casinos, they were truly playing the long game because they recognized that losses and gains over the short term, especially on single transactions, average out in the long run and their spread -- like the house advantage -- would almost always prove reliable in the long term.

My answer was a reply to @spinnaker 's question about setting the price. It used to be an actual person and in some cases it still is, but it is also possible that it is a collection of machines that are taking those risks to ensure an orderly market. My point is that price discovery is not arbitrary and capricious despite the feeling that it might be. It does rest on an assumption that there are few, if any, arbitrage opportunities. If they do exist they are short lived.